Annual Report 2009 - Česká pojišťovna, a. s.€¦ · Nuclear Pool 50 Supervisory Board’s Report 51 Independent Auditor’s Report 52 Persons Responsible for the Annual Report

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Contents

Letter from the Chairman 4

Description of the Company and of Česká pojišťovna Group 7History of the Company and Selected Companies from ČP Group 7Profile of the Company and Significant ČP Group Companies 8

Most Important Events and Awards Received 9

Key Indicators 14

Description of Group Structure, Position of Česká pojišťovna and Selected Group Companies 17

Structure of Holdings and ČP Group 18Descriptions of Selected Companies in Česká pojišťovna Group 20

Directors and Officers 26Board of Directors 26Supervisory Board 27Company Management 28

Board of Directors’ Discussion and Analysis of the Company’s Business Activities and Financial Situation 31

Situation in the Czech Insurance Market 31Company Financial Performance in 2009 32Insurance Performance Commentary 34Non-life Insurance 37Retail – Non-life Insurance 39Retail – Life Insurance 41Customer Services 43Investment Policy 45Reinsurance 49Nuclear Pool 50

Supervisory Board’s Report 51

Independent Auditor’s Report 52

Persons Responsible for the Annual Report 54

Organization and Contacts 55

Supplemental Information on the Financial Situation and Information for Investors *Independent Auditor’s Report *Česká pojišťovna a.s. Financial Statements, Year Ended 31 December 2009 *Independent Auditor’s Report *Česká pojišťovna a.s. Consolidated Financial Statements, Year Ended 31 December 2009 *Report on Relations Among Related Parties, Year Ended 31 December 2009 *

* separate insert under back cover flap


Letter from the Chairman

Dear business friends,

2009 was the first whole year in which Česká pojišťovnaGroup was a fully-fledged member of Generali PPF Holding,one of the biggest insurance groups in the region ofCentral & Eastern Europe. However, the past year was also one of global economic crisis – a time when people’sbuying power decreased and insurance risks in a numberof areas increased. Despite the negative developments in capital markets, ČP Group’s financial figuresdemonstrated that the Group is capable, under any and all circumstances, of meeting all of its existing and futureobligations towards its clients and business partners.

It came as good news, then, for all clients and businesspartners of Česká pojišťovna, when the internationalcredit rating agency Standard & Poor‘s (S&P) reaffirmedour A+ rating, with stable outlook. The fact that wecontinue to enjoy the highest rating possible for a Czechcompany was justified by S&P, among other reasons, on the basis of Česká pojišťovna’s strong position in theCzech insurance market where we have long beena leader, despite the highly competitive environment in life and non-life insurance as well as in pension funds.

ČP’s provisions are so high that they safely cover allobligations under our insurance contracts and oursolvency far exceeds the requirements set for us by law.

ČP Group has an insurance market share of over 27%.Our pension fund, Penzijní fond ČP, has nearly 1.2 millionclients, representing a share of over 26% in thesupplementary pension insurance market. In 2009, CP INVEST became the fifth largest investment companyin the Czech Republic. Česká pojišťovna administers over 9 million contracts, which represent approximately 40% of all insurance policies in the Czech Republic. Českápojišťovna’s insurance premium revenues last yearexceeded CZK 38 billion. In non-life insurance the figurewas over CZK 24 billion and in life insurance it was CZK 13.6 billion. Due to the economic crisis and risingcredit risk, in the second half of the year Česká pojišťovnaterminated its operations in the area of financial risksinsurance associated with consumer lending. This loweredtotal insurance premium revenues by approximately CZK 1 billion.

At year end 2009, Česká pojišťovna Group’s total assetsreached CZK 180 billion and insurance provisionsexceeded CZK 89 billion. Shareholders’ equity rose to CZK 23 billion. These positive financial developments weredriven, in particular, by investment returns as well as byoperating performance. Lower company costs werea factor in the latter. Last year’s profit after tax was CZK8.8 billion. Return on equity (ROE) exceeds 38%, or 33%for Česká pojišťovna, which is a level commonly seen onlyin the world’s most successful insurers.

Another factor in the quality and speed of policyadministration and claims processing services provided tocustomers in 2009 was ČP Client Services, a finely-tunedorganization that successfully managed claims processingfollowing the June floods in Moravia, the huge rise in agricultural claims throughout the entire year anda number of local weather-related catastrophes. The totalamount of crops and livestock claims last year exceededCZK 800 million and hail claims paid in 2009 also reachedrecord levels.

At a time of rising unemployment, Česká pojišťovnateamed up with its subsidiary ČP Zdraví to begin to sell billpayment insurance, thus becoming the first in the countryoffering such a product. Bill payment insurance meansthat, should the insured lose his or her job or becomeincapacitated due to illness or injury, ČP will pay, throughits subsidiary ČP ZDRAVÍ, all of that person’s expenses forrent (including sublets), electricity, gas and water bills,tuition fees for various types of schools, and other similarbills. Starting from last year this new ČP product,responding to the difficult economic situation, alsointroduced the option of insurance to cover mortgagepayments and holiday trip cancellation fees. We alsointroduced new life insurance products: Patriot, a productfor three generations of ČP clients, and Pieta funeral-billinsurance, which elicited a very good customer response.In the second half of last year, Česká pojišťovna launcheda special Customer Services section on its website,becoming the insurer with the broadest domestic portfolioof 24-hour on-line customer services.

As in previous years, the professional and lay public saw fit to bestow a number of awards on Česká pojišťovna.One of them was Best Insurance Company 2009 fromHospodářské noviny. This is an award that we hold in highesteem for its objectivity – the jury compared many indices of insurance products and services and evaluatedinsurance companies from two perspectives: a client’s andan owner’s. Among others, the figures examined includedthe insurer’s profitability, effectiveness, insuranceprovisions, and ability to meet its obligations towardclients.

As last year proved, even in turbulent times of global crisis,Česká pojišťovna and the other members of the Groupremained trustworthy and safe harbors that providedsufficient security to clients and investors alike.

Ladislav BartoníčekChairman of the Board of Directors of Česká pojišťovna a.s.




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History of the Company and Selected

Companies from ČP Group

Česká pojišťovna a.s. (also referred to as “Českápojišťovna”, “ČP” or “the Company”) has a long and rich tradition. It is the oldest insurance institution in theCzech lands and the legal successor to First Czech MutualInsurance Company (První česká vzájemná pojišťovna),founded in 1827. It was part of the original StateInsurance Company (Státní pojišťovna) until 1969, when,on the basis of the territorial principle, Státní pojišťovnawas broken up into Česká státní pojišťovna and Slovenskástátní pojišťovna. Česká pojišťovna was founded by theNational Property Fund of the Czech Republic undera Deed of Incorporation dated 28 April 1992 and was

incorporated by registration in the Commercial Register on1 May 1992. The Company’s shares were first listed on theMain Market of the Prague Stock Exchange (PSE) in 1993.The shares of Česká pojišťovna were withdrawn fromtrading both on the Exchange and on the RM-System inconjunction with a buy-out of minority shareholders on 31 August 2005. Later, Česká pojišťovna returned to thestock exchange with a bond issue. Most recently, theCompany’s bonds issued on 13 December 2007 wereaccepted for trading on the Prague Stock Exchange’s so-called “free market”.

Together with its partner, Vereinte KrankenversicherungAG Munich, in 1992 Česká pojišťovna establisheda subsidiary, Česká pojišťovna ZDRAVÍ, which today is thelargest insurer in the area of private health and sicknessinsurance. In November 1997 Česká pojišťovnaa.s. purchased Vereinte Krankenversicherung’s 50% staketo become the 100% shareholder of Česká pojišťovnaZDRAVÍ a.s.

In 1994 the Company set up Penzijní fond Česképojišťovny, a.s., which offers supplemental pensioninsurance with State contribution.

Another important subsidiary of the Company is ČP INVESTinvestiční společnost, a.s., an investment company in operation since 1991, originally under the name KIS a. s. kapitálová investiční společnost České pojišťovny.Since then, ČP INVEST has become one of the largest andfastest growing mutual funds managers in the CzechRepublic.

A Joint Venture Agreement between AssicurazioniGenerali and PPF Group N.V. signed on 10 July 2007 tookeffect on 17 January 2008, after the necessary regulatorypermits were obtained, and Česká pojišťovna is now a part of one of the biggest insurance groups in Central &Eastern Europe. Generali PPF Holding is 51% owned byGenerali Group and the remaining 49% is held byPPF Group.


Description of the Company and of Česká pojišťovna Group

Profile of the Company and

Significant ČP Group Companies

Since its inception, Česká pojišťovna has been a compositeinsurer offering a wide range of life and non-life insuranceand is currently the largest insurer in the Czech Republic. It manages nearly nine and a half million insurance contracts(precisely 9,465,815 contracts, source: ČP material forČAP). In 2009, the market share of Česká pojišťovna interms of insurance premium revenue was 27.2% overall:23.0% in life insurance and 30.2% in non-life insurance(source: ČAP figures from 2 February 2010)

One member of the Česká pojišťovna Group is Českápojišťovna ZDRAVÍ a.s., a company specializing in privatehealth and sickness insurance. It has had operations in theCzech insurance market since 1993. Česká pojišťovnaZDRAVÍ a.s. is a 100% subsidiary of Česká pojišťovna a.s.

ČP INVEST investiční společnost, a.s. is another 100%subsidiary of Česká pojišťovna a.s. Formed in 1991 underthe name KIS a. s. kapitálová investiční společnost Česképojišťovny, it is one of the most important investmentcompanies in the Czech Republic. It is a member of theCzech Capital Market Association. Currently it managescustomer assets in 18 mutual funds and five investmentprograms.

Today, Penzijní fond České pojišťovny, a.s. is the biggestplayer in the pension funds market, with more than1,160,000 clients, over CZK 48 billion in assets undermanagement, and a market share of 26%. Penzijní fondČeské pojišťovny offers supplemental pension insurancewith State contribution and provides all types of pensions defined by law – old-age, retirement,disability, and survivor.


2009

January

Česká pojišťovna celebrated the fourth anniversary of itsGentleman of the Roads project and awarded the first twogentlemen of 2009. This year’s ceremony was held inLitoměřice.

ČP launched a new service for its insureds – in the eventof a traffic accident, the ČP roadside assistance service willnow bring a “euroform” and help motorists to fill it out.

Standard & Poor’s, the international credit rating agency,upgraded Česká pojišťovna from A to A+ with a stableoutlook. This is the highest rating that can possibly beobtained in the Czech Republic. In its justification of therating, S&P underlined Česká pojišťovna’s position asa leader in the domestic market, as well as ČP’s quick andsuccessful integration into the Generali PPF Holdingstructure.

Česká pojišťovna counted the number of insurance frauds in 2008 – it uncovered 703 cases, thereby saving CZK 274 million in claims. For the most part, the fraudinvolved false or exaggerated claims on motor vehiclesand property insurance.

February

Česká pojišťovna records an increased number of claimreports due to snow and ice build-ups and fallingsnow/ice.

Česká pojišťovna once again scored as a Good Brand. In the regular annual survey conducted by the independentmarketing agency Millward Brown, there were no changesfor Česká pojišťovna in the primary insurer category.

March

As the first in the country to do so, ČP began offering billpayment insurance in the event of job loss or incapacitationdue to illness or injury. This insurance will pay a customer’srent (including sublets), electric bill, gas bill, water bill,tuition for various types of schools, and similar bills.

In life insurance, ČP launched Patriot – an insuranceproduct for at least three generations, starting from 15 years of age. With Patriot, seniors get an opportunityto secure their needs, too. In a turbulent time for theeconomy, this product gives customers a way to insurepossible life risks with a current return of 2.7%.

Česká pojišťovna celebrated the 50th Gentleman of theRoads. The award was presented by President of the PoliceOldřich Martinů and Česká pojišťovna CEO Ivan Vodička.

Česká pojišťovna launched a new project, Český pitaval(Czech Pitaval), to reward self-sacrificing and observantpeople who, though not professionals, may help detectcriminals. Česká pojišťovna and the Police of the CzechRepublic have a common interest – to reduce the numberof crimes and their consequences, while at the same timeencouraging public involvement in suppressing criminalactivity.

Two years ago, Česká pojišťovna launched electronicauctions of totaled motor vehicles. In March 2009, the10,000th such vehicle was auctioned. Česká pojišťovna isthe number-one Internet seller of vehicles damaged intraffic accidents.


Most Important Events and Awards Received

April

Once again, Česká pojišťovna placed among the ten mostadmired companies in the Czech Republic and became themost admired insurance company. This award is given bythe CZECH TOP 100 Association. This year’s eighth place is the third time in a row that Česká pojišťovna has beenin the top ten. The ranking is compiled from a surveyconducted among managers of major corporations,economists, and representatives of professionalassociations, assessing for example quality of eachcompany’s products and services, its financial situation,corporate culture, environmental responsibility, and overallcorporate image.

Česká pojišťovna obtained a new tool for more effectiveidentification of insurance fraud. As the first insurer in the country, we now have our in-house data gatheringsystem which, in combination with the specializedsoftware application Virtual Crash gives us the capabilityto precisely analyze traffic accidents. Traditionally, motorismis the area with the most cases of insurance fraud.

May

For the third time, Česká pojišťovna presented financialawards to the three Czech cities that made the biggestimprovement in traffic safety during the past year.The winners were determined from the current ČP SafetyIndex ranking, which evaluates the safety of motorists,pedestrians, and cyclists on the streets and roads of Czech cities.

ČP customers began enjoying a unique “children’s” bonusin their MTPL insurance. As the first and only insurer in themarket to do so, ČP decided to give a 5% MTPL insurancediscount to driver-parents who take a child younger than12 years of age with them in the car, provided the childrides in an approved car seat.

June

Through a pilot program, clients of tour operatorAlexandria got the opportunity to try out a new productfrom ČP – insurance of tour cancellation fees in the eventof job loss. The purpose of this product is to enable thecustomer to recover cancellation fees charged by a touroperator in the event the customer is forced to cancela planned trip.

The seventh annual Zlatá koruna (Golden Crown),a prestigious financial competition, turned out well forČeská pojišťovna when we got the highest award in thePrize Awarded by Businesses category. Our ComprehensiveInsurance Program for Carriers was named the mostpopular commercial insurance product in the Czechmarket and received the Golden Crown. Our productAccident Insurance also did well in the Prize Awarded by the Public category. It was the best among insuranceproducts: the only products ranked higher were from thebanking sector.

Česká pojišťovna and the Leontinka Foundation presentedthree trained assistance and guide dogs to their newowners through a joint project entitled Psí oči (Dog Eyes).The cost to train one canine assistant, who becomes notjust a helper to its new friends, but often an importanttherapist as well, is approximately CZK 200,000. Thisamount was paid by Česká pojišťovna and, at the sametime, all three dogs received premium insurance from usfor their veterinary expenses.

Česká pojišťovna also won the Best Insurance Company2009 competition organized in early April by Hospodářskénoviny. According to the organizers, the title went to the insurer who is able to offer customers the mostadvantageous services and, at the same time, has goodfinancial performance results and creates value for itsowners. Among all the entrants, Česká pojišťovna satisfiedthese criteria the best.


The Czech Republic was hit by destructive floods.According to initial estimates, Česká pojišťovna expected3,000 claims totaling CZK 75 million. In response to theflooding, ČP immediately expanded by several multiples itsteams of operators in the Customer Center as well as itsteams of mobile technicians out in the field. Within a fewdays, we had doubled the loss estimate and began to payadvances on insurance benefits.

ČP humanitarian aid began to flow into the flood-hit areas– in total, five tons of materials needed to clean up theflood damage. The materials delivered to towns andvillages included primarily disinfectants and cleaning aids,as well as pumps, high-pressure cleaning equipment,personal hygiene items, and blankets.

July

Česká pojišťovna once again updated its flood lossesestimate and the new total is over CZK 0.5 billion. The major increase in the damage estimate resulted inparticular from reports of infrastructure damage in theMoravia-Silesia Region. To simplify and accelerate the lossadjustment process, Česká pojišťovna sent to the flood-hitareas 500 disposable cameras, forms for compiling a list ofdamaged items, and instructions for customers. We alsoprovided emergency assistance in securing potable waterand brought in equipment to clean 2,000 water wells.

Also hit by catastrophes were farmers, who filed over 500claims with Česká pojišťovna during June with estimatedinsured losses of over CZK 200 million. ČP immediatelypaid them advances totaling half this amount.

August

During the first six months of this year, Česká pojišťovnauncovered 676 cases of insurance fraud amount to overCZK 121 million.

September

Insured losses incurred by Česká pojišťovna agriculturalcustomers were the worst in the past twenty years –farmers reported over 2,400 crops and livestock claimstotaling over CZK 800 million. Hail claims paid by Českápojišťovna set a new record – compared to 2004 hailclaims quadruped, and the amount of claims in 2002,a year of catastrophic floods, is not even two thirds thisyear’s figure.

According to a survey conducted by TNS AISA, Českápojišťovna’s SLUNÍČKO life insurance product for childrenwas the most well-known life insurance product in theCzech Republic. Spontaneous recognition of this popularproduct amongst the Czech public was 18%, andrecognition with a hint was 55%. Second place went toDYNAMIK life insurance, also from ČP, with 14%spontaneous name recognition.

Česká pojišťovna launched SLUNÍČKO Plus, a new lifeinsurance product for children that adds several newfeatures to the original product. One of the mostimportant of the new features is the option to invest in mutual funds. New products in the life insurance forchildren segment include insurance of day-to-day supportin the event of child hospitalization, including stays inspas, sanatoria, and/or therapy centers, as well asinsurance against 21 serious childhood diseases.


October

Česká pojišťovna and Komerční banka commencedcooperation by distributing each other’s products. At branches of Komerční banka, clients may now buyČeská pojišťovna property insurance. For its part, Českápojišťovna offers Komerční banka mortage loans tocustomers in its branch network. This was the biggeststrategic alliance formed in 2009 in the Czech Republic’sfinancial sector. Along with their new cooperationagreement, Komerční banka and Česká pojišťovna alsolaunched a new joint product: insurance of photovoltaicinstallations.

Hana Pleskačová was appointed Česká pojišťovna’s newExecutive Board Member for Financial Management.In addition to managing the finances of Česká pojišťovna,she will also be responsible for finance at all GeneraliPPF Holding companies operating in the Czech Republic.Her predecessor in the position was Jaroslava Hirschová.Hana Pleskačová transferred to ČP within Generali PPFHolding from Generali insurance company, where she hadworked since 1994.

Česká pojišťovna awarded the mid-year ČP Safety Index to 13 regional and 59 district capital cities of the CzechRepublic through the ČP Safety Index project. In thedistrict capitals category, the mid-year survey broughta very positive record. While in past years, only three or, at most, four cities reached the highest index – indicating the highest level of safety – this year eleven cities madethe mark.

November

In response to customer demand, Česká pojišťovna beganproviding funeral insurance once again, followinga several-year hiatus. On the symbolic occasion of AllSouls Day (November 2), we launched the new insuranceproduct Pieta, which covers funeral and/or cremationexpenses. Pieta insurance is the only one of its kind in thedomestic market, providing a solution for customers whodo not have direct relatives, as well as for those who mayhave such relatives, yet prefer to see to the financial sideof their funeral themselves.

On its website, Česká pojišťovna officially launcheda special section entitled Customer Services. This made usthe domestic insurer with the broadest portfolio of on-linecustomer services, open essentially 24 hours a day. We have been selling insurance over the Internet anddeveloping on-line services for eleven years now, and leadthe Czech insurance market in both categories.

During the first nine months of this year, Česká pojišťovnauncovered CZK 202.9 million in insurance fraud,investigating nearly 900 suspicious cases to do so. Onceagain, the vast majority of fraudulent claims related toproperty insurance, with motor vehicle claims predominant.

The final accounts of natural hazard losses incurred by Českápojišťovna customers this past summer were prepared. The total number of claims reached nearly 30,000 andclaims payments totaled roughly CZK 2 billion. And thesewere “just” regional catastrophes, not Republic-wide ones.

December

Česká pojišťovna teamed up with its subsidiary, ČPZDRAVÍ, to prepare another product that covers both therisk of unemployment and loss of income at a time whenthe beneficiary is incapacitated by illness or injury. Billpayment insurance covering a wide range of bills – fromrent to mortgage payments – is offered through “V KOSTCE” property insurance. By taking this step, itexpanded beyond the limits of pure property insurance tobecome the only product of its kind so far in the Czechmarket to insure other risks associated with ownership ofa home, apartment, or other real and/or personal property.

On December 30, Česká pojišťovna founded the Českápojišťovna Foundation. The Foundation’s mission is tosupport the achievement of goals that are beneficial to the public or whose support is in the public interest,particularly in the areas of the arts, health care, sports,social affairs, and education.


2010

January

ČESMAD Bohemia and Česká pojišťovna awarded the firstCzech Chauffeur title to a semi-truck driver for helpingafter a serious traffic accident. The Czech Chauffeurproject is inspired by the Gentleman of the Roads award,which in the past five years has been bestowed on 59drivers in 31 locations throughout the Czech Republic.

Česká pojišťovna’s operators registered the first onehundred snow-and-ice claims. Insured losses are expectedto run into the tens of millions of CZK.

Česká pojišťovna uncovered 731 cases of insurance fraudin 2009, totaling CZK 234 million. Thus, once again in2009, ČP detectives continued the trend establishedduring the past several years, when they managed toresolve over 700 cases that either did not occur at all orhappened differently than described in the claim reports,totaling over a quarter of a million CZK.

In its regular assessment, the international credit ratingagency Standard & Poor’s (S&P) reaffirmed Českápojišťovna’s current A+ rating with stable outlook. Thus, ČP continues to have the highest rating possible fora company in the Czech Republic, i.e. equal to the ratingof the country itself.

The Česká pojišťovna Communications Center took itsjubilee 15 millionth customer call. The Customer Centerwas built by Česká pojišťovna over six years ago, when webegan – as the first insurer in the Czech Republic – toconcentrate all of our services under one roof. Since then,the Communications Center has not only taken 15 millioncalls. It has also registered other numbers in the millions:17 million documents processed, 1.5 million e-mailsreplied to, and 2.7 million insurance claims registered.

February

Česká pojišťovna commenced – as the first in the countryto do so – pilot operation of a new service that eases whatis one of the most unpleasant tasks involved in buying orselling a motor vehicle: registration of the vehicle at thetraffic inspectorate. Now, customers who take out MTPLor motor damage insurance can get their vehicleregistered at the traffic inspectorate at the same time.For the time being, this advantage is offered to motoristsat seven locations in the Czech Republic.

Česká pojišťovna’s Current Credit Rating

Standard & Poor’s (S&P), the international credit ratingagency, reaffirmed Česká pojišťovna’s current rating of A+with a stable outlook.

Agency Rating

Standard & Poor’s A+ with stable outlook (January 26, 2010)


Key Financial Consolidated Figures of Česká pojišťovna Group *

(CZK millions) As at December 31 2009 As at December 31 2008

Total assets 180,162 174,550

Capital and reserves attributable to the Company’s equity holders 23,120 17,593

Result of the period attributable to the Company’s equity holders 8,827 1,637

Total income 39,113 42,668

Net earned premium 27,801 41,138

Net insurance benefits and claims (18,810) (25,880)


Key Indicators

Basic indicators Units 2009 2008 2007 2006 2005

Highlights from the financial statements

Total assets CZK millions 126,430 128,376 122,226 121,285 131,558

Share capital CZK millions 4,000 4,000 4,000 4,000 2,981

Shareholders’ equity CZK millions 21,851 18,451 17,436 17,077 20,863

Dividend per share CZK 146,829 112,500 137,500 2,684 0

Number of shares number 40,000 40,000 40,000 40,000 2,980,963

Retained earnings CZK millions 14,810 11,598 10,458 9,202 9,147

Net earnings for the period CZK millions 7,380 5,873 6,939 8,293 4,641

Performance indicators

Gross earned premium CZK millions 38,641 38,594 37,990 37,836 39,968

– non-life insurance CZK millions 25,056 24,633 24,530 24,635 24,966

– life insurance CZK millions 13,585 13,962 13,460 13,201 15,002

Gross insurance benefits and claims CZK millions 23,080 21,306 20,202 23,158 22,310

– non-life insurance CZK millions 12,405 11,880 11,546 13,628 9,487

– life insurance CZK millions 10,675 9,426 8,656 9,530 12,823

Insurance provisions included in insurance liabilities CZK millions 88,949 92,681 90,270 88,369 87,652

– life insurance provision CZK millions 67,524 69,049 67,562 66,499 65,865

– other insurance provisions CZK millions 21,425 23,632 22,708 21,870 21,787

Number of claims processed thousands 1,028 1,009 1,074 1,131 1,275

Number of policies thousands 9,466 9,724, 10,544 10,345 12,994

Other figures

Market share in terms of premium revenue % 27.2 29.6 30.6 33.1 35.9

– non-life insurance % 30.2 32.8 34.4 36.4 37.4

– life insurance % 23.0 25.0 25.2 28.1 33.4

Average number of employees number 4,113 4,519 4,924 5,251 5,562

Number of agencies number n/a n/a 70 70 71

Number of regions number 29 29 7 7 7

Performance ratios

ROA % 5.8 4.6 5.7 6.8 3.5

ROE % 33.8 31.8 39.8 48.6 22.2

Equity per share * CZK 546,275 461,275 435,900 426,925 6,999

Earnings per share * CZK 184,500 146,825 173,475 207,325 1,557

Premium revenue/number of employees CZK millions 9.4 8.5 7.7 7.2 7.1

Key Financial Figures of the Parent Company **


* More detailed information on the key figures of Česká pojišťovna Group presented above can be found in the consolidated financial statements, which arean integral part of this consolidated annual report. Most of the analyses and more detailed information relate to individual legal entities of the Česká pojišťovnaGroup, with special attention paid to the importance of Česká pojišťovna as the consolidating entity and, by far, the most significant component of theconsolidated group.

** Figures are for Česká pojišťovna a.s. Similar 2009 and 2008 figures for the Group are included in the financial section of the consolidated financial statements.

Key Indicators of the Parent Company **

0 5 10 15

14.3

15.8

15.0

13.2

13.5

14.0

13.6

Life Insurance Earned Premium, Gross (CZK billions)

Non-life Insurance Earned Premium, Gross (CZK billions)

2003

2004

2005

2006

2007

2008

2009

0 5 10 15 20 25

23.6

23.8

25.0 24.6

24.5

24.6

25.1

2003

2004

2005

2006

2007

2008

2009

0 10 20 30 40 50 60 70

27.3 62.2

64.0

65.9

66.5

67.6

69.0

67.5

19.6

21.8

21.9

22.7

23.6

21.4

2003

2004

2005

2006

2007

2008

2009

Insurance Provisions Included in InsuranceLiabilities (CZK billions)

0 5 10 15 20 25

15.5

16.0

20.9

17.1

17.4

18.5

21.9

Shareholders’ Equity (CZK billions)

Total Assets (CZK billions)

2003

2004

2005

2006

2007

2008

2009

0 30 60 90 120 150

120.7

122.1

131.6

121.3

122.2

128.4

126.4

2003

2004

2005

2006

2007

2008

2009

0 2 4 6 8

3.1

1.9

4.6

8.3

6.9

5.9

7.4

2003

2004

2005

2006

2007

2008

2009

Current Period Earnings (CZK billions)

other insurance provisions(CZK billions)

life insurace provisions(CZK billions)




As at 31 December 2009, Česká pojišťovna was part ofa group, the holding company of which is Generali PPFHolding B.V. The issuer’s ultimate parent is AssicurazioniGenerali S.p.A., which holds a 51% stake in the votingrights associated with the shares of Generali PPF HoldingB.V. (a 49% stake is held by PPF Group N.V.). Českápojišťovna is not dependent on any other company in theGroup. The Company’s sole shareholder is CZI Holdings N.V.

CZI Holdings N.V.

Date of inception: 6 April 2006Registered office: Herengracht 516,

1017 CC Amsterdam, The NetherlandsTower B, Level 9,Strawinskylaan 933, 1077 XX Amsterdam (change in registered office effective 1 April 2007)

File number at the Register of the Amsterdam Chamber of Commerce and Industry: 34245976Share capital: EUR 100,000,000Principal businesses: holding company activities

and financing thereof

The Company has not entered into a control agreement with its sole shareholder, CZI Holdings N.V. The Companycompiles a Report on Relations Between the Company and Related Entities pursuant to Section 66a(9) of Act No. 513/1991 Sb.

Generali PPF Holding B.V

Date of inception: 8 June 2007Registered office: Strawinskylaan 933,

1077 XX AmsterdamThe Netherlands

File number at the Register of the Amsterdam Chamber of Commerce and Industry: 34275688Share capital: EUR 500,000Principal businesses: holding activities

and financing thereof

Generali PPF Holding B.V. directs the business of itssubsidiaries through an organizational unit based in Prague,Czech Republic. The Holding has operations not only in theCzech Republic, but also in Slovakia, Poland, Hungary,Romania, Bulgaria, Ukraine, Russia, Serbia, Slovenia, Croatia,and Kazakhstan.


Description of Group Structure, Position of Česká pojišťovna and Selected Group Companies


Structure of Holdings and ČP Group

Assicurazioni Generali S.p.A. (IT)

Generali PPF FundManagement (RUS)

100% 100%

100%

InsuranceCompanyStensInvest(RUS)

99.9% (0.1%)

CJSC ICGENERALI LIFEINSURANCE(UA)

Non-State Pension Fund „Garant“ (RUS)

Generali„ForeignInsuranceCompanyInc.“ (BY)

99.9% (0.1%)

Generali Fond de PensiiSocietate deAdministrare a Fondurilor de Pensii Private S.A. (RO)

Nadace Česképojišťovny (CZ)

Pankrác Services s.r.o.(CZ)

JSC „GeneraliLife“, subsidiaryof AssicurazioniGenerali S.p.A.(KAZ)

Generali NetInsuranceBrokerEOOD(BG)

Generali Insurance Life AD(BG)

Generali Insurance AD (BG)

Generali ZakrilaHealth-InsuranceAD(BG)

Generali ZakrilaMedical and Dental Center EOOD (BG)

VUB Generalidôchodkovásprávcovskáspoločnost’,a.s.(SLK)

GSL Services. s.r.o.(SLK)

Iberian StructuredInvestments I B.V.(NL)

Generali Osiguranje d.d.(HR)

GeneraliZavarovalnica d.d. (SLO)

Delta GeneraliReosiguranje a.d.o. (SRB)

Akcionarsko društvoza upravljanjedobrovoljnimpenzijskim fondomDELTA GENERALI(SRB)

(SRB)

Delta Generali Osiguranje a.d.o. (SRB)

Generali Bulgaria Holding AD(BG)

GP ReinsuranceEAD (BG)

Generali SlovenskoPoisťovňa a.s.(SLK)

100%

S.C. AsigurareReasigurare ARDAF S.A. (RO)

S.C. RoumanieAssuranceInternational S.A.(RO)

51%

Generali PPF Holding B.V. (NL)

35% (65%) 100% 100%

100%

YU – ID B.V. (NL)

OOO Tilia Asset Management (RUS)

19%

81.89% (16.88%) 99.99% (0.01%)

Delta GeneraliHolding d.o.o.(MNG)

Delta GeneraliLife (MNG)

Delta GeneraliNon-Life(MNG)

100% 100% 50% 100%

100% 99.8%

99.9% 100% 51%

50.02% 100%

100% 99.5% 99.9% 88.7%

86.4% 100%


PPF Group N.V. (NL)

PPF Co1 B.V. (NL)

CZI Holdings N.V. (NL)

OCRAPOR BEHEER B.V.(NL)

25%

100% OOO INPHORCE (RUS)

OOOFinansovyjservis(RUS)

ČP INVEST invest.spol., a.s.(CZ)

GPH INVESTPlc. (Ireland)

Univerzální správa majetku,a.s.(CZ)

ČP DIRECT,a.s.(CZ)

Penzijnífond České poj.,a.s.(CZ)

Česká pojišťovna ZDRAVÍ a.s.(CZ)

REFICORs.r.o. (CZ)

První Callinagenturaa.s.(CZ)

Generali pojišťovna a.s.(CZ)

Generali-ProvidenciaBiztosító Zrt. (HUN)

Generali ZycieTowarzystwoUbezpieczen S.A. (PL)

GeneraliTowarzystwoUbezpieczen S.A.(PL)

Generali PowszechneTowarzystwoEmerytalne S.A.(PL)

EurópaiUtazásiBiztosító Zrt.(HUN)

EuropAssistanceMagyarországBefektetési és TanácsadóKft. (HUN)

Familio Befektetési ésTanácsadó Kft.(HUN)

Famillio Agent de Asigurari Srl (Famillio Broker de Asigurare Reasigurare Srl) (RO)

Famillio Home FinanceBroker de Credite Srl(RO)

Famillio Broker de Pensii Private Srl(RO)

GeneraliFinance spólkaz ograniczonaodpowiedzial-noscia(PL)

GeneraliAutoProgramSpzoo(PL)

OOOINPHORCERostov (RUS)

OOO INPHORCEEkaterinburg(RUS)

OOO INPHORCE Ufa(RUS)

Fundamenta-LakáskasszaLakás-takarék-pénztárZártkörűen MűködőRészvénytársaság(HUN)

Generali AlapkezelőZrt.(HUN)

Generali BiztosításiÜgynök ésMarketing Kft.(HUN)

GeneraliÉpítő és TervezőKft. (HUN)

Generali –IngatlanVagyon-kezelő ésSzolgáltatóKft.(HUN)

Genertel BiztosítóZrt.(HUN)

100%

49%

Generali PPF LifeInsurance(RUS)

100%

100% 100% 99.9% (0.1%) 99.9% (0.1%)100%

100%

100%

100% 100% 100% 100% 100% 100% 100% 95% 95%

95%

100%

99.9907%

Generali PPF AssetManagementa.s. (CZ)

CJSC Assetmanagementcompany „Generali PPF Asset ManagementUkraine“ (UA)

Česká pojišťovna a.s.(CZ)

Gradua Finance, a.s. (SK)

CZI Ukraine,Pension fundadministrator(UA)

Financialservices(UA)

100%CP Strategic Investments B.V.

Open non-state pensionfund “Garant-Pension”(UA)

100%

GeneraliDevelopments.r.o.(CZ)

Generali Servis s.r.o.(CZ)

100%

Generali Penzijní fond a.s.(CZ)

100% 100%

Generali CarCare s.r.o.(CZ)

100%

NadacepojišťovnyGenerali (CZ)

100%

61% 26% 100% 14.9% 74% (26%) 98.3% (1.7%) 99% (1%) 96% (4%)

96.56% (3.44%)

100%

GPConsultingPénzűgyiTanácsadóKft. (HUN)

100%

100% 100%

100%

95% 99.6%

100%

100% 100%

100%

Descriptions of Selected Companies

in Česká pojišťovna Group

Below we provide information on companies that formpart of the Česká pojišťovna consolidated group and areof fundamental importance either for the Company’sbusiness or its capital position. Information on certainother companies that belong to the same group as Českápojišťovna may also be found in the Notes to FinancialStatements for the Year Ended 31 December 2009 – in thesection describing subsidiaries and associates of Českápojišťovna.

Penzijní fond České pojišťovny, a.s.

Principal business: supplemental pensioninsurance

Date of inception: 19 September 1994Share capital: CZK 214 millionČeská pojišťovna stake: 100%

Now in its second decade in business, Penzijní fond České pojišťovny, a.s. (“Penzijní fond České pojišťovny”)continues as the unchallenged top pension fund in theCzech Republic. The year 2009 was once again one offinancial growth for the company. Its total assets grew toCZK 51.4 billion from CZK 44.8 billion in the previous year,which represents growth of 15%. One major factordriving the growth in assets was upselling targeted atselected segments of the client base.

In terms of the capital markets situation, following the previous year’s turbulence, 2009 was a period ofstabilization and subsequent recovery in the capitalmarkets. Thanks to this favorable environment and theinvestment strategy, the pension fund posted a profit ofCZK 619 million.

The primary distribution channels of Penzijní fond Česképojišťovny are consultants and branches of the parentcompany, Česká pojišťovna, together with independentbrokerage networks and direct marketing tools. Thanks tothis extensive sales network, the company had 1.6 millionclients for a market share of 26.4%. Of the total numberof clients, 265,000 were recorded as clients with employercontributions.

For a long time now, the pension fund has been buildingan image of a provider of high-quality services associatedwith saving for old age. Now, customers can newlycommunicate with the fund through automatic textmessages (SMS) and on-line tools. A special Internetservice portal is in operation for dealers as well.

The results and activities of Penzijní fond České pojišťovnyenjoy sustained attention from the professional and laypublic. In the spring, the company once again defendedfirst place in the pension funds category of the CZECHTOP 100. In the autumn, for the fifth time in a row, thepension fund was one of the top three pension funds inthe competition Fincentrum Bank of the Year 2009.


ČP DIRECT, a.s.

Principal businesses: acting as an insurance agent,consulting

Date of inception: 1 January 1998Share capital: CZK 20 millionČeská pojišťovna stake: 100%

ČP DIRECT is registered in the Register of InsuranceIntermediaries maintained by the Czech National Bank as an insurance agent as defined by Section 7 of Act No.38/2004 Sb. on Insurance Intermediaries and IndependentLoss Adjusters and amending the Trades Licensing Act.The company is contractually authorized to act as anintermediary for Česká pojišťovna a.s.

The insurance agent activity of ČP DIRECT is focusedprimarily on non-life insurance – motor damage insuranceand motor third-party liability insurance in particular. Todevelop its business the company has built up a networkof cooperating subordinate insurance agents, mostlyautomotive dealerships. The company continues todevelop the distribution of other insurance products, suchas property and casualty insurance, through real estateagencies.

In 2009 the company grew service revenues by 7%compared to the previous year to a total of CZK 96.6 million and generated CZK 4.9 million in after-tax profit.

Joint Stock Company „Generali Life“ – Life Assurance Company, a subsidiary of „Assicurazioni Generali S.p.A."

Principal business: life insuranceLicensing date: 4 June 2007Share capital: KZT 1,000,000,000Česká pojišťovna stake: 100%

The company was established in 2006 and until 1 July2009 it operated under the business name JSC «CzechInsurance Company Kazakhstan». It is the only life insurerwith 100% foreign capital participation in Kazakhstan.

At year end 2009, the company held the followingpositions in the Kazakh market:

first place in the ranking of life insurers according toaccident insurance premiums collected,second place among life and non-life insurers accordingto accident insurance premiums collected,third place among life insurers according to insurancepremiums collected (accident insurance and retirementinsurance excluded).

In 2009 the company posted net after-tax profit of KZT 230 million.

In 2010, the company plans to position itself in the marketas a leading life insurer and to offer its customers a widerange of products.


Limited Liability Company «Generali PPF Life Insurance»

Principal businesses: life insuranceDate of inception: 18 January 2002Share capital: RUR 86.7 millionČeská pojišťovna stake: 100%

Generali PPF Life Insurance was established in 2002 anduntil 14 April 2009 it did business under the name “Českápojišťovna Russia”.

It focuses on selling a wide variety of life and otherinsurance products, which it offers in cooperation with theconsumer credit company Home Credit Finance Bank. It also sells its products through its own network ofregional branches, while at the same time cooperatingwith leading brokerage firms operating in the RussianFederation.

Since its establishment, the company has seen rapidgrowth and is currently a leader in the Russian market.According to data from the Federal Service for InsuranceSupervision, in Q1 2009 it was number four in the rankingof life insurance companies by size, and number 27 in theranking of insurance companies by size, regardless ofprincipal business. In 2009, the company posted a netafter-tax profit of RUR 1,571 million (IFRS).

In 2010, the company plans to focus, in particular, onincreasing the effectiveness of its distribution operation,working through all types of sales channels, and ondeveloping cross-sales activities with Home Credit andFinance Bank.

REFICOR s.r.o.

Principal business: administrative managementservices and organizational-economic services; business,financial, organizational andeconomic consulting

Date of inception: 12 August 1997Share capital: CZK 100,000Česká pojišťovna stake: 100%

Part of Česká pojišťovna Group since 9 March 2006,REFICOR is a 100% subsidiary of Česká pojišťovna.

The company’s principal activity is administrating andcoordinating the collection of selected insurancereceivables of Česká pojišťovna, which are turned over to a law firm for collection through the courts.

Following the roll-out of new control mechanisms, 2009saw an improvement in the payment discipline of Českápojišťovna’s customers, and thereby a reduction in thenumber of receivables administered by REFICOR as well.Since this trend will continue in 2010 as well, on 31 October 2009 REFICOR closed the doors of its Pragueoffice, laying off 11 employees. After this organizationalchange, REFICOR continues to have 14 employees whowork in its Hradec Králové office.

During 2009, a total of 26,243 lawsuits and 13,840foreclosure proceedings were initiated in relation toreceivables administered by REFICOR. In 2010, we expectto see the number of lawsuits and foreclosure proceedingsinitiated decline by approximately one third.

As at 31 December 2009, REFICOR posted after-tax profitof CZK 12.1 million.


Česká pojišťovna ZDRAVÍ a.s.

Principal businesses: private life and sicknessinsurance

Date of inception: 17 June 1993Share capital: CZK 100 millionČeská pojišťovna stake: 100%

Česká pojišťovna ZDRAVÍ a.s. (“ČP ZDRAVÍ”) has beena 100% subsidiary of Česká pojišťovna a.s. since 1997.Within the Generali PPF Holding Group, ČP ZDRAVÍ isstrategically focused on a portfolio of products associatedwith the provision of health care and dealing with difficultsituations customers can find themselves in when theylose their source of income. For a number of years now,the product offering is closely interlinked with products of the Holding’s other members in the Czech Republic.ČP ZDRAVÍ shares its sales network with its parentcompany, giving it access to the biggest network of saleslocations and insurance intermediaries.

ČP ZDRAVÍ’s gross premium revenues in 2009 continued in last year’s high rate of growth to reach a level of CZK 355.7 million. This is CZK 60 million higher than in2008, reaffirming the high growth potential in thecompany’s market segment. Customers were paid CZK 86.7 million in claims. In addition to an expandedoffering of individual insurance products, the growth inpremium revenues was driven by the development ofHome Credit consumer loan insurance in the CzechRepublic and Slovakia. Despite the additional costsassociated with the increase in new business and a biggerinsurance portfolio, the company posted a record grossafter-tax profit of CZK 100.7 million in 2009.

ČP ZDRAVÍ’s principal near-term strategic goal is to supportsales initiatives and achieve rapid growth in insurancepremium revenue. It will continue to develop commercialinsurance areas aimed at customers whose healthcondition is deteriorating. Its further steps are intended tobuild on the successful launch of riders (supplementalinsurance) to selected premium products of Českápojišťovna a.s., the range of which is to be expanded in thenext few months, not only in terms of the number of mainproducts, but also the coverage of new risks. In accordancewith the shareholders’ strategy, ČP ZDRAVÍ is also planningan expansion of its own in-house product portfolio,preparations for which are progressing in closecoordination with developments in the financing of healthcare in the Czech Republic. Last but not least, a continuedrecovery is expected in the insurance of consumer loans,and here the company intends to build on premiumrevenue growth figures achieved in years past.


ČP INVEST investiční společnost, a.s.

Principal businesses: collective investment,management of mutual funds

Date of inception: 19 November 1991Share capital: CZK 91 millionČeská pojišťovna stake: 100%

The sole shareholder of ČP INVEST investiční společnost, a.s.(“ČP INVEST”) is Česká pojišťovna a.s.

In 2009, ČP INVEST became the fifth largest investmentcompany in the Czech Republic and, at the same time, thelargest non-bank investment company. As of 31 December2009 it managed 18 open-end mutual funds with a totalnet asset value of CZK 8.8 billion. As one of the fewinvestment companies in the Czech Republic to do so, in 2009 – a period in which the overall Czech Republicmarket contracted by 3% - it posted positive net sales of CZK 1.7 billion and grew its total assets undermanagement by more than 40%. The average return onunitholders’ investments reached nearly 30% for the year.

In 2009, ČP INVEST became the first Czech investmentcompany to establish an investment company in Ireland.Named Generali PPF Invest, in 2010 the new entity will begin to distribute its EUR-denominated productsdesignated for both domestic and internationalunitholders. In this way, ČP Invest is continuing to expandinternationally; after the Slovak Republic and Ireland, thenext target territory for our operations is Romania.

Generali Societate de Administrarea Fondurilor de Pensii Private S.A.

Principal businesses: management of compulsoryand voluntary pensioninsurance funds

Date of inception: 9 July 2007Share capital: RON 89 millionČeská pojišťovna stake: 99.99%

Since the beginning, Generali Pension ManagementCompany has been an active player in the compulsorysupplementary pension insurance market that formedfollowing the reform of the Romanian pension system in 2007.

After just under three years in operation, the pension fundARIPI, managed by the company, has over 450,000 clientsand EUR 46 million in assets, making it the third largestcompulsory supplemental pension insurance fund inRomania.

In February 2009, the company obtained a license tomanage a voluntary supplemental pension insurance fundand in April 2009 it opened the fund STABIL.

The funds ARIPI and STABIL are designated for clients aged18 to 45 who are entering the supplemental pensioninsurance system.

In 2009, Generali Pension Management Company postedthe second highest return on assets under management(17.9% p.a.) among Romanian management companies,beating the market average of 17.7% p.a.


Česká pojišťovna Foundation

Principal businesses: supporting public-benefitactivities

Date of inception: 30 December 2009Foundation endowment: CZK 500,000

The founder of the foundation is Česká pojišťovna a.s.

The foundation was established for the purpose ofsupporting legal entities and private individuals whoseactivities aim to benefit the public, as well as those whosesupport is in the public interest – in particular in the areasof culture and the arts, health care, sports, society, andeducation.


Chairman

Ladislav Bartoníček

Term of office since 7 June 2008Born in 1964Education: CzechTechnical University,Prague, Faculty ofElectrical Engineering,Rochester Institute of TechnologyExperience: ČKDElektrotechnika, PPFinvestiční společnost a.s.Address: Evropská 2690/17, 160 41 Prague, Czech Republic

Vice Chairman

Marcel Dostal

Term of office since 1 June 2007Born in 1969Education: Brno Universityof Technology, Faculty of Civil Engineering,Rochester Institute of TechnologyExperience: Rollins HudigHall Česká republika, s.r.o.,Stratego Invest, a.s., PPFburzovní společnost a.s.,Česká pojišťovna a.s., ČP INVEST investičníspolečnost, a.s., PPF, a.s.Address: Evropská 2690/17, 160 41 Prague, Czech Republic

Vice Chairman

Ivan Vodička

Term of office since 1 October 2007Born in 1964Education: CzechTechnical University,Prague, major in TechnicalCybernetics – Robotics, Ecole Nationale des Pontset Chauseés (ENPC),University of California at BerkeleyExperience: Royal NumicoN.V., Pražské pivovaryAddress: Na Pankráci 1720/123,140 21 Prague, Czech Republic

Member

Štefan Tillinger

Term of office since 1 September 2008Born in 1970Education: Brno Universityof Technology, Faculty ofMechanical Engineering,Brno University of Technology, Faculty of BusinessExperience: ING, Generali a.s. Address: Na Pankráci 1720/123,140 21 Prague, Czech Republic


Directors and Officers(as of the Annual Report compilation date)

Board of Directors


Chairman

Milan Maděryč

Term of office since 1 June 2007Born in 1955Education: Secondary vocational with school-leaving exam,postgraduate study at the Brno University of TechnologyAddress: Evropská 2690/17, 160 41 Prague, Czech Republic

Member

Marek Orawski

Term of office since 1 March 2006Born in 1965Education: Technical University of Ostrava, Faculty of ElectricalEngineering, Liverpool John Moores UniversityAddress: Na Pankráci 1720/123, 140 21 Prague, Czech Republic

Member

Dr. Lorenzo Kravina

Term of office since 3 December 2008Born in 1964Education: Degree in Economics at the University of VeniceAddress: Piazza Duca degli Abruzzi 2, I – 34132 Trieste, Italy

Supervisory Board


Company Management

Chief Executive Officer

Ivan Vodička

Term of office since 1 August 2008Born in 1964Education: CzechTechnical University,Prague, major in TechnicalCybernetics – Robotics, Ecole Nationale des Pontset Chauseés (ENPC),University of California at BerkeleyExperience: Royal Numico N.V., Pražsképivovary

Executive Board Memberfor Investment Policy and Asset and LiabilityManagement

Marcel Dostal

Term of office since 6 November 2006Born in 1969Education: Brno Universityof Technology, Faculty of Civil Engineering,Rochester Institute of TechnologyExperience: Rollins HudigHall Česká republika, s.r.o.,Stratego Invest, a.s., PPFburzovní společnost a.s.,Česká pojišťovna a.s., ČP INVEST investičníspolečnost, a.s., PPF, a.s.

Executive Board Memberfor Industrial Insuranceand Reinsurance

Milan Beneš

Term of office since 15 January 2008Born in 1968Education: University of West Bohemia in Plzeň,Faculty of ElectricalEngineeringExperience: ZČE Plzeň a.s.,FCC Folprecht s.r.o.,Logica CMG, s.r.o.,Accenture Central Europe B.V.

Executive Board Memberfor IT and SystemArchitecture

Zdeněk Kaplan

Term of office since 1 September 2008Born in 1966Education: CharlesUniversity – major inNumerical Mathematics,University of Economics,PragueExperience: Aliatel, Ness,ČSOB, Telefonica O2


Executive Board Memberfor Distribution

Štefan Tillinger

Term of office since 1 October 2008Born in 1970Education: Brno Universityof Technology, Faculty ofMechanical Engineering,Brno University of Technology, Faculty of BusinessExperience: ING, Generali a.s.

Executive Board Memberfor Financial Management

Hana Pleskačová

Term of office since 1 November 2009Born in 1970Education: MasarykUniversity, Brno, Faculty of Natural Sciences, majorin Mathematical AnalysisExperience: GeneraliPojištovna a.s., GeneraliHolding Vienna AG,Czech Statistical Office(Prague)

Executive Board Memberfor Customer Services

Pavel Řehák

Term of office since 1 October 2008Born in 1975Education: University of Economics, Prague,Faculty of InternationalRelations, NorthwesternUniversity, Kellogg Schoolof ManagementExperience: McKinsey & Company, Inc.

Effective from 1 April2010 there has beena change in the seniormanagement of Českápojišťovna. By a decisionof the Board of Directors,a new position has beenadded to the ExecutiveBoard, entitled ExecutiveBoard Member for CRMand Marketing.

Zdeněk Románek

Term of office since 1 April 2010Born in 1976Education: CharlesUniversity, Faculty ofMathematics and Physics,major in OperationalResearch/Optimization,University of Economics,Prague, major in InsuranceEngineering, INSEAD –MBAExperience: KPMG,Revitalizační Agentura, a.s.(Lazard Frerés a LatonaAssociates), McKinsey & Company, Českápojišťovna a.s.


experienced consultants throughout the Czech Republic

advantages of personal advice

Situation in the Czech Insurance

Market

Since the early 1990s, the Czech insurance market hasenjoyed uninterrupted growth. That growth continued in 2009 as well, but at a reduced pace due to the world-wide economic slowdown. The market expanded by 2.3%over the previous year, with 2009 insurance premiumrevenue of Czech Insurance Association (ČAP) memberinsurers reaching CZK 140 billion (according to ČAPfigures from 2 February 2010). Premium revenue in lifeinsurance totaled CZK 59.2 billion, up over 5.1% from theprevious year, while non-life premiums grew by 0.4%year-on-year to a total of CZK 80.8 billion.

The Czech Republic’s overall insurance penetration, theratio of insurance premium revenue to Gross DomesticProduct (GDP), has been rising. While in the early 1990s itwas only slightly above 2%, in recent years it has beenstable at around 4%. Still, the Czech Republic lags behindcountries with more developed insurance markets: in theentire EU25 the average for this indicator is 9%. So, theCzech Republic’s insurance penetration figure isapproximately one half of the EU25 average.

Life insurance’s share of overall premium revenuegenerated in the Czech Republic in 2009 was 42.3%, up1.12 percentage points from 2008 (Q4 2008: 41.16%),demonstrating the growing importance of life insurance.

The sum of the market shares of the five largest insurers in2009, expressed in terms of overall premium revenue, was69.9%. Compared to 2008, when the figure was 72.4%,this represents a decrease, which attests to growth in thesmall insurers segment.

The market shares of the five biggest insurers by premiumrevenue in the life insurance category totaled 67.4%(down from 73.5%). The market shares of the five biggestinsurers by premium revenue in the non-life insurancecategory totaled 81.5% (down from 83.1%). Therefore,small insurers are still gaining ground, particular in thesegments they focus on.

In 2009, Česká pojišťovna continued to be the largestplayer in the Czech insurance market. Our market share in terms of total insurance premium revenues was 27.2%.In life insurance we controlled 23% of the market, whilein the segment composed of policies where premiums arepaid in regular installments Česká pojišťovna’s share was29.3%. In the non-life insurance area, Česká pojišťovnahas a market share of 30.2%.


Board of Directors’ Discussion and Analysis of the Company’sBusiness Activities and Financial Situation

Company Financial Performance

in 2009

Asset Position

Česká pojišťovna is a long-standing, highly capitalized andstable company whose assets totaled CZK 126 billion at31 December 2009. The Company’s shareholders’ equity is nearly CZK 21.9 billion and the share capital totals CZK 4 billion.

In terms of volume, the largest component in assets isfinancial assets, which stood at CZK 107.7 billion as of 31 December 2009, down CZK 1.4 billion from 2008. Thebiggest absolute growth component was Financial assetsavailable-for-sale (up CZK 15 billion). On the other hand,the largest decline was registered in Financial assets at fairvalue through profit or loss (down CZK 14 billion). Thismovement is in line with the Company’s investmentstrategy.

Another major component of assets is Subsidiaries andassociates. This item fell CZK 1.2 billion in year-on-yearterms, to CZK 6.1 billion due to a reorganization of theCZIH Group. In 2009, the company CP StrategicInvestments B.V. was sold and an agreement was signedon the future sale of the company Limited LiabilityCompany «Generali PPF Life Insurance» (the former ČP Russia). Both transactions were entered into with CZIH N.V.

Reinsurance assets increased by CZK 0.7 billion to CZK 9.2 billion.

More details on the Company’s asset position are providedin the financial section of this Annual Report.

Treasury Shares

Česká pojišťovna did not hold any of its own shares duringthe 2009 accounting period.

Financial Performance Commentary

The Company posted a profit of CZK 7.38 billion for the year 2009 in accordance with International FinancialReporting Standards (IFRS). This result once againreaffirmed the Company’s high degree of profitabilitycompared to other companies in the Czech Republic.

In terms of the operating result, Česká pojišťovnaperformance deteriorated slightly from 2008, due toincreased losses in agricultural insurance and naturalcatastrophes.

Despite the ongoing financial crisis, ČP managed toleverage opportunities in the financial markets to boost itsbottom line.

Share Capital and Reserves

The Company’s share capital was unchanged in 2009 at CZK 4 billion.

The distribution of a CZK 5.9 billion dividend out ofretained earnings was approved in August 2009.

The Company’s shareholders’ equity grew CZK 3.4 billionin 2009, to a total of CZK 21.8 billion.


Profit Allocation Proposal

On April 30 the sole shareholder, acting with the powersof the General Meeting, decided to allocate theCompany’s profit for the accounting period 2009 (CZK 7.4 billion) and a CZK 1.4 billion portion of retainedearnings to a shareholder dividend. The total dividendamount, then, is CZK 8.8 billion.

Shareholder Dividends in Past YearsIn August 2009, the sole shareholder acting with thepowers of the General Meeting decided on payments ofa gross dividend for 2008 totaling CZK 5.9 billion.

In June 2008, the sole shareholder acting with the powersof the General Meeting decided on payments of a grossdividend for 2007 totaling CZK 4.5 billion.

Insurance Liabilities

Insurance liabilities (net of reinsurers’ share) consist ofprovisions formed under the Insurance Act were downCZK 5.6 billion year-on-year, to a total of CZK 2 billion asat 31 December 2009 (of the total, in accordance withIFRS a CZK 1.8 billion provision for obligations toward theCzech Insurers’ Bureau was reported as a part of otherprovisions and the CZK 1.3 billion equalization provisionwas reported as a part of shareholders’ equity).

Life Insurance Provision and Provision for MeetingObligations Based on the Technical Interest RateThese provisions account for roughly three quarters ofoverall insurance provisions and include the life insuranceprovision, the provision for unearned life insurancepremiums, the life insurance claims provision, anda provision for meeting obligations based on the technicalinterest rate. As at 31 December 2009, the life insuranceprovision totaled CZK 67.5 billion. In year-on-year terms,this is an decrease of CZK 1.5 billion. The provision formeeting obligations based on the technical interest ratewas CZK 1.2 billion as at 31 December 2009, down CZK 755 million from the previous year.

Provision for Non-life Insurance ClaimsThis provision includes claims reported but not settled(RBNS) and claims incurred but not reported (IBNR). As at 31 December 2009, the claims provision totaled CZK 13 billion, down CZK 3.4 billion from the previous year.

Provision for Unearned Premiums in Non-lifeInsuranceThe total provision for unearned premiums as at 31 December 2009 fell by 29.6% to CZK 4.7 billion.

Receivables

Receivables were down CZK 3.9 billion, year-on-year, toCZK 8.3 billion. The declines took place in direct insurancereceivables and tax receivables, due in particular to highadvance tax payments paid in 2008. Reinsurancereceivables, on the other hand, more than doubled asa result of the new, expanded reinsurance program withGP Re (Generali PPF Holding’s captive reinsurer).

Payables

The Company’s overall payables increased by CZK 1.2 billionin 2009, compared to the previous year, to a total amountof CZK 9.7 billion. As was the case of receivables,reinsurance payables grew in particular, in conjunctionwith the new reinsurance program. Direct insurancepayables, on the other hand, declined from their previousyear’s levels.


Insurance Performance Commentary

Internal Distribution Channels

Internal distribution channels consist of the network ofexclusive insurance agents and the Česká pojišťovnabranch network.

2009 saw the implementation of transformational projectwhose objective was growth and improved performancein the agents network. The project built on a successfulreorganization of the retail network, which includedchanges in its geographical structure. As a result of thechanges, the organization has been streamlined (by 50%)at the middle management level, the sales force ofexclusive insurance agents has been expanded, and theperformance of existing exclusive agents has beenincreased thanks to the introduction of new career rulesand new methodology for working with the ČP policybase. Also, over 200 supported sales locations werecreated, supporting sales growth and, at the same time,expanding services and support available to ČP customers.

This transformational project not only saw us through thefinancial crisis, it also enabled us to achieve substantialyear-on-year growth in new life insurance and non-lifepersonal lines business in the agents network. Anothermajor boost was the launch of a program to develop salesmanagement, which will continue in 2010.

Česká pojišťovna’s branch network underwent a majorchange. Through retention programs, we successfullyintroduced the family bonus sales concept in MTPLinsurance and successfully executed a sales campaign toimprove customers’ insurance coverage. Marketingcampaigns targeted at increasing visitorship at saleslocations were another sales tool. At the same time,a systematic process was commenced to developmanagers, focusing on effective management of saleslocations and increased performance of employees there.In late 2009, we launched a program to transform theteller network, which will be implemented in 2010.

External Distribution Channels

Insurance Intermediaries Operating on the Basis of Multi-Level Marketing (MLM)Throughout 2009, Česká pojišťovna continued successfully in its work with two leading MLM networks: ZFP Akademie, a.s. and OVB Allfinanz, a.s., as well as withother partners. In addition to winning a greater share inthe new business produced by these companies, emphasiswas also placed on seeking out additional marketingpartners.

Česká pojišťovna successfully increased new businessgenerated at most cooperating companies and clearlypositioned itself as a major player among independentfinancial intermediaries in the Czech Republic.

The product offering was made more attractive with theaddition of new and innovated types of unit-linked lifeinsurance. Also, greater emphasis was placed ondeveloping sales of non-life insurance. As of 1 April 2009,we successfully launched an entirely new funeral expensesinsurance product, PIETA, in the ZFP Akademie, a.s.network.

Česká pojišťovna’s goal in 2009 was to maintain thecurrent level of cooperation with existing partners,develop relations with them, and further increase theamount of new business generated in this sales channel.


Tour Operators and Third PartiesIn 2009, Česká pojišťovna continued to develop businesscollaboration with third parties such as tour operators, the health insurer Revírní bratrská pokladna, mortgagebrokers, and realty agencies.

In the non-life insurance area – particularly in travelinsurance – successful commercial cooperation wascommenced with the fourth largest health insurancecompany in the Czech Republic, Revírní bratrská pokladna z.p. The new business figures at the end of thefirst year of cooperation are very good. Starting from 1 July 2009 we also managed to launch on-line sales oftravel insurance to this health insurer’s customers, throughthe company website.

All our external partners are served on an individual basis.Individual partners are segmented according to theamount of overall business they generate, and thisdetermines the scope and level of Česká pojišťovna’s valueproposition to them.

Throughout 2009, Česká pojišťovna maintained its long-standing strong position, despite heavy competition in the market and the ravages of the financial crisis, whichimpacted our collaboration with third parties especially inthe tour operators and mortgage brokers segments. Thetotal volume of insurance sold through tour operatorsgrew by approximately 8% in 2009.

In 2010, Česká pojišťovna will focus on improving andinnovating products for tour operators with the aim ofmaintaining the existing tour operator customer base.Contributing to this goal from 1 January 2010 will becollaboration with Europ Assistance, s.r.o., a new roadsideassistance service. In addition to retention activities forexisting partners, our emphasis in the third partiessegment will also be placed on new acquisitions.

Česká pošta (Czech Post)Our strategic sales partnership with Czech Post, foundedupon a long-term cooperation agreement, is implementedby distribution of a unified portfolio of life insurance and non-life personal lines through the extensive postalnetwork and the provision of basic services to customersof Česká pojišťovna. Within the post office network, we have a stable network of exclusive insurance agentsdedicated to post offices, which enables us to sellproducts beyond the post office’s limited range.

In 2009, our offering in the Dynamik product line wasexpanded with the addition of Dynamik Expres, which isoffered exclusively through the Czech Post network. This isa product adapted to the special needs and conditions ofCzech Post. The roll-out of this product brought very goodresults, right from the first months it went on sale, and inthe second half of the year it took a place aside Sluníčkoas one of the most successful products, in terms of newbusiness, in the Czech Post distribution channel.

The result of this strategic alliance in 2009 is a record levelof new business, and growth was especially pronouncedin the area of life insurance where premiums are paid inregular installments. Compared to 2008, new business inregular-installment-premium life insurance grew by 36%.In addition to product innovation, growth was also drivenby intensive training activities conducted by the CzechPost network and targeted product campaigns.

In 2010, our collaboration with Czech Post will becharacterized by qualitative development of the successfulsales model, support for key products, a focus onsupporting key postal employees in the training system,and creating new sales support initiatives for postalemployees.



fair play, no delays

accurate and easy-to-understand information

Non-life Insurance

Description

Česká pojišťovna maintained its position as market leaderin non-life insurance, despite a year-on-year drop ininsurance premium revenues due to the economic crisis.Positive developments were evident in commercialinsurance (particularly in large risks insurance) andpersonal lines. The situation was less favorable in motorvehicle insurance (MTPL and motor damage insurance).

Position in the Insurance Market

Non-life insurance premium revenues calculating usingČAP methodology reached CZK 24.4 billion. Theapproximately CZK 1.9 billion year-on-year drop inpremium revenues led to a reduction in market share. Themain reason for the drop in premium revenues comparedto 2008 was the phase-out of the high-risk area offinancial risks (CZK -1.16 billion), which started in 2009,and the unfavorable situation in motor vehicles insurance(CZK -1.07 billion).

Česká pojišťovna remains the number-one player in thenon-life insurance market, with a market share of 30.2%.


Performance in Individual InsuranceCategories

Business RisksLarge RisksDespite the ongoing crisis and constant downwardpressure on rates, we managed to grow premiumrevenues by 5.9% in this insurance category. Thisperformance was driven by a reorganization and theimplementation of a new sales model. The biggest growth was seen in liability insurance (+12.9%).

Small RisksIn small risks insurance we succeeded in holding premiumrevenues in line with 2008 (0.4%) despite a drop inindustrial production and the economic crisis. Propertyinsurance was flat (+0.1%), liability insurance grewmoderately (+2.3%), and transport insurance, heavily hitby the economic crisis due to the Czech economy’sdependence on exports, fell by 20.6% from the previousyear.

Agricultural InsurancePremium revenue on the agricultural insurance portfoliowas down -8.9% in 2009, compared to 2008. This drop(crops -10.3%, livestock -5%) was caused primarily bya major decrease in the prices of agricultural commodities.According to the Czech Statistical Office, the agriculturalproducers price index fell by 25% year-on-year – 15% for meat products and 32% for plant products. Českápojišťovna continues to dominate the Czech market in thisarea, although the pressure exerted by the competition togain more market share continues to grow.

Financial RisksPremium revenues in the entire life insurance categorywere fundamentally affected by the termination of HomeCredit’s insurance coverage by Česká pojišťovna, whichresulted from a decision to get out of this risky insurancebusiness area. This move accounted for a CZK 1.16 billiondrop in premium revenues compared to 2008.

Claims PaidNumerous floods and hail events in the first half of theyear had a negative impact on claims paid, with the effectof the floods being felt in property insurance and hailaffecting crop insurance results. In 2009, ČP registereda total of CZK 367 million in business risks claimsattributable to the summer floods. Crop damage causedby hail represent an amount of approximately CZK 715 million. Nonetheless, we managed to keepoverall costs in the business risks area at the previousyear’s level.


Retail – Non-life Insurance

Personal LinesPremium revenues in the personal lines segment (property,liability, accident, travel insurance) grew CZK 174 million(+4.1%) year-on-year. The growth was driven primarily bysuccessful implementation of measures in accidentinsurance, conversion of old household effects, buildingsand liability policies, and the introduction of annualindexing of the policy amount, enabling customers tosubstantially cut their risk of being underinsured. Thus, the offering of products for retail customers is beingcontinually adapted to these customers’ needs. Inparticular, we are developing the key personal linesproduct, KOSTKA (e.g. by expanding the offering ofinsurance coverage to include the option of choosing fixedor percentage-based claim limits). Also, a simplehousehold effects insurance product was innovated tohelp bring new sales personnel up to speed.

Claims PaidLong-term profitability in this segment is very good,despite frequent natural catastrophes. In 2009,approximately CZK 0.5 billion was paid out in naturalcatastrophe-related buildings and household effectsinsurance claims. Claims expenditures in the remaininginsurance categories were stable.

Motor Vehicles Insurance

Motor Third Party Liability (MTPL) InsuranceThe fact that MTPL premium revenues in the CzechRepublic were flat (CZK -0.03 billion, 0.1% y-o-y) isa reflection of the negative situation in the market formotor vehicles, caused by the economic crisis. Largeinsurance companies offering a wide range of non-lifeinsurance classes are losing business as customers shift toplayers who focus primarily, or even exclusively, on theMTPL segment.

For a long time now, Česká pojišťovna has beenconcentrating on building its ability to meet its obligationsunder insurance contracts, and among other things thatmeans we must necessarily pursue a different pricingstrategy than the competition, which is pushing pricesdownward to the very limits of profitability. ČP’s loss ofmarket share (-2.7 percentage points y-o-y, to 30.4%) is the price we pay for maintaining reasonable rates.

In addition to the clear competitive advantages of rapid,high-quality claims handling, ČP took a number of pro-active measures to support sales, such as the FamilyBonus, a discounts policy, and marketing campaigns. In the fleet insurance segment, in 2009 we focused inparticular on improving profitability, for example byimposing stricter underwriting rules for new contracts.


Motor Damage InsuranceThe motor damage market was more sensitive than MTPLto the economic situation (it declined CZK 0.38 billion, or -2.2%). Česká pojišťovna lost approximately CZK 0.42 billion, resulting in a decline in market share by1.8 percentage points, to 32.9%.

The economic crisis is hitting the motor damage insurancesegment through both lower unit sales of vehicles anda drop in vehicle prices, which decreases average premiumrevenues. The result is a lower volume of premiums in this segment of the market, as well as lower profitability (risk remains the same while premiums decrease, impactof partial damages on the time value, car repair shopstrategies, etc.).

Claims PaidMTPL claims paid in 2009 were substantially lower than in 2008 (down CZK 0.7 billion), which means profitabilitywas maintained even though premiums fell as well.

In motor damage insurance, on the other hand,profitability deteriorated as a result of a year-on-yearincrease in claims paid (up CZK 0.25 billion; due toincreased car repair prices, among other factors) whilepremium revenues declined.

Innovation and Outlook

New ProductsEffective from 1 August 2009, the MTPL portfolio wasexpanded by the addition of the product Start with a CZK 35/35 million limit and a lower average premium.Our priority is to maintain high product quality. To supportsales, attractive benefits were introduced, such as Dítěv autě (Baby On Board), Rodinný bonus (Family Bonus), themarketing campaign Trezor (Safe) etc. In cooperation withone of our subsidiaries, the personal lines productportfolio was expanded by the addition of insurance ofselected risks in conjunction with loss of income.

OutlookČeská pojišťovna will continue to pursue a strategy ofimproving both sales and customer services. We willcontinue to improve the quality of our claims handlingservices and search for possible synergies with other keypartners.


Retail – Life Insurance

Life Insurance Market

Overall, the life insurance market grew 5.1% in 2009,compared with the year 2008. Premium revenues for theentire life insurance market totaled CZK 59.2 billion.Premiums paid in regular installments grew 3.3% year-on-year, while premiums in the single-premium segmentincreased by 9.3%. In the second half of the year, growthin the single-premium policy segment accelerated, whileslowing in the conventional policy segment.

Position in the Insurance Market

Life insurance accounts for over one third (35.8%) ofČeská pojišťovna’s total premium revenue. In 2009 wesucceeded in increasing the share of life insurancepremium revenues in total insurance revenues by 1% overthe previous year. Česká pojišťovna’s total market share inlife insurance is 23%.

Premium revenues in conventional life policies totaled CZK 12.4 billion for a decrease in our market share in thissegment by 1.8 percentage points to 29.3%. In the single-premium policies segment premiums fell by 3.8% to CZK 1.63 billion. Česká pojišťovna’s market share in thissegment fell 1.4 percentage points to 8.9%.

New life insurance business in 2009 contracted 1.7%. In conventional policies the decrease was 2.1% and insingle-premium policies it was 1.3%. In monetary termsthe decrease totaled CZK 3.2 billion.

Description of Product Portfolio

Česká pojišťovna’s portfolio of key insurance products in2009 continued to be comprised of DYNAMIK Plus flexibleunit-linked life insurance, accident insurance, SLUNÍČKOand the new SLUNÍČKO Plus insurance for children,KOMBI deposit insurance, and GARANCE single-premiumunit-linked insurance.

A very successful newcomer to the product line-up was the new unit-linked life insurance product Patriot, whichhas been on sale since 1 March 2009. The product wasconceived in late 2008 in response to the ongoing financialcrisis, specially for the Česká pojišťovna internal network. It is targeted at a specific segment of customers who preferbasic coverage over a shorter period of time and demanda guaranteed and, at the same time, higher return.

The new travel insurance (one year has now passed sinceit was redefined) has been seeing particularly excellentsales performance. Customers find it attractive for its widerange of risks covered and the variability of its terms.

The biggest new launch in 2009 was that of the flexibleinsurance product SLUNÍČKO Plus for children, which ispractical because it can be adapted to any family orsituation in life. It brings with it a number of new featuresand, most importantly, the option of investing cash ininvestment programs or funds. The product also retainsa conventional interest option for more conservative clients.

GARANCE single-premium insurance continued to be soldand another three sales periods (open tranches) reacheda total volume of approximately CZK 400 million. The totalamount that customers have placed through GARANCE in secured funds with minimum guaranteed returns nowexceeds CZK 1 billion. Customers of GARANCE’s tranchesfrom previous years recorded returns of 5–6% for the firstyear of their policy. The product includes insurance againstrisk of death, death by injury in a motor vehicle, as well asaccident insurance.

Late in the year we launched a unique funeral expensesinsurance product, entitled PIETA. Currently Českápojišťovna is the only insurer in the Czech Republicoffering a product of this kind. Its launch builds on a longtradition and experience from offering various types offuneral insurance in the early years of the past century.


Life Insurance Performance by Class

The class of unit-linked insurance where premiums arepaid in regular installments increased its premium revenueby 21.1% from 2008, and DYNAMIK Plus reaffirmed itsposition as the best-selling product of Česká pojišťovna.

Endowment life insurance where premiums are paid inregular installments saw premium revenues fall by 13.3%from 2008 levels, due to the current trend in the lifeinsurance market, which is seeing demand shift towardflexible insurance products with a unit-linked investmentcomponent.

Accident insurance riders to life insurance policies area product group that has been posting excellent results for a long time now. In 2009 this class saw its premiumrevenues grow 3.2% to CZK 2.85 billion.

Claims Paid

In 2009 claims paid rose 12.7% from the previous year’sfigure, to a total of CZK 10.9 billion.

Like in previous years, the greatest number of claims paidwas in “Endowment and whole life insurance, survival ordeath”. In terms of monetary volume, the most claims (CZK 4.9 billion) on life insurance contracts were paid onsurvival of the insured to contract term.

All told, 538,000 claims were settled.

Outlook

In 2010 continued growth in the unemployment rate isexpected, in line with the development of economies inEurope, and should flatten off in the second half of theyear. In view of the state of the economy, continued slowgrowth in the share of life insurance can be expected in2010. Over the long term, however, life insurance’s sharein overall premium revenue can be expected to grow andapproach levels commonly seen in more advanced countries.


Customer Services

Česká pojišťovna‘s Customer Services unit encompasses allactivities related to providing services to customers andadministering their insurance contracts, such as enteringcontracts in the system, making changes in contractparameters, processing premium payments, and handlingall aspects of claims – from initial reporting to payout.Through the Communications Center and the CentralMailroom, Customer Services handles all written andtelephone communications with clients, insurance dealers,and business partners.

Within the implementation of the Customer Servicesstrategy, changes to the organization were made in early2009 that helped increase customer satisfaction andprocess efficiency. Among others, the changes includedsupporting customer segmentation in the claims handlingfunction, where a program to manage claims expenditurescontinued to be successfully developed this year. Thisprogram’s primary objectives are to put a stop to insurancefraud, increase the effectiveness of our cooperation witha network of specialists that help us investigate claims,more accurately appraise property obtained by Českápojišťovna in the claims handling process, and make use ofnew technologies and processes in repairing and cleaningup damaged property. These initiatives are bearing fruit inthe form of a reduced loss ratio. In 2010, Česká pojišťovnawill continue in these activities, and serve customersaccording to the new rules conceived to ensure theirsatisfaction. In 2009, Česká pojišťovna’s non-life claimshandling section set a new speed record in processing30,000 insurance claims reported by customers affectedby natural catastrophes in the summer. Life insuranceclaims will continue to be handled using a streamlinedprocess for selected types of claims. This processconsiderably reduces the time elapsed between when theclaim is reported and when insurance benefits are paidout.

In 2009, the Česká pojišťovna Communications Centercontinued successfully to develop the “Service to Sales”direct distribution channel, which is based on the principleof offering simple products to customers who call in, anddetermine their needs over the telephone. This modeloffering for incoming calls enabled us to sell morecontracts last year, and realize an 18% increase inpremium revenue while keeping channel costs low. In a 24x7 service regime, operators served 2.2 millionsclients and processed 2.1 million requests submitted bycustomers electronically or on paper. At the same time,the portfolio of contract types sold was expanded,bringing the offering of insurance over the telephone toa level of development comparable with other distributionchannels. The offering currently encompasses liabilityinsurance, insurance of buildings, household effects,MTPL, motor damage, pets, accident, and supplementalpension insurance. September 2009 saw the launch of theNon-life Insurance Contract Retention project and by year-end, thanks to newly built teams, we succeeded inretaining a large number of at-risk policies. The annual“mystery calling” independent survey of communicationscenters took place in June 2009, and the Česká pojišťovnaCommunications Center took second place. Maintenanceof operator communication skills at an excellent qualitylevel and operators’ consistent focus on comprehensivecustomer service are also demonstrated by a 50% year-on-year shift in measured customer satisfaction.


The leaders of the Customer Relations Management(CRM) team successfully launched several new initiativesat Česká pojišťovna and other companies belonging toGenerali PPF Holding. Segmented service managementwas introduced, and a special Customer Services sectionwas opened on the ČP website. Here, customers canchange various personal information, report a claim,change information on an insured vehicle, and do manyother things. Thanks to these initiatives, ČP has becomethe insurer with the broadest portfolio of 24-hour on-lineservices. Also in the CRM area, the first half of 2009 sawthe launch of objective, ongoing measurement ofcustomer satisfaction in key processes, enabling us tocontinually evaluate customer needs and take a number of optimization measures. These measures cut the time ittakes us to respond to customer requests, simplified andstreamlined our processes, and improved cooperation withthe sales force.

Through a set of campaigns, the CRM team is helping thesales force – and Česká pojišťovna as a whole – to meettargets. A key activity was working with the policy base,while managing the load over all distribution channels.This bore fruit in the form of a 122% year-on-yearincrease in new business. Also very successful last yearwere targeted activities relating to life insurance policiesnearing expiration.

To streamline operations and improve cost effectiveness,projects were implemented that focused on optimizinginternal support services. These changes yielded budgetsavings of over CZK 185 million in 2009.


Investment Policy

After insurance and reinsurance, another importantactivity area for Česká pojišťovna is financial investment. In financial terms, investments comprise the bulk of theCompany’s assets and they are financed mostly byinsurance provisions (for this reason, they are sometimesreferred to as “financial placements of insuranceprovisions”) and by the Company’s shareholders’ equity.Financial placements of insurance provisions account for97% of total investments; the remaining three percent iscomprised of other sources.

Until the end of 2009, the composition of financialplacements of insurance provisions was regulated byDecree No. 303/2004 Coll. implementing certainprovisions of the Insurance Act, as amended. Througha system of limits, the Decree regulates the structure ofa substantial portion of an insurance company’s overallinvestments. Česká pojišťovna has taken these regulatorylimits into account in its internal directives, policies andprocedures. The purpose of these internal rules is toensure that investments are safe, profitable, and liquid so that the Company is always capable of meetingobligations to customers in both life and non-lifeinsurance.

The volume and structure of the Company’s financialinvestments at year end 2009 are shown in the graph andtable entitled “Structure of Investments (IFRS, Book Value),by Business Segment.”

As the year 2009 began, Česká pojišťovna found itself in the middle of the worst financial crisis in the past 70years. In the first quarter, there was yet another decline in equity markets. At that time, we felt the positive effectof measures taken by the Company in late 2008 – inparticular, the reduced weighting of riskier assets in theportfolio and the reclassification of a portion of equityinvestments to assets available for sale. Higher-riskinstruments in the portfolio were cut further in March, in conjunction with the sale of shares in Zentiva. From thesecond quarter, the impact of monetary and fiscal stimulusmeasures began to be felt in the real economy as well asin the financial markets. At this time, Česká pojišťovnatook the opportunity to increase its allocation intosegments that were undervalued as a result of themarket’s earlier uncertainty. In terms of the bottom line forthe year, that proved to be key, because in the remainderof the year Česká pojišťovna profited from growth in theprices of these assets. The 2009 gross investment resultbefore adjustment for portfolio management fees wasa profit of CZK 5.812 billion.

The most likely scenario in the subsequent period is thatof a gradual recovery in the real economy. At the sametime, we can expect to see a tightening of monetary andfiscal policies. In such a scenario one cannot expect to seesuch favorable developments in financial markets as wereseen in the second half of 2009. On the other hand, thereis no reason to expect any sudden or major drop in the market prices of financial assets. In view of thedevelopment forecast and approved investment policy, nosignificant change in the relative weightings of individualassets classes is expected within the structure of Českápojišťovna’s investments.


Structure of Investments (IFRS, Book Value), by Business Segment

25.5%

74.5%

Lifeinsurance

Non-lifeinsurance

Financial Investments Within the LifeInsurance Segment

As at 31 December 2009, the life insurance segmentcontained a total of CZK 73.1 billion in investments. Of this amount, CZK 3.5 billion (4.7%) consisted offinancial investments to policies where the risk is borne bypolicyholder. The remaining investments in this segmentwere sourced from traditional life insurance provisions, as well as a portion of the Company’s own resourcesallocated to this segment. The bulk of this money isinvested in fixed-income instruments (CZK 60.8 billion),consisting mainly of debt securities (CZK 51.6 billion) andfixed-term bank deposits (CZK 5.5 billion). This portion of the portfolio consists, in particular, of domestic andforeign government bonds and high-rated corporatesecurities, as well as deposits with highly capitalizeddomestic and international banks.

Life insurance provisions are characteristically long-term induration. Accordingly, debt securities also have a longeraverage time to maturity, in order to ensure stable long-term yields and meet obligations to policyholders. In termsof accounting classification, a substantial portion of debtsecurities are included in financial assets held for sale so asto reduce earnings volatility resulting from changes ininterest rates.

The second largest group of assets in terms of volume isequity securities (shares, unit certificates, and othervariable-yield securities). They account for 12.0% of thetotal, or CZK 8.8 billion in absolute terms. The objective of investing in these instruments is to generate returns in the medium and long term and act as a suitablecounterweight to that portion of the portfolio that issensitive to movements in interest rates, in order tooptimize returns and diversify risk.

The investment portfolio is rounded out by otherinvestment property – buildings and land. In past years,this investment category has declined in importance andat year end 2009 its value was CZK 85 million, i.e. 0.2%of life insurance investments.

The gross return on life insurance investments, beforededuction of management fees, was CZK 4.754 billion. Of this amount, financial investments to policies where the risk is borne by policyholder accounted for CZK 529 million. Interest on debt securities and depositsand gains realized on sales of shares and unit certificateswere the biggest sources of returns.


Structure of Investments (IFRS, Book Value) in Life Insurance Business Segment

12.0%

0.2%4.7%

83.1%

Equity securities

Fixed-incomeinstruments

Financial investments to policieswhere the risk is borneby policyholder

Other assets

Financial Investments Within the Non-lifeInsurance Segment

Investments in the non-life segment consist of financialinvestments financed primarily by non-life insuranceprovisions and that portion of equity that is allocated tothis segment.

In accordance with the short-term character of non-lifeinsurance liabilities, the corresponding investments alsohave shorter terms; they are highly liquid instruments thatcan be converted into cash quickly when needed to payinsurance claims.

At year end, the non-life insurance portfolio was valued atCZK 25.0 billion. The bulk (CZK 22.6 billion, or 90.5%)was in fixed-income instruments, and within that categorydebt securities accounted for CZK 16.0 billion and fixed-term bank deposits CZK 3.2 billion. Equity securitiesrepresent 9.5% of investments in the non-life segment, or CZK 2.4 billion.

Compared to the previous year, there was an increase in the volume of assets that are classified, for accountingpurposes, as available for sale. Currently these assetsaccount for 53% of the non-life portfolio. On the otherhand, the weighting of financial assets at fair valuethrough profit or loss fell to 21%.

The total return on investments within the non-lifeinsurance segment, before deduction of managementexpenses, was CZK 1.059 billion in 2009. Like in the lifeinsurance segment, the biggest contributors to the resultwere interest yields on bonds and deposits and gainsrealized on sales of shares and unit certificates.


Structure of Investments (IFRS, Book Value) in Non-life Insurance Business Segment

90.5%

9.5%

Equity securities

Fixed-incomeinstruments


Structure of Investments (IFRS, Book Value) by Source of Financing

Life insurance Non-life insurance

CZK ‘000 % CZK ‘000 %

Buildings and land (investment property) 85,103 0.12% 0 0.00%

Loans 4,347,443 5.95% 3,513,128 14.07%

Unlisted debt securities 1,852,415 2.53% 0 0.00%

Loans and advances provided under repo transactions 1,988,222 2.72% 2,242,125 8.98%

Other loans 506,806 0.69% 1,271,003 5.09%

Financial assets held to maturity 87,493 0.12% 0 0.00%

Debt securities 87,493 0.12% 0 0.00%

Financial assets available for sale 43,446,782 59.42% 13,163,381 52.73%

Debt securities 37,227,699 50.91% 10,979,119 43.98%

Shares, unit certificates, and other variable-yield securities 6,219,083 8.51% 2,184,262 8.75%

Financial assets at fair value through profit or loss 20,785,985 28.43% 5,339,511 21.39%

Debt securities 14,291,858 19.55% 5,010,706 20.07%

Shares, unit certificates, and other variable-yield securities 2,583,125 3.53% 191,089 0.77%

Financial investments to policies where the risk is borne by policyholder 3,450,155 4.72% 0 0.00%

Positive market value of derivatives 460,847 0.63% 137,716 0.55%

Other investments 5,504,884 7.53% 3,234,844 12.96%

Fixed-term bank deposits (net of reinsurance deposits received) 5,504,884 7.53% 3,234,844 12.96%

Financial liabilities (net of bonds outstanding) (1,137,703) (1.56%) (286,909) (1.15%)

Loans and advances received under repo transactions (378,444) (0.52%) 0 0.00%

Negative market value of derivatives (759,259) (1.04%) (286,909) (1.15%)

73,119,988 100.00% 24,963,956 100.00%

Reinsurance

Česká pojišťovna’s reinsurance program is a long-termcontributor to the Company’s balanced earnings andstability. As a risk management tool, reinsurance protectsČeská pojišťovna, along with its clients and shareholders,from unexpected catastrophic events as well as fromrandom variations in loss frequency. Analysis ofreinsurance needs and optimizing of reinsurance structuretakes place using modern dynamic financial analysis toolsutilizing know-how at the Generali PPF Holding level andwith the support of reinsurance brokers.

Česká pojišťovna’s principal and obligatory reinsurancepartner is the Group’s captive reinsurer, GP Re, based inBulgaria. Through GP Re, risks are further retroceded to the Group’s reinsurance contracts. Thanks to thisoptimization, Česká pojišťovna can profit from theadvantages of Group coverage and thereby further reducereinsurance costs while expanding coverage terms. TheGroup has taken out reinsurance coverage from many ofthe world’s leading reinsurers; the selection is based ona careful analysis of their financial stability and quality ofservices. It goes without saying that our partners in thisarea have a high rating and clear Group rules determinethe maximum possible exposure that Česká pojišťovnamay have toward each one of them. Geographicaldiversification is a necessary precondition, of course,supported by the stability of proper business relationshipsthat Česká pojišťovna has built up in years past.

Thanks to intensive, painstaking work detailinginformation on individual risks in the portfolio, Českápojišťovna is able, through the use of sophisticatedmodels, to control its exposure in the area of catastrophicrisks. Currently, flood losses are modeled regularly over thepersonal lines, commercial lines, and large risks portfolios.Windstorm losses are modeled in a similar structure andanalysis of hail risk is being developed as well. Thestructure of the models and validation of their outputscontinue to be subjected to detailed analysis by Českápojišťovna specialists working with key experts from bothindustry and academe.

At the reinsurance and underwriting level, informationand know-how are regularly shared within the Group,particularly in the areas of product management and lossadjustment. Procedures in the areas of risk managementand exposure control are also consulted with our affiliates.This know-how is further transferred to the Company andserves us well in negotiations with reinsurers onoptimizing reinsurance conditions in terms of scope,exceptions, and special accepts.

Given the high rating of Česká pojišťovna, our Company is perceived by partners both in the Czech Republic andinternationally as a stable and strong partner in thereinsurance area as well. This fact is evident in both risingvolumes of inwards obligatory reinsurance within theGroup, as well as the rising number of facultative deals inthe area of large industrial risks insurance.

Each year, the reinsurance program is modified at theGenerali PPF Holding level to ensure that it reflectschanges in the portfolio and the product line and respectsthe differences between individual insurance companies inthe Group. Thanks to our size and importance within theGPH Group, Česká pojišťovna is a principal initiator ofchanges and modifications to the Group-wide reinsuranceprogram, giving us fundamental influence over its finalappearance.

With regard to developments in reinsurance markets andincreased instability in the financial sector, of whichreinsurance is an integral part, in the future we can expectto see further increases in insurance company and group retention, growth in the internal proportions ofreinsurance programs, and maintenance of non-proportional reinsurance at the Group level. Financial riskmanagement models will play an ever greater role inreinsurance. Since the use of these models is dependenton the quality of input data, this can be expected to leadto further improvements in the processing of data onindividual risks and losses within Česká pojišťovna and theentire GPH Group.


Nuclear Pool

The Czech Nuclear Insurance Pool (“CNIP”) is an informalconsortium of non-life insurers based on co-insurance andreinsurance of nuclear risks.

The CNIP operates both as an insurer of domestic risks and in the area of inwards reinsurance. Due to the uniquecharacter of nuclear risks, individual insurance companiesusually do not insure them. The insurers in the CNIP eachprovide their own net lines, the sum of which forms theoverall capacity of the CNIP for individual types of insuredrisks. Since the CNIP’s inception, Česká pojišťovna hasbeen the lead co-insurer based on an agreement amonginsurers participating in the pool. The CNIP’s executivebody is the CNIP Office, which is an independentdepartment within the Česká pojišťovna organization.

In 2009, CNIP’s insurance premium revenues wereaffected by two factors. Effective from 4 July 2009, an amendment to the “Nuclear Act” increased themandatory liability insurance limit for operators of nuclearinstallations. This led to a certain increase in premiumrevenues. The second major factor, however, was a majorreduction in the insurance period (to three months fromthe previous one year) on one of the largest insurancecontracts. Taken together, these two factors causeda slight decrease in premium revenues compared to 2008– Česká pojišťovna’s share contracted by approximately CZK 2 million.

In the inwards reinsurance area, CNIP managed toleverage the opportunity given by increased liabilityinsurance limits in certain foreign pools. Thanks toeffective utilization of CNIP’s capacity, inwards reinsurancepremiums rose compared to 2008, increasing Českápojišťovna’s share by approximately CZK 3 million.Compared to 2008, then, the overall trend in directpremium and inwards reinsurance revenues was positive.

Nuclear risks have a unique standing in the insurancemarket. In 2009, practically all the major non-life insurersthat operate in the Czech market were members of theCzech Nuclear Insurance Pool. Česká pojišťovna’s share in the pool’s overall capacity fell slightly from 2008’s level,due to increased capacity of the other member insurers,and is currently slightly below 40%.

So far in its history, the Czech Nuclear Insurance Pool hasnot paid any insurance claims.

In view of the unique character of nuclear risks, our goalfor the future is to maintain the premium at 2009’s level.


During 2009, the Supervisory Board discharged its dutiesunder the law and the Articles of Association. It met eighttimes. It oversaw the Board of Directors’ performance andthe implementation of the Company’s businessoperations. It verified whether the Company conducted itsbusiness operations in accordance with applicable law, theArticles of Association, and instructions given by GeneralMeetings and/or decisions of the sole shareholder. TheSupervisory Board also dealt with complaints delivered tothe Supervisory Board from the Company’s customers andbusiness partners.

During its meetings, the Supervisory Board discussed theCompany’s financial performance, the fulfillment of thefinancial and commercial plan, the investment policy, andthe financial performance of the Company’s subsidiaries.The Supervisory Board monitored the company’s strategicobjectives as well as those of its subsidiaries.

The Supervisory Board reviewed the Company’s financialstatements for the 2009 accounting period, theCompany’s consolidated financial statements for the 2009accounting period, and the Report on Relations Betweenthe Company and Related Entities for the 2009accounting period, and found nothing therein that wouldgive the Supervisory Board reason to pronouncea negative opinion on the contents of said documents.

Prague, 29 April 2010

Milan Maděryč Chairman of the Supervisory Board


Supervisory Board’s Report

To the Shareholder of

Česká pojišťovna a.s.

We have audited the financial statements of Českápojišťovna a.s., identification number 45272956, withregistered office at Praha 1, Spálená 75/16, PSČ 11304(“the Company”) for the year ended 31 December 2009disclosed in the annual report in the section “Českápojišťovna a.s. Financial Statements, Year ended31 December 2009” and issued the opinion dated12 March 2010. We have also audited the consolidatedfinancial statements of the Company for the year ended31 December 2009 disclosed in the annual report in thesection “Česká pojišťovna a.s. Consolidated FinancialStatements, Year ended 31 December 2009” and issuedthe opinion dated 19 April 2010 (hereinafter collectivelyreferred to as “the financial statements”).

Report on the Annual Report

We have verified that the other information included inthe annual report of the Company for the year ended31 December 2009 is consistent with the financialstatements referred to above. The Board of Directors is responsible for the accuracy of the annual report. Ourresponsibility is to express an opinion on the consistencyof the annual report with the financial statements basedon our verification procedures.

Auditor’s Responsibility

We conducted our verification procedures in accordancewith the International Standards on Auditing and therelated application guidance of the Chamber of Auditorsof the Czech Republic. Those standards require that weplan and perform the verification procedures to obtainreasonable assurance about whether the other informationincluded in the annual report which describes matters thatare also presented in the financial statements is, in allmaterial respects, consistent with the relevant financialstatements. We believe that the verification proceduresperformed provide a reasonable basis for our opinion.

Opinion

In our opinion, the other information included in theannual report of the Company for the year ended31 December 2009 is consistent, in all material respects,with the financial statements.

The maintenance and integrity of the Company’s websiteis the responsibility of its Board of Directors; the workcarried out by the auditors does not involve considerationof these matters and, accordingly, the auditors accept noresponsibility for any changes that may have occurred tothe financial statements since they were initially presentedon the website.


Independent Auditor’s Report

PricewaterhouseCoopers Audit, s.r.o., registered seat Kateřinská 40/466, 120 00 Prague 2, Czech Republic, Identification Number: 40765521,registered with the Commercial Register kept by the Municipal Court in Prague, Section C, Insert 3637, and in the Register of Audit Companies with the Chamber of Auditors of the Czech Republic under Licence No 021.

© 2009 PricewaterhouseCoopers Audit, s.r.o. All rights reserved. “PricewaterhouseCoopers” refers to the Czech firm of PricewaterhouseCoopersAudit, s.r.o. or, as the context requires, the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

PricewaterhouseCoopers Audit, s.r.o.Kateřinská 40/466120 00 Prague 2Czech RepublicTel.: +420 251 151 111Fax: +420 251 156 111

Report on review of the Report on Relations

In addition we have also reviewed the accompanyingreport on relations between the Company and itscontrolling party and between the Company and the other persons controlled by the same controlling party for the year ended 31 December 2009 (the “Report”). The completeness and accuracy of the Report is theresponsibility of the Board of Directors of the Company.Our responsibility is to review the accuracy of informationincluded in the Report.

Scope of ReviewWe conducted our review in accordance with theInternational Standard on Review Engagements 2410 andrelated application guidance of the Chamber of Auditorsof the Czech Republic for review of the report onrelations. These standards require that we plan andperform the review to obtain moderate assurance as to whether the Report is free of material misstatement. A review is limited primarily to inquiries of Companypersonnel, analytical procedures and examination, on a test basis, of factual accuracy of data. A review thereforeprovides less assurance than an audit. We have notperformed an audit and, accordingly, we do not expressan audit opinion.

Conclusion

Based on our review, nothing has come to our attentionthat causes us to believe that the accompanying Reporthas not been properly prepared, in all material respects,in accordance with the requirements of Article 66a of theCommercial Code.

28 April 2010

PricewaterhouseCoopers Audit, s.r.o.represented by

Marek RichterPartner

Martin MančíkAuditor, Licence No. 1964


Statement

We hereby declare that the information presented in thisAnnual Report is factual and that no material informationhas been omitted that could influence an accurate andprecise assessment of the issuer and the securities issuedby it.

Hana PleskačováExecutive Board Member for Financial Management

Marcel DostalVice Chairman of the Board of Directors and Executive Board Member for Investment Policy

Ivan VodičkaVice Chairman of the Board of Directors and Chief Executive Officer

Audit of the Financial Statements

Since 2008, the financial statements have been audited byPricewaterhouseCoopers Audit, s.r.o. The financialstatements of Česká pojišťovna were audited on 12 March2010, and the consolidated financial statements of Českápojišťovna were audited on 19 April 2010.

ID number: 407 65 521Registered office: Kateřinská 40, 120 00 Prague 2Statutory audit firm – license no. 21Auditor-in-charge: Martin MančíkLicense number: 1964


Persons Responsible for the Annual Report

Basic Organization Chart of Česká pojišťovna

Česká pojišťovna ZDRAVÍ a.s. Address: Litevská 1174/8, 100 05 Prague 10Info line: +420 841 111 132Telephone: +420 267 222 515Fax: +420 267 222 936E-mail: [email protected]: www.zdravi.cz

Penzijní fond České pojišťovny, a.s.Address: Truhlářská 1106/9, 110 00 Prague 1Telephone: +420 840 111 280Fax: +420 221 109 518E-mail: [email protected]: www.pfcp.cz

ČP INVEST investiční společnost, a.s.Address: Na Pankráci 1658/121, 140 21 Prague 4Infolinka: +420 844 111 121Telephone: +420 545 596 104Fax: +420 241 400 917E-mail: [email protected]: www.cpinvest.cz

ČP DIRECT, a.s.Address: Na Pankráci 1658, 140 21 Prague 4

Pankrác services s. r. o.Address: Na Pankráci 1658, 140 21 Prague 4

REFICOR s.r.o.Address: Na Pankráci 1658, 140 21 Prague 4

Nadace České pojišťovnyAddress: Na Pankráci 1658, 140 21 Prague 4


Organization and Contacts

Directory of Selected Companies in the Česká pojišťovna Group

General Meeting

Supervisory Board

Board of Directors

Chief Executive Officer

Executive Board Member for Distribution

Executive Board Member for Industrial Insurance and Reinsurance

Executive Board Member for Customer Services

Executive Board Member for IT and System Architecture

Executive Board Member for Financial Management

Executive Board Member for Investment Policy and Asset and Liability Management

Executive Board Member for CRM and Marketing

Region No. 1Address: U Stromovky 9/1481,

736 01 HavířovTel.: +420 596 271 513

Region No. 2Address: Svárov 1080,

755 22 VsetínTel.: +420 571 498 144

Region No. 3Address: 28. října 60,

702 65 OstravaTel.: +420 596 271 654

Region No. 4Address: Hrnčířská 1,

746 01 OpavaTel.: +420 553 688 102

Region No. 5Address: nábřeží Přemyslovců 8,

772 00 OlomoucTel.: +420 585 519 216

Region No. 6Address: Lorencova 3791,

760 01 ZlínTel.: +420 571 773 113

Region No. 7Address: náměstí T.G.M. 10A,

690 66 BřeclavTel.: +420 519 301 114

Region No. 8Address: Rašínova 7,

601 66 BrnoTel.: +420 542 593 309

Region No. 9Address: Rašínova 7,

601 66 BrnoTel.: +420 542 593 101

Region No. 10Address: Na Poříčí 595,

738 01, Frýdek-MístekTel.: +420 558 425 106

Region No. 11Address: tř. Míru 2647,

532 12 PardubiceTel.: +420 466 814 118

Region No. 12Address: Purkyňova 65,

568 20 SvitavyTel.: +420 461 571 713

Region No. 13Address: Pražská 1280,

370 04 České BudějoviceTel.: +420 387 841 424

Region No. 14Address: Holečkova 418,

386 39 StrakoniceTel.: +420 384 373 325

Region No. 15Address: nám. 28. října 20,

500 02 Hradec KrálovéTel.: +420 495 076 387

Region No. 16Address: Žižkova 89,

586 36 JihlavaTel.: +420 567 146 213

Region No. 17Address: Wágnerovo nám. 1541,

266 59 Beroun 2Tel.: +420 318 470 413

Region No. 18Address: V. Klementa 1228/1,

293 01 Mladá BoleslavTel.: +420 326 741 013

Region No. 19Address: Mostní 73,

280 90 KolínTel.: +420 321 742 706

Region No. 20Address: Mírové nám. 37,

400 64 Ústí n. LabemTel.: +420 472 768 103

Region No. 21Address: Moskevská 1/14,

434 01 MostTel.: +420 476 140 413

Region No. 22Address: Felberova 4/8,

460 95 LiberecTel.: +420 485 343 309

Region No. 23Address: Slovanská alej 24A,

317 00 PlzeňTel.: +420 377 170 644

Region No. 24Address: Jaltská 1,

361 17 Karlovy VaryTel.: +420 353 337 103

Region No. 25Address: Hornická 1695,

347 17 TachovTel.: +420 376 792 804

Region No. 26Address: Hráského 2231/24,

140 00 Prague 4Tel.: +420 224 551 389

Region No. 27Address: Molákova 11/576,

180 00 Prague 8Tel.: +420 224 555 581

Region No. 28Address: Sokolovská 81/55,

180 00 Prague 8Tel.: +420 224 558 713

Region No. 29Address: Štefánikova 10,

150 00 Prague 5Tel.: +420 224 556 402


Directory of Česká pojišťovna Head Office and Regions

Česká pojišťovna a.s.Registered office: Spálená 75/16, 113 04 Prague 1Head office: Na Pankráci 1720/123, 140 21 Prague 4ČP Customer Services: 841 114 114ČP Asistent, roadside assistance service: +420 224 557 004Telephone: +420 224 550 444E-mail: [email protected]: www.ceskapojistovna.cz

57 Česká pojišťovna a.s. | Annual Report | 2009

Supplemental Information on the Financial Situation and Information for Investors

Listed Security Issuer Information

Company name Česká pojišťovna a.s.

Legal form Joint stock company

Registered office Spálená 75/16, 113 04 Prague 1

ID number 452 72 956

Tax ID number CZ 4527 2956

Bankers Crédit Agricole Corporate and Investment Bank

Account number 100159342/5000

Date of inception 1 May 1992 The Company was founded as a going concern.

Legal regulation The Company was founded (pursuant to Section 11(3) of Act No. 92/1991 Coll. on the Conditions for the Transfer of State Property to Other Entities, as amended) by the National Property Fund of the Czech Republic under a Founder’s Deed dated 28 April 1992 and was incorporated by registration in the Commercial Register on 1 May 1992.

Incorporation in Commercial Register Prague Municipal Court Part B, Entry 1464

Shareholder Structure of the Company

Shareholder 31/12/2009 31/12/2008 31/12/2007 31/12/2006 31/12/2005 31/12/2004

Česká pojišťovna a.s.

CESPO B.V. 97.70%

PPF Group N.V. 100.00 %

CZI Holdings N.V. 100.00 % 100.00 % 100.00 % 100.00 %

Ostatní 2.30 %


Securities Issued by Česká pojišťovna

Shares

On 30 June 2006 the sole shareholder, acting with the powers of the Company’s General Meeting, decided to increase the share capital by CZK 1,019,037,000 out of the Company’s equity, i.e. from retained earnings. The capital increase was recorded in the Commercial Register on 15 August 2006. On 19 September 2006, pursuant to a decision of the sole shareholder acting with the powers of the General Meeting, the nominal value of the Company’s shares was changed from CZK 1,000 per share to CZK 100,000 per share and the share capital consisted of 40,000 shares.

As no further changes have taken place in the share capital, as at 31 December 2009 the approved share capital consisted of 40,000 booked, registered shares of common stock with a total amount of CZK 4,000,000,000.

Issue (ISIN) CZ0009106043Type of security common stockForm registeredAppearance bookedNominal value CZK 100,000Number of securities 40,000Total volume CZK 4,000,000,000Issue date 15 November 2006Listings in regulated (public) markets Unlisted security (not traded in public markets)

Bonds

On 13 December 2007, as part of its bond program, Česká pojišťovna issued 250 bonds in a total nominal value of CZK 500,000,000. The bonds bear interest at a fixed rate of 5.10% p.a.

Issue (ISIN) CZ0003701401Type of security bondForm bearerAppearance bookedNominal value CZK 2,000,000Number of securities 250Total volume CZK 500,000,000Issue date 13 December 2007Maturity of bonds 13 December 2012Listings in regulated (public) markets Listed – PSE Official Free Market

The lead manager of the bond issue was CALYON S.A.


Principal Businesses According to Current Articles of Association and Typesof Insurance Written

Česká pojišťovna is a composite insurer offering a wide range of life and non-life insurance classes.

Under a decision of the Ministry of Finance of the Czech Republic acting as the body of State supervision in insurance, ref. no. 322/26694/2002, dated 11 April 2002, which entered into legal force on 30 April 2002 and which grants the Company a license to engage in insurance, reinsurance and related activities, and under a decision of the Ministry of Finance of the Czech Republic acting as the body of State supervision in insurance, ref. no. 32/133245/2004-322 dated 10 January 2005, which entered into legal force on 14 January 2005 and which expands the Company’s license to engage in insurance- and reinsurance-related activities, the Company’s principal businesses are as follows:

insurance activity pursuant to Section 7(3) of Act 363/1999 Coll. on insurance and amending certain related acts (the “Insurance Act”), as amended, consisting of:– life insurance classes 1, 2, 3, 4, 5, 6 set forth in Part A of the Annex to the Insurance Act,– non-life insurance classes 1, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 18 set forth in Part B of the Annex to the Insurance Act,

reinsurance activity pursuant to Section 3(3) of the Insurance Act– for life insurance classes 1, 2, 3, 4, 5, 6 set forth in Part A of the Annex to the Insurance Act,– for non-life insurance classes 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 18 set forth in Part B of the Annex to the Insurance Act,

activities related to insurance and reinsurance activity, pursuant to Section 3(4) of the Insurance Act– acting as an intermediary in relation to insurance and reinsurance activity under the Insurance Act,– consulting activity associated with insurance for individuals and legal entities under the Insurance Act,– investigating insured loss events under an agreement with an insurer under the Insurance Act,– exercising rights and meeting obligations in the name and for the account of the Czech Insurers Bureau pursuant to Act No. 168/1999

Coll., as amended,– arranging for the following financial services (items 1 through 10, below):

1. arranging the acceptance of deposits and other funds from the public, including acting as an intermediary in the areas of building savings and supplemental pension insurance,

2. arranging loans of all kinds including – inter alia – consumer loans, mortgage loans, factoring and financing of business transactions,3. arranging finance leases,4. arranging all payments and money transfers, including credit and debit cards, travelers’ cheques, and bank bills of exchange,5. arranging guarantees and promissory notes,6. arranging for customer trading on individual customer accounts on the stock exchange or other markets, for cash or otherwise,

concerning negotiable instruments and financial assets,7. arranging for the management of assets such as cash or portfolios, all forms of management of collective assets, administration of

pension funds, escrow accounts and custodianships,8. arranging for payment and clearing services relating to financial assets, including securities, derivatives and other transferable

instruments,9. consulting activity, acting as an intermediary, and other ancillary financial services relating to all activities set forth in items 1)

through 9), including loan references and analysis thereof, research and consulting in the area of investments and portfolios, consulting work concerning mergers & acquisitions, corporate restructurings and corporate strategy,

10. arranging for the provision and transmission of financial information and processing of financial data (including related computer software) by providers of ancillary financial services

– training activity for insurance intermediaries and independent loss adjusters, all in the scope of the relevant decisions taken by the Ministry of Finance of the Czech Republic as the body of State supervision in the insurance industry.

Furthermore, the Company engages in all activities related to its ownership participations in other legal entities.


Shareholder Rights and Obligations

Holders of the Company’s ordinary shares are entitled to receive dividends, which are approved in individual time periods, and are entitled to one vote at Company General Meetings for each share they hold.

The rights and obligations of Company shareholders are stipulated by the Commercial Code (Act No. 513/1991 Coll.), as amended, and by the Articles of Association of Česká pojišťovna, which are available for inspection in the Collection of Documents at the Commercial Register. These rights include, most importantly:

– right to a share in the Company’s earnings;– right to participate in the General Meeting and, while at the General Meeting, to vote, to demand explanations, and to raise motions;– pre-emptive right to subscribe new shares in any increase in the share capital, in proportion to the shareholder’s stake in the Company’s

basic share capital prior to the increase. The terms and conditions for changing the share capital amount are set forth in the Company’s Articles of Association;

– right to a share in the liquidation balance arising from dissolution of the Company.

Income from shares is subject to taxation under the applicable laws and regulations of the Czech Republic, i.e. Act No. 586/1992 Coll., on Income Tax, as amended. Dividend income from shares is taxed at a special tax rate of 15%. Exceptions to this are possible under international double taxation treaties.

Articles of Association

The Articles of Association of Česká pojišťovna that were valid in 2009 were approved by the Company’s sole shareholder on 3 November 2006. On 12 February 2009, the Board of Directors of Česká pojišťovna compiled a new consolidated version of the Articles of Association including amendments decided upon by the Company’s sole shareholder on 2 February 2009 and, subsequently, on June 26 the Board of Directors of Česká pojišťovna compiled a new consolidated version of the Articles of Association including amendments decided upon by the Company’s sole shareholder on 19 June 2009.

Fees Paid to Audit Firm in 2009

For Česká pojišťovna For other entities in Česká Pojišťovna(CZK ‘000) Group

Audit-related services 14,245 8,853

Development of Česká pojišťovna’s Solvency Over Time

(CZK billions) 31/12/2009 31/12/2008 31/12/2007 31/12/2006

Life insurance

Required Solvency Margin 3.4 3.5 3.5 3.4

Available Solvency Margin 11.9 8.5 13 13.2

Non-life Insurance

Required Solvency Margin 2.3 2.6 2.7 2.6

Available Solvency Margin 12.2 12.6 7.6 6.5


Human Resources

In line with ongoing streamlining of processes and optimization of costs, 2009 saw another reduction in the number of employees. The employee head count at year end 2009 was 4,107 persons. In other words, during the year the number of employees was reduced by 325 employees compared to 2008. The system of employees’ individual development was closely linked with the system of employee evaluation with the aim of achieving the highest possible return on investments in human resources. The employees with the highest evaluations have an opportunity to further their personal development by attending an internal development program, through an insurance study program organized in cooperation with the University of Jan Amos Komenský, or by attending an executive MBA program under the auspices of the University of Pittsburgh. The Company’s internal continuing education program continued with the goal of retaining and expanding our know-how. The most significant continuing education formats continued to be afternoon seminars on specialized topics and profession pools. Further emphasis on filling key positions from within the Company made Česká pojišťovna a better performer and a more attractive employer. Labor peace was assured and the Collective Agreement for 2010 was signed ahead of schedule. In the employee benefits area, employees of companies covered by the Collective Agreement saw no major changes and employee benefits are comparable to those provided at other financial institutions. Social and sports events for employees and their family members remain an integral part of life at the Company.

Remuneration Principles – Members of the Board of Directors and Supervisory BoardIn general, the compensation model applied to the Company’s statutory bodies and executives reflects the long-term strategy of simplicity and transparency in motivation and remuneration of all employees of Česká pojišťovna.

The terms of remuneration for members of the Board of Directors and Supervisory Board are stipulated in a “Contract on Acting as a Member of a Governing Body of the Joint Stock Company”.

Each member of the Board of Directors and Supervisory Board is entitled to a regular, fixed, monthly remuneration designated for members of the joint stock company’s governing bodies and pre-approved by the General Meeting. The amount is paid monthly, by the 15th calendar day of the month, in arrears.

Should a member of one of the Company’s governing bodies discharge his or her office only for a part of the calendar month (e.g. in cases when membership in the Company’s governing body terminates), s/he is entitled to remuneration on a pro rata basis.

Members of governing bodies that are concurrently employees of the Company receive remuneration pursuant to principles stipulated universally for the entire Company in the form of the Wage Rules and the Social Program, which form an integral part of the Collective Agreement.

Based on the Wage Rules, executives – like other Company managers – are entitled to the following wage components:

Base WageFor managers, as for all other employees, the base wage is governed by the Wage Rules and other rules defined by the Collective Agreement. The specific base wage amount for positions in management is stipulated on an individual basis in the manager’s employment contract, or by wage decree, and is in line with standard practice in the Czech Republic market. Proportionally, the base wage is approximately 50% of the executive’s overall cash income from employment.

Bonuses and Other Variable Wage ComponentsBonuses and other variable wage components, if any (performance-based bonus, project bonus, etc.) are governed by unified rules. Bonus entitlements for the given calendar year are defined in writing. The written pledge includes a definition of the manager’s tasks and targets, the bonus amount, and rules for payment of the bonus. The average bonus amount in the event stipulated goals are met is 4.5 times the base monthly wage and essentially copies the usual market level. The upper limit for bonuses paid to executives is 12 times the base wage. 50% of the amount is strictly linked to achievement of the Company’s financial targets. The remaining 50% consists of targets set individually for the executive in question. For other managers, the weighting of Company-wide indicators is 10–40%, depending on management level.

Other BenefitsAll Company employees, including executives, are entitled to a CZK 333/month life insurance contribution under the Social Program stipulated by the Collective Agreement. At the same time, they have the option to receive a pension fund contribution of CZK 300–1,500 per month, according to rules stipulated in the Collective Agreement. In the case of executives, the pension fund contribution can be replaced by a financial contribution towards healthcare and prevention up to CZK 15,000 per year depending on the position.


In total, members of the Board of Directors drew health care contributions in an aggregate amount of CZK 15,000 and members of the Supervisory Board drew contributions in an aggregate amount of CZK 8,000.

Executive cars pursuant to an internal standard given by internal directives were used by one member of the Board of Directors. Vehicle use is governed by statutory tax regulations.

One member of the Supervisory Board received a temporary contribution to help defray the cost of accommodation related to the conduct of managerial activity and one member of the Supervisory Board received a contribution to help defray garage rent for a passenger car.

Information on Persons With Executive Authority

In 2009, the Company did not have any records of loans extended to members of the Board of Directors and/or Supervisory Board.

No member of the Company’s Board of Directors or Supervisory Board is in a conflict of interest due to membership in governing bodies of other companies.

Principal activities of members of the Board of Directors and Supervisory Board in other companies, to the extent they are material for the Company:– membership of Mr. Ladislav Bartoníček in the Board of Directors of Generali PPF Holding B.V. and in the management of Generali PPF

Holding B.V., organizational unit,– chairmanship of Mr. Štefan Tillinger in the Board of Directors of Generali Pojišťovna, a.s.,– vice chairmanship of Mr. Lorenzo Kravina in the Supervisory Board of Generali Pojišťovna, a.s., membership in the Supervisory Board of

Generali PPF Holding B.V.

No member of the Board of Directors or Supervisory Board has been convicted of a fraud-related crime.

Benefits Received by Statutory Bodies and Executives in 2009

CZK ‘000 Monetary benefits In-kind benefits from issuer from issuer

Board of Directors

Total: 55,881 332

of which:

– from board membership 2,400

– from employment 53,481 332

Supervisory Board

Total: 6,847 396

of which:

– from board membership 1,510 396

– from employment 5,337

In 2009, executives received no material benefits, whether monetary or in-kind, from entities controlled by the issuer.

Monetary benefits are defined as the sum of all cash income received by the board member for the 2009 accounting period from Česká pojišťovna and from entities controlled by Česká pojišťovna (in particular, remuneration for membership in Company boards, executive pay, wages, remuneration and bonuses, income on the basis of other agreements and collective endowment life insurance on death or survival). In total, members of the Company’s statutory boards received directly from the issuer the amount of CZK 63,456,000 including both income from acting as a member of a statutory board and from acting as a Company executive employee.

In-kind benefits are defined as the sum of the values of all non-cash (in-kind) income items that the board member received for the 2009 accounting period from Česká pojišťovna and from entities controlled by Česká pojišťovna (in particular executive cars, managerial healthcare program, and benefits under the Collective Agreement).

Members of the Board of Directors (Supervisory Board) are entitled to receive Board of Directors (Supervisory Board) member remuneration regardless of whether they are concurrently employed with the Company or not. The remuneration amount is set by the General Meeting. The last General Meeting decision remains in effect until such time as the General Meeting decides on a new amount. Remuneration is not dependent on fulfillment of tasks.

Bonuses and other possible variable wage components for executives are described above.


Information on Entities in Which Česká pojišťovna Holds a Participating Share Exceeding 10% of Its Own Net Current Period Earnings

As at 31 December 2009; based on figures available to Česká pojišťovna as at the compilation date of this Annual Report:

Name Registered office ID number Principal Share Stake in Historical business capital share cost (CZK ‘000) capital (CZK ‘000)

Penzijní fond ČP Truhlářská 1106/9, Prague 1 61858692 Supplemental pension insurance 213,700 100.00% 3,059,137

Pankrác services s.r.o. Na Pankráci 1658, Prague 4 28256859 Real estate development, lease 1,247,372 100.00% 1,517,020

Generali Fond de Pensii S.A. Bucuresti, Sector 1, Str. Polizu, n/a Supplemental pension Nr. 58 – 60, Parter insurance, insurance 555,983 99.99% 1,076,857


I. Internal Process of Control Over Compilation of the Financial Statements

The information set forth below concerns the principles and procedures of control and the rules governing the Company’s and the consolidated group’s approach to risk, which the Company and the ČP Group apply in relation to the financial reporting process.

Česká pojišťovna has implemented an internal control and management system that minimizes the risk of incorrect reporting, which relates to the ability of the internal information system to provide timely and accurate information for purposes of internal decision-making and for the purposes of external reporting.

The basic elements of this system are as follows:– Delegation of authority and responsibility– Internal directives defining terms and procedures for processing information– Internal procedures defining checks verifying the accuracy of information– IT governance system– Accounting manual defining unified information content– Internal audit authority– External audit of the financial statements by a world-class audit firm

At the Group level, responsibility for implementing a commensurate system of internal controls is delegated to individual Group companies. Thus, each company is directly responsible for managing this risk.

A unified Accounting Manual is used by all Group companies to compile the consolidated financial statements. All material Group companies are audited by the same audit firm as Česká pojišťovna.

Česká pojišťovna systematically works to fine tune and perfect its internal control system in the financial reporting area and this process has accelerated since the Company and its subsidiaries became part of Generali Group.

II. Compliance with Corporate Code of Conduct

No corporate Code of Conduct is legally binding for Česká pojišťovna a.s. However, Česká pojišťovna a.s. voluntarily complies with the Czech Insurance Association’s Code of Ethics in Insurance, and the Generali Group Code of Ethics.

The Czech Insurance Association’s Code of Ethics in Insurance can be obtained at the address www.cap.cz.

The Generali Group Code of Ethics can be obtained at the address www.generali.com.

III. Description of Company Bodies and Principles by Which They Operate

ČP Board of Directors

The Board of Directors is the statutory body that directs the Company’s operations and acts in its name. The Board of Directors decides in all Company matters that are not reserved by law or the Articles of Association for the General Meeting or the Supervisory Board. Its authority ensues from Czech Republic laws and the Company’s Articles of Association.

The Board of Directors has four members. Members of the Board of Directors serve for four-year terms. From among its members, the Board of Directors elects and removes from office one Chairman and two Vice Chairmen of the Board of Directors.

Standalone Report on Company Management


The Board of Directors’ activities are governed by the activity plan, which the Board of Directors approves for each calendar half-year in advance. The draft plan, including in particular meeting dates, is submitted to the Board of Directors by the Chairman, and is prepared by the Company Secretary based on the Chairman’s instructions. The Board of Directors meets as needed, but no less than once every two months. The Board of Directors’ activity plan is added to and clarified as needed on an ongoing basis during the half-year. If needed, the Chairman of the Board of Directors can call a meeting of the Board of Directors not specified in the activity plan in order to discuss urgent matters relating to the Company.

The Board of Directors exercises its authority outside of meetings as well, in the scope of the Company’s day-to-day operations.

The composition of the Board of Directors as at the date the Annual Report was published is set forth on page 26 of this Annual Report.

ČP Supervisory Board

The Supervisory Board of Česká pojišťovna is the Company’s oversight body, which oversees the exercise of the Board of Directors’ authority and the implementation of the Company’s business activities. Its authority ensues from Czech Republic laws and the Company’s Articles of Association. In particular, the Supervisory Board oversees the functionality and effectiveness of the Company’s management and control system, as well as matters related to its strategic direction.

The Supervisory Board of Česká pojišťovna has three members, two of which are elected and removed from office by the Company’s General Meeting and one of which is elected by Company employees. Members of the Supervisory Board serve for terms of four years.

The Supervisory Board’s activities are governed by the activity plan, which the Supervisory Board approves for each calendar half-year in advance. Outside of the activity plan, the Supervisory Board may discuss such matters as may arise between its meetings, provided the character of such matters so requires. Meetings of the Supervisory Board are held as needed, but no less than four times per year.

Individual checks, investigations, examinations, and inspections of Company materials, etc. are conducted by members of the Supervisory Board either individually or in groups authorized by the Supervisory Board in a resolution adopted at a Supervisory Board meeting or as separately authorized by the Chairman outside of a Supervisory Board meeting. Afterwards, at the immediately following Supervisory Board meeting, the Supervisory Board is informed of the controls conducted by individual members or groups authorized by the Supervisory Board and of the results thereof. Should any serious findings or circumstances arise out of the controls, the Chairman of the Supervisory Board is informed of such on an ongoing basis, even between Supervisory Board meetings.

The composition of the Supervisory Board as at the date the Annual Report was published is set forth on page 27 of this Annual Report.

ČP Audit Committee

The Česká pojišťovna Audit Committee is a Company body that, in particular, supervises, monitors, and submits report on the quality, integrity, efficiency, and effectiveness of existing processes and tools of internal control, financial reporting, and risk management, as well as on compliance of the Company’s operations with the laws and other binding regulations of the Czech Republic.

The Audit Committee consists of three members appointed by the General Meeting based on their expertise and qualifications for carrying out their responsibilities of office.

The authority of the Audit Committee ensue from the laws of the Czech Republic and the internal directives of Česká pojišťovna. The Committee submits reports to the General Meeting and, in certain areas, also operates as an advisory body to the Board of Directors, and its decisions constitute recommendations to the Board of Directors, which bears final responsibility for the Company’s system of internal controls, proper conducting of internal checks, and for the risk management system. The Audit Committee also regularly informs the Supervisory Board concerning the results of its activities.

The Audit Committee meets at least twice per year, and the Chairman of the Board of Directors, the Chief Executive Officer, the Director of Internal Audit, and the external auditor have standing invitations to attend the meetings as guests. Also, line managers and other Company employees may be invited to the meetings to provide the Committee with necessary information. Their participation, however, is limited only to the relevant agenda item(s).


General Meeting

The authority of the General Meeting encompasses the matter stipulated by the Commercial Code and other applicable laws and regulations.

The Company’s Annual General Meeting is held at least once per year, no later than six months from the last day of the accounting period. The Board of Directors is entitled to convene an extraordinary General Meeting at any time. The Supervisory Board convenes the General Meeting whenever it is in the Company’s interests to do so.

The General Meeting represents a quorum if shareholders are present, the aggregate nominal value of whose shares is at least fifty percent (50%) of the Company’s share capital.

After verifying that a quorum is present, the General Meeting elects its chairman, clerk, two verifiers of the minutes, and persons authorized to count votes. The persons elected by the General Meeting to these offices may or may not be shareholders. Until the chairman is elected, the General Meeting is chaired by a member of the Board of Directors authorized to do so by the Board of Directors. In the event the General Meeting has been convened by the Supervisory Board, until election of the chairman it shall be chaired by a person authorized to do so by the Supervisory Board. In the event the General Meeting has been convened on the basis of a court order and the court did not designate a General Meeting chairman, it may be chaired by any shareholder until such time as the General Meeting elects a chairman.

Should a shareholder at the General Meeting make a motion in a matter that is to be discussed in the agenda set for the General Meeting in question (an “original motion”), an entirely new motion of the shareholder’s own (a “new motion”) or a motion revising or otherwise amending an original motion (a “countermotion”), then she or he is required – in the case of countermotions to motions the content of which is set forth in the invitation to the General Meeting or in the General Meeting announcement, or in the event that a notarial record must be made of the General Meeting’s decision – to deliver his or her motion or countermotion in writing to the Company at least five business days prior to the General Meeting date. This rule does not apply to motions for election of specific persons to Company bodies. The Board of Directors is required to publish its countermotion along with its opinion, if possible, no less than three days before the announced General Meeting date.

In the event a shareholder wishes to make a new motion or countermotion during the General Meeting, he or she must submit it to the General Meeting chairman.

The General Meeting chairman shall:i. examine submitted new motions and countermotions (and shareholder countermotions submitted to the Company prior to the General

Meeting are also deemed to be new motions and countermotions) without unnecessary delay,ii. acquaint the General Meeting with their contents,iii. notify the General Meeting of the General Meeting agenda item under which the submitted new motion or countermotion will be voted

on, or that the submitted new motion or countermotion is rejected, because it does not relate to any item on the General Meeting agenda and for this reason it cannot be voted on, unless all shareholders are present and all shareholders consent to decide on the submitted new motion or countermotion,

iv. enable shareholders and members of the Company’s Board of Directors and Supervisory Board to acquaint themselves with such new motion or countermotion and speak about it prior to voting on it,

v. should the new motion or countermotion not be rejected for the reason that no item on the General Meeting agenda relates to it, have the motion voted on – in all cases, the General Meeting shall vote in the following order:a. first on the original motion,b. if the original motion does not pass, then on countermotions, if any, in the order in which said countermotions were submitted to the

General Meeting chairman, and then on the original motion as a whole, as amended by the approved countermotions,c. if the original motion did not pass even after being amended by approved countermotions, then and only then on any new motions (in

the order in which they were submitted to the General Meeting chairman).

Voting at the General Meeting takes place by ballot.

Should a quorum not be present at the General Meeting within one (1) hour of the time set forth in the invitation as the beginning of the General Meeting, the convener shall convene a substitute General Meeting under the conditions and in the manner set forth in the Commercial Code..


Financial Section


Contents of Financial Section

Independent Auditor’s Report 70Separate Financial Statements 72Independent Auditor’s Report 154The Consolidated Financial Statements 156Report on Relations Among Related Parties 246


Acronyms

Acronym Chapter

IFRIC International Financial Reporting Interpretations Committee‘s Interpretation C.5.2

FVPL Financial assets at fair value through profit or loss Statement of Cash flows

CDS Credit default swap C.1.5

IRS Interest rate swap C.1.5

CCS Cross currency swap C.1.5

OTC Over the counter derivate C.1.5

CDO Credit default option C.1.5

ABS Asset backed securities C.1.5



PricewaterhouseCoopers Audit, s.r.o.Kateřinská 40/466 120 00 Praha 2 Česká republikaTelefon +420 251 151 111 Fax +420 251 156 111

PricewaterhouseCoopers Audit, s.r.o.Kateřinská 40/466 120 00 Prague 2Czech RepublicTelephone +420 251 151 111Facsimile +420 251 156 111

To the Shareholder of Česká pojišťovna a.s.

We have audited the accompanying separate financial statements of Česká pojišťovna a.s., identification number 45272956, with registered office at Praha 1, Spálená 75/16, PSČ 11304 (“the Company”), which comprise the statement of financial position as at 31 December 2009, the statements of income, comprehensive income, changes in equity and cash flows for the year then ended and notes, including a summary of significant accounting policies (“the separate financial statements”).

Board of Directors‘ Responsibility for the Separate Financial Statements

The Board of Directors is responsible for the preparation and fair presentation of the separate financial statements in accordance with International Financial Reporting Standards as adopted by the European Union. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.


Our responsibility is to express an opinion on these separate financial statements based on our audit. We conducted our audit in accordance with the Act on Auditors of the Czech Republic, International Standards on Auditing and the related application guidance of the Chamber of Auditors of the Czech Republic. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.


PricewaterhouseCoopers Audit, s.r.o., registered seat Kateřinská 40/466, 120 00 Prague 2, Czech Republic, Identification Number: 40765521, registered with the Commercial Register kept by the Municipal Court in Prague, Section C, Insert 3637, and in the Register of Audit Companies with the Chamber of Auditors of the Czech Republic under Licence No 021.

© 2010 PricewaterhouseCoopers Audit, s.r.o. All rights reserved. „PricewaterhouseCoopers“ refers to the Czech firm of PricewaterhouseCoopers Audit, s.r.o. or, as the context requires, the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

Opinion

In our opinion, the separate financial statements give a true and fair view of the financial position of the Company as at 31 December 2009, its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with the European Commission‘s interpretation as described in Note A.4.

12 March 2010

PricewaterhouseCoopers Audit, s.r.o. represented by

Petr Kříž Martin MančíkPartner Statutory Auditor, Licence No. 1964


Content

Statement of Financial Position 74Income Statement 75Statement of Comprehensive Income 76Statement of Changes in Equity 77Statement of Cash Flows 78A. General Information 80A.1 Description of the Company 80A.2 Statutory Bodies 80A.3 Statement of Compliance 81A.4 Basis of Preparation 81B. Subsidiaries and Associates 82C. Significant Accounting Policies and Assumptions 85C.1 Significant Accounting Policies 85C.2 Principal Assumptions 98C.3 Terms and Conditions of Insurance and Investment Contracts with DPF that Have a Material Impact

on the Amount, Timing and Uncertainty of Future Cash Flows 102C.4 Critical Accounting Estimates and Judgements 104C.5 Changes in Accounting Policies 105D. Segment Reporting 110E. Risk Report 115E.1 Risk Management System 115E.2 Roles and Responsibility 115E.3 Risk Measurement and Control 115E.4 Market Risk 116E.5 Credit Risk 121E.6 Liquidity Risk 123E.7 Insurance Risks 124E.8 Operational Risk and Other Risks 127E.9 Risk Monitoring by Third Parties 128E.10 Capital Management 128F. Notes to the Statements of Financial Position, Income Statement and Comprehensive Income 129F.1 Intangible Assets 129F.2 Investments 129F.3 Reinsurance Assets 133F.4 Receivables 134F.5 Non-current Assets Held-for-sale 134F.6 Cash and Cash Equivalents 134F.7 Other Assets 134F.8 Shareholders’ Equity 135F.9 Insurance Provisions 137F.10 Other Provisions 140F.11 Financial Liabilities 141

Separate Financial Statements


F.12 Payables 141F.13 Other Liabilities 142F.14 Net Earned Premiums 142F.15 Income from Other Financial Instruments and Land and Buildings (Investment Properties) 142F.16 Income from Subsidiaries and Associated Companies 143F.17 Net Income from Financial Assets at Fair Value through Profit or Loss 143F.18 Other Income 143F.19 Net Insurance Benefits and Claims 144F.20 Expenses from Other Financial Instruments and Land and Buildings (Investment Properties) 144F.21 Expenses from Subsidiaries and Associated Companies 145F.22 Acquisition and Administration Costs 145F.23 Other Expenses 145F.24 Income Taxes 145F.25 Information on Employees 147F.26 Hedge Accounting 147F.27 Earnings Per Share 148F.28 Off Balance Sheet Items 148F.29 Related Parties 149G. Subsequent Events 152


Statement of Financial Position

In CZK thousand as at 31 December Note 2009 2008

Intangible assets F.1 1,350,613 1,277,534

Investments F.2 105,634,167 104,337,956

Investment properties F.2.1 85,103 83,911

Investments in subsidiaries and associates B. 6,125,035 7,340,515

Loans F.2.2 7,860,571 4,898,750

Held-to-maturity F.2.3 87,493 81,708

Available-for-sale (“AFS”) F.2.4 56,610,163 41,658,835

Financial assets at fair value through profit or loss F.2.5 26,125,497 40,367,956

Other investments F.2.2 8,740,305 9,906,281

Reinsurance assets F.3 9,240,073 8,550,220

Receivables F.4 8,327,924 12,222,984

of which: tax receivables F.4 46,217 941,590

Assets held-for-sale F.5 291,666 276,350

Cash and cash equivalents F.6 154,760 292,473

Deferred tax asset F.24 33,585 –

Other assets F.7 1,396,951 1,418,814

Total assets 126,429,739 128,376,331

Share capital 4,000,000 4,000,000

Capital and revenue reserves 17,850,744 14,451,447

Total equity F.8 21,850,744 18,451,447

Insurance provisions F.9 88,948,601 92,681,397

Other provisions F.10 2,030,605 2,311,987

Financial liabilities F.11 1,924,018 4,437,293

Payables F.12 9,718,380 8,559,116

of which: tax payables F.12 1,601,411 51,588

Deferred tax liability F.24 – 60,681

Other liabilities F.13 1,957,391 1,874,410

Total liabilities 104,578,995 109,924,884

Total equity and liabilities 126,429,739 128,376,331


Income Statement

In CZK thousand for the year ended 31 December Note 2009 2008

Earned premiums F.14 27,408,283 28,558,294

Gross earned premiums 38,641,017 38,594,252

Earned premium ceded (11,232,734) (10,035,958)

Interest and other investment income F.15 2,383,147 1,970,605

Income from subsidiaries and associated companies F.17 1,303,957 6,681,200

Other income from financial instruments and other investments F.15 2,600,223 593,841

Net income from financial instruments at fair value through profit or loss F.16 2,453,137 (2,741,529)

Other income F.18 1,923,769 2,961,635

Total income 38,072,516 38,024,046

Net insurance benefits and claims F.19 (18,713,837) (19,898,240)

Gross insurance benefits and claims (24,137,012) (24,589,013)

Reinsurers‘ share 5,423,175 4,690,773

Interest expense F.20 (33,543) (84,319)

Expenses from subsidiaries and associated companies F.21 (12,114) (9,224)

Other expenses for financial instruments and other investments F.20 (1,860,823) (3,505,679)

Acquisition costs F.22 (3,316,701) (3,176,003)

Administration costs F.22 (2,737,128) (2,814,158)

Other expenses F.23 (2,613,663) (2,553,562)

Total expenses (29,287,809) (32,041,185)

Profit before tax 8,784,707 5,982,861

Income tax expense F.24 (1,404,646) (109,691)

Net profit for the year 7,380,061 5,873,170

Weighted average number of shares 40,000 40,000

Basic and Diluted earning per share (CZK) F.27 184.502 146.829


Statement of Comprehensive Income

In CZK thousand for the year ended 31 December Note 2009 2008


Other Comprehensive income

Land and buildings revaluation gain/loss in equity – gross F.8 (41) (10,815)

Land and buildings revaluation gain/loss on derecognition in retained earnings (10) 12,397

Available-for-sale financial assets revaluation in equity F.8 3,729,372 (2,608,938)

Available-for-sale financial asset realised revaluation in income statement F.8 (1,319,124) 2,148,942

Total gains and losses recognised directly in equity 2,410,197 (458,414)

Tax on items taken directly to or transferred into equity F.24.2 (517,792) 100,321

Other Comprehensive income, net of tax 1,892,405 (358,093)

Total Comprehensive income 9,272,466 5,515,077


Statement of Changes in Equity

Note Share Revaluation Revaluation Statutory Catastrophe Other TotalIn CZK thousand capital – financial – Land and reserve and retained for the year ended assets AFS buildings fund equalisation earnings 31 December reserves

1

Balance as at 1 January 2008 F.8 4,000,000 (589,297) 12,214 800,000 2,755,599 10,457,854 17,436,370

Dividends to shareholders – – – – – (4,500,000) (4,500,000)

Total comprehensive income – (361,993) (8,497) – – 5,885,567 5,515,077

Changes in catastrophe and equalisation reserve – – – – 245,272 (245,272) –

Balance as at 31 December 2008 4,000,000 (951,290) 3,717 800,000 3,000,871 11,598,149 18,451,447

Dividends to shareholders – – – – – (5,873,169) (5,873,169)

Total comprehensive income – 1,892,402 13 – – 7,380,051 9,272,466

Changes in catastrophe and equalisation reserve – – – – (1,705,032) 1,705,032 –

Balance as at 31 December 2009 F.8 4,000,000 941,112 3,730 800,000 1,295,839 14,810,063 21,850,744

1 Equalisation reserves is required under local insurance legislation and is classified as a separate part of equity within these accounts as it does not meet the definition of a liability under IFRS. It is not available for distribution.


Statement of Cash Flows

In CZK thousand for the year ended 31 December 2009 2008

Cash flow from operating activities

Profit before tax 8,784,707 5,982,861

Adjustments for:

Depreciation and amortisation 637,123 871,432

Impairment and reversal of impairment of current and non-current assets 566,503 2,777,081

Profit/Loss on disposal of PPE, intangible assets and investment property (20,195) (34,139)

Profit/Loss on sale and revaluation of Financial Assets (2,523,016) 3,283,944

Gains/losses on disposal of subsidiaries and associates (576,618) (6,384,765)

Dividends received (855,336) (291,834)

Interest expense 45,654 91,839

Interest income (3,413,522) (3,358,009)

Income/expenses not involving movements of cash 93,359 243,964

Purchase of financial assets at FVPL held for trading – (11,958,523)

Proceeds from financial assets at FVPL held for trading 559,282 5,949,424

Change in loans and advances to banks (1,408,789) 4,207,385

Change in loans and advances to non banks (4,773) 18,130

Change in receivables 712,735 (3,035,512)

Change in reinsurance assets (689,853) (472,505)

Change in other assets, prepayments and accrued income 3,557 (8,594)

Change in payables 676,297 (202,589)

Change in payables for subsidiaries and associates – (1,000,000)

Change in financial liabilities for investment contract with DPF 49,681 274,485

Change in financial liabilities at FVPL held for trading (1,192,746) (204,770)

Change in liabilities to banks 414,546 1,110,264

Change in insurance liabilities (3,782,477) 2,137,203

Change in other liabilities, accruals and deferred income 82,982 (213,936)

Change in other provisions (281,382) (79,521)

Income taxes paid 361,635 (947,898)

Net cash flow from operating activities (1,760,646) (1,244,583)

Cash flow from investing activities

Interest received 5,929,031 4,167,383

Dividends received 855,336 291,834

Purchase of tangible assets and intangible assets (688,883) (779,915)

Purchase of financial assets at FVPL not held for trading (7,845,194) (4,271,624)

Purchase of financial assets available for sale (43,101,355) (52,842,808)

Purchase of investment property

Acquisition of subsidiaries and associates (1,009,889) (3,054,624)

Provided loans (1,500,000) (100,000)

Proceeds from disposals of tangible and intangible assets 7,590 96,144

Proceeds from financial assets at FVPL not held for trading 20,584,921 9,520,985

Proceeds from financial assets available for sale 31,964,872 43,529,366

Proceeds from sale of investment property 286,161 84,209

Proceeds from disposal of subsidiaries and associates and other proceeds from subsidiaries and associates 3,360,214 7,690,372

Paid loans – 100,000

Other investing activities – 50,600

Net cash flow from investing activities 8,842,804 4,481,922


Statement of Cash Flows


Cash flow from financing activities

Drawing of loans 2,000,000 4,247,205

Repayment of loans (3,300,000) (2,950,000)

Interest paid (45,822) (75,272)

Dividends paid to shareholders (5,873,169) (4,500,000)

Other financing activities 438 916

Net cash flow from financing activities (7,218,553) (3,277,151)

Net decrease in cash and cash equivalents (136,395) (39,812)

Cash and cash equivalents as at 1 January 292,473 330,224

Effect of exchange rate changes on cash and cash equivalents (1,318) 2,061

Cash and cash equivalents as at 31 December 154,760 292,473


Notes to the Separate Financial Statementsfor the year ended 31 December 2009

A. General Information

A.1 Description of the Company

Česká pojišťovna a.s. (”Česká pojišťovna” or “ČP” or “the Company”) is a composite insurer offering a wide range of life and non-life insurance products and is domiciled in the Czech Republic. The Company was incorporated on 1 May 1992 as a joint stock company and is the successor to the former state-owned insurance company Česká státní pojišťovna.

Structure of ShareholdersThe Company‘s sole shareholder is CZI Holdings N.V., domiciled in the Netherlands. From 2008, CZI Holdings is an integral part of Generali PPF Holding B.V. (GPH) a Joint Venture of Assicurazioni Generali S.p.A. (“Generali”) and PPF Group N.V. PPF Group N.V. was the ultimate parent of the Company until 17 January 2008. Since that, the Company‘s ultimate parent company is Assicurazioni Generali S.p.A. (“Generali”). The financial statements of Generali Group are publicly available on www.generali.com.

Registered Office of the Company:Spálená 75/16113 04 Prague 1Czech RepublicID number: 45 27 29 56

The Directors authorised the financial statements for issue on 11 March 2010.

A.2 Statutory Bodies

The Board of Directors as at the end of the reporting period:Chairman: Ladislav Bartoníček, PragueVice Chairman: Marcel Dostal, PragueMembers: Štefan Tillinger, Prague Ivan Vodička, Prague

During the year there were no changes to the Board of Directors.

At least two members of the Board of Directors, of whom one must be the Chairman or the Vice-Chairman, must act together in the name of the Company in relation to third parties, courts and other bodies. When signing on behalf of the Company, the signatures and positions of at least two members of the Board of Directors, one of which one must be the Chairman or the Vice-Chairman, must be appended to the designated business name of the Company.

The Supervisory Board as at the end of the reporting period:Chairman: Milan Maděryč, ZlínMembers: Marek Orawski, Havířov Lorenzo Kravina, Trieste

There were no Changes to the Supervisory Board during 2009.


A.3 Statement of Compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The management has reviewed those standards and interpretations adopted by the EU at the date of issue of the financial statements but which were not effective as at that date. An assessment of the expected impact of these standards and interpretations on the Company is shown in Note C.5.

A.4 Basis of Preparation

Local accounting legislation requires that the Company prepare these separate financial statements in accordance with IFRS (as adopted by the EU – see Note A.3). The Company also prepares consolidated financial statements for the same period in accordance with IFRS as adopted by the EU.

As at the time of approval of these separate financial statements, the Company has not prepared consolidated financial statements in accordance with IFRS for the Company and its subsidiaries (the „CP Group“) as required by International Accounting Standard (“IAS”) 27 “Consolidated and Separate Financial Statements”. The Company applied an interpretation issued by the European Commission (document ARC/08/2007). According to the interpretation, the Company can prepare and file financial statements independently from the preparation and filing of its consolidated financial statements.

In the consolidated financial statements, subsidiary undertakings – which are those companies in which the Company, directly or indirectly, has an interest of more than half of the voting rights or otherwise has power to exercise control over the operations – will be fully consolidated.

The Company presents the consolidated financial statements on its web site www.ceskapojistovna.cz.

Users of these financial statements should read them together with the CP Group‘s consolidated financial statements as at and for the year ended 31 December 2009, when they become available, in order to obtain full information on the financial position, financial performance and cash flows of the CP Group as a whole.

The financial statements are presented in Czech Crowns (“CZK”) which is the Company’s functional currency.

The financial statements have been prepared on the historical cost basis except for the following assets and liabilities which are stated at their fair value: derivative financial instruments, financial instruments at fair value through profit or loss, financial instruments classified as available-for-sale and investment properties.

Non-current assets and disposal groups held for sale are stated at the lower of carrying amount and fair value less cost to sell.

The preparation of the financial statements requires that management make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that cannot readily be determined from other sources. The actual values may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision only affects that period or in both the period of the revision and future periods if the revision affects both the current and future periods.

More information about assumptions and judgements is described in Note C.2.


B. Subsidiaries and Associates

The following table provides details about the Company’s subsidiaries and associates:

In CZK thousand Country Cost Impairment Net cost Proportion Proportion Accounting Notefor the year ended of losses of of of voting treatment 31 December 2009 investment investment ownership power Name interest

ČP DIRECT, a.s. Czech Republic 29,400 – 29,400 100.0 100.0

Česká pojišťovna ZDRAVÍ a.s. Czech Republic 191,250 – 191,250 100.0 100.0

Penzijní fond České pojišťovny, a.s. Czech Republic 3,059,137 – 3,059,137 100.0 100.0

Univerzální správa majetku a.s. Czech Republic 1,103 – 1,103 100.0 100.0

Nadační fond Karlův most Czech Republic 5,000 – 5,000 100.0 100.0

Nadace České pojišťovny Czech Republic 500 – 500 100.0 100.0 7)

První Callin agentura a.s. Czech Republic 153,004 (150,000) 3,004 100.0 100.0

ČP INVEST investiční společnost, a.s. Czech Republic 45,758 – 45,758 100.0 100.0

REFICOR s.r.o. Czech Republic 73 – 73 100.0 100.0

Pankrác Services s.r.o. Czech Republic 1,517,020 – 1,517,020 100.0 100.0 5)

Finanční servis o.o.o. Russia 1,566 (1,566) – 100.0 100.0

JSC “Generali Life” (CP Kazakhstan AO) Kazakhstan 172,910 – 172,910 100.0 100.0 6)

Generali Foreign Insurance Company Inc. Belarus 23,023 – 23,023 35.0 35.0 4)

Generali SAF de Pensii Private S.A. (Generali Fond de Pensii S.A.) Romania 1,076,857 – 1,076,857 99.9 99.9 3)

Total 6,276,601 (151,566) 6,125,035

Consolidated funds

In its consolidated financial statements, the Company consolidates the following funds governed by ČP INVEST investiční společnost, a.s.:

ID Fund

CZ0008471778 PFO ČPI Fond globálních značek

CZ0008472396 PFO ČPI Fond nemovitostních akcií

CZ0008472693 PFO ČPI Fond živé planety

CZ0008472388 PFO ČPI - 1. Zajištěný otevřený podílový fond

CZ0008472719 II. Zajištěný otevřený podílový fond ČPI

CZ0008472875 III. Zajištěný otevřený podílový fond ČPI

CZ0008472990 4. Zajištěný otevřený podílový fond ČPI

CZ0008472966 Komoditní zajištěný otevřený podílový fond CPI

CZ0008473022 V. Zajištěný fond

CZ0008473113 VI. Zajištěný fond

Detailed information on transactions with subsidiaries of the Company is provided below. 1) Sale of interest in CP Strategic Investments B.V.On 29 December 2009 the Company sold its 100% interest in CP strategic Investments B.V. (“CPSI”) to its sole shareholder CZIH Holdings B.V. A total of 251,790 shares were sold for EUR 31,810 thousand (CZK 840,107 thousand) with a profit of CZK 576,618 thousand. The price was set by an independent professional appraisal prepared by an expert appointed by a court. The transaction is a result of the GPH group reorganisation. Prior to the sale, on 25 August 2009, share premium of CPSI was reduced by CZK 170,214 thousand.

2) Sale of interest in Generali PPF Life Insurance LLCIn accordance with a decision of the sole shareholder from 30 March 2009 the company was renamed Limited Liability Company “Generali PPF Life Insurance“. The new name of the company was registered on 14 April 2009.

At its meeting on 13 December 2009, the Board of the Company approved the intention to sell the interest in Generali PPF Life Insurance LLC to the sole shareholder CZI Holdings N.V. On 26 November 2009 a Letter of Intent for the sale and purchase of ownership in the company Generali PPF Life Insurance LLC was signed to obtain the authorisation of the Russian authorities. Consent to the sale was granted on 28 December 2009. The sale transaction should be finalised in the first half of 2010, the purchase price will be determined on the basis of an independent

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professional appraisal. The transaction is a result of GPH group reorganisation. The investment is as 31 December 2009 classified as an asset held-for-sale (see F.5).

3) Change of the name of Generali Fond de Pensii S.A.The entity was renamed as at 7 January 2009. The new name of the pension fund is Generali Societate de Administrare a Fondurilor de Pensii Private S.A.

4) Generali Foreign Insurance Company Inc – increase in share capitalIn accordance with a decision of the Company’s board of directors on 23 March 2009, the share capital of Generali Foreign Insurance Company has been increased by EUR 350 thousand (CZK 9,389 thousand). This increase in the share capital was registered in the commercial register on 22 October 2009.

5) Decrease of capital in Pankrác services s.r.o.In 2008, the Company founded Pankrác Services s.r.o. in order to finance the construction of a new office building of the Company. The real estate property under construction was a non-monetary contribution to the share capital. In 2008 the Company also made a contribution outside the registered capital in the amount of CZK 500,000 thousand. Pankrác Services s.r.o. subsequently sold the finished office building and, in January 2009, paid the monetary contribution back to the Company.

6) Change of the name of CP Kazahstan to JSC “GENERALI LIFE”The entity was renamed on 30 March 2009. The new name of the company formerly known as CP Kazahstan was registered on 1 July 2009. The new name of the company is Joint Stock Company “GENERALI LIFE“ – Life Insurance Company, a subsidiary of “Assicurazioni Generali S.p.A.“.

7) Establishment of Nadace České pojišťovnyOn 21 December 2009, the Company established a new foundation Nadace České pojišťovny. The donation has a capital of CZK 500 thousand and has been founded to support education, health care, culture, humanitarian, environmental and other activities to help the general development.

In CZK thousand Country Cost Impairment Net cost Proportion Proportion Accountingfor the year ended of losses of of of voting treatment31 December 2008 investment investment ownership power Name interest

CP Strategic Investments B.V. Netherlands 433,703 – 433,703 100.0 100.0

Česká pojišťovna, a.s., v Ruské federaci Russia 291,666 – 291,666 100.0 100.0

ČP DIRECT, a.s. Czech Republic 29,400 – 29,400 100.0 100.0

Česká pojišťovna ZDRAVÍ a.s. Czech Republic 191,250 – 191,250 100.0 100.0

Penzijní fond České pojišťovny, a.s. Czech Republic 3,059,137 – 3,059,137 100.0 100.0

Univerzální správa majetku a.s. Czech Republic 1,103 – 1,103 100.0 100.0

Nadační fond Karlův most Czech Republic 5,000 – 5,000 100.0 100.0

První Callin agentura a.s. Czech Republic 153,004 (150,000) 3,004 100.0 100.0

ČP INVEST investiční společnost, a.s. Czech Republic 45,758 – 45,758 100.0 100.0

Finanční servis o.o.o. Russia 1,566 (1,566) – 100.0 100.0

REFICOR s.r.o. Czech Republic 73 – 73 100.0 100.0

CP Kazakhstan AO Kazakhstan 172,910 – 172,910 100.0 100.0

Foreign Insurance Company Inc. Belarus 13,634 – 13,634 35.0 35.0

Generali Fond de Pensii S.A. Romania 1,076,857 – 1,076,857 99.9 99.9

Pankrác Services s.r.o. Czech Republic 2,017,020 – 2,017,020 100.0 100.0

Total 7,492,081 (151,566) 7,340,515

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Consolidated funds

In its consolidated financial statements, the Company consolidates the following funds governed by ČP INVEST investiční společnost, a.s.:

ID Fund

CZ0008471778 PFO ČPI Fond globálních značek

770010000386 PFO ČPI Fond nových ekonomik

CZ0008472396 PFO ČPI Fond nemovitostních akcií

CZ0008472693 PFO ČPI Fond živé planety

CZ0008472388 PFO ČPI - 1. Zajištěný otevřený podílový fond

CZ0008472719 II. Zajištěný otevřený podílový fond ČPI

CZ0008472875 III. Zajištěný otevřený podílový fond ČPI

CZ0008472990 4. Zajištěný otevřený podílový fond ČPI

CZ0008472966 Komoditní zajištěný otevřený podílový fond CPI


C. Significant Accounting Policies and Assumptions

C.1 Significant Accounting Policies

C.1.1 Intangible assets

Intangible assets that are acquired by the Company are stated at cost less accumulated amortisation and impairment losses.

Intangible assets with finite useful lives are amortised on a straight-line basis over an average period of 3–5 years. The amortisation methods, useful lives and residual values, if not insignificant, are reassessed annually. If a material technical improvement is made to an asset during the year, its useful life and residual value are reassessed at the time the technical improvement is recognised.

C.1.2 Investment property

Investment properties are properties which are held either to earn rental income or for capital appreciation or for both. A property owned by a Company is treated as an investment property if it is not occupied by the Company or if only an insignificant portion of the property is occupied by the Company.

Property that is being constructed or developed for future use as an investment property is classified as investment property.

Subsequent to initial recognition, all investment properties are measured at fair value. Fair value is determined annually. The best evidence of fair value is current prices in an active market. If unavailable, an alternative technique is used. Valuation is based on reliable estimates of future cash flows, discounted at rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows, and supported by evidence of current prices or rents for similar properties in the same location and condition. Any gain or loss arising from a change in fair value is recognised in the income statement. Rental income from investment property is accounted for over the term of the lease.

When an item of property, plant and equipment becomes an investment property following a change in its use, any difference arising as at the date of transfer between the carrying amount of the item and its fair value, and related deferred tax thereon, is recognised in other comprehensive income if it is a gain. Upon disposal of the item, the gain is transferred to retained earnings. Any loss is recognised in the income statement immediately.

Subsequent expenditures relating to investment properties are capitalised if they extend the useful life of the assets, otherwise they are recognised as an expense.

C.1.3 Property, plant and equipment

Property, plant and equipment are valued at the purchase price or production cost, less accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Depreciation is provided on a straight-line basis using the following rates:

Item Depreciation rate (%)

Buildings 1.98–10.00

Other tangible assets and equipment 6.67–33.33

Component parts of an asset which have different useful lives or provide benefits in a different pattern are recognised as separate assets with different depreciation rates.

The depreciation methods, useful lives and residual values, if not insignificant, are reassessed annually. If a material technical improvement is made to an asset during the year, its useful life and residual value are reassessed at the time technical improvement is recognised.


Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Property, plant and equipment acquired by way of finance leasing are stated at an amount equal to the lower of the fair value and the present value of the minimum lease payments at the inception of the lease, less accumulated deprecation and impairment losses.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount. These are included in the income statement in the other operating income.

C.1.4 Subsidiaries and associates

All subsidiaries and associates are valued at cost less any impairment losses (see C.1.32.2).

The Company controls a management company ČP INVEST Investiční společnost, a.s. which manages open-ended investment funds. For consolidation purposes, control over these investment funds is presumed to exist when the Group‘s participation is above 50%. The Funds where the Group‘s control is not presumed, because the participation is below 50%, are considered associates and are reported within the financial investments at fair value through profit or loss. In the separate financial statements, these funds are valued at fair value in accordance with IAS 39 and are reported as financial assets at fair value through profit or loss – see C.1.5.4.

Following the contractual arrangements or legal conditions, the Company derecognises its subsidiaries and associates as at the date when the Company loses control over them.

C.1.5 Financial assets

Financial assets include financial assets at fair value through profit or loss, financial assets available for sale, financial assets held to maturity, loans and receivables, cash and cash equivalents.

Financial assets are recognised on the statement of financial position when the Company becomes a party to the contractual provisions of the instrument. For standard purchases and sales of financial assets, the Company’s policy is to recognise them using settlement-date accounting. Any change in the fair value of an asset to be received during the period between the trade date and the settlement date is accounted for in the same way as would be accounted for subsequent measurement. Financial instruments are measured initially at fair value plus, with the exception of financial instruments at fair value through profit or loss, transaction costs directly attributable to the acquisition or issue of the financial instrument.

Subsequent measurement is described in Notes C.1.5.1 to C.1.5.4.

A financial asset is derecognised when the Company transfers the risk and rewards of ownership of the financial assets or loses control over the contractual rights that comprise that asset. This occurs when the rights are realised, expired or surrendered.

Fair value measurement The fair value of financial instruments is based on their quoted market price as at the end of the reporting period without any deduction for transaction costs. If a quoted market price is not available or if the market for an investment is not active, the fair value of the instrument is estimated using pricing models or discounted cash-flow techniques.

To identify a non-active market, the Company carefully determines whether the quoted price really reflects the fair value, i.e. in cases when the price has not changed for a long period or the Company has information about an important event but the price did not change accordingly, the market is not considered active. Discounted cash flow techniques use estimated future cash flows, which are based on management’s estimates, and the discount rate, which is constructed from risk-free rates adjusted by risk margin (credit spread). This is usually derived from an instrument with similar terms and conditions (ideally from the same issuer, similar maturity and seniority) which reflects the market price in the best way.

In general, in the case that pricing models are used, inputs are based on market-related measures as at the end of the reporting period which limits the subjectivity of the valuation performed by the Company, and the result of such a valuation best approximates the fair value of an instrument.

The fair value of derivatives that are not exchange-traded is estimated at the amount that the Company would receive or pay to terminate the contract as at the end of the reporting period taking into account current market conditions and the current creditworthiness of the counterparties. In the case of options, Black-Scholes models are applied. Also, for any other over-the-counter instruments (CDS, IRS, CCS, etc), generally accepted valuation models are applied and, again, the parameters of the valuation intend to reflect the market conditions.


Effective 1 January 2009, the Company adopted the amendment to IFRS 7 for financial instruments that are recognised in the statement of financial position at fair value; this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

– Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

– Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).

– Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period. These instruments are included in level 1.

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives or unquoted bonds) is determined by using valuation techniques. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. Specific valuation techniques used to value financial instruments include mainly quoted market prices or dealer quotes for similar instruments, cash flow estimation and risk-free curves.

If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

Level 3 contains only structured investments (CDO, ABS) where market prices are unavailable and entity specific estimates are necessary.

Fair value hedgeFrom 1 October 2008, the Company designates certain derivatives as hedges of the fair value of recognised assets. The hedge accounting has been applied to derivatives hedging a currency risk on all non-derivative financial assets denominated in or exposed to foreign currencies (equities, bonds, investment funds, etc.).

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged assets that are attributable to the hedged risk.

At the inception of the transaction, the Company documents the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedging transactions. The Company also documents its assessment of the hedging effectiveness, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are expected to be and have been highly effective in offsetting changes in the fair values of hedged items.

Embedded derivativesCertain derivatives embedded in other financial instruments are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair value through profit or loss. The Company designates the hybrid contracts at fair value through profit or loss.

The Company does not separately measure embedded derivatives that meet the definition of an insurance contract. No derivatives that are not closely related are embedded in insurance contracts were identified.

C.1.5.1 Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than classified at fair value through profit or loss or classified as available-for-sale.

After initial recognition loans and receivables are measured at amortised cost using the effective interest method, less provision for impairment.

C.1.5.2 Financial assets held to maturityHeld-to-maturity assets are non-derivative financial assets with fixed or determinable payments and fixed maturities other than those that meet the definition of loans and receivables that the Company has the positive intent and ability to hold to maturity.

Financial assets held to maturity are valued at amortised cost using an effective interest rate method less any impairment losses. The amortisation of premiums and discounts is recorded as interest income or expense.


The fair value of an individual security within the held-to-maturity portfolio can temporarily fall below its carrying value, but, provided there is no risk resulting from significant financial difficulties of the debtor, the security would not be written down in value.

C.1.5.3 Financial assets available for saleAvailable-for-sale financial assets are those non-derivative financial assets that are not classified as loans and receivables, held-to-maturity investments, or financial assets at fair value through profit or loss.

After initial recognition, the Company measures financial assets available for sale at their fair values, without any deduction for transaction costs that it may incur upon sale or other disposal, with the exception of AFS equity securities that do not have a quoted market price on an active market and whose fair value cannot be reliably measured which are stated at cost, including transaction costs, less impairment losses.

Any revaluation gain or loss on a financial asset available for sale is recognised in other comprehensive income with the exception of impairment losses and, in the case of monetary items such as debt securities, foreign exchange gains and losses. When available-for-sale assets are derecognised, the cumulative gain or loss previously recognised in other comprehensive income is recognised in the income statement. Where these instruments are interest-bearing, interest calculated using the effective interest rate method is recognised in the income statement. Dividend income is recognised in the income statement as other investment income – see C.1.24

C.1.5.4 Financial assets at fair value through profit or lossFinancial assets at fair value through profit or loss are financial assets held for trading and non-trading financial assets which are designated upon initial recognition as at fair value through profit or loss. Financial assets held for trading are acquired or incurred principally for the purpose of generating a profit from short-term fluctuations in the price or dealer’s margin. Financial assets are classified as held-for-trading if, regardless of the reason they were acquired, they are part of a portfolio for which there is evidence of a recent actual pattern of short-term profit taking.

Financial assets held for trading include investments and certain purchased loans and derivative contracts that are not designated as effective hedging instruments. All trading derivatives in a net receivable position (positive fair value), as well as options purchased, are reported as trading assets. All trading derivatives in a net payable position (negative fair value), as well as options written, are reported as financial liabilities at fair value through profit or loss.

If a financial asset is no longer held for the purpose of selling or repurchasing it in the near term (notwithstanding that the financial asset may have been acquired or incurred principally for the purpose of selling or repurchasing it in the near term), the financial assets can only be reclassified out of the fair value through profit or loss category in rare circumstances.

The Company designates non-trading financial assets according to its investment strategy as financial assets at fair value through profit or loss, if there is an active market and the fair value can be reliably measured. The fair value option is only applied in any one of the following situations:

– It results in more relevant information, because it significantly reduces a measurement or recognition inconsistency (“accounting mismatch”) of securities covering unit-linked policies;

– A group of financial assets is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, with information being provided to key management personnel on this basis;

– When a contract contains one or more substantive embedded derivatives, unless the embedded derivative does not significantly modify the cash flows that otherwise would be required by the contract or it is clear that separation of embedded derivatives is prohibited.

Subsequent to initial recognition, all financial assets at fair value through profit or loss, except for derivative instruments that are not exchange traded and financial assets which are not quoted on an active market, are measured at fair value (Note C.1.5). Gains and losses arising from changes in the fair values of financial assets at fair value through profit or loss are recognised in the income statement.

SwapsSwaps are over-the-counter agreements between the Company and other parties to exchange future cash flows based upon agreed notional amounts. Swaps most commonly used by the Company are interest rate and cross-currency interest rate swaps. Under interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed notional amount. Cross-currency interest rate swaps require an exchange of interest payment flows and capital amounts in different currencies. The Company is subject to credit risk arising from default of the respective counter parties. Market risk


arises from potentially unfavourable movements in interest rates relative to the contractual rates of the contract, or from movements in foreign exchange rates. Credit default swaps are also used by the Company. Under the credit default swap agreement, a credit risk is transferred from a protection buyer to a protection seller.

Futures and forwardsForward contracts are commitments to either purchase or sell a designated financial instrument, currency, commodity or an index at a specified future date for a specified price and may be settled in cash or another financial asset. Forward contracts result in credit exposure to the counter party and exposure to market risk based on changes in market prices relative to the contracted amounts. A futures contract is a standardised contract, traded on a futures exchange, to buy or sell a standardised quantity of a specified commodity of standardised quality at a certain date in the future, at a price determined by the instantaneous equilibrium between the forces of supply and demand among competing buy and sell orders on the exchange at the time of the purchase or sale of the contract. Futures contracts bear considerably lower credit risk than forwards and, as forwards, result in exposure to market risk based on changes in market prices relative to the contracted amounts.

OptionsOptions are derivative financial instruments that give the buyer, in exchange for a premium payment, the right (but not the obligation) to either purchase from (call option) or sell to (put option) the writer a specified underlying instrument at a specified price on or before a specified date. The Company enters into interest rate options, foreign exchange options, equity and index options and credit failure options (swaps). Interest rate options, including caps and floors, may be used as hedges against a rise or fall in interest rates. They provide protection against changes in the interest rates of floating rate instruments above or below a specified level. Foreign currency options may also be used (commensurate with the type of option) to hedge against rising or falling currency rates. The Company as a buyer of over-the-counter options is subject to market risk and credit risk since the counter party is obliged to make payments under the terms of the contract if the Company exercises the option. As the writer of over-the-counter options, the Company is subject to the market risk, as it is obliged to make payments if the option is exercised by the counterparty or credit risk from a premium due from a counterparty.

C.1.6 Reinsurance assets

Reinsurance assets comprise the actual or estimated amounts, which, under contractual reinsurance arrangements, are recoverable from reinsurers in respect of technical provisions.

Reinsurance assets relating to technical provisions are established based on the terms of reinsurance contracts and valued on the same basis as the related reinsured liabilities. The Company records an impairment charge for estimated irrecoverable reinsurance assets, if any.

C.1.7 Receivables

This item includes receivables arising out of direct insurance and reinsurance operations, and other receivables.

Receivables on premiums written in the course of collection and receivables from intermediates, co-insurers and reinsurers are included in this item. They are initially recognised at fair value and then at their presumed recoverable amounts if lower.

Other receivables include all other receivables not of an insurance or tax nature. They are initially recognised at amortised cost and then at their presumed recoverable amounts if lower.

C.1.8 Cash and cash equivalents

Cash consists of cash on hand and demand deposits with banks and other financial institutions. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

C.1.9 Lease transactions

Property and equipment holdings used by the Company under operating leases, whereby the risks and benefits relating to ownership of the assets remain with the lessor, are not recorded on the Company’s statement of financial position. Payments made under operating leases to the lessor are charged to the income statement over the period of the lease.


C.1.10 Deferred acquisition costs

Acquisition costs are costs that are incurred in connection with the acquisition of new insurance contracts and the renewal of existing contracts. Only certain incremental (“deferrable”) acquisition costs are deferred, such as agents’ commissions and other variable underwriting and policy issue costs. General selling expenses and line of business costs as well as commissions for servicing a portfolio are not deferred unless they are related to the acquisition of new business.

In non-life insurance, a proportion of the related acquisition costs are deferred and amortised commensurate with the unearned premiums provision. The amount of any deferred acquisition costs is established on a similar basis as that used for unearned premiums for a relevant line of business (product). Deferred acquisition costs are reported as other assets in the statement of financial position.

The recoverable amount of deferred acquisition costs is assessed as at each end of the reporting period as part of the liability adequacy test.

Acquisition costs in respect of life insurance contracts and investment contracts with DPF (Discretionary Participation Feature) are charged directly to the income statement as incurred and are not deferred.

For the investment contracts with DPF the incremental acquisition costs directly attributable to the issue of a related financial liability carried at amortised cost are deducted from the fair value of the consideration received and included within the effective interest rate calculation.

C.1.11 Non-current assets held for sale

Non-current assets (or disposal groups comprising assets and liabilities) that are expected to be recovered primarily through sales rather than through continuing use are classified as held-for-sale. Immediately before being classified as held-for-sale, the assets (or components of a disposal group) are measured in accordance with the applicable IFRS. Thereafter, generally, the assets (or disposal group) are measured at the lower of their carrying amount and fair value less cost to sell. Any impairment loss on a disposal group is allocated to assets and liabilities on a pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets and investment property, which continue to be measured in accordance with the Company’s accounting policies. Impairment losses on initial classification as held-for-sale and subsequent gains or losses on remeasurement are recognised in profit or loss. Gains are not recognised in excess of any cumulative impairment loss.

C.1.12 Equity

C.1.12.1 Share capital issuedOrdinary shares are classified as equity. The share capital is the nominal amount approved by a shareholders´ resolution.

C.1.12.2 Capital and revenue reservesThis item comprises the following reserves:

Statutory reserve fundThe creation and use of the statutory reserve fund is limited by legislation. The statutory reserve fund is not available for distribution to the shareholders.

Catastrophe and equalisation reservesCatastrophe and equalisation reserves are required under local insurance legislation and are classified as separate parts of equity within these accounts as they do not meet the definition of a liability under IFRS. They are not available for distribution. Retained earningsThe item includes retained earnings or losses adjusted for the effect due to changes arising from the first application of IAS/IFRS, as well as reserves.

Reserve for unrealised gains and losses on available for sale financial assetsThe item includes gains or losses arising from changes in the fair value of available-for-sale financial assets, as previously described in the corresponding item of financial investments. The amounts are amounted net of the related deferred taxes and deferred policyholders’ liabilities.

Reserve for other unrealised gains and losses through equityThis item includes revaluation of land and buildings reclassified to investment properties.


Result of the periodThis item refers to the Company’s result for the period. Dividend payments are accounted for after the approval of the shareholders’ in general meeting.

C.1.12.3 DividendsDividends are recognised as a liability provided they are declared before the end of the reporting period. Dividends declared after the end of the reporting period are not recognised as a liability but are disclosed in the notes.

C.1.13 Insurance classification

C.1.13.1 Insurance contractsIn accordance with IFRS 4, policies of the life segment are classified as insurance contracts or investment contracts based on the significance of the underlying insurance risk. As a general guideline, the Company defines as significant insurance risk the possibility of having to pay benefits on the occurrence of an insured event that are at least 5% more than the benefits payable if the insured event did not occur.

Classification requires the following steps:

– identification of the characteristics of products (option, discretionary participation feature, etc.) and services rendered;

– determination of the level of insurance risk in the contract; and

– determination of classification in accordance with IFRS 4

C.1.13.2 Insurance contracts and investment contracts with DPFPremiums, payments and change in the insurance provision related to products whose insurance risk is considered significant (e.g. term insurance, whole life and endowment with annual premiums, life contingent annuities and contracts containing an option to elect at maturity a life contingent annuity at rates granted at inception, long-term health insurance and unit-linked with sum assured in case of death significantly higher than the value of the fund) or investment contracts with discretionary participation feature – DPF – (e.g. policies linked to segregated funds, contracts with additional benefits that are contractually based on the results of the company) are recognised in the Income Statement.

C.1.13.3 Investment contractsInvestment contracts without DPF mainly include unit/index-linked policies and pure capitalisation contracts. These products are accounted for in accordance with IAS 39 as follows:

– the products are recognised as financial liabilities at fair value or at amortised cost. In terms of detail, index-linked products are fair valued through profit or loss, while pure capitalisation policies are generally valued at amortised cost;

– fee and commission income and expenses are recognised in the profit and loss account. Specifically, IAS 39 and IAS 18 require that they are

separately identified and classified in the different components of: (i) origination, to be charged in the profit and loss account at the date of the issue of the product; and (ii) investment management service, to be recognised throughout the whole policy term by reference to the stage of completion of the service rendered;

– fee and commission income and incremental costs of pure capitalisation contracts without DPF (other than administration costs and other non-incremental costs) are included in the initial carrying amount of the financial liability and recognised as an adjustment to the effective interest rate;

– the risk component of linked products is unbundled, if possible, and accounted for as insurance contracts.

The Company did not classify any contracts as investment contracts without DPF in 2009 and 2008.

C.1.14 Insurance liabilities

C.1.14.1 Provision for unearned premiumsThe provision for unearned premiums comprises that part of gross premiums written attributable to the following financial year or to subsequent financial years, computed separately for each insurance contract using the pro rata temporis method, adjusted to reflect any variation in the incidence of risk during the period covered by the contract. The provision for unearned premiums is created for both life insurance and non-life insurance.


C.1.14.2 Life insurance provisionThe life insurance provision (the provision for outstanding claims and the other life insurance technical provision) comprises the actuarially estimated value of the Company’s liabilities under life insurance contracts. The amount of the life insurance provision is calculated by a prospective net premium valuation, taking account of all future liabilities as determined by the policy conditions for each existing contract and including all guaranteed benefits, bonuses already declared and proposed, expenses and after deducting the actuarial value of future premiums.

The life provision is initially measured using the assumptions used for calculating the corresponding premiums and remain unchanged except where a liability inadequacy occurs. A liability adequacy test (LAT) is performed as at each end of the reporting period by the Company’s actuaries using current estimates of future cash flows under its insurance contracts (see C.2.3). If those estimates show that the carrying amount of the provision is insufficient in the light of the estimated future cash flows, the difference is recognised in the income statement with a corresponding increase to the other life insurance technical provision.

C.1.14.3 Claims’ provision The provision for outstanding claims represents the total estimated ultimate cost of settling all claims arising from events that have occurred up to the end of the financial year, whether reported or not, less amounts already paid in respect of such claims, including the related internal and external claims settlement expenses as estimated based on historical experience and specific assumptions about future economic conditions.

The provision includes claims reported by policyholders but not settled (RBNS) and claims incurred but not reported (IBNR).

Where benefits resulting from a claim are paid in the form of an annuity, the provision is calculated by recognised actuarial methods.

With the exception of annuities, the Company does not discount its provisions for outstanding claims.

Where applicable, provisions are disclosed net of the prudent estimates for salvage and subrogation recoveries. The provision for outstanding claims in respect of life insurance policies is included within the life insurance provision.

Whilst the Board of Directors considers that the gross provision for claims and the related reinsurance recoveries are stated fairly, the ultimate liability may differ as a result of subsequent information and events and may result in significant adjustments to the amounts provided. Adjustments to the amounts of the provisions are reflected in the financial statements for the period in which the adjustments are made. The methods used and the estimates made are reviewed regularly.

C.1.14.4 Other insurance provisionsOther insurance provisions contain other insurance technical provisions that are not mentioned above, such as the provision for unexpired risks (also referred to as “premium deficiency” see also C.2.3.3) in non-life insurance, the ageing provision in health insurance, provision for contractual non-discretionary bonuses in non-life business.

The provision for contractual non-discretionary bonuses in non-life business covers future benefits in the form of additional payments to policyholders or reduction of policyholder payments, which are a result of past performance. This provision is not recognised for those contracts, where future premium is reduced by bonuses resulting from favourable past policy claim experience and such bonus being granted irrespective of whether the past claim experience was with the reporting entity. In such a situation, the reduction of the premium reflects the expected lower future claims, rather than distribution of past surpluses.

C.1.14.5 Financial liabilities for investment contracts with DPFFinancial liabilities for investment contracts with DPF represents liabilities for contracts that do not meet the definition of insurance contracts, because they do not lead to the transfer of significant insurance risk from the policyholder to the Company, but which contain DPF (as defined in C.1.32.3). Financial liabilities arising from investment contracts with DPF are accounted for in the same way as insurance contracts.

C.1.14.6 DPF liability for insurance contractsDPF liability represents a contractual liability to provide significant benefits in addition to the guaranteed benefits that are at the discretion of the issuer over the timing and amount of benefits and which are based on performance of defined contracts, investment returns or the profit or loss of the issuer. For more details, see C.1.32.3.


C.1.15 Other provisions

A provision is recognised in the Statement of Financial Position when the Company has a legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation, and a reasonable estimate can be made of the amount of the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

C.1.16 Bonds issued

Bonds issued are recognised initially at fair value, net of transaction costs incurred, and subsequently carried at amortised cost. Amortisation of discounts or premiums and interest are recognised in interest expense and similar charges using the effective interest method.

C.1.17 Financial liabilities to banks and non-banks

Financial liabilities to banks and non-banks are recognised initially at fair value, net of transaction costs incurred, and subsequently valued at their amortised cost. Amortised cost of a financial liability is the amount at which the financial liability was measured upon initial recognition minus principal repayments, plus or minus the cumulative amortisation of any difference between that initial amount and the maturity amount. C.1.18 Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss are liabilities classified as held-for-trading, which include primarily derivative liabilities that are not hedging instruments. Financial liabilities at fair value through profit or loss are measured at fair value and the relevant gains and losses from this revaluation are included in the income statement. Financial liabilities are removed from the Statement of Financial Position when, and only when, they are extinguished – i.e. when the obligation specified in the contract is discharged, cancelled or expires.

C.1.19 Payables

Accounts payable are when the Company has a contractual obligation to deliver cash or another financial asset. Accounts payable are measured at amortised cost, which will normally equal their nominal or repayment value.

C.1.20 Net insurance premium revenue

Net insurance premium revenue includes gross earned premiums from direct insurance business and assumed (inwards) reinsurance business, net of premiums ceded to reinsurers.

Gross premiums comprise all amounts due during the financial year in respect of insurance contracts regardless of the fact that such amounts may relate in whole or in part to a later financial year. Gross premiums are recognised in respect of contracts meeting the definition of an insurance contract or an investment contract with DPF.

The above amounts do not include the amounts of taxes or charges levied with premiums.

Premiums are recognised when an unrestricted legal entitlement is established. For contracts where premiums are payable in instalments, such premiums are recognised as written when the instalment becomes due.

Premiums are recognised as earned on a pro-rata basis over the term of the related policy coverage via the provision for unearned premiums. For those contracts for which the period of risk differs significantly from the contract period, premiums are recognised over the period of risk in proportion to the amount of insurance protection provided.

The change in the unearned premium provision is represented by the difference in the balance of the provision for unearned premium as at the beginning of the year and the balance as at the year-end.


C.1.21 Net insurance claims and benefits

Insurance technical charges include claims (benefit) expenses, the change in technical provisions and rebates and profit sharing.

Claims (benefits) expenses are represented by benefits and surrenders, net of reinsurance (life) and claims paid net of reinsurance (non-life). Benefits and claims comprise all payments made in respect of the financial year. These amounts include annuities, surrenders, entries and withdrawals of loss provisions to and from ceding insurance enterprises and reinsurers, and external and internal claims management costs. Sums recovered on the basis of subrogation or salvage are deducted. Claims paid are recognised at the moment that the claim is approved for settlement.

The change in technical provisions represents change in provisions for claims reported by policyholders, change in provision for IBNR and change in other technical provisions.

Bonuses comprise all amounts chargeable for the financial year representing an allocation of surplus or profit arising on business as a whole or from a section of business, after the deduction of amounts provided in previous years which are no longer required. Rebates comprise such amounts to the extent that they represent a partial refund of premiums resulting from the experience of individual contracts. C.1.22 Benefits from investment contracts with DPF (investment contract benefits)

Investment contract benefits represent changes in financial liabilities resulting from investment contracts with DPF (for definition see C.1.14.5).

The change in financial liabilities from investment contracts with DPF involves guaranteed benefits credited, change in DPF liabilities from investment contracts with DPF and change in liability resulting from a liability adequacy test of investment contracts with DPF.

C.1.23 Interest and similar income and interest and similar expense

Interest income and interest expense are recognised in the income statement on an accrual basis, taking into account the effective yield of the asset or liability, or an applicable floating rate. Interest income and interest expense include the amortisation of any discount or premium or other differences between the initial carrying amount of an interest bearing instrument and its amount at maturity calculated using the effective interest method.

Interest on financial assets fair valued to profit or loss is reported as a part of Net income from financial instruments at fair value through profit or loss. Interest income and interest expense on other assets or liabilities is reported as Interest and other investment income or as Interest expense in the income statement.

C.1.24 Other income and expense from financial assets

Other income and expenses from financial assets comprise realised and unrealised gains/losses, dividends, impairment loss and net trading income.

A realised gain/loss arises on derecognition of financial assets other than financial assets at fair value through profit or loss. The amount of the realised gain/loss represents the difference between the carrying value of a financial asset and the sales price adjusted for any cumulative gain or loss that had been recognised directly in the equity.

Net fair value gains on financial assets and liabilities at fair value through profit or loss not held for trading represent the amount of the subsequent measurement of financial assets and liabilities designated at fair value through profit or loss to their fair value or the gain/loss from disposal thereof.

Dividends from investments are recorded when declared and approved by the shareholder’s meeting of the respective company.

Net trading income represents the subsequent measurement of the “Trading assets” and “Trading liabilities” to fair value or the gain/loss from disposal of the “Trading assets” or “Trading liabilities”. The amount of the trading income to be recorded represents the difference between the latest carrying value and the fair value as at the date of the financial statements or the sale price.


C.1.25 Income and expense from investment property

Income and expense from investment property comprise realised gains/losses triggered by derecognition, unrealised gains/losses from subsequent measurement at fair value, rental income and other income and expense related to investment property.

C.1.26 Other income and other expense

The main part of other income arises from administration services relating to the Employer’s liability provided by the Company for the state. For this type of insurance, the Company bears no insurance risk; it only administrates the fee collection and claims settlement. The revenue is recognised in the period when services are provided and in the amount stated by law.

C.1.27 Acquisition costs

Acquisition costs are costs arising from the conclusion of insurance or investment contracts with DPF and include direct costs, such as acquisition commissions or the cost of drawing up the insurance document or including the insurance contract in the portfolio, and indirect costs, such as advertising costs or the administrative expenses connected with the processing proposals and issuing policies. C.1.28 Administrative expensesAdministrative expenses include expenses relating to the administration of the Company. This includes personnel costs, office rental expenses and other operating expenses. Staff costs include expenses arising from employee benefits, such as salaries and wages, management remuneration and bonuses, social insurance. Other operating expenses include costs of premium collection, portfolio administration and the processing of inwards and outwards reinsurance.

C.1.29 Reinsurance commissions and profit participations

Reinsurance commissions and profit participations include commissions received or the receivable from reinsurers and profit participations based on reinsurance contracts. Non-life reinsurance commissions are deferred in a manner consistent with the deferral of acquisition costs in non-life insurance.

C.1.30 Income tax

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly to other comprehensive income, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted as at the end of the reporting period, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of assets or liabilities that affect neither accounting nor taxable profit and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted as at the end of the reporting period.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

C.1.31 Employee benefits

C.1.31.1 Short-term employee benefitsShort-term employee benefits are employee benefits (other than termination benefits) that are payable wholly within twelve months after the end of the period in which the employees render the related service. Short-term employee benefits include mainly wages and salaries, obligatory social and health insurance paid by the Company on behalf of employees, management remuneration and bonuses, remuneration for membership in Company boards and non-monetary benefits. The benefits are recognised in an undiscounted amount as an expense and as a liability (accrued expense).


C.1.31.2 Other long-term employee benefitsOther long-term employee benefits are employee benefits (other than post-employment benefits and termination benefits) that do not become due wholly within twelve months after the end of the period in which the employees render the related service.

C.1.31.3 Post-employment benefitsPost-employment benefits are employee benefits (other than termination benefits) that are payable after the completion of employment. The Company does not provide any post-employment benefits. C.1.31.4 Termination benefitsTermination benefits are employee benefits payable as a result of the Company’s decision to terminate an employee’s employment before the normal retirement date, or as a result of an employee’s decision to accept voluntary redundancy in exchange for those benefits.

C.1.32 Other accounting policies

C.1.32.1 Foreign currency translationA foreign currency transaction is a transaction which is denominated in or requires settlement in other than functional currency. Functional currency is the currency of the primary economic environment in which entity operates. A foreign currency transaction is recorded, on initial recognition in the functional currency, by applying the exchange rate effective as at the date of the transaction to the foreign currency amount.

At each end of the reporting period:

– Foreign currency monetary items are translated using the closing foreign exchange rate;

– Non-monetary items denominated in a foreign currency which are carried at historical cost are translated using the foreign exchange rate as at the date of the original transaction; and

– Non-monetary items denominated in a foreign currency, which are carried at fair value, are translated using the foreign exchange rates ruling as at the dates the fair values were determined.

Exchange differences arising from the settlement of monetary items or from translation of the Company’s monetary items at rates different from those at which they were initially recorded or reported in previous financial statements are recognised as Other income or as Other expenses in the period in which they arise.

Translation differences on non-monetary items, such as equities held at fair value through profit or loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary items, such as equities classified as available-for-sale financial assets, are included in the fair value reserve in equity unless qualify as fair value hedge.

C.1.32.2 Impairment The carrying amounts of the Company’s assets, other than investment property (see note C.1.2), deferred acquisition costs (C.1.10), inventories and deferred tax assets (C.1.30), are reviewed as at each end of the reporting period to determine whether there is any indication of impairment. This determination requires judgement. If any such indication exists, the asset’s recoverable amount is estimated. The recoverable amount is measured annually regardless of any indication of impairment for intangible assets not yet available for use.

An impairment loss is recognised to the extent that the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in the income statement.

Individual impairment losses are losses which are specifically identified. Collective impairment losses are losses which are present in a portfolio of loans or receivables but not specifically identified.

Impairment of financial assetsA financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

Evidence of impairment includes, for example, significant financial difficulties of the issuer, default or delinquency in interest or principal payments, the probability that the borrower will enter bankruptcy or other financial reorganisation and the disappearance of an active market for the financial asset.


A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is considered to be objective evidence of impairment.

In all these cases, any impairment loss is recognised only after a careful analysis of the type of loss has established that the conditions exist to proceed with the corresponding recognition. The analysis includes considerations of the recoverable value of the investment, checks on the volatility of the stock versus the reference market or compared to competitors, and any other possible quality factor. The analytical level and detail of the analysis varies based on the significance of the latent losses of each investment.

The recoverable amount of the Company’s investments in held-to-maturity securities is calculated as the present value of expected future cash flows, discounted at the original effective interest rate inherent in the asset. Receivables with a short duration are not discounted.

Loans and advances are reported net of allowances for loan losses to reflect the estimated recoverable amounts. Receivables are stated at their cost less impairment losses.

The recoverable amount of an available-for-sale asset is the current fair value. When there is objective evidence that it is impaired, the decline in fair value that had been recognised directly in other comprehensive income is recognised into the income statement.

An impairment loss in respect of a held-to-maturity security, loan, advance or receivable, available-for-sale debt instrument is reversed through the income statement (up to the amount of the amortised cost) if the subsequent increase in recoverable amount can be attributed objectively to an event occurring after the impairment loss was recognised.

An impairment loss in respect of available-for-sale equity instruments is not reversed through the income statement and any subsequent increase in fair value is recognised in other comprehensive income.

Impairment of non financial assetsThe recoverable amount of other assets is the greater of their fair value less cost to sell and the value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

In respect of other assets, an impairment loss is reversed through the income statement if there has been an increase in the recoverable amount and the increase can be objectively related to an event occurring after the date of the impairment. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount of the asset that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

The carrying amount of subsidiaries and associates is tested for impairment annually. The Company observes if events or changes in subsidiaries or an associates business indicate that it might be impaired. The Company considers the fact that the decreasing equity of a subsidiary or associate is a key indicator of potential impairment.

C.1.32.3 Discretionary participation features (DPF)A discretionary participation feature (DPF) represents a contractual right to receive, as a supplement to guaranteed benefits, additional benefits that constitute a significant portion of the total contractual benefits, whose amount or timing is at the discretion of the Company and are based on the performance of pooled assets, profit or loss of the company or investment returns.

As the amount of the bonus to be allocated to policyholders has been irrevocably fixed as at the end of the reporting period, the amount is presented as a guaranteed liability in the financial statements, i.e. within the life insurance liabilities in the case of insurance contracts or within the Guaranteed liability for investment contracts with DPF in the case of investment contracts. C.1.32.4 Segment reportingA segment is a component of the Company that engages in business activities from which the Company may earn revenues and incur expenses and whose operating results are regularly reviewed by the management of the Company to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available (business segment).

Measurement of segment assets and liabilities and segment revenues and results is based on the accounting policies set out in the accounting policy notes.


The reportable segments are strategic Company activities that offer different services. They are managed separately and have different marketing strategies.

C.1.32.5 Repo transactionsThe Company enters into purchases (sales) of investments under agreements to resell (repurchase) substantially identical investments at a certain date in the future at a fixed price. Investments purchased subject to commitments to resell them at future dates are not recognised. The amounts paid are recognised in loans to either banks or non-banks. The receivables are shown as collateralised by the underlying security. Investments sold under repurchase agreements continue to be recognised in the Statement of Financial Position and are measured in accordance with the accounting policy for either assets held-for-trading or available-for-sale, as appropriate. The proceeds from the sale of the investments are reported as liabilities to either banks or non-banks.

The difference between the sale and repurchase considerations is recognised on an accrual basis over the period of the transaction and is included in interest.

C.1.32.6 Offsetting financial instrumentsFinancial assets and liabilities are offset and the net amount reported in the Statement of Financial Position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.

C.2 Principal Assumptions

C.2.1 Life assurance liabilities

Actuarial assumptions and their sensitivities underlie the insurance calculation. The life insurance provision is calculated by a prospective net premium valuation (see C.1.14.2) using the same statistical data and interest rates used to calculate premium rates (in accordance with relevant national legislation). The assumptions used are locked-in at policy inception and remain in-force until expiry of the liability. The adequacy of insurance liabilities is tested with a liability adequacy test (see C.2.3).

The guaranteed technical rate of interest included in policies varies from 2% to 7.5% according to the actual technical rate used in determining the premium.

As a part of the life insurance provision, an additional provision is established in respect of bonuses payable under certain conditions, referred to as “special bonuses”. This provision corresponds to the value of special bonuses calculated using the prospective method and using the same interest rate and mortality assumptions used to calculate the basic life insurance provision. No allowance is made for lapses.

C.2.2 Non-life insurance liabilities

As at the end of the reporting period, a provision is made for the expected ultimate cost of settling off all claims incurred in respect of events up to that date, whether reported or not, together with related claims handling expenses, less amounts already paid. The liability for reported claims (RBNS) is assessed on a separate case-by-case basis with due regard to the claim circumstances, information available from loss adjusters and historical evidence of the size of similar claims. Case reserves are reviewed regularly and are updated as and when new information arises.

The estimation of claims incurred but not reported (IBNR) is generally subject to a greater degree of uncertainty than reported claims. IBNR provisions are predominantly assessed by the Company’s actuaries using statistical techniques such as chain ladder methods, whereby historical data is extrapolated in order to estimate ultimate claims costs.

To the extent that these methods use historical claims development information, they assume that the historical claims development pattern will occur again in the future. There are reasons why this may not be the case, which, insofar as they can be identified, have been allowed for by modifying the methods. Such reasons include:

a) economic, legal, political and social trends (resulting in different than expected levels of inflation);

b) changes in the mix of insurance contracts incepted;

c) random fluctuations, including the impact of large losses.


IBNR provisions are initially estimated at a gross level and a separate calculation is carried out to estimate the size of reinsurance recoveries.

The assumptions which have the greatest effect on the measurement of non-life insurance liabilities insurance are as follows:

“Tail” factors For long-tail business, the level of provision is significantly influenced by the estimate of the development of claims from the latest development year for which historical data is available to ultimate settlement. These “tail” factors are estimated prudently using mathematical curves, which project observed development factors.

AnnuitiesIn MTPL insurance and other third party liability lines, part of the claims payment may be in the form of an annuity. The provision for such claims is established as the present value of expected future claims payments.

The key assumptions involved in the calculation are the discount rate, the expected increase in wages and disability pensions which influence the amount of annuities to be paid. The Company follows guidance issued by the Czech Bureau of Insurers in setting these assumptions.

Under current legislation, future increases in disability pensions are set by governmental decree and may be subject to social and political factors beyond the Company’s control. The same applies to the real future development of annuity inflation (it is also dependent on governmental decrees).

DiscountingWith the exception of annuities, non-life claims provisions are not discounted. For annuities discounting is used as described in the table below.

Life Annuities Certain Annuities

Discount rate 2% p.a. 2% p.a.

Annuity inflation 4.8% p.a. (4.9% for old legal MTPL)2) 5.7% p.a. (6.4% for old legal MTPL)2)

2) Until 31 December 1999.

In addition, the Company takes mortality into account through the use of mortality tables recommended by the Czech Bureau of Insurers. C.2.3 Liability adequacy test

C.2.3.1 Life assuranceThe life insurance liabilities are tested as at the end of each reporting period against a calculation of future cash flows using explicit and consistent assumptions of all factors – future premiums, mortality, morbidity, lapses, surrenders, guarantees, policyholder bonuses, expenses and exercise of policyholder options.

Where reliable market data is available, assumptions are derived from observable market prices.

However, in the absence of market transactions in the economic environment in which the Company operates, difficulties remain in calibrating the assumptions used by the Company in the liability adequacy test to observable market conditions in most cases.

Assumptions which cannot be reliably derived from market values are based on current estimates calculated by reference to the Company’s own internal models, on guidance notes issued by the Czech Society of Actuaries and publicly available resources (e.g. demographic information published by national Statistical Bureau).

Due to the levels of uncertainty in the future development of the insurance markets and the Company’s portfolio, the Company uses conservative margins for risk and uncertainty within liability adequacy tests. Margins are in accordance with recommendations from Professional Guidance of the Czech Society of Actuaries.

Input assumptions are updated annually based on recent experience.

The methodology of testing considers current estimates of all future contractual cash flows including cash flows from embedded options and guarantees. This methodology enables the quantification of correlations between all risks factors.


The principal assumptions used (see note C.2.4.1) are:

SegmentationThe Company segments the products into several homogenous groups according to the characteristics of individual products (types of products and guaranteed interest rates). Each group is tested separately for liability adequacy. Liability inadequacies of individual groups are not offset against surpluses arising on other groups in determining the additional liability to be established.

The net present value of future cash flows calculated using the assumptions described below is compared with the insurance liabilities. This done separately for each product group. If that comparison shows that the carrying amount of the insurance liabilities is inadequate in light of the estimated future cash flows, the entire deficiency is recognised in profit or loss, by establishing an additional provision.

Mortality and morbidity Mortality and morbidity are based on statistical investigations of the Company’s mortality and morbidity experience over the last 15 years and supported by data supplied by the Czech Statistical Office and the German probabilities of Dread Disease prognosis. For pension insurance, the Company uses generation mortality tables, developed in co-operation with Munich Re, that allow for future mortality assessment improvements.

Assumptions for mortality and morbidity are adjusted by margins for risk and uncertainty.

PersistencyFuture contractual premiums are included without any allowance for premium indexation. Estimates for lapses and surrenders are based on the Company’s past experience with insurance policies (split by type and policy durations). The Company regularly investigates its actual persistency rates by product type and duration and amends its assumptions accordingly.

The assumptions as derived above are adjusted by a margin for risk and uncertainty. Expense Estimates for future renewal and maintenance expenses included in the liability adequacy test are derived from the Company’s statistical data. The Company’s estimate of annual inflation for particular expense items is used to allow for future expense inflation. The resulting annual expense inflation is in the range of 2.63%–4.22% (in 2008: 2.30–3.45%).

The assumptions are adjusted by a margin for risk and uncertainty.

Discount rateThe Company discounts all expected cash flows at a rate equal to the risk-free rate less 0.25%. Derivation of the risk-free yield curve is based on Czech government bonds.

Interest rate guaranteeThe Company makes an additional allowance for the potential volatility of actual investment returns compared to the risk-free rate. The interest rate guarantee is calculated using stochastic option pricing techniques (Ornstein-Uhlenbeck processes), whereby the Company divides the policy duration into a series of one-year put options. The interest rate guarantee is mainly influenced by volatility of investment returns.

Profit sharingWhile, for most life assurance policies, the amount and timing of the bonus to policyholders is at the discretion of the Company, the assessment of liability adequacy takes future discretionary bonuses, calculated as a fixed percentage of the excess of the risk-free rate over the guaranteed technical interest rate on individual policies, into account. The percentage applied is consistent with the Company’s current business practices and expectations for bonus allocation.

Annuity optionThe option to choose between a lump sum payment and an annuity is available to policyholders under pension insurance. For the purposes of the liability adequacy test, the Company assumes an annuity option take-up rate increasing from the level of 1%–3% to 10%–20% in the long-term horizon for all eligible policyholders. The estimate of the take-up rate equal to 20% applied in previous years was refined during 2009 based on the Company’s analysis of past experience and future expectations.

C.2.3.2 Investment contracts with Discretionary Participation Features (DPF)Investments contracts with DPF are included within the liability adequacy test for life insurance as described above.


C.2.3.3 Non-life insuranceContrary to life insurance, insurance liabilities connected with non-life insurance are calculated by using current (not historical) assumptions and therefore no additional liabilities are established for outstanding claims as a result of a liability adequacy test.

The liability adequacy test for non-life insurance is therefore limited to the unexpired portion of existing contracts. It is performed by comparing the expected value of claims and expenses attributable to the unexpired periods of policies in force at the end of the reporting period with the amount of unearned premiums in relation to such policies after deducting deferred acquisition costs. Expected cash flows relating to claims and expenses are estimated by reference to the experience during the expired portion of the contract, adjusted for significant individual losses which are not expected to recur.

The test is performed by product groups which comprise insurance contracts with a similar risk profile.

For annuities, the assumptions used to establish the provision include all future cash flows with changes being recognised immediately in the income statement. As such, no separate liability adequacy test is required to be performed. C.2.4 Significant variables

Profit or loss and insurance liabilities are mainly sensitive to changes in mortality, lapse rates, expense rates, discount rates and annuitisation which are estimated for calculating adequate value of insurance liabilities during the LAT.

The Company has estimated the impact on profit for the year and equity as at the year end of changes in key variables that have a material impact on them.

C.2.4.1 Life insurance

In CZK thousand for the year ended 31 December 2009 Change Change Change in insuranceVariable in variable in P/L liabilities

Mortality 10% (30,495) 30,495

Lapse rate (10)% (3,950) 3,950

Expense rate 10% (64,880) 64,880

Discount rate 100 bp 666,622 (666,622)

(100) bp (1,386,924) 1,386,924

Annuitisation 10% (10,384) 10,384

In CZK thousand for the year ended 31 December 2008 Change Change Change in insuranceVariable in variable in P/L liabilities

Mortality 10% (47,092) 47,092

Lapse rate (10)% (24,448) 24,448

Expense rate 10% (110,476) 110,476

Discount rate 100 bp 1,030,739 (1,030,739)

(100) bp (1,809,321) 1,809,321

Annuitisation 10% (213,052) 213,052

Changes in variables represent reasonably possible changes in variables mentioned which could have occurred and would have led to significant changes in insurance liabilities as at the end of the reporting period. These reasonably possible changes represent neither expected changes in variables nor worst-case scenarios.

The analysis does not include reinsurance, as the only significant reinsured life insurance product is an accident rider that does not bring about the liabilities’ inadequacy and therefore is not subject to LAT. Other life insurance products, which are reinsured, are insignificant in the Sum at risk.

The analysis has been prepared for a change in variables with all other assumptions remaining constant and ignores changes in the values of the related assets.


Sensitivity was calculated for the worse direction in movement; therefore, sensitivity to changes in mortality was calculated for a 10% decrease in mortality for pension products and a 10% increase in mortality for other types of products, sensitivity to changes in lapse rates was calculated to decrease by 10%, sensitivity to changes in expense rates and annuitisation (take-up rate) was calculated to increase by 10%.

Profit or loss and insurance liabilities are mostly influenced by a change in the discount rate in both directions. Hence changes in discount rates are stated in 100 basis points for both directions.

C.2.4.2 Non-life insuranceIn non-life insurance, variables that would have the greatest impact on insurance liabilities relate to annuities.

The key variable in the calculation of the provision for the annuities is a discount rate. A 100 bp decrease in the discount rate would lead to a CZK 755,000 thousand (2008: CZK 810,000 thousand) increase in the liability. An increase in wages and disability pensions which also significantly influence the amount of annuities to be paid is dependant on an adjustment rate. A 100 bp increase in the adjustment rate would lead to a CZK 628,000 thousand (2008: CZK 618,000 thousand) increase in the liability.

Considering a reinsurance effect a 100 bp decrease in the discount rate would lead to a CZK 471,000 thousand (2008: CZK 493,000 thousand) increase in the liability and a 100 bp increase in the adjustment rate would lead to a CZK 388,000 thousand (2008: CZK 382,000 thousand) increase in the liability.

C.3 Terms and Conditions of Insurance and Investment Contracts with DPF that Have a Material Impact on the Amount, Timing and Uncertainty of Future Cash Flows

C.3.1 Non-life insurance contracts

The Company offers many forms of general insurance, mainly motor insurance, property insurance and liability insurance. Contracts may be concluded for a fixed term of one year or on a continuous basis with either party having the option to cancel at 8 weeks’ notice. The Company is therefore generally able to re-price the risk by revising the premium at intervals of not more than one year. It also has the ability to impose deductibles and reject fraudulent claims.

Future insurance claims are the main source of uncertainty which influences the amount and the timing of future cash flows.

The amount of particular claim payments is limited by the sum insured which is established in the insurance policy.

The other significant source of uncertainty connected with non-life insurance arises from legislative regulations which entitle the policyholder to report a claim before the time of expiration, which usually lasts 3–4 years from the date when the policyholder becomes aware of the claim. This feature is particularly significant in the case of permanent disability arising from accident insurance, because of the difficulty in estimating the period between occurrence and confirmation of permanent effects.

The following statements describe characteristics of particular types of insurance contracts if they are significantly different from the above-mentioned features.

Motor insuranceThe Company motor portfolio comprises both motor third party liability insurance (MTPL) and motor (casco) insurance. MTPL insurance covers bodily injury claims and property claims in the Czech Republic as well as claims caused abroad by insured motorists under the Green Card system.

Property damage under MTPL and casco claims are generally reported and settled within a short period of the accident occurring. Payments relating to bodily injury claims, however, take longer to finalise and are more difficult to estimate. Such claims may be settled in the form of a lump-sum settlement or an annuity.

For claims relating to bodily injury and related losses of earnings, the amount of the related claim payments is derived from governmental decree. This requirement may have a retrospective effect on claims incurred before the effective date of this requirement.

Policyholders are entitled to a no-claims-bonus on renewal of their policy where the conditions are fulfilled.


The amount of claim payment for damage of property and compensation for losses of earnings does not exceed CZK 100 million per claim, as well as compensation for damage to health.

Casco insurance represents standard insurance against damage; claim payment is limited by the sum insured and the amount of participation. Property insuranceThis is broadly split into Industrial and Personal lines. For Industrial lines, the Company uses risk management techniques to identify and evaluate risks and analyse possible losses and hazards and also cooperates with reinsurers. Risk management techniques include primarily inspection visits in the industrial areas performed by risk management team which consist of professionals with a long term experience and deep safety rules knowledge. Personal property insurance consists of the standard buildings and contents insurance.

Claims are normally notified promptly and can be settled without delay.

Liability insuranceThis covers all types of liabilities and includes commercial liabilities, directors and officers and professional indemnity as well as personal liability.

While the majority of general liability coverage is written on a “claims-made basis”, certain general liability coverage is typically insured on a “occurrence basis“ basis.

Accident insuranceAccident insurance is traditionally sold as rider to the life products offered by the Company and belongs to the life insurance segment. Only a small part of accident insurance is sold without life insurance.

C.3.2 Life insurance contracts

BonusesOver 90% of the Company’s life insurance contracts include an entitlement to receive a bonus. Bonuses to policyholders are granted at the discretion of the Company and are recognised when proposed and approved by the Board of Directors in accordance with the relevant legal requirements. Once allocated to policyholders, bonuses are guaranteed (see DPF in C.1.33.3).

PremiumsPremiums may be payable in regular instalments or as a single premium at the inception of the policy. Most endowment-type insurance contracts contain a premium indexation option that may be exercised at the discretion of the policyholder annually. Where the option is not exercised, premiums are not increased with inflation.

Term life insurance productsTraditional term life insurance products comprise risk of death, waiver of premium in case of permanent disability and accident rider. Premium is paid regularly or as a single premium. Policies offer fixed or decreasing sum insured of death. The policies offer protection from a few years up to medium long-term. Death benefits are only paid if the policyholder dies during the term of insurance. Waiver of premium arises only in case of an approved disability pension of the policyholder.

The period of disability is the main source of uncertainty connected with life insurance products. It is limited by the contractual minimum duration of the insurance policy and by the end of the insurance period.

Endowment productsThese are also traditional term life insurance products providing life-long financial protection. Many long-term policies have tax advantages and give the insured the possibility to finance their needs in retirement. Capital life insurance products for regular or single premium offers covering risk of death, endowment, deadly diseases, waiver of premium in case of disability and accident rider. Insurance benefits are usually paid as a lump-sum. Variable capital life insurance productsVariable capital life insurance products offer all types of insurance risk as traditional capital life insurance products. In addition, they offer the policyholder the possibility to pay an extra single premium during the term of the insurance. The policyholder can ask to interrupt payment for regular premium, to withdraw a part of the extra single premium, to change the term of insurance, risks, sum insured and premium.


Children’s insurance productsThese products are based on traditional life risk: death or endowment of assured, waiver of premium in case of disability and accident rider. They are paid regularly. The term of insurance is usually limited by the 18th birthday of the child for which the policy is negotiated. Benefits may be in the form of a lump-sum or annuity payment.

Unit-linked life insuranceUnit-linked are those products where the policyholders carry the investment risk.

The Company earns management, administration fees and mortality results on these products.

Unit-linked life insurance combines traditional term life insurance, with risks of death or deadly diseases together with a waiver of premium in case of permanent disability, with the possibility to invest regular premium or extra single premium to some investment funds. The policyholder defines funds and the ratio of premium where payments are invested and can change the funds and ratio during the contract. He can also change sums assured, regular premium, and insurance risks. He can pay an additional single premium or withdraw a part of the extra single premium.

Retirement insurance for regular payments (with interest rates)Life-long retirement programme products include pensions paid off in case of death, dread diseases or maturity of agreed age of assured, options for variable combination of component. The policyholder can pay the premium regularly or in a single payment. Basic types of pension are short-term pension and lifetime pension.

C.3.3 Investment contracts with DPF

Adult deposit life or accident insurance with returnable lump-sum principalThese types of life or accident products allow policyholders to pay a single returnable deposit at the beginning of the policy. The interest earned on the deposit is used to pay the annual premiums. The deposit is returned at the end of assurance or on death or other claim event. These contracts also entitle the policyholder to a discretionary bonus, determined as under life insurance contracts.

C.4 Critical Accounting Estimates and Judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

C.4.1 Assumptions used to calculate insurance liabilities

The Company uses certain assumptions when calculating its insurance liabilities. The process used to determine the assumptions that have the greatest effect on the measurement of the items in the Company’s financial statements, and the effects of changes in the assumptions that would have a material effect on the recognised amounts, are discussed in part C.2.4.

C.4.2 Fair value of derivatives and other financial instruments

The fair value of financial instruments that are not traded on an active market (for example, over-the-counter derivatives) is determined using valuation techniques. The Company uses its judgement to select a variety of methods and makes assumptions that are mainly based on the market conditions existing as at each end of the reporting period (see also C.1.5).

As at 31 December 2008 the Company held 6,620,641 shares in Zentiva. The management of the Company had intended to accept the public offer made by Anthiarose Ltd. and as a result it arranged for a put and call option on the price of Zentiva shares with Anthiarose Ltd. Upon an amended public offer made by Sanofi Aventis Europe to buy the shares of Zentiva for CZK 1,150 per share, the companies (the Company and Anthiarose Ltd.) agreed to terminate the collar. Anthiarose kept the right of first refusal for the purchase of Zentiva’s shares held by the Company if and when the Company decided to sell the shares. The Company was obliged to pay one half of the difference between the


purchase price and CZK 1,088 to Anthiarose if the purchase price is higher than CZK 1,088 per share. As a result the Company reported a liability calculated on a probability weighted expectation that Zentiva shares are to be sold to Sanofi Aventis Europe. The value of potential liability recorded as at 31 December 2008 was CZK 153,930 thousand. The Company, subsequent to the year end, sold the shares at CZK 1,150 per share and on 12 March 2009 the Company paid CZK 205,240 thousand to Anthiarose.

C.5 Changes in Accounting Policies

C.5.1 Standards, amendments and interpretations to existing standards relevant for the Company and applied in the reporting period

The following published amendments and interpretations of existing standards are mandatory and relevant to the Company and have been applied by the Company since 1 January 2009:

IAS 1 – Presentation of Financial Statements – Complete revision including a requirement to present Statement of comprehensive income (Statement of comprehensive income, effective from 1 January 2009)This revision especially introduces a statement of comprehensive income. This enables users of the financial statements to analyse changes in a company’s equity resulting from transactions with owners in their capacity as owners (such as dividends and share repurchases) separately from ‘non-owner’ changes (such as transactions with third parties). The revised standard gives the option of presenting items of income and expense and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by a statement of comprehensive income). Presentation in two separate statements has been applied by the Company.

IFRS 8 – Operating segments (effective from 1 January 2009)This standard requires an entity to adopt the ‘management approach’ to reporting on the financial performance of its operating segments. Generally, the information to be reported are that which management uses internally for evaluating segment performance and deciding how to allocate resources to operating segments. Such information may be different from what is used to prepare the income statement and Statement of Financial Position. The standard therefore requires explanations of the basis on which the segment information is prepared and reconciliations to the amounts recognised in the income statement and Statement of Financial Position. This standard replaces IAS 14 Segment reporting and applies only to listed entities.

IAS 23 – Borrowing cost, amendment to the standard (effective from 1 January 2009)This amendment removes the option of immediately recognising borrowing costs, as an expense, that relate to assets that take a substantial period of time to get ready for use or sale. The revised standard requires that an entity capitalises such borrowing costs as part of the cost of that asset. This was a permitted alternative treatment under IAS 23. This treatment was not previously relevant for the Company and it will be applied for newly occurring events. IAS 32 – Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements – Puttable Financial Instruments and Obligations Arising on Liquidation (effective from 1 January 2009)IAS 32 requires a financial instrument to be classified as a liability if the holder of that instrument can require the issuer to redeem it for cash. Many financial instruments that would usually be considered equity, including some ordinary shares and partnership interests, allow the holder to ‘put’ the instrument (to require the issuer to redeem it for cash). Currently these financial instruments are considered liabilities, rather than equity. They require entities to classify these types of financial instruments as equity, provided they have particular features and meet specific conditions. This was not previously relevant for the Company and it will be applied for newly occurring events.

Improvements to International Financial Reporting Standards (issued in May 2008) In 2007, the International Accounting Standards Board decided to initiate an annual improvements project as a method of making necessary, but non-urgent, amendments to IFRS. The amendments consist of a mixture of substantive changes, clarifications, and changes in terminology in various standards. The substantive changes relate to the following areas: classification as held-for-sale under IFRS 5 in case of a loss of control over a subsidiary; possibility of presenting financial instruments held-for-trading as non-current under IAS 1; accounting for sale of IAS 16 assets which were previously held-for-rental and classification of the related cash flows under IAS 7 as cash flows from operating activities; clarification of the definition of a curtailment under IAS 19; accounting for below-market interest rate government loans in accordance with IAS 20; making the definition of borrowing costs in IAS 23 consistent with the effective interest method; clarification of accounting for subsidiaries held-for-sale under IAS 27 and IFRS 5; reduction in the disclosure requirements relating to associates and joint ventures under IAS 28 and IAS 31; enhancement of disclosures required by IAS 36; clarification of accounting for advertising costs under IAS 38; amending the definition of the fair value through profit or loss category to be consistent with hedge accounting under IAS 39; introduction of accounting for investment properties under construction in accordance with IAS 40; and reduction in restrictions over how the fair value of biological assets are determined under IAS 41. Further amendments made to IAS 8, 10, 18, 20, 29, 34, 40, 41 and to IFRS 7 represent terminology or editorial


changes only, which the IASB believes have no or minimal effect on accounting. The amendments do not have any material effect on the financial statements of the Company.

Amendment to IFRS 4 – Insurance Contracts and IFRS 7 – Financial instruments: Disclosures (effective from 1 January 2009)The amendments to IFRS 4 and IFRS 7 aim at requiring enhanced disclosures about fair value measurements and liquidity risk associated with financial instruments.

An entity shall disclose for each class of financial instruments the methods and, when a valuation technique is used, the assumptions applied in determining fair values of each class of financial assets or financial liabilities. An entity shall classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. If there has been a change in valuation technique, the entity shall disclose that change and the reasons for making it.

Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate – IFRS 1 and IAS 27 Amendment (issued in May 2008; effective for annual periods beginning on or after 1 January 2009) The amendment allows first-time adopters of IFRS to measure investments in subsidiaries, jointly controlled entities or associates at fair value or at previous GAAP carrying value as deemed cost in the separate financial statements. The amendment also requires distributions from pre-acquisition net assets of investees to be recognised in profit or loss rather than as a recovery of the investment. The amendments do not have any impact on the Company’s financial statements. C.5.2 Standards, interpretations and amendments to published standards that are not yet effective

The following new standards, amendments and interpretations to existing standards have been published and are mandatory and relevant for the Company’s accounting periods beginning on or after 1 January 2010 but have not been applied earlier by the Company:

Amendment to IAS 32: Classification of Right issues (effective for annual periods beginning on or after 1 February 2010, not yet adopted by the EU)The amendment to IAS 32 clarifies how to account for certain rights when the issued instruments are denominated in a currency other than the functional currency of the issuer. If such instruments are issued pro rata to the issuer‘s existing shareholders for a fixed amount of cash, they should be classified as equity even if their exercise price is denominated in a currency other than the issuer‘s functional currency.

Eligible Hedged Items – Amendment to IAS 39, Financial Instruments: Recognition and Measurement (effective with retrospective application for annual periods beginning on or after 1 July 2009) The amendment clarifies how the principles that determine whether a hedged risk or portion of cash flows is eligible for designation should be applied in particular situations. The amendment has no impact on the Company and will be evaluated in case of newly occurring events.

Amendments to IFRIC 9 – Reassessment of Embedded Derivatives and IAS 39 – Financial Instruments: Recognition and Measurement (effective for annual periods ending on or after 30 June 2009, endorsed by the EU for annual periods beginning on or after 1 January 2010, earlier application is permitted)The amendments to IFRIC 9 and IAS 39 clarify the treatment of derivative financial instruments embedded in other contracts when a hybrid financial asset is reclassified out of the fair value through profit or loss category.

The reclassification amendment issued by IASB in October 2008 allows entities to reclassify particular financial instruments out of the ‘at fair value through profit or loss’ category in specific circumstances. The amendments to IFRIC 9 and IAS 39 clarify that on reclassification of a financial asset out of the ‘at fair value through profit or loss’ category all embedded derivatives have to be assessed and, if necessary, separately accounted for in financial statements.

The Company will apply these IFRS from the reporting period beginning 1 January 2010 and is currently assessing the impact of the implementation.

IFRS 3, Business Combinations (revised January 2008; effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009) The revised standard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the profit and loss account. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs should be expensed. The revised standard is not expected to have a material impact on the Company’s financial statements.


IAS 27, Consolidated and Separate Financial Statements (revised January 2008; effective for annual periods beginning on or after 1 July 2009) The revised IAS 27 will require an entity to attribute total comprehensive income to the owners of the parent and to the non-controlling interests (previously “minority interests”) even if this results in the non-controlling interests having a deficit balance (the current standard requires the excess losses to be allocated to the owners of the parent in most cases). The revised standard specifies that changes in a parent’s ownership interest in a subsidiary that do not result in the loss of control must be accounted for as equity transactions. It also specifies how an entity should measure any gain or loss arising on the loss of control of a subsidiary. At the date when control is lost, any investment retained in the former subsidiary will have to be measured at its fair value. The amendment to the standard will not have any significant impact on the Company’s financial statements.

IAS 24, Related Party Disclosures (amended November 2009, effective for annual periods beginning on or after 1 January 2011, not yet adopted by the EU) IAS 24 was revised in 2009 by:

(a) simplifying the definition of a related party, clarifying its intended meaning and eliminating inconsistencies from the definition; and

(b) providing a partial exemption from the disclosure requirements for government-related entities. The Company is currently assessing the impact of the amended standard on disclosures in its financial statements.

IFRS 9, Financial Instruments (issued in November 2009, effective for annual periods beginning on or after 1 January 2013, with earlier application permitted, not yet adopted by the EU) IFRS 9 replaces those parts of IAS 39 relating to the classification and measurement of financial assets. Key features are as follows:

– financial assets are required to be classified into two measurement categories: those to be measured subsequently at fair value, and those to be measured subsequently at amortised cost. The decision is to be made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument;

– an instrument is subsequently measured at amortised cost only if it is a debt instrument and both (i) the objective of the entity’s business model is to hold the asset to collect the contractual cash flows, and (ii) the asset’s contractual cash flows represent only payments of principal and interest (that is, it has only “basic loan features”). All other debt instruments are to be measured at fair value through profit or loss; and

– all equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading will be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can be made at initial recognition, to recognise unrealised and realised fair value gains and losses through other comprehensive income rather than profit or loss. There is to be no recycling of fair value gains and losses to profit or loss when the asset is derecognised. This election may be made on an instrument-by-instrument basis. Dividends are to be presented in profit or loss, as long as they represent a return on investment.

The Company is considering the implications of the standard, the impact on the Company and the timing of its adoption by the Company.

Group Cash-settled Share-based Payment Transactions – Amendments to IFRS 2, Share-based Payment (effective for annual periods beginning on or after 1 January 2010, not yet adopted by the EU) The amendments provide a clear basis to determine the classification of share-based payment awards in both consolidated and separate financial statements. The amendments incorporate into the standard the guidance in IFRIC 8 and IFRIC 11, which are withdrawn. The amendments expand on the guidance given in IFRIC 11 to address plans that were previously not considered in the interpretation. The amendments also clarify the defined terms in the Appendix to the standard. The amendments will not have any impact to the Company’s financial statements as the Company does not have any Share-based payments. IFRS 1 amendment – limited exemption from comparative IFRS 7 disclosures for first-time adopters (The proposed amendment will be effective for annual periods beginning on or after 1 July 2010, with early application permitted, not yet adopted by the EU) Existing IFRS preparers were granted relief from presenting comparative information for the new disclosures required by the March 2009 amendments to IFRS 7 ‘Financial Instruments: Disclosures’. The relief was provided because the amendments to IFRS 7 were issued after the comparative periods had ended, and the use of hindsight would have been required. The amendment to IFRS 1 provides first-time adopters with the same transition provisions (and thereby the same relief) as included in the amendment to IFRS 7 for other companies.


Embedded Derivatives – Amendments to IFRIC 9 and IAS 39 (effective for annual periods ending on or after 30 June 2009, endorsed by the EU for annual periods beginning on or after 1 January 2010, earlier application is permitted) The amendments clarify that on reclassification of a financial asset out of the ‘at fair value through profit or loss’ category, all embedded derivatives have to be assessed and, if necessary, separately accounted for. The Company concluded that the revised standard does not have any effect on its financial statements.

Improvements to International Financial Reporting Standards (issued in April 2009; amendments to IFRS 2, IAS 38, IFRIC 9 and IFRIC 16 are effective for annual periods beginning on or after 1 July 2009; amendments to IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 36 and IAS 39 are effective for annual periods beginning on or after 1 January 2010; the improvements have not yet been adopted by the EU) The improvements consist of a mixture of substantive changes and clarifications in the following standards and interpretations:

– clarification that contributions of businesses in common control transactions and formation of joint ventures are not within the scope of IFRS 2;

– clarification of disclosure requirements set by IFRS 5 and other standards for non-current assets (or disposal groups) classified as held for sale or discontinued operations;

– requiring to report a measure of total assets and liabilities for each reportable segment under IFRS 8 only if such amounts are regularly provided to the chief operating decision maker;

– amending IAS 1 to allow classification of certain liabilities settled by entity’s own equity instruments as non-current;

– changing IAS 7 such that only expenditures that result in a recognised asset are eligible for classification as investing activities;

– allowing classification of certain long-term land leases as finance leases under IAS 17 even without transfer of ownership of the land at the end of the lease;

– providing additional guidance in IAS 18 for determining whether an entity acts as a principal or an agent;

– clarification in IAS 36 that a cash generating unit shall not be larger than an operating segment before aggregation;

– supplementing IAS 38 regarding measurement of fair value of intangible assets acquired in a business combination;

– amending IAS 39 (i) to include in its scope option contracts that could result in business combinations, (ii) to clarify the period of reclassifying gains or losses on cash flow hedging instruments from equity to profit or loss and (iii) to state that a prepayment option is closely related to the host contract if upon exercise the borrower reimburses economic loss of the lender;

– amending IFRIC 9 to state that embedded derivatives in contracts acquired in common control transactions and formation of joint ventures are not within its scope; and

– removing the restriction in IFRIC 16 that hedging instruments may not be held by the foreign operation that itself is being hedged. The Company does not expect the amendments to have any material effect on its financial statements. IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments (effective for annual periods beginning on or after 1 July 2010, not yet adopted by the EU) This IFRIC clarifies the accounting when an entity renegotiates the terms of its debt with the result that the liability is extinguished through the debtor issuing its own equity instruments to the creditor. A gain or loss is recognised in the profit and loss account based on the fair value of the equity instruments compared to the carrying amount of the debt. The interpretation will not have any impact on the Company’s financial statements.

C.5.3 Standards, interpretations and amendments to published standards that are not relevant for the Company’s financial statements

IFRIC 13, Customer Loyalty Programmes (effective for annual periods beginning on or after 1 July 2008) IFRIC 13 clarifies that where goods or services are sold together with a customer loyalty incentive (for example, loyalty points or free products), the arrangement is a multiple-element arrangement and the consideration receivable from the customer is allocated between the components of the arrangement using fair values. IFRIC 13 is not relevant to the Company’s operations because Company does not operate any loyalty programmes.


IFRIC 15, Agreements for the Construction of Real Estate (effective for annual periods beginning on or after 1 January 2009) The interpretation applies to the accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors, and provides guidance for determining whether agreements for the construction of real estate are within the scope of IAS 11 or IAS 18. It also provides criteria for determining when entities should recognise revenue on such transactions. IFRIC 15 is not relevant to the Company’s operations because it does not have any agreements for the construction of real estate.

IFRIC 17 – Distributions of Non-cash Assets to Owners (effective for annual periods beginning on or after 1 July 2009)The IFRIC clarifies that a dividend payable should be recognised when the dividend is appropriately authorised and is no longer at the discretion of the entity. An entity should measure the dividend payable at the fair value of the net assets to be distributed. An entity should recognise the difference between the dividend paid and the carrying amount of the net assets distributed in profit or loss and an entity has to provide additional disclosures if the net assets being held for distribution to owners meet the definition of a discontinued operation. This was not previously relevant for the Company and it will be applied for newly occurring events.

IFRIC 16, Hedges of a Net Investment in a Foreign Operation (effective for annual periods beginning on or after 1 October 2008) The interpretation explains which currency risk exposures are eligible for hedge accounting and states that translation from the functional currency to the presentation currency does not create an exposure to which hedge accounting could be applied. The IFRIC allows the hedging instrument to be held by any entity or entities within a group except the foreign operation that itself is being hedged. The interpretation also clarifies how the gain or loss recycled from the currency translation reserve to profit or loss is calculated on disposal of the hedged foreign operation. Reporting entities will apply IAS 39 to discontinue hedge accounting prospectively when their hedges do not meet the criteria for hedge accounting in IFRIC 16. IFRIC 16 does not have any impact on these financial statements as the Company does not apply hedge accounting for hedging of net investment in a foreign operation. IFRIC 18, Transfers of Assets from Customers (effective for annual periods beginning on or after 1 July 2009, endorsed by the EU for annual periods beginning on or after 31 October 2009, earlier application is permitted) The interpretation clarifies the accounting for transfers of assets from customers, namely, the circumstances in which the definition of an asset is met; the recognition of the asset and the measurement of its cost on initial recognition; the identification of the separately identifiable services (one or more services in exchange for the transferred asset); the recognition of revenue, and the accounting for transfers of cash from customers. IFRIC 18 is not expected to have any impact on the Company’s financial statements.

Vesting Conditions and Cancellations – Amendment to IFRS 2, Share-based Payment (issued in January 2008; effective for annual periods beginning on or after 1 January 2009) The amendment clarifies that only service conditions and performance conditions are vesting conditions. Other features of a share-based payment are not vesting conditions. The amendment specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The Company does not expect the amendment to have a material effect on its financial statements.

IFRS 1, First-time Adoption of International Financial Reporting Standards (following an amendment in November 2008, effective for the first IFRS financial statements for a period beginning on or after 1 July 2009, endorsed by the EU for annual periods beginning on or after 31 December 2009, earlier application is permitted). The revised IFRS 1 retains the substance of its previous version but within a changed structure in order to make it easier for the reader to understand and to better accommodate future changes. The Company concluded that the revised standard does not have any effect on its financial statements.

Prepayments of a Minimum Funding Requirement – Amendment to IFRIC 14 (effective for annual periods beginning on or after 1 January 2011, not yet adopted by the EU) This amendment will have a limited impact as it applies only to companies that are required to make minimum funding contributions to a defined benefit pension plan. It removes an unintended consequence of IFRIC 14 related to voluntary pension prepayments when there is a minimum funding requirement. The amendments will not have any impact on the Company’s financial statements.

IFRS 1 amendment – limited exemption from comparative IFRS 7 disclosures for first-time adopters (The proposed amendment will be effective for annual periods beginning on or after 1 July 2010, with early application permitted, not yet adopted by the EU). Existing IFRS preparers were granted relief from presenting comparative information for the new disclosures required by the March 2009 amendments to IFRS 7 ‘Financial Instruments: Disclosures’. The relief was provided because the amendments to IFRS 7 were issued after the comparative periods had ended, and the use of hindsight would have been required. The amendment to IFRS 1 provides first-time adopters with the same transition provisions (and thereby the same relief) as included in the amendment to IFRS 7 for other companies.


D. Segment Reporting

The Board of Directors as a Company’s chief operating decision maker makes decisions on how to allocate resources and assesses performance of two operating segments: life insurance operating segment and non-life insurance operating segment. These segments represent a component of the Company:

– that engages in business activities from which the Company may earn revenues and incur expenses;

– whose operating results are regularly reviewed by the management of the Company to make decisions about resources to be allocated to the segment and assess its performance; and

– for which discrete financial information is available.

Products offered by reported business segments include:

Non-life: Life:

Property and liability Traditional life

Motor third party liability and carrier’s liability Unit linked

CASCO

Health

Note C.3 of the financial statements provides further information about significant terms and conditions of insurance products.

All segment revenues are generated from sales to external customers. There is no single external customer that would amount to 10% or more of the Company’s revenues.

Management has determined the operating segments based on the reports periodically reviewed by the Board of Directors that is used to make main strategic decisions. The Board of Directors assesses the performance of the operating segments based on a measure of net technical results. Net financial income is not allocated to segments, as this type of activity is driven by the central treasury function of the Company. Other income and expenses are also not allocated to segments.


The segment information provided to the Board of Directors for the reportable segments for the year ended 31 December 2009 is as follows:

Life Non-life Total Income Reconciling Note statement item

Gross

Insurance premiums 13,600,470 25,055,644 38,656,114 38,641,017 15,097

Technical benefits and claims (6,867,541) (14,749,497) (21,617,038) (24,137,012) 2,519,974 1

Total costs (2,969,671) (5,667,537) (8,637,208)

Commissions and other acquisition costs (1,971,093) (4,073,226) (6,044,318)

Administration expenses (998,578) (1,594,311) (2,592,889)

Other technical items (121,997) (119,639) (241,636)

Gross technical result 3,641,261 4,518,971 8,160,232

Reinsurance

Premiums ceded to reinsurers (1,156,944) (10,075,790) (11,232,734) (11,232,734)

Reinsurer‘s share on claims 308,423 5,114,752 5,423,175 5,423,175

Total costs 287,612 2,295,848 2,583,460

Commissions and other acquisition costs 287,612 2,295,848 2,583,460

Other technical items (3) 55,691 55,688

Reinsurance technical result (560,912) (2,609,499) (3,170,411)

Net



Total costs (2,682,059) (3,371,690) (6,053,749) (6,053,829) 80

Commissions and other acquisition costs (1,683,481) (1,777,378) (3,460,859) (3,316,701) (144,158) 2

Administration expenses (998,578) (1,594,312) (2,592,890) (2,737,128) (144,238) 2

Other technical items (121,999) (63,948) (185,947) (185,947) 5

Net technical result 3,080,350 1,909,471 4,989,821 2,640,617 2,349,204

Financial income

Financial investments income 5,172,555

Realisation of financial investment 2,427,097

Change in financial investments value (3,215,356)

Total financial investments income 4,384,296 6,833,984 (2,449,688) 3

Total other income and expenses (589,410) (689,894) 100,484 4

Income taxes (1,404,646) (1,404,646)

Profit after taxes 7,380,061 7,380,061

The main reconciling items between the Management Report and the income statement report are:1. Revaluation of unit-linked products in the amount of CZK 2,535,071 thousand is reported in the income statement as technical benefits and claims while it is presented

in the Management Report in the financial income section. 2. Different classification between acquisition cost and administration cost.3. The net loss on foreign currency differences in the amount of CZK 315,100 thousand is reported as other income/expense in the financial statements, while it is part of

the financial income in the management report. The other reconciling item is described in Note 1 and 4.4. The net impairment on receivables in the amount of CZK 435,242 thousand is reported in the income statements as financial income while it is reported in the

management report as total other expense.5. Other income and other expenses as reported in the income statement are split in the Management Report between other technical items and total other income and

expense.



Life Non-life Total Income Reconciling Note statement item

Gross

Insurance premiums 14,057,110 24,632,641 38,689,751 38,594,252 95,499 1

Technical benefits and claims (9,489,423) (13,415,026) (22,904,449) (24,589,013) 1,684,564

Total costs (911,246) (7,349,833) (8,261,079)

Commissions and other acquisition costs (911,246) (4,760,454) (5,671,699)

Administration expenses – (2,589,379) (2,589,379)

Other technical items (50,336) (392) (50,727)

Gross technical result 3,606,106 3,867,389 7,473,495

Reinsurance

Premiums ceded to reinsurers (1,114,451) (8,921,507) (10,035,958) (10,035,958)

Reinsurer‘s share on claims 276,666 4,412,968 4,689,634 4,690,773 (1,139)

Total costs 280,085 2,015,518 2,295,603

Commissions and other acquisition costs 280,085 2,015,518 2,295,603

Reinsurance technical result (557,700) (2,493,021) (3,050,721)

Net



Total costs (631,160) (5,334,315) (5,965,475) (5,990,161) 24,686

Commissions and other acquisition costs (631,160) (2,744,936) (3,376,096) (3,176,003) (200,093) 2

Administration expenses – (2,589,379) (2,589,379) (2,814,158) 224,779 2

Other technical items (50,336) (392) (50,728) – (50,728) 5

Net technical result 3,048,405 1,374,369 4,422,774 2,669,893 1,752,881

Financial income

Financial investments income 3,324,868

Realisation of financial investment 5,298,466

Change in financial investments value (5,897,386)

Total financial investments income 2,725,948 2,904,894 (178,946) 3

Total other income and expenses (1,165,861) 408,073 (1,573,934) 4

Income taxes (109,691) (109,691)

Profit after taxes 5,873,170 5,873,170

The main reconciling items between the Management Report and the income statement report are:1. Revaluation of unit-linked products in the amount of CZK 1,778,923 thousand is reported in the income statement as technical benefits and claims, while it is presented

in the Management Report in financial income section. 2. Different classification between acquisition cost and administration cost.3. The net loss on foreign currency differences in the amount of CZK 1,115,176 thousand is reported in the financial statements as other income/expense, while in the

management report it is part of the financial income. The other reconciling item is described in Note 1 and 4.4. The net impairment on receivables in the amount of CZK 592,849 thousand is in the income statements reported as financial income while in the management report it

is reported as total other expense.5. Other income and other expenses as reported in the income statement are split in the Management Report between other technical items and total other income and

expense.


Segment assets and liabilities by business segment

In CZK thousand as at 31 December 2009 Life Non-life Total

Intangible assets 372,513 978,100 1,350,613

Investments 78,842,223 26,791,944 105,634,167

Land and buildings (investment properties) 85,103 – 85,103

Investments in subsidiaries and associates 4,584,492 1,540,543 6,125,035

Loans 4,347,443 3,513,128 7,860,571

Held-to-maturity 87,493 – 87,493

Available-for-sale 43,446,782 13,163,381 56,610,163

Financial assets at fair value through profit or loss 20,785,986 5,339,511 26,125,497

Other investments 5,504,924 3,235,381 8,740,305

Reinsurance assets 829,937 8,410,136 9,240,073

Receivables 1,182,076 7,145,848 8,327,924

Assets held-for-sale 291,666 – 291,666

Cash and cash equivalents 106,891 47,869 154,760

Deferred tax receivables 28,137 5,448 33,585

Other assets 314,885 1,082,066 1,396,951

Total assets 81,968,328 44,461,411 126,429,739

Insurance provisions 67,523,793 21,424,808 88,948,601

Other Provisions 31,814 1,998,791 2,030,605

Financial Liabilities 1,387,574 536,444 1,924,018

Payables 2,409,089 7,309,291 9,718,380

Other liabilities 635,919 1,321,472 1,957,391

Total liabilities 71,988,189 32,590,806 104,578,995

Segment assets and liabilities are not regularly included in the reports provided to the Board of Directors.

Segment assets and liabilities by business segment

In CZK thousand as at 31 December 2008 Life Non-life Total

Intangible assets 351,527 926,007 1,277,534

Investments 75,409,780 28,928,176 104,337,956

Land and buildings (investment properties) 83,911 – 83,911

Investments in subsidiaries and associates 5,309,861 2,030,654 7,340,515

Loans 1,839,172 3,059,578 4,898,750

Held-to-maturity 81,708 – 81,708

Available-for-sale 32,433,002 9,225,833 41,658,835

Financial assets at fair value through profit or loss 30,266,029 10,101,927 40,367,956

Other investments 5,396,097 4,510,184 9,906,281

Reinsurance assets 829,522 7,720,698 8,550,220

Receivables 1,431,821 10,791,163 12,222,984

Assets held-for-sale 276,350 – 276,350

Cash and cash equivalents 215,594 76,879 292,473

Other assets 312,214 1,106,600 1,418,814

Total assets 78,826,808 49,549,523 128,376,331

Insurance provisions 69,049,220 23,632,177 92,681,397

Other Provisions 174,578 2,137,409 2,311,987

Financial Liabilities 2,250,467 2,186,826 4,437,293

Payables 1,479,558 7,079,558 8,559,116

Deferred tax liabilities (360,191) 420,872 60,681

Other liabilities 833,841 1,040,569 1,874,410



The following table shows key figures per business segment:

In CZK thousand, for the year ended 31 December 2009 Non-life Life Total

Capital expenditure * (693,231) (221,349) (914,580)

Depreciation and amortisation (444,396) (192,727) (637,123)

Impairment losses recognised (997,772) (783,408) (1,781,180)

Reversal of impairment losses 775,919 38,757 814,676

In CZK thousand, for the year ended 31 December 2008 Non-life Life Total

Capital expenditure * (544,685) (248,814) (793,499)

Depreciation and amortisation (617,214) (254,218) (871,432)

Impairment losses recognised (1,274,949) (1,701,797) (2,976,746)

Reversal of impairment losses 160,725 37,243 197,968

* Additions to non-current assets other than financial instruments, deferred tax assets, post-employment benefit assets and rights arising under insurance contracts.

The Company had no investments in associates or joint ventures accounted for by the equity method.

Geographical informationThe Company operates mainly in the Czech Republic and in EU countries. More than 99% of the income from insurance contracts comes from clients in the Czech Republic. There are no non-current assets other than financial instruments and rights arising under insurance contracts located in foreign countries.


E. Risk Report

In the risk report, the Company presents further information in order to enable the assessment of the significance of financial instruments and insurance contracts for an entity‘s financial position and performance. Furthermore, the Company provides information about its exposure to risks arising from financial instruments and insurance contracts, and it discloses the management‘s objectives, policies and processes for managing those risks, in accordance with IFRS 7, endorsed by Regulation (EC) no.108/2006 of 11 January 2006.

E.1 Risk Management System

The Company is a member of the Generali Group (the Group) and is part of its risk management structure. The Generali Group has implemented a risk management system that aims at identifying, evaluating and monitoring the most important risks to which the Generali Group and the Company are exposed, which means the risks whose consequences could affect the solvency of the Generali Group or the solvency of any single business unit, or negatively hamper any company goals.

The risk management processes apply to the whole Generali Group, all the countries where it operates and each business unit. However, the degree of integration and depth varies with the complexity of the underlying risks. Integration of processes within the Generali Group is fundamental to assure an efficient system of risk management and capital allocation for every business unit.

The main objectives of the risk management process are to maintain the identified risks below an acceptable level, to optimise the capital allocation and to improve the risk-adjusted performance.

In 2009, Risk Management guidelines of the Company related to investment risk management, the system of limits, credit ratings and guidelines on an approval process for new instruments were introduced as well as the investment risk reporting for management on monthly basis.

Risk management system is based on three main pillars:

a) risk measurement process: aimed at assessing the solvency of the Company;

b) risk governance process: aimed at defining and controlling the managerial decisions in relation with relevant risks;

c) risk management culture: aimed at increasing the value creation.

E.2 Roles and Responsibility

The system is based on three levels of responsibility:

a) Assicurazioni Generali (Generali Group) – for every country, it sets the targets in terms of solvency, results and risk exposure; moreover it defines the risk management policy through a list of Guidelines for acceptance of the main risks. The Generali Group has developed the Enterprise Risk Management Policy to align the risk measurement methodology, the governance and the reporting of each company of the Generali Group.

b) Generali PPF Holding (GPH Group) - defines strategies and objectives for every firm, taking into account the local features and regulations, providing support for the implementation and controlling the results. In particular, in order to ensure a better solution to the specific features of local risks and changes in local regulation, risk management responsibility and decisions are delegated to the CRO of GPH, respecting the Generali Group policy framework. These groups are also assigned performance targets for their respective areas.

c) The Company defines strategies and targets in respect of the policy and the guidelines established by GPH. Risk management involves the

corporate governance of the Company and the operational and control structure, with defined responsibility levels, and aims to ensure the adequacy of the entire risk management system at every moment.

E.3 Risk Measurement and Control

Through its insurance activity, the Company is naturally exposed to several types of risk, that are related to movements of financial markets, to adverse developments of insurance related risks, both in life and non-life business, and generally to all the risks that affect ongoing organised economic operations.


These risks can be grouped into the following five main categories which will be detailed later in this report: market risk, credit risk, liquidity, insurance risk and operational risk.

Along with the specific measures for the risk categories considered by the Generali Group, the calculation of the Economic Capital represents a comprehensive measure of risk that can be aggregated at the different organisational levels (Group, country and operative entity) and at the main business lines (life, non-life and asset management).

The Economic Capital is a risk measure that corresponds to the amount of capital to be held so that the market value of assets is greater than the market value of liabilities in twelve months’ time, with a confidence level consistent with the target rating.

The internal models of risk measurement are constantly being improved, in particular those relating to calculation of the Economic Capital and ALM approaches have been harmonised at all different organisational levels within the Generali Group.

E.4 Market Risk

Unexpected movements in prices of equities, real estate, currencies and interest rates might negatively impact the market value of the investments.

These assets are invested to meet the obligation towards both life and non-life policyholders and to earn a return for the capital expected by the shareholders. The same changes might affect both assets and the present value of the insurance liabilities.

The market risk of the Company’s financial asset and liability trading positions is monitored and measured on a continuing basis, using a Value at Risk analysis and other methods (cash-flow matching, duration analysis, etc.).

Trade receivables face mainly risk of default. Due to the short-term pattern of trade receivables the Company considers a market risk of trade receivables as an insignificant.

E.4.1 Interest rate risk

The Company’s operations are subject to the risk of interest rate fluctuations to the extent that interest-earning assets (including investments) and interest-bearing liabilities mature or reprise at different times or in differing amounts. In the case of floating rate assets and liabilities, the Company is also exposed to an interest rate cash flow risk, which varies depending on the different reprising characteristics of the various floating rate instruments.

Interest rate derivatives are primarily used to bridge the mismatch in the reprising of assets and liabilities. In some cases derivatives are used to convert certain interest-earning assets to floating or fixed rates to reduce the risk of losses in value due to interest rate changes or to lock in spreads. In addition, the Company enters into interest rate swaps to fix the interest rates on its floating-rate debts at a certain level.

The Company monitors the sensitivity of financial assets and liabilities to various standard and non-standard interest rate scenarios. Standard scenarios that are considered on a monthly basis include a 100 basis point (bp) parallel fall or rise in all yield curves worldwide. Assets are divided into 3 groups: Bonds, Interest rate sensitive instruments (group Interest rate derivatives) and others (group Money market instruments) which are almost insensitive to interest rate shocks. Unit-linked instruments are excluded from sensitivities due to the fact that investment risk is borne by the policyholders. The sensitivities shown in the following table concern only assets in their fair value as at he end of the year. The overall impact on the Company’s position is the result of sensitivities on both the asset and liability side that creates a mitigating effect.


Fair value 100bp parallel 100bp parallel increase decrease

2009

Bonds 69,614,618 66,271,124 73,470,013

Money market instruments 13,640,009 13,631,605 13,653,342

Interest rate derivatives 79,704 332,961 (194,849)

Total 83,334,331 80,235,690 86,928,506

2008

Bonds 65,001,327 61,530,944 69,053,189

Money market instruments 11,303,453 11,301,361 11,305,670

Interest rate derivatives 65,164 125,739 (24,344)

Total 76,369,944 72,958,044 80,334,515

Sensitivity of insurance liabilities is disclosed in note C.2.4.

E.4.2 Asset liability matching

A substantial part of insurance liabilities carries an interest rate risk asset-liability management is significantly involved in interest rate risk management. The management of interest rate risk, implied from the net position of assets and liabilities, is a key task of asset-liability management (ALM).

The GPH has an Asset and Liability Committee which is an advisory body of the Board of Directors and is in charge of the most strategic investment and ALM-related decisions. The committee is responsible for setting and monitoring the GPH Group‘s strategic asset allocation in the main asset classes, i.e. government and corporate bonds, equities, real estate, etc. and also the resulting asset and liability strategic position. The objective is to establish appropriate return potential together with ensuring that the GPH Group can always meet its obligations without undue cost and in accordance with the GPH Group‘s internal and regulatory capital requirements. In order to guarantee the necessary expertise and mandate, the Committee consists of representatives of top management and of the asset management, risk management and ALM experts from business units.

The ALM manages the net asset-liability positions in both, life and non-life insurance, with the main focus on traditional life with the long-term nature and often with embedded options and guarantees. The insurance liabilities are analysed, including the embedded options and guarantees and models of future cash flows are prepared in cooperation with actuaries. The models allow for all guarantees under the insurance contracts and for expected development of the key parameters, primarily mortality, morbidity, lapses, administration expenses.

At first government bonds are used to manage the net position of assets and liabilities and in particular its sensitivity to parallel and non-parallel shifts in the yield curve. Next corporate bonds and derivatives, primarily interest rate swaps, can be used. However, in line with the credit risk management policy, investments in long-term and thus also high-duration instruments focus on government bonds. The use of interest rate swaps is limited due to their accounting treatment – as their revaluation which is reported in the income statement does not match with the reporting of the insurance liabilities.

There is a strategic target asset-liability interest rate position set in line with the risk and capital management policy – to strictly focus on intended risks and reduce capital needed for risks with lower expected gain potential. The prevailing policy is to reduce this position to a minimum level and despite that for number of reasons it is e.g. not possible to perfectly match future cash flows of assets and liabilities, the position has been substantially reduced within the last years and currently the parallel and also non-parallel sensitivities are low. With investments in emerging long-term government bonds also contributing to this result.

In addition to the management of the strategic position, there are certain limits allowed for tactical asset managers positions, so that asset interest rate sensitivity can deviate from the benchmark in a managed manner.

E.4.3 Equity price risk

Equity price risk is the risk that equity prices will fluctuate affecting the fair value of equity investments and other instruments that derive their value from a particular equity investment or index of equity prices.

The Company manages its use of equity investments in response to changing market conditions using the following risk management tools:

a) the portfolio is diversified,

b) the limits for investments are set and carefully monitored.


The equity price risk is part of the market value at risk (MVaR) calculation and through it the equity price risk is measured (for details on a methodology, see E.4.5).

The positive impact of diversification can be seen in the below table


Portfolio exposed to equity risk 11,404,694 16,633,948

Sum of MVaR for individual instrument (before diversification) 5,605,025 15,599,908

Portfolio MVaR after diversification 2,841,828 8,332,422

E.4.4 Currency risk

The Company is exposed to currency risk through transactions in foreign currencies and through its assets and liabilities denominated in foreign currencies. As the currency in which the Company presents its financial statements is CZK, movements in the exchange rates between selected foreign currencies and CZK affect the Company’s financial statements.

The general strategy of the Company is to fully hedge currency risk exposure. The Company ensures that its net exposure is kept to an acceptable level by buying and selling foreign currencies at spot rates when considered appropriate, or using short-term FX operations. The FX position is regularly monitored and the hedging instruments are reviewed on a monthly basis and adjusted accordingly. Derivative financial instruments are used to manage the potential earnings impact of foreign currency movements, including currency swaps, spot and forward contracts. If suitable, options and other derivatives are also considered and used.

The Company’s main foreign exposures are to Europe countries and the United States of America. Its exposures are measured mainly in Euros (“EUR”), U.S. Dollars (“USD”), and Russian Roubles (“RUR”).

The currency exposure is shown in the following tables:

The following table shows sensitivities of the portfolio to changes in currency risk, the portfolio does not contain instruments covering unit-linked policies, as the investment risk is transferred from the Company to the policyholder. Currency shocks consider to be a rise or a fall in the value of foreign currency position by a specified percentage. Such an approach is in line with the Solvency II definition of currency risk. As a result of hedge accounting, virtually the whole potential rise or fall has an impact on the income statement.

In CZK thousand for the year ended 31 December 2009 EUR USD CZK Other Total

FX investment portfolio exposure 1,268,070 176,769 93,034,695 14,513 94,494,047

Shock up (+10%) 1,394,877 194,446 93,034,695 15,965 94,639,983

Shock down (-10%) 1,141,263 159,092 93,034,695 13,062 94,348,112


FX investment portfolio exposure 112,006 (289,285) 92,836,983 (19,830) 92,639,874

Shock up (+10%) 100,805 (260,357) 92,836,983 (17,847) 92,659,584

Shock down (-10%) 123,206 (318,214) 92,836,983 (21,814) 92,620,161

The following table shows sensitivities of the insurance provisions to change in currency risk:


FX insurance provisions exposure 1,170,787 30,369 87,585,600 161,845 88,948,601

Shock up (+10%) 1,287,866 33,406 87,585,600 178,030 89,084,902

Shock down (-10%) 1,053,708 27,332 87,585,600 145,661 88,812,301


FX insurance provisions exposure 1,281,091 26,743 91,211,591 161,972 92,681,397

Shock up (+10%) 1,409,200 29,417 91,211,591 178,169 92,828,377

Shock down (-10%) 1,152,982 24,069 91,211,591 145,775 92,534,417


The following table shows the composition of financial assets and liabilities with respect to the main currencies:


Loans – – 7,860,571 – 7,860,571

Financial assets held-to-maturity – – 87,493 – 87,493

Financial assets available-for-sale 12,367,092 8,182,163 35,602,881 458,027 56,610,163

Financial assets at fair value through profit or loss 1,603,775 (159,347) 24,932,391 (251,322) 26,125,497

Other investments 206,854 1,238,243 7,193,385 101,823 8,740,305

Reinsurance assets 9,524 8,825 9,220,807 917 9,240,073

Receivables 1,965,231 121,232 6,142,069 99,392 8,327,924

Cash and cash equivalents 13,022 29,531 110,161 2,046 154,760

Total 16,165,498 9,420,647 91,149,758 410,883 117,146,786


Insurance provisions 1,170,787 30,369 87,585,600 161,845 88,948,601

Financial liabilities 12,857,457 9,112,579 (20,343,939) 297,921 1,924,018

Payables 939,738 32,314 8,630,361 115,967 9,718,380

Other liabilities 40 – 1,957,351 – 1,957,391

Total 14,968,022 9,175,262 77,829,373 575,733 102,548,390

Net foreign currency position – 2009 1,197,476 245,385 13,320,385 (164,850) 14,598,396

Slovakia has adopted Euro as national currency since 1 January 2009. Financial assets and liabilities, that were reported in Slovak crowns (SKK) in 2008 were translated into the EUR column. To provide a reliable comparison in the following tables, 2008 SKK amounts were translated into the EUR.


Loans – – 4,898,750 – 4,898,750

Financial assets held-to-maturity – – 81,708 – 81,708

Financial assets available-for-sale 3,829,318 4,649,314 33,085,040 95,163 41,658,835

Financial assets at fair value through profit or loss 4,840,933 906,327 34,613,490 7,206 40,367,956

Other investments 357,360 2,237,529 7,224,148 87,244 9,906,281

Reinsurance assets 28,515 – 8,521,705 – 8,550,220

Receivables 1,092,891 139,857 8,442,015 2,548,221 12,222,984

Cash and cash equivalents 10,912 22,347 257,242 1,972 292,473

Total 10,159,929 7,955,374 97,124,098 2,739,806 117,979,207

Amount of SKK 1 069 086 thousand is included in EUR column.


Insurance provisions 1,281,091 26,743 91,211,591 161,972 92,681,397

Financial liabilities 8,844,752 8,095,530 (12,714,469) 211,480 4,437,293

Payables 867,225 37,025 7,634,403 20,463 8,559,116

Other liabilities 131 – 1,874,279 – 1,874,410

Total 10,993,199 8,159,298 88,005,804 393,915 107,552,216

Net foreign currency position – 2008 (833,270) (203,924) 9,118,294 2,345,891 10,426,991

Amount of SKK 1,037,422 thousand is included in EUR column.

E.4.5 Market Value at risk

The principal tool used to measure and control market risk exposure within the Company’s investments portfolios is Market Value at Risk (MVaR).

Investment portfolios include all Investments except for Investment property, Investments in subsidiaries and associates, Unit-linked policies, Receivables from subsidiaries and some specific immaterial investments. It also includes Cash and cash equivalents and Financial liabilities.


Value at Risk represents the potential losses from adverse changes in market factors for a specified time period and confidence level. The approach, based on JP Morgan Risk Metrics methodology, calculates the Value at Risk using a covariance matrix of relative changes in market factors and net present value of actual positions assuming that these relative changes are normally distributed. The MVaR is calculated for a one-year time horizon at a 99% confidence level regularly; for decision making processes (such as determining limits), 99.5% is used.

The assumptions on which the MVaR model is based give rise to some limitations, especially the following:

a) A holding period assumes that it is possible to hedge or dispose of positions within that period. This is considered to be a realistic assumption in almost all cases but may not be the case in situations in which there is severe market illiquidity for a prolonged period;

b) A confidence level does not reflect losses that may occur beyond this level. Even within the model used, there is a one percent probability that losses could exceed the MVaR;

c) The methodology is applicable to instruments with a linear relationship between position value and market risk factors. In the case of nonlinearity (e.g. for options), the analytical delta/gamma approximation is used;

d) MVaR is calculated on an end-of-day basis and does not reflect exposures that may arise on positions during the trading day;

e) The use of historical data as a basis for determining the possible range of future outcomes may not always cover all possible scenarios, especially those of an exceptional nature;

f) The model is also very sensitive on the length of the historical data used as an input and therefore the Company also considers the purpose

of the MVaR analysis when determining it. For regular calculations (as disclosed below), data for the most recent quarter is used as this best reflects the current market conditions. For longer-term analysis (such as determination of investment policies), longer data series are considered;

g) The MVaR measure is dependent upon the Company’s position and the volatility of market prices. The MVaR of an unchanged position reduces if the market price volatility declines and vice versa.

The market VaR positions of the whole portfolio of the Company were as follows. To show the sensitivity and also the development of the total MVaR, the average, minimum and maximum of the MVaR within the year (calculated from end-of-month values) and their corresponding distribution into three main categories (FX risk, IR risk, Equity price risk) are also presented:

As at 31 December Average Maximum MinimumIn CZK thousand VaR

2009

Foreign currency risk 52,619 163,063 344,214 52,619

Interest rate risk 1,020,544 2,519,179 3,950,645 1,020,544

Equity risk 2,841,829 4,052,014 5,426,974 2,841,829

Diversification effect (845,715) (1,558,458) (2,971,578) (845,715)

Total MVaR 3,069,277 5,175,798 6,750,255 3,069,277

2008

Foreign currency risk 33,530 144,141 38,198 93,629

Interest rate risk 4,509,561 2,165,661 2,910,658 1,365,726

Equity risk 8,332,422 8,810,260 14,124,883 5,535,157

Diversification effect (3,683,975) (2,309,646) (1,474,822) (3,505,143)

Total MVaR 9,191,538 8,810,416 15,598,917 3,489,369


E.5 Credit Risk

Credit risk refers to the economic impact, from downgrades and defaults of fixed income securities or counterparties, on the company’s financial strength. Furthermore, a general rise in spread level, due to a credit crunch or liquidity crisis, impacts the financial strength of a company.

The Company has adopted guidelines to limit the credit risk of the investments. These favour the purchase of investment-grade securities and encourage the diversification and dispersion of the portfolio.

The Chief Risk Officer of the Company reports monthly on the Company’s exposure to the components of the credit risk and the risk is also evaluated at the GPH and Generali Group level.

For the rating assessment of an issue or issuer, ratings from rating agencies are used. Securities without a rating are given an internal one based on credit analysis. To manage the level of credit risk, the Company deals with counterparties with a good credit standing and enters into master netting agreements whenever possible. Master netting agreements provide for the net settlement of contracts with the same counterparty in the event of default.

The Company sets up issuer/counterparty limits according to their credit quality and monitors compliance with these limits on a monthly basis.

The following tables show the Company’s credit quality of its financial assets (only official ratings are used, securities without a rating are shown as non-rated even if an internal rating was allocated to them). Rating of bonds

In CZK thousand as at 31 December 2009 2008

AAA 2,843,462 5,917,150

AA 579,817 2,071,158

A 52,999,783 42,852,103

BBB 2,055,888 1,012,831

BB 855,818 305,964

B – 735,651

Not rated 10,226,541 11,992,858

Total 69,561,309 64,887,715

Rating of reinsurance assets


AAA 165,537 228,516

AA 226,727 401,725

A 398,514 329,540

BBB 4,368 8,232

Captive reinsurance 7,804,592 –

Not rated 640,335 7,582,207

Total 9,240,073 8,550,220

The captive reinsurer of the Company, CP RE was sold to PPF Group N.V on 12 December 2008. All the business reinsured as at 31 December 2008 with CP RE is therefore reported as not rated. On 1 January 2009, the reinsurance business was transferred to GP Reinsurance EAD, the new captive reinsurance company of the GPH Group.

There were no past due or impaired reinsurance assets either in 2009 or 2008. The Company place term deposits with institutions having a rating from A+ to AA. Significant portion of term deposits is placed with PPF Banka, a.s. a related party (see F.29.3) There were no past due or impaired term deposits either in 2009 or 2008.


The following table shows the Company’s exposure to credit risk for loans and receivables:

Loans and advances Trade and other receivablesIn CZK thousand as at 31 December 2009 2008 2009 2008

Individually impaired – carrying amount 254,833 254,840 4,944,956 9,178,096

Gross amount 8,310,679 8,873,211 7,442,625 11,268,155

31 days to 90 days after maturity – – 2,732,036 4,842,538

91 days to 180 days after maturity – – 1,288,579 3,239,118

181 days to 1 year after maturity – – 627,069 360,756

Over 1 year after maturity 8,310,679 8,873,211 2,794,941 2,825,743

Allowance for impairment (8,055,846) (8,618,371) (2,497,669) (2,090,059)

Collectively impaired – carrying amount – – – 120,277

Gross amount – – – 171,144

Over 1 year after maturity – – - 171,144

Allowance for impairment – – – (50,867)

Neither past due nor impaired – carrying amount 7,605,738 4,643,901 3,382,968 2,924,611

Total carrying amount 7,860,571 4,898,750 8,327,924 12,222,984

The Company held no past due or impaired bonds either in 2009 or in 2008.Individually impaired receivables consist mostly of receivables from direct insurance, receivables from intermediaries, from reinsurance operations (trade and other receivables category) and receivables from matured and loans and bonds not repaid (loans and advances to non-banks category). These receivables are assessed according to their seniority and collection method – each receivable is individually assessed using these criteria and an allowance for impairment is stated accordingly.

The collective impairment method was applied to receivables arising from advances paid to car dealers. The advances were due on demand and the risk of default was estimated at the level of a group of dealers and according to empirical data. In 2009, these receivables are individually impaired as all other receivables from direct insurance.

Loans and advances and other investments, that are neither overdue nor impaired, consist mostly of receivables from term deposits and reverse repurchase agreements with banks. Neither past due nor impaired trade and other receivables consist mostly of receivables from insurance premiums and reinsurance receivables.

The Company holds collateral for loans and advances to banks in the form of securities as part of reverse repurchase agreements, collateral for loans and advances to non-banks in the form of pledge over property ,received notes and guarantees.

The following table shows the fair value of collateral held:

Loans and advances to banks and nonbanksIn CZK thousand as at 31 December 2009 2008

Against individually impaired 58,019 427,409

Property 55,461 72,077

Other 2,558 355,332

Against neither past due nor impaired 4,230,347 2,744,966

Debt securities 4,230,347 2,744,966

Total 4,288,366 3,172,375

Concentrations of credit risk arise where groups of counterparties have similar economic characteristics that would cause their ability to meet their contractual obligations to be similarly affected by changes in economic or other conditions.


The following table shows the economic and geographic concentration of credit risk:

In CZK thousand for the year ended 31 December 2009 2009 2008 2008

Economic concentration

Financial services 44,592,280 47.77% 45,246,188 49.70%

Public sector 40,424,884 43.31% 37,509,426 41.20%

Telecom providers 61,185 0.07% 2,746 0.00%

Other 8,261,252 8.85% 8,283,957 9.10%

Total 93,339,601 100.00% 91,042,317 100.00%

Geographic concentration

Czech Republic 68,092,531 72.95% 63,024,225 69.22%

Slovak Republic 1,882,846 2.02% 1,080,342 1.19%

Russia 24,846 0.03% 133,358 0.15%

Netherlands 5,940,197 6.36% 4,357,279 4.79%

Cyprus 2,405,734 2.58% 3,221,646 3.54%

Other EU countries 11,304,523 12.11% 16,972,752 18.64%

Other 3,688,924 3.95% 2,252,715 2.47%

Total 93,339,601 100.00% 91,042,317 100.00%

The amounts reflected in the tables represent the maximum accounting loss that would be recognised as at the end of the reporting period if the counter parties failed completely to perform as contracted and any collateral or security proved to be of no value. The amounts, therefore, greatly exceed incurred losses, which are included in the allowance for uncollectibility.

E.5.1 Credit Value at Risk

The principal tool used to measure and control credit risk exposure within the Company’s investment portfolios is Credit Value at Risk (CVaR).

Value at Risk represents the potential losses from adverse changes in credit factors for a specified time period and confidence level. The approach is based on the JP Morgan Credit Metrics methodology using transition matrices and Monte-Carlo simulations of rating transitions. This methodology covers credit risk within the full context of the portfolio and includes changes in value caused not only by possible default events, but also by upgrades and downgrades in credit quality. The CVaR is again calculated at a 99% confidence level regularly and at 99.5% for decision making purposes (such as determination of limits).

E.6 Liquidity Risk

Liquidity risk arises in the general funding of the Company’s activities and in the management of its positions. It includes both the risk of being unable to fund assets using instruments with appropriate maturities and rates and the risk of being unable to liquidate an asset sufficiently quickly and in the appropriate amount, and the risk of being unable to meet obligations as they become due.

The Company has access to a diverse funding base. Apart from insurance provisions, which serve as a main source of financing, funds are raised using a broad range of instruments including deposits, other liabilities evidenced by paper, reinsurance policy, subordinated liabilities and shareholder equity. This enhances funding flexibility, limits dependence on any one source of funds and generally lowers the cost of funds.

The Company strives to maintain a balance between continuity of funding and flexibility through the use of liabilities with a range of maturities; for details see also the section above on asset and liability matching. Further, the Company holds a portfolio of liquid assets as part of its liquidity risk management strategy. Special attention is paid to the liquidity management of non-life insurance business requiring sufficient funding to meet all the potential obligations in the event of a natural disaster or other extraordinary event.

The Company continually assesses its liquidity risk by identifying and monitoring changes in the funding required to meet business goals and the targets set in terms of the overall Company strategy.


The following tables show an analysis of the Company’s financial assets and liabilities broken down into their relevant maturity bands based on the residual contractual maturities.

In CZK thousand Less than Between Between Between More than Non-specified Totalfor the year ended 1 month 1 and 3 months 1 and 5 years 31 December 2009 3 months and 1 year 5 years

Financial liabilities 891,869 179,409 97,587 685,849 73,095 – 1,927,809

Other financial liabilities 378,554 – – 500,000 – – 878,554

Financial liabilities at fair value through profit or loss 513,315 179,409 97,587 185,849 73,095 – 1,049,255

Payables 8,383,209 350,429 969,535 1,968 – 13,239 9,718,380

Other liabilities 1,514,667 441,378 – 1,346 – – 1,957,391

Total financial liabilities 10,789,745 971,216 1,067,122 689,163 73,095 13,239 13,603,580

In CZK thousand Less than Between Between Between More than Non-specified Totalfor the year ended 1 month 1 and 3 months 1 and 5 years 31 December 2008 3 months and 1 year 5 years

Financial liabilities 2,954,751 311,626 (40,304) 1,037,926 251,917 – 4,515,916

Other financial liabilities 2,424,036 – – 500,000 – – 2,924,036

Financial liabilities at fair value through profit or loss 530,715 311,626 (40,304) 537,926 251,917 – 1,591,880

Payables 6,870,069 27,390 650,158 5,192 – 1,006,307 8,559,116

Other liabilities 1,873,064 – – 1,346 – – 1,874,410

Total financial liabilities 11,697,884 339,016 609,854 1,044,464 251,917 1,006,307 14,949,442

Estimated cash flows of insurance liabilities and liabilities for investment contracts with DPF:

In CZK thousand Less than Between Between Between Between More than Totalfor the year ended 1 year 1 and 5 and 10 and 15 and 20 years 31 December 2009 3 years 10 years 15 years 20 years

Non-life insurance liabilities 11,505,586 3,885,028 1,818,524 1,653,204 1,405,223 1,157,243 21,424,808

UPR 3) 4,652,698 – – – – – 4,652,698

RBNS & IBNR 6,612,814 3,885,028 1,818,524 1,653,204 1,405,223 1,157,243 16,532,036

Other insurance provisions 240,074 – – – – – 240,074

Life insurance liabilities 2,646,499 13,934,531 12,636,793 11,474,123 8,540,471 18,291,376 67,523,793

Of which guaranteed liability for investment contracts with DPF 212,020 487,951 224,094 76,886 93,254 333,772 1,427,977

3) Expected timing of release to the comprehensive income

In CZK thousand Less than Between Between Between Between More than Totalfor the year ended 1 year 1 and 5 and 10 and 15 and 20 years 31 December 2008 3 years 10 years 15 years 20 years

Non-life insurance liabilities 13,555,464 4,300,944 1,755,183 1,559,002 1,312,844 1,148,739 23,632,177

UPR 6,048,802 526,517 32,075 – – – 6,607,394

RBNS & IBNR 6,892,431 3,774,427 1,723,108 1,559,002 1,312,844 1,148,740 16,410,552

Other insurance provisions 614,231 – – – – – 614,231

Life insurance liabilities 2,396,307 9,048,759 16,255,819 12,080,172 9,903,612 19,364,551 69,049,220

Of which guaranteed liability for investment contracts with DPF 147,568 656,806 326,266 68,388 101,242 434,114 1,734,384

E.7 Insurance Risks

Insurance risk results from the uncertainty surrounding the timing, frequency and size of claims under insurance contracts. The principal risk is that the frequency or size of claims is greater than expected. In addition, for some contracts, there is uncertainty about the timing of insured events. These are, by their nature, random, and the actual number and size of events during any one year may vary from those estimated using established statistical techniques.

The Company is exposed to actuarial and underwriting risk through a wide range of life and non-life products offered to customers: participating and non-participating traditional life products, unit-linked, annuities, universal life products, guaranteed investment products and all lines of non-life products (property, accident and health, car, third party liability and disability).


The most significant components of actuarial risk concern the adequacy of insurance premium rate levels and the adequacy of provisions with respect to insurance liabilities and the capital base. The adequacy is assessed taking into consideration the supporting assets (fair and book value, currency and interest sensitivity), changes in interest rates and exchange rates and developments in mortality, morbidity, non-life claims frequency and amounts, lapses and expenses as well as general market conditions. Specific attention is paid to the adequacy of provisions for the life business. For a detailed description of the liability adequacy test, see Note C.2.3.

The Company manages the insurance risk using internal guidelines for product design, reserving, pricing criteria, reinsurance strategy and guidelines for underwriting. Monitoring risk profiles, review of insurance-related risk control and asset/liability management are also carried out by senior management. For those insurance contracts that contain high interest rate guarantees, stochastic modelling is used to assess the risk of these guarantees. The pricing reflects the cost of the guarantees and appropriate reserves are established accordingly.

New methods based on dynamic and stochastic modelling were implemented and are continuously being improved. These methods will be used, among others, to measure the economic capital of insurance risks.

E.7.1 Concentration of insurance risk

A key aspect of the insurance risk faced by the Company is the extent of the concentration of insurance risk, which determines the extent to which a particular event or series of events could significantly impact upon the Company’s liabilities. Such concentrations may arise from a single insurance contract or through a number of related contracts where significant liabilities could arise. An important aspect of the concentration of insurance risk is that it could arise from the accumulation of risks within a number of different insurance classes.

Concentrations of risk can arise in low-frequency, high-severity events such as natural disasters; in situations where the Company is exposed to unexpected changes in trends, for example, unexpected changes in human mortality or in policyholder behaviour; or where significant litigation or legislative risks could cause a large single loss, or have a pervasive effect on many contracts.

E.7.1.1 Geographic concentrationsThe risks underwritten by the Company are primarily located in the Czech Republic.

E.7.1.2 Low-frequency, high-severity risksSignificant insurance risk is connected with low-frequency and high-severity risks. The Company manages these risks through its underwriting strategy and adequate reinsurance arrangements. According to its underwriting strategy, the most significant risk of natural disaster to which the Company is exposed is the risk of flooding in the Czech Republic. In the event of a major flood, the Company expects the property portfolio to see high claims for structural damage to properties and contents, and high claims for business interruption while transport links are inoperable and business properties are closed for repair. Apart from the risk of flooding, other climatic phenomena, such as long-lasting snow-fall, claims caused by snow-weight or strong wind-storms or hail-storms would have a similar effect.

Underwriting strategyThe underwriting strategy is an integral part of the annual business plan that specifies the classes of business to be written within the planned period and the target sectors of clients. Following approval of underwriting limits by the Board of Directors, the strategy is cascaded to the individual underwriters in the form of underwriting limits (each underwriter can write business by line size, class of business, territory and industry in order to ensure the appropriate risk selection within the portfolio).

E.7.1.3 Life underwriting riskIn the life portfolio of the Company, there is a prevailing component of saving contracts, but there are also pure risk covers (death plus riders, such as an accident, disability, deadly disease, etc.) and some annuity portfolios, with the presence of the longevity risk.

The risks related to policies with a prevailing saving component are considered in a prudential way when pricing the guaranteed interest rate, in line with the particular situation of the local financial market, and also taking into account any relevant regulatory constraint. In the recent past, a policy of re-defining the structure of minimum guarantees has been pursued in order to lower their risk impact and their cost.

As far as the demographic risk related to pure risk portfolios is concerned, the mortality tables used in the pricing are prudent. The standard approach is to use population or experience tables with adequate safety loadings.

For the most important risk portfolios, a detailed analysis of mortality experience is carried out every year in comparison with the expected mortality of the portfolio, determined according to the most up-to-date mortality tables available in each market. This analysis takes into consideration the mortality by sex, age, policy year, sum assured, other underwriting criteria and also mortality trends.


As far as lapse risk (risks related to voluntary withdrawal from the contract) and expense risk (risks related to inadequacy of charges and loadings in the premiums in order to cover future expenses) is concerned, it is evaluated in a prudent manner in the pricing of new products, considering the construction and the profit testing of new tariff assumptions derived from the experience of the Company, or if it is not sufficiently reliable or suitable, the experience of the other Generali Group entities or the general experience of the local market. In order to mitigate lapse risk, surrender penalties are generally considered in the tariff and are determined in such a way to compensate, at least partially, the loss of future profits.

The table below shows the insurance provisions of the life gross direct business split by level of guaranteed interest rate.


Liabilities with guaranteed interest

Between 0% and 2.49% 15,137,238 13,980,795

Between 2.5% and 3.49% 5,915,184 6,193,781

Between 3.5% and 4.49% 7,610,498 8,849,246

More than 4.5% (incl.) 23,005,030 24,480,110

Provisions without guaranteed interest 8,903,721 9,393,564

Total 60,571,671 62,897,496

E.7.1.4. Non-life underwriting riskGross earned premium per line of business is shown in the following table:


Motor 12,945,642 13,833,212

Personal 3,692,414 3,571,415

Hull marine 4,282 2,621

Hull aviation 82,180 91,680

Cargo (marine, aviation transport) 107,454 129,231

Commercial 7,545,734 6,401,151

Non-life accidents – individual 677,937 603,331

Non-life 25,055,643 24,632,641

The pricing risk covers the risk that the premium charged is insufficient to cover actual future claims and expenses.

The reserving risk relates to the uncertainty of the run-off of reserves around its expected value, which is the risk that the actuarial reserve is not sufficient to cover all liabilities of claims incurred. Its assessment is closely related to the estimation of reserves and both processes are performed together for consistency reasons, using claim triangles and all other relevant information collected and analysed according to specific guidelines.

The Company has the right to re-price the risk on renewal and reject fraudulent claims. These contracts are underwritten by reference to the commercial replacement value of the properties and contents insured, and claims payment limits are always included to cap the amount payable on occurrence of the insured event.

E.7.2 Reinsurance strategy

The Company reinsures some of the underwritten risks in order to control its exposures to frequent and catastrophic losses and protect its capital resources.

The Company concludes a combination of proportionate and non-proportionate reinsurance treaties to reduce its net exposure. The maximum net exposure limits for particular lines of business are reviewed annually. To provide an additional protection, the Company uses facultative reinsurance for certain insurance policies.

The reinsurance arrangements include quota-share, excess of loss, stop-loss and catastrophe coverage. For economic and business reasons, the Company has added captive reinsurance to its reinsurance programme effective from the beginning of 2005.

The majority of reinsurance treaties are concluded with GP RE – the group captive reinsurance company based in Bulgaria. On the top of it the Company benefits from the consolidated reinsurance programme and diversification of its risks due to the GP Re group cover which is retro-ceded on the regular reinsurance market.


Ceded reinsurance contains a reinsurers´ credit risk as the cession does not relieve the Company of its obligations to its clients. Through the GPH credit risk management, the Company regularly evaluates the financial status of its reinsurers and monitors the concentration of credit risk to minimise its exposure to financial loss caused by a reinsurer’s insolvency. Placement of reinsurance treaties is managed by the GPH and is guided by the Security List of Generali Trieste.

All reinsurance issues are subject to strict review. This includes the evaluation of reinsurance arrangements, setting the minimum capacity and retention criteria, monitoring the purchase of reinsurance against those criteria, erosion of the reinsurance programme and its ongoing adequacy and credit risk. Treaty capacity needed is based on both internal and group modelling. The overview of parameters of obligatory reinsurance treaties for the main programme and underwriting year 2009:

Line of business/Treaty Form of reinsurance Leader

Property

Property/Engineering per Risk QS + Risk X/L Munich Re

Property Catastrophe CAT XL Paris Re

Liability

Liability per Risk QS + Risk X/L Partner Re

Motor Third Party Liability Risk X/L Munich Re

Marine

Marine Cargo Risk X/L Munich Re

Agriculture

Livestock Risk + CAT X/L Swiss Re

Hail Stop Loss Swiss Re

Bonds

Bond Quota Share Hannover Re

Life, pensions

Life Surplus Generali Trieste

Life & Disability Surplus Swiss Re

E.8 Operational Risk and Other Risks

Operational risk is defined as the potential losses, including opportunity costs, arising from lack or underperformance in internal processes, human resources and systems or from other causes which may result from internal or external reasons.

As part of the on-going processes of Generali Group, the Company has set some common principles for these kinds of risks:

– policies and basic requirements to handle specific risk-sources as defined at the Generali Group level;

– criteria to measure operational risk. Moreover, a specific worldwide task force has been settled to define a common Generali Group methodology in order to identify, measure and monitor operational risks;

– common methodologies and principles guiding internal audit activities in order to identify the most relevant processes to be audited.

The operational risk management process is based primarily on analysing the risks and designing modifications for work procedures and processes to eliminate, as far as possible, the risks associated with operational events (losses caused by risks other than market and credit risk). Work procedures governing the investment and risk management processes constitute a part of the Company’s system of mandatory policies and procedures.

E.8.1 Operating systems and IT security management

Organisation of the Company’s IT is based on separating the IT security unit from IT operations and IT development. The rules set by the Company regarding IT risk management and IT security are based on the rules and recommendations contained in ISO/IEC 17799:2000 Information Technology – Code of practice for information security management.


E.9 Risk Monitoring by Third Parties

The Company’s risks are also monitored by third parties such as the insurance regulators and external rating agencies.

The leading rating agencies periodically assess the financial strength of the whole Generali Group expressing a judgment on the ability to meet the ongoing obligations assumed toward policyholders. This assessment is performed taking into account several factors such as, financial and economic data, the positioning of the Company within its market, and the strategies developed and implemented by the management.

On 26 January 2010, the rating agency Standard & Poor’s (S&P) confirmed the long-term counterparty credit and insurer financial strength ratings of the Company to be A+ with a stable outlook.

E.10 Capital Management

The objectives of the Generali Group’s as well as the Company’s capital management policy are:

a) To guarantee the accomplishment of solvency requirements as defined by the specific laws of the sector where the Company operates;

b) To safeguard the going concern and the capacity to develop the own activity;

c) To continue to guarantee an adequate remuneration of the shareholders’ capital;

d) To determine adequate pricing policies that are suitable for the risk level of each sector’s activity.

E.10.1 Solvency I

The Company carries out business in the insurance sector, which is a regulated industry. The Company has to comply with all regulations set in the Insurance Act No 363/1999 Coll. and regulation No 303/2004 Coll., fully harmonised with EU regulation, including prudent rules relating to the capital. The prudent rules set the method for calculating minimum regulatory capital (Minimum Capital Requirement) and the actual regulatory capital (Solvency Capital Requirement). Both minimum and solvency capital requirements are calculated separately for life and non-life insurance.

The industry’s lead regulator is the Czech National Bank which sets and monitors the capital requirements for the Company.

Regulatory capital in CZK thousand as at 31 December 2009 2008

Minimum Capital Requirement Life insurance 3,422,726 3,514,734

Non-life insurance 2,275,727 2,561,881

Available Capital Life insurance 11,887,869 8,476,562

Non-life insurance 12,171,729 12,617,522

The Company closely monitors its compliance with regulatory capital requirements. The current approach for calculating capital requirements is based on Solvency I principles which are to be replaced by a new system of regulatory capital calculation – Solvency II. The Company is gradually implementing the Solvency II standards into its own risk capital management procedures.

E.10.2. Solvency II

The capital management policy is based on a consistent approach for the evaluation of the economic value and its related risks and makes use of proper internal models (Embedded value, Economic Statement of Balance Sheet).

This approach in fact anticipates the expected development within the “Solvency II” framework, which is the solvency regulation for insurance companies that the European Union is now developing. As confirmed in the Framework Directive issued in 2007, future capital requirements will focus on the economic solvency of insurance companies and will reflect more precisely the specific risk positions, also giving possible credits for better risk management policies.

In this phase of changes in the law and market conditions, the capital management policy integrates the internal economic logic with the necessary considerations about existing capital constraints, with reference in particular to current local and Generali Group solvency requirements and Rating Agency requirements.


F. Notes to the Statements of Financial Position, Income Statement and Comprehensive Income

F.1 Intangible Assets


Software 1,289,647 1,218,379

Other intangible assets 60,966 59,155

Total intangible assets 1,350,613 1,277,534

F.1.1 Software


Acquisition cost as at the beginning of the year 4,187,956 3,720,157

Amortisation as at the beginning of the year (2,969,577) (2,389,750)

Carrying amount as at the beginning of the year 1,218,379 1,330,407

Increases 525,040 485,703

Decreases (47,573) (17,904)

Depreciation for the period (406,199) (579,827)

Acquisition cost as at the end of the year 4,664,880 4,187,956

Amortisation as at the end of the year (3,375,233) (2,969,577)

Carrying amount as at the end of the year 1,289,647 1,218,379

F.1.2 Other intangible assets


Acquisition cost as at the beginning of the year 126,312 77,765

Amortisation and impairment as at the beginning of the year (67,157) (31,200)

Carrying amount as at the beginning of the year 59,155 46,565

Increases 59,923 52,504

Decreases – (3,957)

Depreciation for the period (58,112) (35,957)

Acquisition cost as at the end of the year 158,394 126,312

Amortisation and impairment as at the end of the year (97,428) (67,157)

Carrying amount as at the end of the year 60,966 59,155

F.2 Investments

F.2.1 Investment properties



Reclassification to/from assets held-for-sale 3 (433,398)

Decreases (273) (4,530)

Revaluation for the period 1,462 (1,697)


In 2008, the Company continued the internal reorganisation project and has sold a major part of its investment property. Most of it was sold to the companies controlled by Tenacity Ltd (Cyprus) a subsidiary of PPF Group N.V. (minority shareholder of GPH). As a result, there is a significant decrease in the balance of investment property as at 31 December 2008.

Other 2008 movements in land and buildings (investment properties) of CZK 433,398 thousand represent reclassification of land and buildings into non-current assets held for sale. The fair value of investment property is based on the valuation of an independent valuator who holds a recognised and relevant professional qualification and has recent experience in the location and category of the investment property being valued.


F.2.2 Other investments – loans and receivables


Loans 7,860,571 4,898,750

Unquoted bonds 1,852,415 1,839,172

Other loans 6,008,156 3,059,578

Other investments 8,740,305 9,906,281

Deposits under reinsurance business accepted 576 651

Term deposits with credit institutions 8,739,729 9,905,630

Total 16,600,876 14,805,031

Current portion 14,491,162 12,707,454

Non-current portion 2,109,714 2,097,577

The amount of buy-sell transactions in 2009 increased by CZK 1,429,282 thousand. In November 2009, the Company has provided a short-term loan to East Bohemia Energy Holding Ltd. in the amount of CZK 1,500,000 thousand.

The fair value of loans:


Loans 7,931,132 5,054,603

Unquoted bonds 1,923,186 1,995,146

Other loans 6,007,946 3,059,457

Other investments 8,740,305 9,906,281

Deposits under reinsurance business accepted 576 651

Term deposits with credit institutions 8,739,729 9,905,630

Total 16,671,437 14,960,884

F.2.3 Held-to-maturity investments

2009 2008 Amortised Fair Amortised FairIn CZK thousand as at 31 December cost value cost value

Quoted bonds 87,493 99,247 81,708 95,424

Total 87,493 99,247 81,708 95,424

Fair value of quoted bonds is determined in accordance with the principles described in C.1.5.

F.2.4 Available-for-sale financial assets


Unquoted equities at cost 100,000 215,399

Equities at fair value 3,058,409 9,435,055

Quoted 3,057,497 9,433,731

Unquoted 912 1,324

Bonds 48,206,818 29,535,134

Quoted 38,644,366 28,652,219

Unquoted 9,562,452 882,915

Investment fund units 5,244,936 2,473,247

Total 56,610,163 41,658,835


Fair value measurement as at the end of the reporting period:

In CZK thousand as at 31 December 2009 Level 1 Level 2 Level 3 Total

Unquoted equities at cost – – 100,000 100,000

Equities at fair value 3,057,497 – 912 3,058,409

Quoted 3,057,497 – – 3,057,497

Unquoted – – 912 912

Bonds 38,644,366 9,562,452 – 48,206,818

Quoted 38,644,366 – – 38,644,366

Unquoted – 9,562,452 – 9,562,452

Investment fund units 5,227,012 17,924 – 5,244,936

Total 46,928,875 9,580,376 100,912 56,610,163

There were no significant transfers between Level 1 and Level 2 fair value measurement categories in 2009.

The following table presents the changes in level 3 instruments for the year ended 31 December 2009. There were no changes of inputs for fair value measurement which would significantly change fair value of financial assets.

In CZK thousand as at 31 December 2009

Opening balance 216,723

Total gains or losses (115,811)

in income statement (115,399)

in other comprehensive income (412)

Closing balance 100,912

Total gains/losses for the period included in income statement for assets held at the end of the reporting period (115,399)

The amortised cost of available-for-sale financial assets:

Fair Unrealised Gains/losses Impairment Amortised value gains/losses on foreign losses cost *In CZK thousand as at 31 December 2009 currency

Unquoted equities at cost 100,000 – – (119,399) 219,399

Equities at fair value 3,058,409 474,267 72,083 (327,518) 2,839,577

Bonds 48,206,818 283,107 186,144 – 47,737,567

Investment fund units 5,244,936 413,395 52,067 (139,695) 4,919,169

Total 56,610,163 1,170,769 310,294 (586,612) 55,715,712

Fair Unrealised Gains/losses Impairment Amortised value gains/losses on foreign losses cost*In CZK thousand as at 31 December 2008 currency

Unquoted equities at cost 215,399 – – (4,000) 219,399

Equities at fair value 9,435,055 (326,182) 186,721 (1,579,367) 11,153,883

Bonds 29,535,134 (698,319) 432,543 (12,840) 29,813,750

Investment fund units 2,473,247 (214,978) 231,771 (509,108) 2,965,562

Total 41,658,835 (1,239,479) 851,035 (2,105,315) 44,152,594

* equity instruments are at cost

Maturity of available-for-sale financial assets:

In CZK thousand as at 31 December Fair value 2009 Fair value 2008

Up to 1 year 958,103 2,681,826

Between 1 and 5 years 23,653,395 5,465,696

Between 5 and 10 years 7,554,297 6,460,296

More than 10 years 16,041,023 14,927,316

Total 48,206,818 29,535,134


Realised gains and losses, and unrealised losses on available-for-sale financial assets:

Realised Realised ImpairmentIn CZK thousand as at 31 December 2009 gains losses losses

Equities (1,273,260) 6,340 116,677

Bonds (264,103) 124,862 1,019

Investment fund units (247,704) 190,368 27,696

Total (1,785,067) 321,570 145,392

Realised Realised ImpairmentIn CZK thousand as at 31 December 2008 gains losses losses

Equities (27,405) 120,442 1,579,367

Bonds (319,068) 189,636 12,840

Investment fund units – 84,022 509,108

Total (346,473) 394,100 2,101,315

F.2.5 Financial assets at fair value through profit or loss

Financial assets Financial assets Total financial held for trading designated at fair assets at fair value value through profit through profit or loss or lossIn CZK thousand as at 31 December 2009 2008 2009 2008 2009 2008

Equities – – 107,643 50,519 107,643 50,519

Quoted – – 107,468 50,344 107,468 50,344

Unquoted – – 175 175 175 175

Bonds – – 19,302,565 33,235,803 19,302,565 33,235,803

Quoted – – 7,535,954 21,093,807 7,535,954 21,093,807

Unquoted – – 11,766,611 12,141,996 11,766,611 12,141,996

Investment fund units – – 2,666,571 4,312,606 2,666,571 4,312,606

Derivatives 598,563 958,702 – – 598,563 958,702

Unit-linked investments – – 3,450,155 1,810,326 3,450,155 1,810,326

Total 598,563 958,702 25,526,934 39,409,254 26,125,497 40,367,956

Unit-linked policiesIn CZK thousand as at 31 December 2009 2008

Assets 3,450,155 1,810,326

Insurance provisions 3,337,186 1,755,632


In CZK thousand as at 31 December 2009 Total Level 1 Level 2 Level 3

Equities at fair value 107,643 107,468 – 175

Quoted 107,468 107,468 – –

Unquoted 175 – – 175

Bonds 19,302,565 7,131,044 12,094,832 76,689

Quoted 7,535,954 7,131,044 328,221 76,689

Unquoted 11,766,611 – 11,766,611 –

Investment fund units 2,666,571 2,451,488 215,083 –

Derivatives 598,563 13,987 584,576 –

Unit-linked investments 3,450,155 3,398,004 52,151 –

Total 26,125,497 13,101,991 12,946,642 76,864



The following table presents the changes in level 3 instruments for the year ended 31 December 2009. There were no changes in inputs for fair value measurement that would significantly change fair value.

In CZK thousand as at 31 December 2009

Opening balance 66,705

Total gains or losses 10,159

in profit or loss 10,159

Closing balance 76,864

Total gains/losses for the period included in income statement for assets held at the end of the reporting period 10,159

F.2.6 Reclassifications between categories of financial assets

High volatility of prices and low liquidity of markets and instruments were the main features of financial markets developments in 2008. This negative development lasted the whole year and even accelerated during the second half of the year. Such market behaviour represented rare circumstances which led the Company to change its investment strategy and reclassify financial assets (equities) in the amount of CZK 14,135,346 thousand from the Fair value through profit and loss category to Available-for-sale category. The reclassification was done on 1 October 2008. The carrying amount and fair value of the reclassified financial assets outstanding as at 31 December 2009 is CZK 1,572,961 thousand (2008 is CZK 11,328,958 thousand).

Had these financial assets not been reclassified, the profit and loss account would show a revaluation profit in the amount of CZK 497,202 thousand (2008 loss CZK 2,107,562 thousand). Out of this revaluation, nothing (2008 CZK 1,924,877 thousand) is reported in the profit and loss account as an impairment loss and CZK 58,866 thousand (2008 CZK 402,115 thousand) is reported in the profit and loss account as a loss (2008 profit) on foreign currency revaluation under fair value hedge accounting. Had these financial assets not been reclassified, the profit and loss account would not show loss on realisation of CZK 429,954 thousand (2008 CZK nil).

F.3 Reinsurance Assets

Direct insurance Accepted reinsurance TotalIn CZK thousand as at 31 December 2009 2008 2009 2008 2009 2008

Non-life reinsurance assets 8,280,094 7,693,026 130,042 27,672 8,410,136 7,720,698

Provisions for unearned premiums 1,906,925 1,789,072 79,036 1,839 1,985,961 1,790,911

Provisions for outstanding claims 4,277,287 3,885,129 35,872 12,580 4,313,159 3,897,709

IBNR 2,080,968 2,012,041 15,134 13,253 2,096,102 2,025,294

Other insurance provisions 14,914 6,784 – – 14,914 6,784

Life reinsurance assets 829,897 829,522 40 – 829,937 829,522

Provisions for unearned premiums 62,807 60,688 40 – 62,847 60,688

Provisions for outstanding claims 562,469 521,389 – – 562,469 521,389

IBNR 204,621 247,445 – – 204,621 247,445

Total 9,109,991 8,522,548 130,082 27,672 9,240,073 8,550,220

Current portion 4,917,053 4,788,893 99,478 12,533 5,016,531 4,801,427

Non-current portion 4,192,938 3,733,655 30,604 15,139 4,223,542 3,748,793

The amounts included in reinsurance assets represent expected future claims to be recovered from the Company’s reinsurers and the reinsurers’ share of unearned premiums.

Ceded reinsurance arrangements do not relieve the Company of its direct obligations to policyholders. Thus, a credit exposure exists with respect to reinsurance ceded to the extent that any reinsurer is unable to meet the obligations assumed under the reinsurance agreements.


F.4 Receivables


Receivables arising out of direct insurance operations 3,668,418 5,893,454

Amounts from policyholders 3,628,053 5,829,358

Amount from intermediaries 40,365 64,096

Receivables arising out of reinsurance operations 3,001,349 1,903,467

Trade and other receivables 1,611,940 3,484,473

Tax receivables 46,217 941,590

Total receivables 8,327,924 12,222,984

Current portion 8,235,541 12,222,984

Non-current portion 92,383 –

Trade and other receivables include a receivable from the sale of interest in CP Strategic Investments B.V. in the amount of CZK 840,107 thousand. As at 31 December 2008, there was a receivable from the sale of another Company’s subsidiary CPRE amounting to CZK 2,690,000 thousand. Tax receivables were exceptionally high in 2008 due to the high advances on income tax paid in 2008 resulting from the 2007 tax.

F.5 Non-current Assets Held-for-sale

As at 31 December 2009, the assets classified as held-for-sale amounted to CZK 291,666 thousand (2008: CZK 276,350 thousand) and the related deferred tax liabilities amounted to CZK 209 thousand (2008: CZK 52,204 thousand).

The balance as at 31 December 2009 is related to a subsidiary Generali PPF Life Insurance LLC. The intention to sell the interest in the subsidiary was approved by the Board of ČP in November 2009 and the Company subsequently obtained the consent of the Russian authorities. It is expected that the sale will be realised during the first half of 2010. Immediately before the transfer, the carrying amount of the subsidiary was CZK 291,666 thousand. No gain or loss was recognised in the statement of comprehensive income. Two investment properties, classified as non-current assets held-for-sale which represented the balance outstanding as at 31 December 2008 in the amount of CZK 276,350 thousand were sold during 2009.

F.6 Cash and Cash Equivalents


Cash and cash equivalents 6,777 7,199

Cash at bank 147,983 285,274

Total 154,760 292,473

F.7 Other Assets


Land and buildings (self used) 115,279 107,182

Deferred acquisition costs 770,534 763,217

Tangible assets and inventories 288,597 314,437

Other assets 51,947 53,502

Accrued income and prepayments 170,594 180,476

Total 1,396,951 1,418,814

Current portion 941,128 943,693

Non-current portion 455,823 475,121


F.7.1 Land and buildings (self used)

In CZK thousand 2009 2008

Acquisition cost as at the beginning of the year 194,766 693,771

Accumulated depreciation and impairment as at the beginning of the year (87,584) (127,264)


Additions 41,671 80,968

Disposals (24,932) (562,551)

Depreciation of the period (8,642) (7,595)

Net impairment loss of the period – 29,853

Acquisition cost as at the end of the year 202,919 194,766

Accumulated depreciation and impairment as at the end of the year (87,640) (87,584)


In 2008, the Company continued the internal reorganisation project and sold a major part of both the investment and the operational property and equipment. Most of it was sold to the companies controlled by Tenacity Ltd (Cyprus) a subsidiary of PPF Group N.V. (minority shareholder of GPH). As a result, there is a significant decrease in the balance of land and buildings as at 31 December 2008.

F.7.2 Other tangible assets

In CZK thousand 2009 2008

Acquisition cost as at the beginning of the year 2,004,383 2,555,303

Amortisation and impairment as at the beginning of the year (1,689,945) (2,123,353)


Additions 287,947 281,327

Disposals (149,618) (150,786)

Depreciation of the period (164,170) (248,053)

Acquisition cost as at the end of the year 1,941,750 2,004,383

Amortisation and impairment as at the end of the year (1,653,153) (1,689,945)


Other tangible assets comprise primarily IT equipment.

F.7.3 Deferred acquisition costs


Carrying amount as at 31 December previous year 763,217 781,709

Net change of deferred acquisition costs 7,317 (18,492)

Carrying amount as at 31 December current year 770,534 763,217

As described in Note C.1.10, the Company defers only non-life insurance acquisition costs. As a result, all deferred acquisition costs are usually to be released within one year.

F.8 Shareholders’ Equity


Share capital 4,000,000 4,000,000

Reserve for unrealised gains and losses on investments available-for-sale 941,112 (951,290)

Revaluation – land and buildings 3,730 3,717

Retained earnings 9,525,841 9,525,850


Total 21,850,744 18,451,447


The following table provides details on reserves for unrealised gains and losses on investments available-for-sale.

2009 2008

Beginning of the year (951,290) (589,297)

Gross revaluation as at the beginning of the year (1,239,479) (779,483)

Tax on revaluation as at the beginning of the year 288,189 190,186

Revaluation gain/loss in equity – gross 3,729,372 (2,608,938)

Revaluation gain/loss on realisation in income statement – gross (1,319,124) 2,148,942

Tax on revaluation (517,846) 98,003

Gross revaluation as at the end of the year 1,170,769 (1,239,479)

Tax on revaluation as at the end of the year (229,657) 288,189

End of the year 941,112 (951,290)

The following table provides details on revaluations of land and buildings.

2009 2008

Beginning of the year 3,717 12,214

Gross revaluation as at the beginning of the year 4,646 15,461

Tax on revaluation as at the beginning of the year (929) (3,247)

Revaluation gain/loss in equity – gross (41) (10,815)

Tax on revaluation 54 2,318

Gross revaluation as at the end of the year 4,605 4,646

Tax on revaluation as at the end of the year (875) (929)

End of the year 3,730 3,717

F.8.1 Share capital issued

The following table provides details of ordinary shares.

2009 2008

Number of shares authorised 40,000 40,000

Number of shares issued, out of which: 40,000 40,000

fully paid 40,000 40,000

Par value per share (CZK) 100,000 100,000

The sole shareholder of the Company is CZI Holdings N.V., 1017 CA Amsterdam, Herengracht 516, the Netherlands; registered on 6 December 2006, identification number 34245976. F.8.2 Dividends

At the Annual General Meeting on 24 August 2009, the sole shareholder approved the distribution of retained earnings in the form of a dividend in the amount of CZK 146,829.23 per each share in the nominal value of CZK 100,000 amounting to CZK 5,873,169 thousand.

At the Annual General Meeting on 19 June 2008, the sole shareholder approved the distribution of the 2007 profit in the form of a dividend in the amount of CZK 112,500 per share in the nominal value of CZK 100,000 amounting to CZK 4,500,000 thousand.


F.9 Insurance Provisions

Direct insurance Accepted reinsurance TotalIn CZK thousand as at 31 December 2009 2008 2009 2008 2009 2008

Non-life insurance provisions 20,910,729 23,220,061 514,079 412,116 21,424,808 23,632,177

Provisions for unearned premium 4,463,902 6,490,489 188,796 116,905 4,652,698 6,607,394

Provisions for outstanding claims (RBNS) 11,145,891 10,890,801 227,523 199,735 11,373,414 11,090,536

Claims incurred but not reported (IBNR) 5,084,341 5,230,637 74,281 89,379 5,158,622 5,320,016

Other insurance provisions 216,595 608,134 23,479 6,097 240,074 614,231

Life insurance provisions 67,523,753 69,049,220 40 – 67,523,793 69,049,220

Provisions for unearned premium 362,874 384,486 40 – 362,914 384,486

Provisions for outstanding claims (RBNS) 1,476,481 1,368,648 – – 1,476,481 1,368,648

Claims incurred but not reported (IBNR) 537,131 649,542 – – 537,131 649,542

Mathematical provision 60,571,671 62,897,496 – – 60,571,671 62,897,496

Unit-linked provision 3,337,186 1,755,632 – – 3,337,186 1,755,632

Other insurance provisions 1,238,410 1,993,416 – – 1,238,410 1,993,416

of which provision for liability adequacy test 1,238,410 1,993,416 – – 1,238,410 1,993,416

Total 88,434,482 92,269,281 514,119 412,116 88,948,601 92,681,397

Current 13,819,048 15,717,226 333,037 234,547 14,152,085 15,951,772

Non-current 74,615,434 76,552,055 181,082 177,569 74,796,516 76,729,625

F.9.1 Non-life insurance provisions

F.9.1.1 Provision for unearned premiums

In CZK thousand for the year ended 31 December 2009 Gross Reinsurance Net

Balance as at 1 January 6,607,394 (1,790,911) 4,816,483

Added during the year 20,592,153 (2,036,677) 18,555,476

Released to the income statement (22,546,849) 1,841,626 (20,705,223)

Balance as at 31 December 4,652,698 (1,985,962) 2,666,736



Added during the year 19,353,605 (1,258,193) 18,095,412

Released to the income statement (19,015,640) 1,313,330 (17,702,310)


F.9.1.2 Provisions for outstanding claims



Plus claims incurred 12,836,580 (4,831,222) 8,005,358

Current year 11,842,015 (4,452,598) 7,389,417

Transfer from IBNR 994,565 (378,624) 615,941

Less claims paid (12,281,143) 4,616,823 (7,664,320)

Released to the income statement (250,383) (204,702) (455,085)

Foreign currency translation (22,176) 3,651 (18,525)




Plus claims incurred 12,826,250 (4,269,472) 8,556,778

Current year 11,756,580 (3,891,428) 7,865,152

Transfer from IBNR 1,069,670 (378,044) 691,626

Less claims paid (11,824,797) 3,910,201 (7,914,596)

Released to the income statement (345,320) (96,508) (441,828)

Foreign currency translation 2,819 (3,085) (266)



F.9.1.3 Claims incurred but not reported

In CZK thousand, for the year ended 31 December 2009 Gross Reinsurance Net


Plus additions recognised during the year 1,999,238 (761,096) 1,238,142

Less transfer to claims reported provision (994,565) 378,624 (615,941)

Released to the income statement (1,166,149) 312,010 (854,139)

Foreign currency translation 82 (345) (263)




Plus additions recognised during the year 2,114,250 (747,221) 1,367,029

Less transfer to claims reported provision (1,069,670) 378,044 (691,626)

Released to the income statement (1,357,471) 331,715 (1,025,756)

Foreign currency translation 8,366 – 8,366


F.9.1.4 Development of policyholders claims (RBNS and IBNR)

In CZK thousand, for the year ended 31 December 2001 2002 2003 2004 2005 2006 2007 2008 2009 Total

Estimate of cumulative claims at the end of underwriting year 7,199,055 11,348,099 12,154,203 13,371,816 13,991,807 13,887,558 12,581,905 11,979,743 12,174,651

One year later 9,925,554 11,512,948 12,093,749 13,037,695 13,464,180 13,299,539 12,416,597 11,826,918

Two years later 9,361,253 11,441,876 11,927,594 12,854,680 13,096,337 13,219,363 12,215,367

Three years later 9,361,834 11,503,743 11,656,660 12,617,851 12,810,821 12,931,404

Four years later 9,207,281 11,353,975 11,605,219 12,343,265 12,572,179

Five years later 9,060,704 11,324,725 11,490,130 12,202,119

Six years later 8,991,432 11,183,033 11,440,891

Seven years later 8,894,702 11,124,344

Eight years later 8,829,567

Estimate of cumulative claims 8,829,567 11,124,344 11,440,891 12,202,119 12,572,179 12,931,404 12,215,367 11,826,918 12,174,651 105,317,440

Cumulative payments 8,357,302 10,575,387 10,703,363 11,337,908 11,632,082 11,260,701 10,104,761 9,452,878 7,502,385 90,926,767

catastrophic events 531,240

accepted reinsurance 301,804

Provisions for outstanding claims not included in accident year 1,308,319

Value recognised in the Statement of Financial Position 472,265 548,957 737,528 864,211 940,097 1,670,703 2,110,606 2,374,040 4,672,266 16,532,036

Information in the table also includes claims handling costs. Provisions for outstanding claims which were not included in the analysis by accident year include provision for claims which occurred before 2001 in the amount of CZK 1,214,681 thousand and provisions related to minor non-life insurance products.


In CZK thousand, for the year ended 31 December 2001 2002 2003 2004 2005 2006 2007 2008 Total

Estimate of cumulative claims at the end of underwriting year 7,199,055 11,348,099 12,154,203 13,371,816 13,991,807 13,887,558 12,581,905 11,979,743 x

One year later 9,925,554 11,512,948 12,093,749 13,037,695 13,464,180 13,299,539 12,416,597 x x

Two years later 9,361,253 11,441,876 11,927,594 12,854,680 13,096,337 13,219,363 x x x

Three years later 9,361,834 11,503,743 11,656,660 12,617,851 12,810,821 x x x x

Four years later 9,207,281 11,353,975 11,605,219 12,343,265 x x x x x

Five years later 9,060,704 11,324,725 11,490,130 x x x x x x

Six years later 8,991,432 11,183,033 x x x x x x x

Seven years later 8,894,702 x x x x x x x x

Estimate of cumulative claims 8,894,702 11,183,033 11,490,130 12,343,265 12,810,821 13,219,363 12,416,597 11,979,743 94,337,654

Cumulative payments 8,332,541 10,541,853 10,658,996 11,260,957 11,579,184 11,128,506 9,621,739 7,103,196 80,226,972

catastrophic events 561,016

accepted reinsurance 289,114

Provisions for outstanding claims not included in accident year 1,449,740

Value recognised in the Statement of Financial Position 562,161 641,180 831,134 1,082,308 1,231,637 2,090,857 2,794,858 4,876,547 16,410,552

Information in the table also includes claims handling costs. Provisions for outstanding claims which were not included in the analysis by accident year include provision for claims which occurred before 2001 in the amount of CZK 1,320,379 thousand and provisions related to minor non-life insurance products.

F.9.1.5 Other insurance provisions Contractual non-discretionary bonuses:

In CZK thousand, for the year ended 31 December 2009 2009 2008

Gross

Balance as at 1 January 614,231 382,040

Creation of provisions 837,926 1,260,371

Utilisation of provisions (1,212,083) (1,028,180)

Balance of gross provisions as at 31 December 240,074 614,231

Balance of reinsurance as at 31 December (14,914) (6,784)

Balance of net provisions as at 31 December 225,160 607,447

F.9.2 Life insurance provisions


Balance at 1 January 69,049,220 (829,522) 68,219,698

Premium allocation 11,533,661 – 11,533,661

Release of liabilities due to benefits paid, surrenders and other terminations (12,321,184) – (12,321,184)

Fees deducted from account balances (2,476,722) – (2,476,722)

Unwinding of discount/accretion of interest 2,041,752 – 2,041,752

Changes in unit-prices 478,222 – 478,222

Change in liability arising from liability adequacy test (755,006) – (755,006)

Change in IBNR and RBNS (4,578) 1,744 (2,834)

Change in UPR (21,572) (2,159) (23,731)

Balance at 31 December 67,523,793 (829,937) 66,693,856



Balance as at 1 January 67,562,115 (801,675) 66,760,440

Premium allocation 10,988,661 – 10,988,661

Release of liabilities due to benefits paid, surrenders and other terminations (9,621,523) – (9,621,523)

Fees deducted from account balances (2,267,160) – (2,267,160)

Unwinding of discount/accretion of interest 2,055,336 – 2,055,336

Changes in unit-prices (412,893) – (412,893)

Change in liability arising from liability adequacy test 693,410 – 693,410

Change in IBNR and RBNS 69,707 (26,554) 43,153

Change in UPR (18,433) (1,293) (19,726)

Balance as at 31 December 69,049,220 (829,522) 68,219,698

F.9.2.1 Insurance provisions and financial liabilities related to policies of the life segment


Insurance contracts 66,115,207 67,339,153

Investments contracts with discretionary participation feature 1,408,586 1,710,067

Total 67,523,793 69,049,220

Current portion 2,646,499 2,396,307


F.10 Other Provisions


Restructuring provision 55,977 41,184

Provisions for commitments 1,974,628 2,270,803

Total 2,030,605 2,311,987

Current portion 61,206 109,492



Carrying amount as at 31 December previous year 2,311,987 2,391,508

Provisions created during the year 32,742 38,580

Provisions used during the year (126,815) (5,714)

Provisions released during the year (187,309) (112,387)

Carrying amount as at 31 December 2,030,605 2,311,987

Provisions for commitments consist of provisions for the MTPL deficit in the amount of CZK 1,854,366 thousand (2008: CZK 2,041,674 thousand) and other provisions.

The major part of other provisions for commitments relates to a provision created for potential cash outflows based on the contractual obligation to pay back, in certain circumstances, part of a purchase price of one of the subsidiaries sold in 2006.

Provision for MTPL deficitOn 31 December 1999, statutory MTPL insurance was replaced by contractual MTPL insurance in the Czech Republic. All rights and obligations arising from statutory MTPL insurance prior to 31 December 1999, including the deficit of received premiums to cover the liabilities and costs, were transferred to the Czech Bureau of Insurers (“the Bureau“).

On 12 October 1999, the Company obtained a license to write contractual MTPL insurance in the Czech Republic and, as a result, the Company became a member of the Bureau (see also F.28.2.3).

Each member of the Bureau guarantees the appropriate portion of the Bureau’s liabilities based on the member’s market share for this class of insurance.

Based on information publicly available and information provided by members of the Bureau, the Company created a provision adequate to cover the cost of claims likely to be incurred in relation to the liabilities ceded. However, the final and exact amount of the incurred cost of claims will only be known in several years.


F.11 Financial Liabilities


Financial liabilities at fair value through profit or loss 1,046,168 1,514,627

Other financial liabilities 877,850 2,922,666

Total 1,924,018 4,437,293

Financial liabilities at fair value through profit or loss represent derivatives held-for-trading.


In CZK thousand as at 31 December 2009 Total Level 1 Level 2 Level 3

Financial liabilities at fair value through profit or loss 1,046,168 2,392 1,043,776 –

There were no significant transfers between Level 1 and Level 2 fair value measurement categories in 2009. F.11.1 Other financial liabilities

2009 2008 Amortised Fair Amortised FairIn CZK thousand as at 31 December cost value cost value

Loans and bonds 877,850 880,104 2,922,666 2,925,366

Deposits received from reinsurers 337 337 – –

Bonds 499,069 501,346 498,630 501,346

Other loans 378,444 378,421 2,424,036 2,424,020

Total 877,850 880,104 2,922,666 2,925,366

Current portion 378,781 378,758 2,424,036 2,424,020

Non-current portion 499,069 501,346 498,630 501,346

On 13 December 2007, the Company issued 250 fixed-coupon bonds in a total nominal value of CZK 500,000 thousand. The issue price was CZK 2,000 thousand each. The bonds bear an interest rate of 5.10% p.a. Transaction costs related to the bond issue amounted to CZK 2,285 thousand.

The amortisation of any discount, premium or direct transaction cost and interest related to other liabilities, evidenced by paper, is calculated using an effective interest rate method, and is recognised in interest expense and similar charges.

Other loans consist of Reverse repurchase agreements in the amount of CZK 378,444 thousand (2008 CZK 1,124,036 thousand). In 2008 the balance included a short-term loan from CZI Holdings in the amount of CZK 1,300,000 thousand which was outstanding as at 31 December 2008 and was repaid in 2009 in accordance with the contractual terms.

F.12 Payables


Payables arising out of direct insurance operations 2,115,059 2,489,731

Payables arising out of reinsurance operations 4,916,052 3,701,833

Payables relating to taxation 1,601,411 51,588

Other payables 2,815 2,815

Payables to employees 194,707 147,462

Payables to client and suppliers 215,723 1,406,952

Social security 67,916 63,371

Other payables 604,697 695,364

Total 9,718,380 8,559,116


Non-current portion – 734

Payables relating to taxation were exceptionally low as at 2008 year end as the Company made high tax prepayment to the tax authority in 2008.


Payables to clients and suppliers as at 31 December 2008 include a payable for the increase of the share capital in Penzijní fond ČP, a.s. (PFČP) in the amount of CZK 1,000,000 thousand (see note B.).

F.13 Other Liabilities

In CZK thousand, for the year ended 31 December 2009 2008

Reinsurance deferrals 24,138 17,186

Accrued interest expense 1,346 1,346

Other accrued expense 1,925,994 1,854,991

Thereof: Non-invoiced supplies 930,550 815,146

Commissions 689,914 646,003

Accrued expenses for untaken holidays and bonuses 97,621 206,314

Deferred income from real estate 5,914 887

Total 1,957,392 1,874,410


F.14 Net Earned Premiums

Gross amount Reinsurer’s share Net amountas at 31 December for the year ended 31 December 2009 2008 2009 2008 2009 2008

Non-life earned premiums 25,055,643 24,632,641 (10,075,790) (8,921,507) 14,979,853 15,711,134

Premiums written 23,100,947 24,970,606 (10,270,840) (8,866,369) 12,830,107 16,104,237

Change in the provision for UPR 1,954,696 (337,965) 195,050 (55,138) 2,149,746 (393,103)

Life earned premiums 13,585,374 13,961,611 (1,156,944) (1,114,451) 12,428,430 12,847,160

Premiums written 13,585,374 13,961,611 (1,156,944) (1,114,451) 12,428,430 12,847,160

Total 38,641,017 38,594,252 (11,232,734) (10,035,958) 27,408,283 28,558,294

F.15 Income from Other Financial Instruments and Land and Buildings (Investment Properties)


Interest income 2,233,808 1,832,754

Interest income from held-to-maturity investments 5,784 5,402

Interest income from loans and receivables 272,887 261,298

Interest income from available-for-sale financial assets 1,787,042 1,107,713

Interest income from cash and cash equivalents 3,733 3,801

Interest from other investments 164,362 454,540

Other income 149,339 137,851

Income from land and buildings (investment properties) 21,342 28,061

Income from equities available-for-sale 57,047 109,790

Other income from available for sale financial assets 70,950 –

Interests and other investment income 2,383,147 1,970,605

Realised gains 1,785,547 395,873

Realised gains on land and buildings (investment properties) 31 48,313

Realised gains on loans and receivables 449 1,087

Realised gains on available-for-sale financial assets 1,785,067 346,473

Reversal of impairment 814,676 197,968

Reversal of impairment of land and buildings (investment properties) 380 –

Reversal of impairment of loans and receivables 779,622 162,930

Reversal of impairment of available-for-sale financial assets 1,019 –

Reversal of impairment of other receivables 33,311 21,078

Reversal of impairment on other receivables from reinsurers 344 13,960

Other income from financial instruments and other investments 2,600,223 593,841

Total 4,983,370 2,564,446


F.16 Income from Subsidiaries and Associated Companies


Dividends and other income 727,339 296,296

Realised gains 576,618 6,384,904

Total 1,303,957 6,681,200

The most significant transaction during 2008 was the sale of (CP RE) with a profit (realised gain) of CZK 6,384,904 thousand (see Note B.).

F.17 Net Income from Financial Assets at Fair Value through Profit or Loss

Financial investments Unit linked financial Unit linked financial Total financial held for trading investments investments investments at fair value throughIn CZK thousand, profit or lossfor the year ended 31 December 2009 2008 2009 2008 2009 2008 2009 2008

Interests and other income from financial assets 325,100 (158,374) 2,234 2,478 1,177,482 1,891,824 1,504,816 1,735,928

Unrealised gains on financial assets 262,335 611,933 524,932 14,527 1,089,470 1,425,942 1,876,737 2,052,402

Realised gains from financial assets 6,243,538 6,652,133 5,056 684 211,581 138,606 6,460,175 6,791,423

Unrealised losses on financial assets (105,440) (58,956) (138) (438,348) (1,147,977) (2,807,888) (1,253,555) (3,305,192)

Realised losses from financial assets (2,530,320) (4,872,197) (2,624) (3,909) (475,550) (479,497) (3,008,494) (5,355,603)

Interest expenses on financial liabilities (126,567) (60,130) – – – – (126,567) (60,130)

Unrealised gains on financial liabilities 55,394 29,764 – – – – 55,394 29,764

Realised gains on financial liabilities 1,568,115 1,158,983 – – – – 1,568,115 1,158,983

Unrealised losses on financial liabilities (674,565) (1,381,219) – – – – (674,565) (1,381,219)

Realised losses on financial liabilities (3,964,384) (4,478,660) – – – – (3,964,384) (4,478,660)

Income from financial liabilities 15,465 70,775 – – – – 15,465 70,775

Total 1,068,671 (2,485,948) 529,460 (424,568) 855,006 168,987 2,453,137 (2,741,529)

F.18 Other Income


Gains on foreign currency 1,223,645 2,243,069

Income from tangible assets 2,689 16,972

Reversal of other provisions 321,397 304,698

Income from services and assistance activities and recovery of charges 223,079 266,697

Income from non-current assets held-for-sale 15,513 60,088

Other technical income 137,446 69,985

Other income – 126

Total 1,923,769 2,961,635


F.19 Net Insurance Benefits and Claims

Gross amount Reinsurer’s share Net amountIn CZK thousand, for the year ended 31 December 2009 2008 2009 2008 2009 2008

Non-life net insurance benefits and claims 14,749,497 13,416,167 (5,114,752) (4,414,108) 9,634,745 9,002,059

Claims paid 12,404,653 11,879,962 (4,616,823) (3,910,202) 7,787,830 7,969,760

Profit sharing and premium refunds paid 2,597,515 949,588 (3,541) (4,111) 2,593,974 945,477

Change in the provision for outstanding claims 282,879 658,951 (415,450) (458,864) (132,571) 200,087

Change in the IBNR provision (161,393) (304,525) (70,807) (37,462) (232,200) (341,987)

Change in other insurance provision (374,157) 232,191 (8,131) (3,469) (382,288) 228,722

Life net insurance benefits and claims 9,387,515 11,172,846 (308,423) (276,665) 9,079,092 10,896,181

Claims payments 10,674,975 9,426,483 (308,008) (248,819) 10,366,967 9,177,664

Profit sharing and premium refunds paid 237,968 259,258 – – 237,968 259,258

Change in the provision for UPR (21,572) (18,433) (2,159) (1,292) (23,731) (19,725)

Change in the provision for outstanding claims 107,834 124,499 (41,080) (47,428) 66,754 77,071

Change in the IBNR provision (112,413) (54,793) 42,824 20,874 (69,589) (33,919)

Change in the mathematical provision (2,325,825) (96,807) – – (2,325,825) (96,807)

Change in the unit-linked provision 1,581,554 839,229 – – 1,581,554 839,229

Change in other insurance provision (755,006) 693,410 – – (755,006) 693,410

Total 24,137,012 24,589,013 (5,423,175) (4,690,773) 18,713,837 19,898,240

Life insuranceThe increase in gross claims payments in 2009 is mainly a result of higher surrenders. Surrenders increased by CZK 1,121,596 thousand, maturity payments decreased by CZK 91,242 thousand and claims of accident riders increased by CZK 147,973 thousand in comparison with 2008.

The change in the mathematical provision and in the provision for unit-linked policies arises from claims paid and new premiums allocated to reserves. The resulting change is due to the increase in gross claims payments and due to more significant portion of premium allocated to provision for unit-linked policies in comparison to 2008.

The change in other insurance provision relates to the change in Additional reserve resulting from Liability adequacy testing (see C.2.3) and is determined by the development of portfolio and relevant assumptions. Non-life insuranceSignificant increase in profit sharing and premium refunds in 2009 was caused by the termination of insurance of the financial risk line of business, resulting from the termination of cooperation with Home Credit, a.s. and the resulting settlement of mutual obligations. A bonus in the amount of CZK 1,452,162 thousand was part of the settlement.

F.20 Expenses from Other Financial Instruments and Land and Buildings (Investment Properties)


Interest expense on loans, bonds and other payables 32,686 83,132

Interest expense on deposits received from reinsurers 2 –

Other interest expense 855 1,187

Interest expense 33,543 84,319

Other expenses 157,810 204,004

Expenses from land and buildings (investment properties) 9,019 18,325

Other expenses on investments 148,791 185,679

Realised losses 321,834 423,279

Realised losses on land and buildings (investment properties) 264 29,179

Realised losses on available-for-sale financial assets 321,570 394,100

Impairment losses 1,381,179 2,878,397

Impairment of land and buildings (investment properties) – 1,697

Impairment of loans and receivables 1,229,256 766,386

Impairment of available-for-sale financial assets 145,392 2,101,315

Impairment of other receivables 6,531 8,999

Other expenses for financial instruments and other investments 1,860,823 3,505,680

Total 1,894,366 3,589,999


F.21 Expenses from Subsidiaries and Associated Companies


Realised losses – 139

Impairment losses – 1,565

Interest expenses on loans from subsidiaries 12,114 7,520

Total 12,114 9,224

In 2008 impairment losses consist of the impairment loss of the subsidiary Finansovyj servis o.o.o. in the amount of CZK 1,565 thousand.

F.22 Acquisition and Administration Costs

Non-life segment Life segment TotalIn CZK thousand, for the year ended 31 December 2009 2008 2009 2008 2009 2008

Gross acquisition costs and other commissions 1,734,583 1,669,523 1,589,435 1,487,988 3,324,018 3,157,511

Change of deferred acquisition costs (7,317) 18,492 – – (7,317) 18,492

Other administration costs 1,644,456 1,760,137 1,092,672 1,054,021 2,737,128 2,814,158

Total 3,371,722 3,448,152 2,682,107 2,542,009 6,053,829 5,990,161

The building rentals in the amount of CZK 411,361 thousand in 2009 (2008: CZK 349,173 thousand) under an operating lease are recognised as other administration costs. The following table shows the total of future minimum lease payments under non cancellable operating leases for each of the following periods.


Not later than one year 388,148 395,443

Later than one year and not later than five years 1,189,562 1,320,601

Later than five years 925,577 1,203,594

F.23 Other Expenses


Amortisation and impairment of intangible assets 464,311 615,784

Depreciation of tangible assets 172,812 255,648

Losses on foreign currencies 1,538,745 1,127,894

Restructuring charges and allocation to other provisions 40,015 225,176

Other taxes 1,606 2,228

Expense from service and assistance activities and charges incurred on behalf of third parties 33,730 43,502

Expenses from non-current assets or disposal group classified as held for sale 39,054 161,966

Other technical expenses 323,390 121,364

Total 2,613,663 2,553,562

F.24 Income Taxes


Income taxes 1,499,095 515,625

Deferred taxes (94,449) (405,934)

Total 1,404,646 109,691


Reconciliation between expected and effective tax rates:


Expected income tax rate 20% 21%

Earnings before taxes 8,784,707 5,982,861

Expected income tax expense 1,756,941 1,256,401

Expenses not allowable for tax purposes 249,243 258,281

Income not subject to tax (595,879) (1,463,821)

Other reconciliations (5,659) 58,830

Tax expense 1,404,646 109,691

Effective tax rate 15,99% 1,83%

The effective tax rate in 2009 is influenced by the tax exempt profit on the sale of the subsidiary CP Strategic Investments B.V. in the amount of CZK 576,618 thousand (2008: profit of CP RE sale in the amount of 6,384,904 thousand).

The tax authority may at any time inspect the books and records of the Company within a maximum period of 10 years subsequent to the reported tax year, and may impose additional tax assessments and penalties. The Company‘s management is not aware of any circumstances which may give rise to a potential material liability in this respect.

F.24.1 Deferred tax

Deferred Deferred tax Asset tax LiabilitiesIn CZK thousand as at 31 December 2009 2008 2009 2008

Intangible assets – – (41,272) (17,634)

Investments in subsidiaries and associated companies – 2,817 – –

Tangible assets and Land and buildings (self used) 7,024 7,938 (17,386) (20,512)

Land and buildings (investment properties) – – (2,639) (385)

Available-for-sale financial assets 4,497 4,733 – –

Other investments – – (5,957) (74,592)

Loans and receivables 59,680 59,694 – –

Financial liabilities and other liabilities 6,434 – (875) (929)

Other 24,288 – (209) (21,811)

Total 101,923 75,182 (68,338) (135,863)

Net deferred tax receivable/liability 33,585 – – (60,681)

Current portion 15,280 – (730) (56,691)

Non-current portion 86,643 75,182 (67,608) (79,172)

The significant decrease in the deferred tax liability on other investments is a result of maturities of some held-to-maturity investments and fair value to profit and loss investments. The change in other deferred tax from a liability to an asset is caused by the sale of a property reported as long-term assets held for sale as at the end of previous year.

In accordance with the accounting method, the amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted as at the end of the reporting period which, for the year 2010 and following years, is 19% (2009 – 20%).

F.24.2 Current tax and deferred tax recognised directly in equity


Deferred tax – revaluation gain on property, plant and equipment (875) (929)

Deferred tax – revaluation gain on financial assets at AFS 4,497 4,733

Current tax – unrealised gain/losses on financial assets at AFS (234,154) 283,456

Total (230,532) 287,260


F.25 Information on Employees

Number of employees 2009 2008

Managers 369 364

Employees 2,964 3,235

Sales attendant 764 810

Others 10 23

Total 4,107 4,432


Wages and salaries 1,824,091 2,008,539

Compulsory social security contributions 603,523 638,534

Other expenses 67,069 69,364

Total staff costs 2,494,683 2,716,437

Total remuneration included in staff cost for directors and executive officers 219,867 336,997

Staff costs are reported in the sections Acquisition costs (2009: CZK 988,191 thousand, 2008: CZK 1,028,739 thousand), Insurance Benefits and Claims (2009: CZK 454,071 thousand, 2008: CZK 465,099 thousand) and Administrative expenses (2009: CZK 1,052,421 thousand, 2008: CZK 1,222,599 thousand).

Other expenses include the costs of the Company’s health and social programmes (e.g. health programme for managers, medical check-up for employees and social benefits).

Compulsory social security contributions comprise mainly contributions to state-defined contribution pension plans.

F.26 Hedge Accounting

Starting 1 October 2008, hedge accounting is applied by the Company on foreign currency risk (FX risk). The company applies a fair value hedge.

The functional currency of the Company and the currency of its liabilities is CZK. However, in the investment portfolios, there are also instruments denominated in foreign currencies. According to the general policy, all these instruments are dynamically hedged into CZK via FX derivatives.

Foreign currency hedging is in place for all foreign currency investments, i.e. bonds, investment fund units, equities, etc. in order to fully hedge the implied FX risk. The process is in place which guarantees high efficiency of the hedging.

The FX difference on all financial assets and derivatives, except for equities classified in the available-for-sale portfolio, are reported in the profit or loss account according to IFRS rules. FX revaluation on AFS equities is within the hedge accounting reported in the profit or loss account either as other income – gains on foreign currency or other expenses – losses on foreign currency.

Hedged itemsHedge accounting is applied to financial assets – defined as all non-derivative financial assets denominated or exposed in foreign currencies (i.e. all bonds, equities, investment fund units, term deposits and current bank accounts denominated in EUR, USD and other currencies) except for:

a) financial assets backing unit-linked products;

b) cross-currency swaps and bonds are economically hedged by them;

c) other particular exclusions predefined by the investment management strategy.

Hedged items include financial assets classified in the available-for-sale category, fair value to profit or loss, other investments and cash and cash equivalents. The hedged items do not include financial liabilities.


Hedging instrumentsHedging instruments are defined as all FX derivatives except for cross-currency swaps as described above and options. The derivatives are designated as hedging instruments in its entirety.Assets according to this definition can be clearly identified at any time. As at 31 December hedged items and hedging instruments were as follows:

In CZK thousand Fair value FX gain/loss as at 31. 12. 2009 for the period from 1. 1. to 31. 12. 2009

Equities, bonds, investment funds units 18,516,808 (293,378)

Term deposits and current bank accounts 1,490,710 (177,467)

Derivatives (518,222) 571,116

Hedging effectiveness – 121%

In CZK thousand Fair value FX gain/loss as at 31. 12. 2008 for the period from 1. 10. to 31. 12. 2008

Equities, bonds, investment funds units 13,035,980 1,515,971

Term deposits and current bank accounts 5,659,348 287,844

Derivatives (467,323) (1,834,800)

Hedging effectiveness – 102%

F.27 Earnings Per Share

The next table shows the earnings per share:


Result of the period 7,380,061 5,873,170

Weighted average number of ordinary shares outstanding 40,000 40,000

Earnings per share 184.502 146.829

The earnings per share figure is calculated by dividing the result of the period by the weighted average number of ordinary shares outstanding.

F.28 Off balance Sheet Items

F.28.1 Commitments

The Company had no significant contractual commitments as at 31 December 2009.

F.28.2 Other contingencies

F.28.2.1 LegalAs at the release date of the financial statements, there were 4 cases concerning the decision of the general meeting of the Company in 2005 approving a squeeze-out of minority shareholders pending. Based on legal analyses carried out by external legal counsel, management of the Company believes that none of these cases gives rise to any contingent future liabilities for the Company.

F.28.2.2 Participation in nuclear poolAs a member of the Czech Nuclear Pool, the Company is jointly and severally liable for the obligations of the pool. This means that, in the event that one or more of the other members are unable to meet their obligations to the pool, the Company would take over the uncovered part of this liability, pro-rata to its own net retention used for the contracts in question. The management does not consider the risk of another member being unable to meet its obligations to the pool to be material to the financial position of the Company. In addition, the potential liability of the Company for any given insured risk is contractually capped at twice the Company’s net retention for that risk.


The subscribed net retention is as follows:


Liability 132,892 132,892

Fire, lightning, explosion, aircraft (“FLEXA“) and break down of operations 480,000 480,000

Transportation risk 96,000 96,000

Technical insurance and breakdown of operations 240,000 240,000

948,892 948,892

F.28.2.3 Membership in the Czech Insurance BureauAs a member of the Czech Insurance Bureau (“the Bureau”) related to MTPL insurance, the Company is committed to guarantee the MTPL liabilities of the Bureau. For this purpose, the Company makes contributions to the guarantee fund of the Bureau based on the calculations of the Bureau (see F.10).

In the event of a fellow member of the Bureau being unable to meet its liabilities arising from MTPL due to insolvency, the Company may be required to make additional contributions to the guarantee fund. The management does not believe the risk of this occurring to be material to the financial position of the Company.

F.28.2.4 Česká pojišťovna – LitigationExcept for legal contingencies described in F.28.2.1 the Company is party to a litigation with Čásenský & Hlavatý, s.r.o., an insurance broker, in which the insurance broker is seeking compensation for lost trade. The Company’s position in the dispute is that the alleged claim has no foundation. Based on the legal analyses carried out to date, the management of the Company is of the opinion that the plaintiff will not be successful in this action.

F.29 Related Parties

This chapter contains information about all important transactions with related parties excluding those which are described in other parts of the notes.

F.29.1 Identity of related parties

As at 31 December 2009, CZI Holdings N.V. is the sole shareholder of the Company. The ultimate parent company is Assicurazioni Generali S.p.A.

The Company is related to its parent company which is CZI Holdings N.V., Assicurazioni Generali S.p.A. and to companies controlled by them.

The key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly.

The Company also has a related party relationship with its subsidiaries and associates.

The key management personnel of the Company and its parent, their close family members and other parties which are controlled, jointly controlled or significantly influenced by such individuals and entities in which such individuals hold significant voting power are also considered related parties.

Key management personnel of the Company comprise the members of the Board of Directors and the Supervisory Board.

In considering each possible related party relationship, attention is directed to the substance of the relationship and not merely the legal form.


F.29.2 Transactions with key management personnel of the Company

Board of Directors Supervisory Board Related to Related to Related to Related to the board employment the board employmentIn CZK thousand as at 31 December 2009 membership contract membership contract

Short-term employee benefits

Monetary benefits from the Company 2,400 53,481 1,510 5,337

Non-monetary benefits from the Company – 332 396 –

Board of Directors Supervisory Board Related to Related to Related to Related to the board employment the board employmentIn CZK thousand as at 31 December 2008 membership contract membership contract


Monetary benefits from the Company 2,700 91,431 2,160 4,745

Non-monetary benefits from the Company – 937 – 437

Short-term employee benefits include wages, salaries and social security contributions, allowances provided for membership in the statutory bodies, bonuses and non-monetary benefits such as medical care and cars.

There were no post-employment benefits, other long-term benefits or termination benefits paid to the key management personnel of the Company in 2009 and 2008.

As at 31 December 2009 and 31 December 2008, the members of the statutory bodies held no shares of the Company.

F.29.3 Related party transactions

The Company had no material transactions or outstanding balances with the ultimate parent company Generali in either in 2009 or in 2008.

The other related parties fall into the following groups:

Group 1 – subsidiaries and associates directly consolidated within the Company’s group;

Group 2 – enterprises directly consolidated within the group of the ultimate parent company;

Group 3 – other related parties (Entities from PPF Group N.V., indirect 49% shareholder of the Company).


In thousand of CZK as at 31 December 2009 Notes Group 1 Group 2 Group 3

Assets

Receivables from insurance and reinsurance business i 385 2,714,849 503,819

Technical provisions ceded to reinsurers ii – 7,835,385 –

Other financial assets iii 129 – 11,399,437

Other assets iv 43,631 859,221 76,963

Total assets 44,145 11,409,455 11,980,219

Liabilities

Payables from insurance and reinsurance business v 25,991 4,554,953 48,845

Technical provisions 2,328 159,574 –

Other financial liabilities – – 42,119

Other liabilities 15,841 25,029 99,739

Total liabilities 44,160 4,739,556 190,703

Notes:i. The balances with companies in Group 2 comprise especially receivables from reinsurance from Generali Slovensko poisťovňa, a.s. (Ge SK) in the amount of CZK 970,368

thousand and receivables from reinsurance from GP Reinsurance EAD, Bulgaria (GP RE) in the amount of CZK 1,592,124 thousand. ii. The balances with companies in Group 2 comprise technical provisions ceded to GP RE CZK 7,804,592 thousand.iii. The balances with companies in Group 3 include bonds issued by Home Credit Group companies in the amount of CZK 2,573,883 thousand and bank deposits with PPF

Banka a.s. in the amount of CZK 4,214,644 thousand and receivables from repurchase agreements CZK 4,230,347 thousand with PPF Banka a.s.iv. The balances with companies in Group 2 comprise receivables from CZI Holding of the sale of interest in CP Strategic Investments B.V. CZK 840,107 thousand. v. The balances with companies in the Group 2 comprise liabilities from reinsurance to GP RE in the amount of CZK 3,598,041 thousand and to Ge SK CZK 895,540

thousand.

In thousand of CZK as at 31 December 2008 Notes Group 1 Group 2 Group 3

Assets

Receivables from insurance and reinsurance business i 2,941 1,032,526 2,999,541

Technical provisions ceded to reinsurers ii – 7,437 7,077,901

Other financial assets iii – – 7,442,571

Other assets iv 33,966 2,697,770 85,449

Total assets 36,907 3,737,733 17,605,462

Liabilities

Payables from insurance and reinsurance business v 24,396 863,114 2,598,028

Technical provisions vi 4,247 67,066 2,177,364

Other financial liabilities vii – 1,300,000 161,301

Other liabilities viii 1,024,848 16,043 48,719


Notes:i. The balances with companies in Group 2 comprise especially receivables from reinsurance from Generali Slovensko poisťovňa, a.s. (Ge SK) in the amount of CZK

1,019,046 thousand. Group 3 comprises receivables from reinsurance from CP RE in the amount of CZK 486,140 thousand and receivables from insurance from Home Credit Group companies in the amount of CZK 2,513,401 thousand.

ii. The balances with companies in Group 3 comprise technical provisions ceded to CP RE.iii. The balances with companies in Group 3 include bonds issued by Home Credit Group companies in the amount of CZK 2,566,745 thousand and bank deposits with PPF

Banka a.s. (PPFB) in the amount of CZK 2,818,994 thousand.iv. The balances with companies in Group 3 comprise especially receivables from loan provided to PPF Group N.V. in the amount of CZK 2,690,000 thousand.v. The balances with companies in Group 2 comprise liabilities from reinsurance to Ge SK, balances in Group 3 comprise especially liabilities from reinsurance to CP RE in

the amount of CZK 2,542,936 thousand.vi. The balances with companies in Group 3 comprise technical provisions from insurance to Home Credit Group companies.vii. The balances with companies in Group 2 comprise loan from CZI Holdings N.V. in the amount of CZK 1,300,000 thousand.viii. The balances with companies in Group 1 comprise especially liabilities in the amount of CZK 1,000,000 thousand on Penzijní fond ČP as a contribution to the other

capital funds.


In CZK thousand, for the year ended 31 December 2009 Notes Group 1 Group 2 Group 3

Income

Income from insurance and reinsurance business i 3,283 (10,314,065) 2,250,805

Income from financial activities 782,897 428,243 244,121

Other income 24,486 – 345,065

Total income 810,666 (9,885,822) 2,839,991

Expenses

Expenses from insurance and reinsurance business ii (5,622) 7,625,129 (2,067,876)

Expenses from financial activities (55) (515,367) (39,204)

Other expenses iii (81,646) (176,102) (1,182,068)

Total expenses (87,323) 6,933,660 (3,289,148)

Notes:i. The balances in Group 2 include ceded earned premium with GP RE in the amount of CZK 10,424,532 thousand. Group 3 includes earned premium from Home Credit

Group companies in the amount of CZK 2,246,735 thousand.ii. The balances in Group 2 include transactions from reinsurance with GP RE in the amount of CZK 7,716,591 thousand (reinsurance commission and claims paid). The

balances in Group 3 include expenses of the bonus of Home Credit a.s. (share in profit) in the amount of CZK 1,784,349 thousand. iii. The balances in Group 3 include losses in foreign currency in the amount of CZK 601,228 thousand from bank deposits with PPF Banka a.s.

In CZK thousand, for the year ended 31 December 2008 Notes Group 1 Group 2 Group 3

Income

Income from insurance and reinsurance business i (8,364,460) 52,253 456,180

Income from financial activities ii 6,967,147 4,208 154,555

Other income 52,022 568 7,006

Total income (1,345,291) 57,029 617,741

Expenses

Expenses from insurance and reinsurance business iii 5,721,367 7,840 (637,821)

Expenses from financial activities (10,666) (95,197) (14,992)

Other expenses (128,493) (34,294) (92,408)

Total expenses 5,582,208 (121,651) (745,221)

Notes:i. The balances in Group 1 include ceded earned premium with CP RE in the amount of CZK 8,366,984 thousand (transactions up to the selling date). Group 3 includes

earned premium from Home Credit Group companies in the amount of CZK 1,249,651 thousand and ceded earned premium with CP RE in the amount of CZK 794,366 thousand (transactions after the selling date).

ii. The balances in Group 1 with subsidiaries include especially realised gains from the sale of the total ownership in CP RE in the amount of CZK 6,384,904 thousand.iii. The balances in Group 1 include transactions from reinsurance with CP RE in the amount of CZK 5,721,893 thousand (reinsurance commission and claims paid).


G. Subsequent Events

The Company has identified no significant events that have occurred since the end of the reporting period up to 12 March 2010.



PricewaterhouseCoopers Audit, s.r.o.Kateřinská 40/466 120 00 Praha 2 Česká republikaTelefon +420 251 151 111 Fax +420 251 156 111

PricewaterhouseCoopers Audit, s.r.o.Kateřinská 40/466 120 00 Prague 2Czech RepublicTelephone +420 251 151 111Facsimile +420 251 156 111

To the Shareholder of Česká pojišťovna a.s.

We have audited the accompanying consolidated financial statements of Česká pojišťovna a.s., identification number 45272956, with registered office at Spálená 75/16, Praha 1, PSČ 113 04 (“the Company”) and its subsidiaries (together “the Group”), which comprise the consolidated statement of financial position as at 31 December 2009, the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended and notes, including a summary of significant accounting policies (“the consolidated financial statements”).

Board of Directors‘ Responsibility for the Consolidated Financial Statements

The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.


Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with the Act on Auditors of the Czech Republic, International Standards on Auditing and the related application guidance of the Chamber of Auditors of the Czech Republic. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Group‘s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group‘s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.


PricewaterhouseCoopers Audit, s.r.o., registered seat Kateřinská 40/466, 120 00 Prague 2, Czech Republic, Identification Number: 40765521, registered with the Commercial Register kept by the Municipal Court in Prague, Section C, Insert 3637, and in the Register of Audit Companies with the Chamber of Auditors of the Czech Republic under Licence No 021.

© 2010 PricewaterhouseCoopers Audit, s.r.o. All rights reserved. „PricewaterhouseCoopers“ refers to the Czech firm of PricewaterhouseCoopers Audit, s.r.o. or, as the context requires, the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December 2009, its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union.

19 April 2010

PricewaterhouseCoopers Audit, s.r.o. represented by

Marek Richter Martin MančíkPartner Statutory Auditor, Licence No. 1964


The Consolidated Financial StatementsFor the year ended 31 December 2009

Content

Consolidated Statement of Financial Position 158Consolidated Income Statement 159Consolidated Statement of Comprehensive Income 160Earnings per share for profit attributable to the equity holders of the Group during the year (expressed in CZK per share) 160Consolidated Statement of Changes in Equity 161Consolidated Statement of Cash Flows (indirect method) 162A. General information 164A.1 Description of the Group 164A.2 Statutory bodies 164A.3 Statement of compliance 165A.4 Basis of preparation 165B. General criteria for drawing up the consolidated financial statements 165B.1 Group entities 165B.2 Consolidation methods and accounting for associates 170C. Significant accounting policies and assumptions 171C.1 Significant accounting policies 171C.2 Principal assumptions 186C.3 Terms and conditions of insurance and investment contracts with DPF that have a material impact

on the amount, timing and uncertainty of future cash flows 190C.4 Critical accounting estimates and judgements 192C.5 Changes in accounting policies 193D. Segment reporting 198E. Risk report 204E.1 Risk Management System 204E.2 Roles and responsibility 205E.3 Risk measurement and control 205E.4 Market risk 205E.5 Credit risk 211E.6 Liquidity risk 213E.7 Insurance risks 214E.8 Operating risk and other risks 219E.9 Risk monitoring by third parties 220E.10 Capital management 220F. Notes to the consolidated statement of financial position and income statement 221F.1 Intangible assets 221F.2 Tangible assets 223F.3 Reinsurance assets 223F.4 Investments 224F.5 Receivables 227F.6 Other assets 228F.7 Cash and cash equivalents 230F.8 Shareholder’s equity 230F.9 Other provisions 231


F.10 Insurance provisions 232F.11 Financial liabilities 234F.12 Payables 235F.13 Other liabilities 235F.14 Net earned premiums 235F.15 Fee and commission income and income from financial services activities 236F.16 Net income from financial assets at fair value through profit or loss 236F.17 Income and expenses from subsidiaries and associates 236F.18 Income from other financial instruments and investment properties 236F.19 Other income 237F.20 Net insurance benefits and claims 237F.21 Fee and commission expenses and expenses from financial services activities 237F.22 Expenses from other financial instruments and investment properties 238F.23 Acquisition and administration costs 238F.24 Other expenses 238F.25 Income taxes 238F.26 Information on employees 239F.27 Hedge accounting 240F.28 Earnings per share 241F.29 Off balance sheet items 241F.30 Related parties 242F.31 Audit fees 245G. Subsequent events 245Report on Relations Among Related Parties 246


Consolidated Statement of Financial Position Amounts for the year ended 31 December

(CZK million) Note 2009 2008

Total assets F 180,161.7 174,550.2

1 Intangible assets F.1 2,834.6 2,817.6

1.1 Goodwill F.1.1 1,323.0 1,374.0

1.2 Other intangible assets F.1.2 1,511.6 1,443.6

2 Tangible Assets F.2 448.8 499.7

2.1 Land and buildings (self used) F.2.1 115.3 107.2

2.2 Other tangible assets F.2 333.5 392.5

3 Reinsurance assets F.3 9,264.6 8,567.1

4 Investments F.4 153,120.3 143,702.0

4.1 Investment properties F.4.1 85.1 83.9

4.2 Investments in subsidiaries and associated companies F.4.2 8.6 1,458.4

4.3 Held to maturity investments F.4.3 87.5 158.7

4.4 Loans and receivables F.4.4 21,651.1 17,450.8

4.5 Available for sale financial assets F.4.5 95,211.1 70,076.4

4.6 Financial assets at fair value through profit or loss F.4.6 36,076.9 54,473.8

of which financial assets relating to unit-linked policies F.4.6 3,450.1 1,810.3

5 Receivables F.5 8,866.4 13,833.7

5.1 Receivables arising out of direct insurance operations F.5 3,706.9 6,010.2

5.2 Receivables arising out of reinsurance operations F.5 3,008.2 1,908.6

5.3 Other receivables F.5 2,151.3 5,914.9

6 Other assets F.6 5,087.3 3,794.5

6.1 Non-current assets or disposal groups classified as held for sale F.6.1 3,877.8 276.4

6.2 Deferred acquisition costs F.6.2 790.9 1,968.8

6.3 Deferred tax assets F.6 112.0 111.0

6.4 Tax receivables F.6 68.2 1,129.5

6.5 Other assets F.6 238.4 308.8

7 Cash and cash equivalents F.7 539.7 1,335.6

Total shareholders‘ equity and liabilities F.8 180,161.7 174,550.2

1 Shareholders‘ equity F.8 23,139.6 17,604.2

1.1 Shareholders equity attributable to the Group F.8 23,119.6 17,592.7

1.1.1 Share capital F.8.1 4,000.0 4,000.0

1.1.2 Capital and revenue reserves F.8 19,119.6 13,592.7

1.2 Shareholders equity attributable to minority interests F.8 20.0 11.5

2 Other provisions F.9 2,056.0 2,339.1

3 Insurance provisions F.10 89,449.4 95,225.5

4 Financial liabilities F.11 51,218.9 49,032.7

4.1 Financial liabilities through profit or loss F.11 1,460.6 1,878.8

4.2 Other financial liabilities F.11 49,758.3 47,153.9

5 Payables F.12 8,402.0 8,168.2

5.1 Payables arising out of direct insurance operations F.12 2,130.3 2,694.2

5.2 Payables arising out of reinsurance operations F.12 4,934.4 3,715.6

5.3 Other payables F.12 1,337.3 1,758.4

6 Other liabilities F.13 5,895.7 2,180.5

6.1 Liabilities directly associated with non-current assets and disposal groups classified as held for sale F.6.1 2,190.0 0.0

6.2 Deferred tax liabilities F.13 77.0 135.9

6.3 Tax payables F.13 1,638.1 123.9

6.4 Other liabilities F.13 1,990.6 1,920.7


Consolidated Income Statementfor the year ended 31 December


1 Total income 39,113.2 42,667.5

1.1 Net earned premiums F.14 27,800.9 41,137.9

1.1.1 Gross earned premiums F.14 39,099.8 44,030.8

1.1.2 Earned premiums ceded F.14 (11,298.9) (2,892.9)

1.2 Fee and commission income and income from financial service activities F.15 99.1 136.4

1.3 Net income from financial instruments at fair value through profit or loss F.16 4,381.2 (6,758.5)

of which net income from financial investments relating to unit-linked policies F.16 71.0 (468.4)

1.4 Income from subsidiaries and associated companies F.17 166.7 1,288.5

of which Share of the profit or loss of associates accounted for using the equity method F.17 117.9 (134.5)

1.5 Income from other financial instruments and investment properties F.18 6,132.8 4,561.9

1.5.1 Interest income F.18 3,907.2 3,067.9

1.5.2 Other income F.18 131.8 112.5

1.5.3 Realized gains F.18 2,093.8 1,381.5

1.6 Other income F.19 532.6 2,301.3

2 Total Expenses (29,690.3) (41,824.2)

2.1 Net insurance benefits and claims F.20 (18,809.8) (25,880.0)

2.1.1 Claims paid and change in insurance provisions F.20 (24,273.1) (27,526.8)

2.1.2 Reinsurers‘ share F.20 5,463.3 1,646.8

2.2 Fee and commission expenses and expenses from financial service activities F.21 (512.9) (620.4)

2.3 Expenses from subsidiaries and associated companies F.17 (647.5) (370.6)

2.4 Expenses from other financial instruments and investment properties F.22 (1,546.6) (3,469.9)

2.4.1 Interest expense F.22 (578.0) (154.8)

2.4.2 Other expense F.22 (9.0) (18.3)

2.4.3 Realized losses F.22 (362.0) (801.4)

2.4.4 Unrealized losses and impairment losses F.22 (597.6) (2,495.4)

2.5 Acquisition and administration costs F.23 (6,836.9) (9,841.8)

2.5.1 Commissions and other acquisition costs F.23 (3,479.2) (6,198.3)

2.5.2 Investment management expenses F.23 (268.6) (336.7)

2.5.3 Other administration costs F.23 (3,089.1) (3,306.8)

2.6 Other expenses F.24 (1,336.5) (1,641.5)

Change in net assets attributable to unitholders (149.6) 342.9

EARNINGS BEFORE TAXES 9,273.3 1,186.2

Income taxes F.25 (1,384.3) (391.4)

Profit from discontinued operations after tax F.6.1 941.4 840.1

EARNINGS AFTER TAXES 8,830.4 1,634.9

Result of the period attributable to the Group 8,826.5 1,637.0

Result of the period attributable to minority interests 3.9 (2.1)


Consolidated Statement of Comprehensive IncomeFor the year ended 31 December


Net profit of the year F.8, F.25 8,830.4 1,634.9

Other comprehensive income F.8

Land and buildings revaluation loss in equity - gross F.8 0.0 (10.8)

Land and buildings revaluation gain on derecognition transferred to retained earnings 0.0 12.4

Available-for-sale financial assets revaluation in equity F.8 5,123.7 (2,048.6)

Available-for-sale financial asset revaluation realised in income statement F.18, F.22 (1,725.9) (564.0)

Available-for-sale impairment losses F.18, F.22 152.0 1,887.1

Available-for-sale Share of other comprehensive income/(loss) of associates F.8 60.7 47.7

Currency translation differences F.8 (105.7) (108.9)

Changes in group structure B.1 (296.8) 34.2

Total gains and losses recognised directly in equity 3,208.2 (750.9)

Tax on items taken directly to or transferred into equity F.8 (630.0) 112.1

Other comprehensive income after tax 2,578.2 (638.8)

Total comprehensive income 11,408.6 996.1

Attributable to:

– owners of the Parent 11,400.1 984.6

– minority interests 8.5 11.5

(CZK thousand) 2009 2008

– From continuing operations (basic, diluted) 197 20

– From discontinued operations (basic, diluted) 24 21

Total 221 41

Earnings per share for profit attributable to the equity holders of the Group during the year (expressed in CZK per share)


Consolidated Statement of Changes in EquityFor the year ended 31 December

Note Share Revalua- Revalua- Statutory Trans- Catast- Other Attribut- Attribut- Total capital tion tion reserve lation rophe retained able to able to – financial Land and fund reserve and earnings equity Minority assets buildings equalisa- holders interests AFS tion of Parent (CZK million) reserves Company

Balance as at 1 January 2008 4,000.0 (736.8) 12.2 1,051.0 50.1 2,755.6 13,976.0 21,108.1 0.0 21,108.1

Dividends to shareholders F.8.1 0.0 0.0 0.0 0.0 0.0 0.0 (4,500.0) (4,500.0) 0,0 (4,500.0)

Total comprehensive income 0,0 (580.1) (8.5) 0,0 (108.9) 0,0 1,682.1 984.6 11.5 996.1

of which restatements(1) 0.0 0.0 0.0 0.0 0.0 0.0 69.1 69.1 0.0 69.1

Changes in catastrophe and equalisation reserve 0.0 0.0 0.0 0.0 0.0 245.3 (245.3) 0.0 0.0 0.0

Balance as at 31 December 2008 4,000.0 (1,316.9) 3.7 1,051.0 (58.8) 3,000.9 10,912.8 17,592.7 11.5 17,604.2

Dividends to shareholders F.8.1 0.0 0.0 0.0 0.0 0.0 0.0 (5,873.2) (5,873.2) 0.0 (5,873.2)

Total comprehensive income 0.0 2,869.8 0.0 0.0 (231.8) 0.0 8,762.1 11,400.1 8.5 11,408.6

Changes in catastrophe and equalisation reserve 0.0 0.0 0.0 0.0 0.0 (1,705.0) 1,705.0 0.0 0.0 0.0

Balance as at 31 December 2009 4,000.0 1,552.9 3.7 1,051.0 (290.6) 1,295.9 15,506.7 23,119.6 20.0 23,139.6

(1) Restatements comprises completion of purchase price allocation process on subsidiary (see note B.1)


Consolidated Statement of Cash Flows (indirect method)For the year ended 31 December

(CZK million) 2009 2008

Earnings before taxes 9,273.3 1,186.2

Profit from discontinued operations before tax 1,221.0 1,126.5

Earnings before taxes including profit from discontinued operations 10,494.3 2,312.6

Adjustments for changes in non-cash items:

Depreciation and amortisation 671.1 934.2

Amortisation of PVFP and impairment losses on goodwill and PVFP 10.8 16.0

Impairment and reversal of impairment of current and non-current assets 632.9 2,764.7

Profit/Loss on disposal of PPE, intangible assets and investment property (19.4) (173.5)

Profit/Loss on sale and revaluation of Financial Assets (4,710.3) 8,723.1

Gains/losses on disposal of consolidated subsidiaries and associates 638.6 (1,052.4)

Dividends received (38.5) 0.0

Interest expense 587.6 462.7

Interest income (4,018.1) (6,018.9)

Income/expenses not involving movements of cash (376.0) 732.6

Purchase of financial assets at FVPL held for trading (863.9) (13,131.2)

Proceeds from financial assets at FVPL held for trading 6,665.1 6,377.3

Change in loans and advances to banks (5,310.8) 9,647.3

Change in loans and advances to customers 0.0 18.5

Change in receivables 2,394.1 (7,147.2)

Change in reinsurance assets (702.5) (7,247.1)

Change in other assets, prepayments and accrued income 488.5 (601.4)

Change in payables 437.0 2,508.1

Change in financial liabilities for investment contract with DPF 4,493.4 5,858.3

Change in financial liabilities at FVPL held for trading (415.2) 1,334.7

Change in liabilities to banks (2,039.4) 2,421.7

Change in insurance liabilities (3,838.7) (503.0)

Change in other liabilities, accruals and deferred income 185.7 (82.1)

Change in other provisions (263.2) (371.3)

Cash flows arising from taxes on income 611.3 (586.3)

Net cash flow from operating activities 5,714.4 7,197.4

Cash flow from investing activities

Interest received 10,038.6 7,469.6

Dividends received 38.5 0.0

Purchase of tangible assets and intangible assets (820.4) (959.9)

Purchase of financial assets at FVPL not held for trading (8,174.5) (13,711.5)

Purchase of financial assets available for sale (63,604.0) (91,633.8)

Acquisition of subsidiaries and associates 0.0 (1,076.8)

Provided loans (1,500.0) (100.0)

Proceeds from disposals of tangible and intangible assets 9.0 89.4

Proceeds from financial assets at FVPL not held for trading 21,644.0 16,428.3

Proceeds from financial assets available for sale 40,391.9 76,617.7

Proceeds from sale of investment property 286.4 88.7

Proceeds from disposal of subsidiaries and associates and other proceeds

from subsidiaries and associates, net of cash disposed 2,665.2 3,960.4

Paid loans 0.0 100.0

Other investing activities 0.0 3.4

Net cash flow from investing activities 974.7 (2,724.4)



Cash flow from financing activities

Drawing of loans 2,000.0 1,297.2

Repayment of loans (3,300.0) (2,950.0)

Interest paid (55.4) (75.3)

Dividends paid to shareholders (5,873.2) (4,500.0)

Net cash flow from financing activities (7,228.6) (6,228.1)

Net increase (decrease) in cash and cash equivalents (539.5) (1,755.1)

Cash and cash equivalents as at 1 January 1,335.6 3,165.0

Effect of exchange rate changes on cash and cash equivalents 1.7 (74.3)

Cash and cash equivalents as at 31 December (F.7) 797.8 1,335.6

Consolidated Statement of Cash Flows (indirect method)For the year ended 31 December


A. General information

A.1 Description of the Group

Česká pojišťovna a.s. (”Česká pojišťovna” or “ČP” or “the Parent Company” or “the Company“) is a composite insurer offering a wide range of life and non-life insurance products and is domiciled in the Czech Republic. The Company was incorporated on 1 May 1992, as a joint stock company and is the successor to the former state-owned insurance company Česká státní pojišťovna.

The consolidated financial statements of the Parent Company for the year ended 31 December 2009 comprise the Parent Company and its subsidiaries (together referred to as “the Group”).

See Section B of these financial statements for a listing of significant Group entities and changes to the Group in 2008 and 2009.

Structure of ShareholdersCZI Holdings N.V., domiciled in the Netherlands, is the sole shareholder of the Company in 2009. From 2008, CZI Holdings is an integral part of Generali PPF Holding B.V. (GPH), a Joint Venture of Assicurazioni Generali S.p.A. (“Generali”) and PPF Group N.V. PPF Group N.V. was the ultimate parent of the Company until 17 January 2008.

Assicurazioni Generali S.p.A. is the Company’s ultimate parent company. Generali financial statements are publicly available on www.generali.com

Registered Office of Česká pojišťovna:Spálená 75/16113 04 Prague 1Czech Republic

ID number: 45 27 29 56

The Directors authorised the financial statements for issue on 19 April 2010.

A.2 Statutory bodies

The Board of Directors as at the end of the reporting period:Chairman: Ladislav Bartoníček, Prague

Vice Chairman: Marcel Dostal, Prague

Members: Štefan Tillinger, Prague Ivan Vodička, Prague

During the year there were no changes to the structure of the Board of Directors.

At least two members of the Board of Directors, of whom one must be the Chairman or the Vice-Chairman, must act together in the name of the Company in relation to third parties, courts and other bodies. When signing on behalf of the Company, the signatures and positions of at least two members of the Board of Directors, one of which must be the Chairman or the Vice-Chairman, must be appended to the designated business name of the Company.

Notes to the Consolidated Financial Statements


The Supervisory Board as at the end of the reporting period:Chairman: Milan Maděryč, Zlín

Members: Marek Orawski, Havířov Lorenzo Kravina, Trieste

There were no changes to the Supervisory Board during 2009.

A.3 Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

The management has reviewed those standards and interpretations adopted by the EU as at the date of issue of the financial statements but which were not effective as at that date. An assessment of the expected impact of these standards and interpretations on the Group is shown in Note C.

A.4 Basis of preparation

Local accounting legislation requires that the Group prepare these consolidated financial statements in accordance with IFRS (as adopted by EU – see Note A.3). The Parent Company also prepares separate financial statements for the same period in accordance with IFRS.

The financial statements are presented in Czech koruna (“CZK”) which is the Group’s functional currency.

The financial statements have been prepared on the historical cost basis except for the following assets and liabilities which are stated at their fair value: derivative financial instruments, financial instruments at fair value through profit or loss, financial instruments classified as available-for-sale and investment properties.

Non-current assets and disposal groups held for sale are stated at the lower of carrying amount and fair value less costs to sell.

The preparation of the financial statements in accordance with IFRS requires that management make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about the carrying values of assets and liabilities that cannot readily be determined from other sources. The actual values may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision only affects that period or in both the period of the revision and future periods if the revision affects both the current and future periods.

B. General criteria for drawing up the consolidated financial statements

B.1 Group entities

The consolidated financial statements are made up of data of the Parent Company and of its directly or indirectly controlled subsidiaries. Based on the IAS 27 definition of control, both companies operating in sectors dissimilar to that of the Parent Company and the special purpose entities satisfying the requisites of effective control are included in the consolidation.

The Group consolidates all significant subsidiaries and recognizes using equity method all significant associated companies. Insignificant subsidiaries and associated companies are summarised in table F.4.2. Changes in the Group structure as compared to the previous year are presented below.


For the year ended 31 December 2009

Country Proportion ProportionCompany of ownership interest of voting rights

Generali Foreign Insurance Company Inc. (Foreign Insurance Company Inc.) Belarus 67.5 67.5

4. Zajištěný otevřený podílový fond ČPI Czech Republic 81.7 81.7

5. Zajištěný otevřený podílový fond ČPI* Czech Republic 89.1 89.1

6. Zajištěný otevřený podílový fond ČPI* Czech Republic 91.7 91.7

Česká pojišťovna ZDRAVÍ a.s. Czech Republic 100.0 100.0

ČP DIRECT, a.s. Czech Republic 100.0 100.0

ČP INVEST investiční společnost, a.s. Czech Republic 100.0 100.0

II. Zajištěný otevřený podílový fond ČPI Czech Republic 84.4 84.4

III. Zajištěný otevřený podílový fond ČPI Czech Republic 92.1 92.1

Komoditní zajištěný otevřený podílový fond ČPI Czech Republic 83.5 83.5

Nadace České pojišťovny Czech Republic 100.0 100.0

Nadační fond Karlův most Czech Republic 100.0 100.0

Pankrác Services s.r.o. Czech Republic 100.0 100.0

Penzijní fond České pojišťovny, a.s. Czech Republic 100.0 100.0

PFO ČPI - 1. Zajištěný OPF Czech Republic 77.5 77.5

PFO ČPI - Fond nemovitostních akcií Czech Republic 74.8 74.8

PFO ČPI - Fond živé planety Czech Republic 50.9 50.9

PFO ČPI Fond globálních značek Czech Republic 79.4 79.4

První Callin agentura a.s. Czech Republic 100.0 100.0

REFICOR s.r.o. Czech Republic 100.0 100.0

Univerzální správa majetku a.s. Czech Republic 100.0 100.0

JSC “Generali Life” (CP Kazakhstan AO) Kazakhstan 100.0 100.0

Generali SAF de Pensii Private S.A. (Generali Fond de Pensii S.A.) Romania 99.9 99.9

Finanční servis o.o.o. Russia 100.0 100.0

Generali PPF Life Insurance LLC (Česká pojišťovna, a.s., v Ruské federaci) Russia 100.0 100.0

* investment funds launched during 2009



Country Proportion ProportionCompany of ownership interest of voting rights

Foreign Insurance Company Inc. Belarus 67.5 67.5

4. Zajištěný otevřený podílový fond ČPI** Czech Republic 82.3 82.3

Česká pojišťovna ZDRAVÍ a.s. Czech Republic 100.0 100.0

ČP DIRECT, a.s. Czech Republic 100.0 100.0

ČP INVEST investiční společnost, a.s. Czech Republic 100.0 100.0

II. Zajištěný otevřený podílový fond ČPI * Czech Republic 82.2 82.2

III. Zajištěný otevřený podílový fond ČPI** Czech Republic 91.9 91.9

Komoditní zajištěný otevřený podílový fond ČPI ** Czech Republic 83.5 83.5

Nadační fond Karlův most Czech Republic 100.0 100.0

Pankrác Services s.r.o. Czech Republic 100.0 100.0

Penzijní fond České pojišťovny, a.s. Czech Republic 100.0 100.0

PFO ČPI - 1. Zajištěný OPF* Czech Republic 77.1 77.1

PFO ČPI - Fond nemovitostních akcií * Czech Republic 72.3 72.3

PFO ČPI - Fond živé planety* Czech Republic 57.1 57.1

PFO ČPI Fond globálních značek Czech Republic 76.7 76.7

PFO ČPI Fond nové ekonomiky* Czech Republic 52.9 52.9

První Callin agentura a.s. Czech Republic 100.0 100.0

REFICOR s.r.o. Czech Republic 100.0 100.0

Univerzální správa majetku a.s. Czech Republic 100.0 100.0

CP Kazakhstan AO Kazakhstan 100.0 100.0

CP Strategic Investments B.V. Netherlands 100.0 100.0

Generali Fond de Pensii S.A. Romania 99.9 99.9

Česká pojišťovna, a.s., v Ruské federaci Russia 100.0 100.0

Finanční servis o.o.o. Russia 100.0 100.0

Generali Slovensko poisťovňa, a.s. *** Slovakia 43.4 43.4

Česká pojišťovna Ukraine Life Insurance Ukraine 100.0 100.0

* included in the consolidation during 2008** investment fund launched during 2008*** associated company

The tables below present the list of investment funds which are considered associates and are reported within financial investments at fair value through profit or loss.


Company Country

7. Zajištěný otevřený podílový fond ČPI Czech Republic

Fond farmacie a biotechnologií Czech Republic

Fond korporátních dluhopisů Czech Republic

Fond nových ekonomik Czech Republic

Fond peněžního trhu Czech Republic

Fond ropy a energetiky Czech Republic

Fond smíšený Czech Republic

Fond zlatý Czech Republic


Company Country

Fond farmacie a biotechnologií Czech Republic

Fond korporátních dluhopisů Czech Republic

Fond peněžního trhu Czech Republic

Fond ropy a energetiky Czech Republic

Fond smíšený Czech Republic

Fond zlatý Czech Republic


Detailed information about significant transactions with subsidiaries of the Group is provided below.

1) Sale of interest in CP Strategic Investments B.V.

On 29 December 2009 the Group sold its 100% interest in CP Strategic Investments B.V. to CZI Holdings B.V., a sole shareholder of the Parent Company. A total of 251 790 shares were sold for EUR 31.8 million (CZK 840.1 million). The price was set by an independent professional appraisal prepared by an expert appointed by the courts. The book value of assets disposed amounted to CZK 841.8 million, of which cash and cash equivalents were CZK 24.8 million. As there was no goodwill recognised at the time of the first consolidation, no goodwill has been derecognised on the sale of the subsidiary. Net loss from disposal included in the consolidated income statement in 2009 is CZK 1.7 million that related to accumulated profits of the disposed subsidiary. The transaction is a result of the GPH group reorganisation. Prior to the sale, on 25 August 2009, share premium of CPSI was reduced by CZK 170.2 million.

2) Sale of interest in Generali PPF Life Insurance LLC

In accordance with a decision of the sole shareholder from 30 March 2009, the company was renamed Limited Liability Company “Generali PPF Life Insurance“. The new name of the company was registered on 14 April 2009.

At its meeting on 13 November 2009, the Board of the Group approved the intention to sell the interest in Generali PPF Life Insurance LLC to the sole shareholder CZI Holdings N.V. On 26 November 2009 a Letter of Intent for the sale and purchase of ownership in the company Generali PPF Life Insurance LLC was signed to obtain the authorisation of the Russian authorities. Consent to the sale was granted on 28 December 2009. The sale transaction should be finalised in the first half of 2010, the purchase price will be determined on the basis of an independent professional appraisal. The transaction is a result of GPH group reorganisation. The assets and related liabilities of Generali PPF Life Insurance LLC as at 31 December 2009 are classified as held-for-sale (see F.6.1).

3) Sale of interest in Generali Poisťovňa Slovensko a.s.

On 10 July 2009, the General meeting of Generali Poisťovňa Slovensko a.s. approved the transfer of shares owned by CP Strategic Investments B.V. to Generali PPF Holding B.V. and the intention of the shareholders to make the transfer has been dully notified to the Slovak National Bank.

On 30 October 2009, CP Strategic Investments transferred 32 533 registered ordinary shares of Generali Poisťovňa Slovensko a.s. to its majority shareholder Generali PPF Holding B.V.

The purchase price for the shares was set to be equal to the Net Asset Value of Generali Poisťovňa Slovensko a.s. as at 31 December 2008, amounting to EUR 30.9 million (CZK 817.0 million). The book value of the investment of CP Strategic Investments B.V. in Generali Poisťovňa Slovensko, a.s., as at the date of sale was CZK 1,678.1 million. Net loss from disposal included in the consolidated income statement in 2009 was CZK 645.7 million.

4) Sale of interest in Closed Joint Stock Company “Česká pojišťovna Ukraine Life Insurance”

On 13 May 2009, the Group transferred 20 046 shares of Česká pojišťovna Ukraine Life Insurance to CZI Holdings N.V. The purchase price was EUR 3.3 million (CZK 87.8 million). The book value of assets disposed amounted to CZK 92.0 million of which cash and cash equivalents were CZK 1.9 million. The book value of disposed liabilities was CZK 13.1 million. The transaction is a result of the reorganisation GPH group. Net gain from disposal included in the consolidated income statement in 2009 amounts to CZK 8.9 million.

5) Generali Fond de Pensii S.A. finalisation of purchase price allocation process

In 2008 the Group has accounted on a provisional basis for the above mentioned entity and respective intangible assets have been recognised. The consolidated income statement has been charged by proportional amortisation of those assets.

During 2009 the process of purchase price allocation has been finalised and as a result, no intangible asset representing present value of future profits could have been recognized and therefore it is now recognized as goodwill. The amounts of recognised intangible assets and goodwill have been adjusted appropriately.


The table below shows the final valuation of acquired assets:

(CZK million) Provisional accounting 2008 Finalised PPA in 2009

Assets 1,120.1 1,082.3

Goodwill 0.0 774.1

Intangible assets 820.1 8.1

Investments 289.3 289.3

Receivables 5.7 5.7

Cash and cash equivalents 0.2 0.2

Other assets 4.8 4.9

Liabilities 42.1 4.3

Financial liabilities 1.7 1.7

Payables 2.6 2.6

Deferred tax liabilities 37.8 0.0

Net assets acquired 1,078.0 1,078.0

(Minority interests) (1.1) (1.1)

Acquisition price 1,079.1 1,079.1

Goodwill in amount of CZK 774.1 million has been recognised as at the date of acquisition and the corresponding fair value of intangible assets has been decreased by CZK 812.0 million. The recognised goodwill represents expected future income from growth of the Romanian private pensions market.

The comparative figures in the consolidated financial statements for 2008 have been restated and the amortisation charged in 2008 for intangible assets has been reversed. The total impact of restatement on profit in 2008 is CZK 69.1 million.

The entity was renamed as at 7 January 2009. The new name of the pension fund is Generali Societate de Administrare a Fondurilor de Pensii Private S.A.

6) Generali Foreign Insurance Company Inc – increase in share capital

In accordance with a decision of the Group’s board of directors on 23 March 2009, the share capital of Generali Foreign Insurance Company has been increased by EUR 350 thousand (CZK 9.4 million). This increase in the share capital was registered in the commercial register on 22 October 2009.

7) Decrease in capital in Pankrác services s.r.o.

In 2008, the Parent Company founded Pankrác Services s.r.o. in order to finance the construction of a new office building. The real estate property under construction was contributed to the share capital. In 2008 the Parent Company also made a contribution outside the registered capital in the amount of CZK 500.0 million. Pankrác Services s.r.o. subsequently sold the finished office building and, in January 2009, paid the monetary contribution back to the Parent Company.

8) Change of the name of CP Kazakhstan to JSC “GENERALI LIFE”

The entity was renamed on 30 March 2009. The new name of the company formerly known as CP Kazakhstan was registered on 1 July 2009. The new name of the company is Joint Stock Company “GENERALI LIFE“ - Life Insurance Company, a subsidiary of “Assicurazioni Generali S.p.A.“.

9) Establishment of Nadace České pojišťovny

On 21 December 2009, the Group established a new foundation Nadace České pojišťovny. The foundation has capital of CZK 500 thousand and has been founded to support education, health care, culture, humanitarian, environmental and other activities to help with the general development.

10) Establishment of new investment funds

The Group’s subsidiary ČP Invest has launched two investment funds during 2009, which became part of the consolidation group due to the fact that the majority of the funds’ assets is contributed by the Parent Company: 5. Zajištěný fond and 6. Zajištěný fond.


11) Consolidation of ČP Invest investment funds

The Group uses its investment funds managed by its subsidiary ČP Invest to invest assets that back the unit-linked business as well as for own direct investments. Funds are opened for external investors, too. During 2009, the participation by Group investments in one of the funds, PFO CPI Fond nové ekonomiky, decreased below 50%. Therefore, the fund has been deconsolidated and reported as a financial investment within the fair value through profit or loss category.

B.2 Consolidation methods and accounting for associates

Investments in subsidiaries are consolidated line by line, whereas investments in associated companies are accounted for using the equity method.

Reorganisations and mergers involving companies under common control are accounted for using consolidated net book values, consequently no adjustment is made to carrying amounts in the consolidated accounts and no goodwill arises on such transactions.

Translation from functional to presentation currencyThe items in the statement of financial position denominated in foreign currencies were translated into Czech koruna (CZK) based on the exchange rates as at the end of the year.

The profit and loss account items were instead translated based on the average exchange rates of the year. They reasonably approximate the exchange rates as at the dates of the transactions.

The exchange rate differences arising from the translation were accounted for in other comprehensive income in an appropriate reserve and recognised in the income statement only at the time of the disposal of the investments.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as the foreign entity’s assets and liabilities and are translated at the closing rate.

The exchange rates used for the translation of the main foreign currencies of the Group into Czech koruna (“CZK”) are the ones published by the Czech National Bank.

B.2.1 Consolidation procedures

The subsidiaries as well as the special purpose entities where the requisites of effective control are applicable are consolidated.

Control is presumed to exist when the Group owns, directly or indirectly through subsidiaries, more than half of the voting rights of an entity or, in any event, when it has the power to govern the financial and operating policies of an investee. In the assessment of the control, potential voting rights are also considered.

The consolidation of a subsidiary ceases commencing from the date when the Parent Company loses control.

In preparing the consolidated financial statements:

– the financial statements of the Group and its subsidiaries are consolidated. The financial year-end date of each subsidiary is identical with the one of the Group, 31 December of each financial year;

– the carrying amount of the Group’s investment in each subsidiary and the Group’s portion of equity of each subsidiary are eliminated as at the date of acquisition;

– minority shareholder’s interests are shown as separate items; and

– intra-group balances are eliminated in full.

Consolidated subsidiaries are acquired using the purchase method. The acquisition cost is the fair value, as at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the acquirer, in exchange for control of the acquiree and includes any costs directly attributable to the transaction. The excess of the acquisition cost over the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities is accounted for as goodwill. Should the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities exceed the cost of the business combination, the excess is immediately recognised in the income statement.


Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary.

B.2.2 Using the equity method

IAS 28 defines an associate as an entity over which the investor has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. If an investor holds, directly or indirectly through subsidiaries, 20% or more of the voting rights of the investee, it is presumed that the investor has significant influence.

Under the equity method, the investment in an associate is initially recognised at cost (including goodwill) and the carrying amount is increased or reduced to recognise the change in the investor’s share of the equity of the investee after the date of acquisition. The investor’s share of the profit or loss of the investee, net of dividends, is recognised in its profit and loss account.

B.2.3 Consolidation of investment funds

The Group manages open-ended investment funds through the management company ČP Invest. The Group invests the assets related to unit-linked products in these investment funds as well as its own direct investments.

When calculating the Group‘s participation in individual investment funds, all the Group’s investments are taken into account, including assets related to unit-linked products. For consolidation purposes, control is presumed to exist when the Group‘s participation is above 50%. Controlled open-ended investment funds are fully consolidated. The minority interests are reported within financial liabilities. The Funds where the Group‘s control is not presumed, because the participation is below 50%, are considered associates and are reported within the financial investments at fair value through profit or loss.

C. Significant accounting policies and assumptions

C.1 Significant accounting policies

The accounting standards adopted in preparing the consolidated financial statements, and the contents of the items in the financial statements are presented in this section.

C.1.1 Intangible assets

In accordance with IAS 38, an intangible asset is recognised if, and only if, it is identifiable and controllable, it is probable that the expected future economic benefits attributable to the asset will flow to the Group and the cost of the asset can be measured reliably.

This category includes goodwill and other intangible assets, such as software and purchased insurance portfolio.

C.1.1.1 GoodwillGoodwill is the excess of the cost of the business combination over the acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities.

In respect of associates, the carrying amount of any goodwill is included in the carrying amount of the investment in the associate.

After initial recognition, goodwill is measured at cost less any impairment losses and it is not amortised. Realised gains and losses on investments in subsidiaries include the related goodwill. Goodwill is tested at least annually in order to identify any impairment losses.

The purpose of the impairment test on goodwill is to identify the existence of any impairment losses on the carrying amount recognised as an intangible asset. In this context, cash-generating units to which the goodwill is allocated are identified and tested for impairment. The impairment loss is equal to the difference, if negative, between the recoverable amount and carrying amount. The latter is the higher of the fair value of the cash-generating unit and its value in use, i.e. the present value of the future cash flows expected to be derived from the cash-generating units. The fair value of the cash generating unit is determined on the basis of current market quotation or valuation techniques usually adopted (mainly the Dividend discount model or Enterprise value). The value in use is based on the present value of future cash inflows and outflows, considering projections on budgets/forecasts approved by management and covering a maximum period of five years. Cash-flow projections for a period longer than five years are extrapolated using an estimated growth rate. The discount rates reflect the free risk rate, adjusted to take account for specific risks. Should any previous impairment losses no longer exist, they cannot be reversed.


C.1.1.2 Present value of future profitsOn acquisition of a portfolio of long-term insurance contracts or investment contracts, either directly, or through the acquisition of an enterprise, the net present value of the shareholder’s interest in the expected after tax cash flows of the portfolio acquired is capitalised as an asset. This asset, which is referred to as the Present Value of Future Profits (“PVFP”), is calculated on the basis of an actuarial computation taking into account assumptions for future premium income, contributions, mortality, morbidity, lapses and investments returns.

The PFVP is amortised over the effective life of the contracts acquired, by using an amortisation pattern reflecting the expected future profit recognition. Assumptions used in the development of the PVFP amortisation pattern are consistent with the ones applied in its initial measurement. The amortisation pattern is reviewed on a yearly basis to assess its reliability and to verify its consistency with the assumptions used in the valuation of the corresponding insurance provisions.

As far as the life portfolio, the recoverable amount of the value of the in-force business acquired is carried out annually through the liability adequacy test (LAT) of the insurance provisions – mentioned in paragraph C.2.3.1 – taking into account, if any, the deferred acquisition costs recognised (C.1.11) in the statement of financial position. If any, the impairment losses are recognised in the profit or loss account and cannot be reversed in a subsequent period.

C.1.1.3 Other intangible assetsIntangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses.

Intangible assets with finite useful lives are amortised on a straight-line basis over an average period of 3–5 years. The amortisation methods, useful lives and residual values, if not insignificant, are reassessed annually. If a material technical improvement is made to an asset during the year, its useful life and residual value is reassessed at the time the technical improvement is recognised.

C.1.2 Investment property

Investment properties are properties that are held either to earn rental income or for capital appreciation or for both. A property owned by the Group is treated as an investment property if it is not occupied by the Group or if only an insignificant portion of the property is occupied by the Group.

Property that is being constructed or developed for future use as an investment property is classified as investment property.

Subsequent to initial recognition, all investment properties are measured at fair value. Fair value is determined annually. The best evidence of fair value is current prices in an active market. If unavailable, an alternative technique is used. Valuation is based on reliable estimates of future cash flows, discounted at rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows, and supported by evidence of current prices or rents for similar properties in the same location and condition. Any gain or loss arising from a change in fair value is recognised in the income statement. Rental income from investment property is accounted for over the term of the lease.

When an item of property, plant and equipment becomes an investment property following a change in its use, any difference arising as at the date of transfer between the carrying amount of the item and its fair value, and related deferred tax thereon, is recognised directly in other comprehensive income if it is a gain. Upon disposal of the item, the gain is transferred to retained earnings. Any loss is recognised in the income statement immediately.

C.1.3 Property, plant and equipment

Property, plant and equipment are valued at the purchase price or production cost, less accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.


Depreciation is provided on a straight-line basis using the following rates:

Item Depreciation rate (%)

Buildings 1.98–10.00

Other tangible assets and equipment 6.67–33.33

Component parts of an asset which have different useful lives or provide benefits in a different pattern are recognised as separate assets with different depreciation rates.

The depreciation methods, useful lives and residual values, if not insignificant, are reassessed annually. If a material technical improvement is made to an asset during the year, its useful life and residual value are reassessed at the time the technical improvement is recognised.

Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Property, plant and equipment acquired by way of finance leasing are stated at an amount equal to the lower of the fair value and the present value of the minimum lease payments at the inception of the lease, less accumulated deprecation and impairment losses.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount. These are included in the income statement in the other operating income.

C.1.4 Investments in associates

This item includes investments in associated companies valued at equity.

C.1.5 Financial assets

Financial assets include financial assets at fair value through profit or loss, financial assets available-for-sale, financial assets held-to-maturity, loans and receivables, cash and cash equivalents.

Financial assets are recognised on the statement of the financial position when the Group becomes a party to the contractual provisions of the instrument. For standard purchases and sales of financial assets, the Group’s policy is to recognise them using settlement-date accounting. Any change in the fair value of an asset to be received during the period between the trade date and the settlement date is accounted for in the same way as would be accounted for subsequent measurements. Financial instruments are measured initially at fair value plus, with the exception of financial instruments at fair value through profit or loss, transaction costs directly attributable to the acquisition or issue of the financial instrument.

Subsequent measurement is described in Notes C.1.5.1 to C.1.5.4.

A financial asset is derecognised when the Group transfers the risk and rewards of ownership of the financial assets or loses control over the contractual rights that comprise that asset. This occurs when the rights are realised, expired or surrendered.

Fair value measurement The fair value of financial instruments is based on their quoted market price as at the end of the reporting period without any deduction for transaction costs. If a quoted market price is not available or if the market for an investment is not active, the fair value of the instrument is estimated using pricing models or discounted cash-flow techniques.

To identify a non-active market, the Group carefully determines whether the quoted price really reflects the fair value, i.e. in cases when the price has not changed for a long period or the Group has information about an important event but the price did not change accordingly, the market is not considered active.

Discounted cash-flow techniques use estimated future cash flows, which are based on management’s estimates, and the discount rate, which is constructed from risk-free rates adjusted by risk margin (credit spread). This is usually derived from an instrument with similar terms and conditions (ideally from the same issuer, similar maturity and seniority) which reflects the market price in the best way.


In general, in the case that pricing models are used, inputs are based on market-related measures as at the end of the reporting period which limits the subjectivity of the valuation performed by the Group, and the result of such a valuation best approximates the fair value of an instrument.

The fair value of derivatives that are not exchange-traded is estimated at the amount that the Group would receive or pay to terminate the contract as at the end of the reporting period taking into account current market conditions and the current creditworthiness of the counterparties. In the case of options, Black-Scholes models are applied. Also, for any other over-the-counter instruments (CDS, IRS, CCS, etc.), generally accepted valuation models are applied and, again, the parameters of the valuation intend to reflect the market conditions.

Effective from 1 January 2009, the Group adopted the amendment to IFRS 7 for financial instruments that are recognised in the statement of financial position at fair value; this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

– Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

– Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).

– Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The fair value of financial instruments traded in active markets is based on quoted market prices as at the end of the reporting period. These instruments are included in level 1.

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives or unquoted bonds) is determined by using valuation techniques. If all the significant inputs required to fair value an instrument are observable, the instrument is included in level 2. Specific valuation techniques used to value financial instruments include mainly quoted market prices or dealer quotes for similar instruments, cash-flow estimation and risk-free curves.

If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

Level 3 contains only structured investments (CDO, ABS) where market prices are unavailable and entity-specific estimates are necessary.

Fair value hedgeFrom 1 October 2008, the Group designates certain derivatives as hedges of the fair value of recognised assets. The hedge accounting has been applied to derivatives hedging a currency risk on all non-derivative financial assets denominated in or exposed to foreign currencies (equities, bonds, investment funds, etc.).

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged assets that are attributable to the hedged risk.

At the inception of the transaction, the Group documents the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedging transactions.

The Group also documents its assessment of the hedging effectiveness, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are expected to be and have been highly effective in offsetting changes in the fair values of hedged items.

Embedded derivativesCertain derivatives embedded in other financial instruments are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair value through profit or loss. The Group designates the hybrid contracts at fair value through profit or loss.

The Group does not separately measure embedded derivatives that meet the definition of an insurance contract. No derivatives that are not closely related are embedded in insurance contracts were identified.

C.1.5.1 Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than classified at fair value through profit or loss or classified as available-for-sale.


After initial recognition loans and receivables are measured at amortised cost using the effective interest method, less provision for impairment.

C.1.5.2 Financial assets held-to-maturityHeld-to-maturity assets are non-derivative financial assets with fixed or determinable payments and fixed maturities other than those that meet the definition of loans and receivables that the Group has the positive intent and ability to hold to maturity.

Financial assets held-to-maturity are valued at amortised cost using an effective interest rate method less any impairment losses. The amortisation of premiums and discounts is recorded as interest income or expense.

The fair value of an individual security within the held-to-maturity portfolio can temporarily fall below its carrying value, but, provided there is no risk resulting from significant financial difficulties of the debtor, the security would not be written down in value.

C.1.5.3 Financial assets available-for-saleAvailable-for-sale financial assets are those non-derivative financial assets that are not classified as loans and receivables, held-to-maturity investments, or financial assets at fair value through profit or loss.

After initial recognition, the Group measures financial assets available-for-sale at their fair values, without any deduction for transaction costs that it may incur upon sale or other disposal, with the exception of AFS equity securities that do not have a quoted market price on an active market and whose fair value cannot be reliably measured which are stated at cost, including transaction costs, less impairment losses.

Any revaluation gain or loss on a financial asset available-for-sale is recognised in other comprehensive income with the exception of impairment losses and, in the case of monetary items such as debt securities, foreign exchange gains and losses. When available-for-sale assets are derecognised, the cumulative gain or loss previously recognised in other comprehensive income is recognised in the income statement. Where these instruments are interest-bearing, interest calculated using the effective interest rate method is recognised in the income statement. Dividend income is recognised in the income statement as other investment income – see C.1.25.

C.1.5.4 Financial assets at fair value through profit or lossFinancial assets at fair value through profit or loss are financial assets held-for-trading and non-trading financial assets which are designated upon initial recognition as at fair value through profit or loss.

Financial assets held-for-trading are acquired or incurred principally for the purpose of generating a profit from short-term fluctuations in the price or the dealer’s margin. Financial assets are classified as held-for-trading if, regardless of the reason they were acquired, they are part of a portfolio for which there is evidence of a recent actual pattern of short-term profit taking.

Financial assets held-for-trading include investments and certain purchased loans and derivative contracts that are not designated as effective hedging instruments. All trading derivatives in a net receivable position (positive fair value), as well as options purchased, are reported as trading assets. All trading derivatives in a net payable position (negative fair value), as well as options written, are reported as financial liabilities at fair value through profit or loss.

If a financial asset is no longer held for the purpose of selling or repurchasing it in the near term (notwithstanding that the financial asset may have been acquired or incurred principally for the purpose of selling or repurchasing it in the near term), the financial assets can only be reclassified out of the fair value through profit or loss category in rare circumstances.

The Group designates non-trading financial assets according to its investment strategy as financial assets at fair value through profit or loss, if there is an active market and the fair value can be reliably measured. The fair value option is only applied in any one of the following situations:

– It results in more relevant information, because it significantly reduces a measurement or recognition inconsistency (“accounting mismatch”) of securities covering unit-linked policies;

– A group of financial assets is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, with information being provided to key management personnel on this basis;

– When a contract contains one or more substantive embedded derivatives, unless the embedded derivative does not significantly modify the cash flows that otherwise would be required by the contract or it is clear that separation of embedded derivatives is prohibited.


Subsequent to initial recognition, all financial assets at fair value through profit or loss, except for derivative instruments that are not exchange traded and financial assets which are not quoted on an active market, are measured at fair value (Note C.1.5). Gains and losses arising from changes in the fair values of financial assets at fair value through profit or loss are recognised in the income statement.

SwapsSwaps are over-the-counter agreements between the Group and other parties to exchange future cash flows based upon agreed notional amounts. Swaps most commonly used by the Group are interest rate and cross-currency interest rate swaps. Under interest rate swaps, the Group agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed notional amount. Cross-currency interest rate swaps require an exchange of interest payment flows and capital amounts in different currencies. The Group is subject to credit risk arising from default of the respective counter parties. Market risk arises from potentially unfavourable movements in interest rates relative to the contractual rates of the contract, or from movements in foreign exchange rates. Credit default swaps are also used by the Group. Under the credit default swap agreement, a credit risk is transferred from a protection buyer to a protection seller.

Futures and forwardsForward contracts are commitments to either purchase or sell a designated financial instrument, currency, commodity or an index at a specified future date for a specified price and may be settled in cash or another financial asset. Forward contracts result in credit exposure to the counter party and exposure to market risk based on changes in market prices relative to the contracted amounts.

A futures contract is a standardised contract, traded on a futures exchange, to buy or sell a standardised quantity of a specified commodity of standardised quality at a certain date in the future, at a price determined by the instantaneous equilibrium between the forces of supply and demand among competing buy and sell orders on the exchange at the time of the purchase or sale of the contract. Futures contracts bear considerably lower credit risk than forwards and, as forwards, result in exposure to market risk based on changes in market prices relative to the contracted amounts.

OptionsOptions are derivative financial instruments that give the buyer, in exchange for a premium payment, the right (but not the obligation) to either purchase from (call option) or sell to (put option) the writer a specified underlying instrument at a specified price on or before a specified date. The Group enters into interest rate options, foreign exchange options, equity and index options and credit failure options (swaps). Interest rate options, including caps and floors, may be used as hedges against a rise or fall in interest rates. They provide protection against changes in the interest rates of floating rate instruments above or below a specified level. Foreign currency options may also be used (commensurate with the type of option) to hedge against rising or falling currency rates. The Group as a buyer of over-the-counter options is subject to market risk and credit risk since the counter party is obliged to make payments under the terms of the contract if the Group exercises the option. As the writer of over-the-counter options, the Group is subject to the market risk, as it is obliged to make payments if the option is exercised by the counterparty or credit risk from a premium due from a counterparty.

C.1.6 Reinsurance assets

Reinsurance assets comprise the actual or estimated amounts, which, under contractual reinsurance arrangements, are recoverable from reinsurers in respect of technical provisions.

Reinsurance assets relating to technical provisions are established based on the terms of reinsurance contracts and valued on the same basis as the related reinsured liabilities. The Group records an allowance for estimated unrecoverable reinsurance assets, if any.

C.1.7 Insurance receivables

Receivables on premiums written in the course of collection and receivables from intermediates, coinsurers and reinsurers are included in this item. They are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

C.1.8 Other receivables

Other receivables includes all other receivables not of an insurance or tax nature. They are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.


C.1.9 Cash and cash equivalents

Cash consists of cash on hand and demand deposits with banks and other financial institutions. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

C.1.10 Lease transactions

Property and equipment holdings used by the Group under operating leases, whereby the risks and benefits relating to ownership of the assets remain with the lessor, are not recorded on the Group’s statement of financial position. Payments made under operating leases to the lessor are charged to the income statement over the period of the lease.

C.1.11 Deferred acquisition costs

Acquisition costs are costs that are incurred in connection with the acquisition of new insurance contracts and the renewal of existing contracts. Only certain (“deferrable”) acquisition costs are deferred, such as agents’ commissions and other variable underwriting and policy issue costs. General selling expenses and line-of-business costs as well as commissions for servicing a portfolio are not deferred unless they are related to the acquisition of new business.

In non-life insurance, a proportion of the related acquisition costs are deferred and amortised commensurate with the unearned premiums provision. The amount of any deferred acquisition costs is established on a similar basis as that used for unearned premiums for a relevant line of business (product). Deferred acquisition costs are reported as other assets in the statement of financial position.

The recoverable amount of deferred acquisition costs is assessed as at each end of the reporting period as part of the liability adequacy test.

Acquisition costs in respect of life insurance contracts and investment contracts with DPF (Discretionary Participation Feature) are charged directly to the income statement as incurred and are not deferred.

Investment contracts with DPF incremental transaction costs directly attributable to the issue of a financial liability carried at amortised cost are deducted from the fair value of the consideration received and included within the effective interest rate calculation.

C.1.12 Non-current assets held-for-sale and discontinued operations

The Group presents discontinued operations in a separate line in the consolidated income statement and in the consolidated statement of financial position if an entity or a component of an entity has been disposed of or is classified as held for sale and:

(a) Represents a separate major line of business or geographical area of operations;

(b) Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or

(c) Is a subsidiary acquired exclusively with a view to resale (for example, certain private equity investments).

Net profit from discontinued operations includes the net total of operating profit and loss before tax from operations, including net gain or loss on sale before tax or measurement to fair value less costs to sell and discontinued operations tax expense. A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Group´s operations and cash flows. If an entity or a component of an entity is classified as a discontinued operation, the Group restates prior periods in the consolidated income statement.

Non-current assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. This measurement provisions do not apply to deferred tax assets and liabilities (IAS 12), financial assets in the scope of IAS 39, investment properties that are accounted for in accordance with the fair value model in IAS 40. Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition, subject to terms that are usual and customary for sales of such assets. Management must be committed to the sale and must actively market the property for sale at a price that is reasonable in relation to the current fair value. The sale should be expected to qualify for recognition as a completed sale within one year from the date of classification.


C.1.13 Equity

C.1.13.1 Share capital issuedOrdinary shares are classified as equity. The share capital is the nominal amount approved by a shareholder’s resolution.

C.1.13.2 Capital and revenue reservesThis item comprises the following reserves:

Statutory reserve fundThe creation and use of the statutory reserve fund is limited by legislation. The statutory reserve fund is not available for distribution to the shareholder.

Catastrophe and equalisation reservesCatastrophe and equalisation reserves are required under local insurance legislation and are classified as separate parts of equity within these accounts as they do not meet the definition of a liability under IFRS. They are not available for distribution.

Retained earningsThe item includes retained earnings or losses adjusted for the effect due to changes arising from the first application of IAS/IFRS, as well as reserves.

Reserve for unrealised gains and losses on available for sale financial assetsThe item includes gains or losses arising from changes in the fair value of available-for-sale financial assets, as previously described in the corresponding item of financial investments. The amounts are amounted net of the related deferred taxes and deferred policy holders’ liabilities.

Reserve for other unrealised gains and losses through equityThis item includes revaluation gains of land and buildings reclassified to investment properties.

Result of the periodThis item refers to the Group’s result for the period. Dividend payments are accounted for after the approval of the shareholder’s in general meeting.

C.1.13.3 DividendsDividends are recognised as a liability provided they are declared before the end of the reporting period. Dividends declared after the end of the reporting period are not recognised as a liability but are disclosed in the notes.

C.1.14 Insurance classification

C.1.14.1 Insurance contractsIn accordance with IFRS 4, policies of the life segment are classified as insurance contracts or investment contracts based on the significance of the underlying insurance risk.

Classification requires the following steps:

– identification of the characteristics of products (option, discretionary participation feature, etc.) and services rendered;

– determination of the level of insurance risk in the contract; and

– determination of classification in accordance with IFRS 4

For further details on insurance contracts and investment contracts with DPF see C.3.

C.1.14.2 Insurance contracts and investment contracts with DPFPremiums, payments and changes in the insurance provision related to products whose insurance risk is considered significant (e.g. term insurance, whole life and endowment with annual premiums, life contingent annuities and contracts containing an option to elect at maturity a life contingent annuity at rates granted at inception, long-term health insurance and unit-linked with sum assured in case of death significantly higher than the value of the fund) or investment contracts with discretionary participation feature – DPF – (e.g. policies linked to segregated funds, contracts with additional benefits that are contractually based on the result of the companies in the Group) are accounted for as a revenue and/or expense of the period. For further details on insurance contracts and investment contracts with DPF see C.3.


C.1.14.3 Investment contractsInvestment contracts without DPF mainly include unit/index-linked policies and pure capitalisation contracts. These products are accounted for in accordance with IAS 39 as follows:

– the products are recognised as financial liabilities at fair value or at amortised cost. In detail, linked products are fair valued through profit or loss, while pure capitalisation policies are generally valued at amortised cost;

– fee and commission income and expenses are recognised in the profit and loss account. Specifically, IAS 39 and IAS 18 require that they are separately identified and classified in the different components of: (i) origination fee, to be charged in the profit and loss account at the date of the issue of the product; and (ii) investment management service, to be recognised throughout the whole policy term by reference to the stage of completion of the service rendered;

– fee and commission income and incremental costs of pure capitalisation contracts without DPF (other than administration costs and other non-incremental costs) are included in the initial carrying amount of the financial liability and are recognised as an adjustment to the effective interest rate;

– the risk component of linked products is unbundled, if possible, and accounted for as insurance contracts.

C.1.15 Insurance liabilities

C.1.15.1 Provision for unearned premiumsThe provision for unearned premiums comprises that part of gross premiums written attributable to the following financial year or to subsequent financial years, computed separately for each insurance contract using the pro rata temporis method, adjusted to reflect any variation in the incidence of risk during the period covered by the contract. The provision for unearned premiums is created for both life insurance and non-life insurance.

C.1.15.2 Life insurance provisionThe life insurance provision (the provision for outstanding claims and the other life insurance technical provision) comprises the actuarially estimated value of the Group’s liabilities under life insurance contracts. The amount of the life insurance provision is calculated by a prospective net premium valuation, taking into account all future liabilities as determined by the policy conditions for each existing contract and including all guaranteed benefits, bonuses already declared and proposed, expenses and after deducting the actuarial value of future premiums.

The provision for outstanding claims is initially measured using the assumptions used for calculating the corresponding premiums and remain unchanged except where a liability inadequacy occurs. A liability adequacy test (LAT) is performed as at each end of the reporting period by the Group’s actuaries using current estimates of future cash flows under its insurance contracts (see C.2.3). If those estimates show that the carrying amount of the provision is insufficient in the light of the estimated future cash flows, the difference is recognised in the income statement with a corresponding increase to the other life insurance technical provision.

C.1.15.3 Claims provision The provision for outstanding claims represents the total estimated ultimate cost of settling all claims arising from events which have occurred up to the end of the financial year, whether reported or not, less amounts already paid in respect of such claims, including the related internal and external claims settlement expenses as estimated based on historical experience and specific assumptions about future economic conditions.

The provision includes claims reported by policyholders but not settled (RBNS) and claims incurred but not reported (IBNR).

Where benefits resulting from a claim are paid in the form of an annuity, the provision is calculated using recognised actuarial methods.

With the exception of annuities, the Group does not discount its provisions for outstanding claims.

Where applicable, provisions are disclosed net of the prudent estimates for salvage and subrogation recoveries.

The provision for outstanding claims in respect of life insurance policies is included within the life insurance provision.


Whilst the Board of Directors considers that the gross provision for claims and the related reinsurance recoveries are fairly stated, the ultimate liability may differ as a result of subsequent information and events and may result in significant adjustments to the amounts provided. Adjustments to the amounts of the provisions are reflected in the financial statements for the period in which the adjustments are made. The methods used and the estimates made are reviewed regularly.

C.1.15.4 Other insurance provisionsOther insurance provisions contain any other insurance technical provision which is not mentioned above, such as the provision for unexpired risks (also referred to as “premium deficiency” see also C.2.3.3) in non-life insurance, the ageing provision in health insurance, provision for contractual non-discretionary bonuses in non-life business.

The provision for contractual non-discretionary bonuses in non-life business covers future benefits in the form of additional payments to policyholders or reduction of policyholder payments, which are a result of past performance. This provision is not recognised for those contracts, where future premium is reduced by bonuses resulting from favourable past policy claim experience and such bonus being granted irrespective of whether the past claim experience was with the reporting entity. In such a situation, the reduction of the premium reflects the expected lower future claims, rather than distribution of past surpluses.

C.1.15.5 Financial liabilities for investment contracts with DPFFinancial liabilities for investment contracts with DPF represent liabilities for contracts which do not meet the definition of insurance contracts, because they do not lead to the transfer of significant insurance risk from the policyholder to the Group, but which contain DPF (as defined in C.1.33.3.). Financial liabilities arising from investment contracts with DPF are accounted for in the same way as those for insurance contracts.

C.1.15.6 DPF liability for insurance contractsDPF liability represents a contractual liability to provide significant benefits in addition to the guaranteed benefits which are at the discretion of the issuer over the timing and amount of benefits and which are based on performance of defined contracts, investment returns or the profit or loss of the issuer. For more details, see C.1.33.3.

C.1.16 Other provisions

A provision is recognised in the statement of financial position when the Group has a legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation, and a reasonable estimate can be made of the amount of the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

C.1.17 Bonds issued

Bonds issued are recognised initially at fair value, net of transaction costs incurred, and subsequently carried at amortised cost. Amortisation of discount or premium and interest are recognised in interest expense and similar charges using the effective interest method.

C.1.18 Financial liabilities to banks and non-banks

Financial liabilities to banks and non-banks are recognised initially at fair value, net of transaction costs incurred, and subsequently valued at their amortised cost. Amortised cost of a financial liability is the amount at which the financial liability was measured upon initial recognition minus principal repayments, plus or minus the cumulative amortisation of any difference between that initial amount and the maturity amount.

C.1.19 Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss are liabilities classified as held-for-trading, which include primarily derivative liabilities that are not hedging instruments. Financial liabilities at fair value through profit or loss are measured at fair value and the relevant gains and losses from this revaluation are included in the income statement. Financial liabilities are removed from the statement of Financial Position when, and only when, they are extinguished – i.e. when the obligation specified in the contract is discharged, cancelled or expires.

C.1.20 Payables

Accounts payable are when the Group has a contractual obligation to deliver cash or another financial asset. Accounts payable are measured at amortised cost, which will normally equal their nominal or repayment value.


C.1.21 Net insurance premium revenue

Net insurance premium revenue includes gross premiums earned from direct insurance business and assumed (inwards) reinsurance business, net of premiums ceded to reinsurers.

Gross premiums comprise all amounts due during the financial year in respect of insurance contracts regardless of the fact that such amounts may relate in whole or in part to a later financial year. Gross premiums are recognised in respect of contracts meeting the definition of an insurance contract or an investment contract with DPF.

The above amounts do not include the amounts of taxes or charges levied with premiums.

Premiums are recognised when an unrestricted legal entitlement is established. For contracts where premiums are payable in instalments, such premiums are recognised as written when the instalment becomes due.

Premiums are recognised as earned on a pro-rata basis over the term of the related policy coverage via the provision for unearned premiums. For those contracts for which the period of risk differs significantly from the contract period, premiums are recognised over the period of risk in proportion to the amount of insurance protection provided.

The change in the unearned premium provision is represented by the difference in the balance of the provision for unearned premium as at the beginning of the year and the balance as at the year-end.

C.1.22 Net insurance claims and benefits

Insurance technical charges include claims (benefit) expenses, the change in technical provisions and rebates and profit sharing.

Claims (benefits) expenses are represented by benefits and surrenders, net of reinsurance (life) and claims paid net of reinsurance (non-life). Benefits and claims comprise all payments made in respect of the financial year. These amounts include annuities, surrenders, entries and withdrawals of loss provisions to and from ceding insurance enterprises and reinsurers, and external and internal claims management costs. Sums recovered on the basis of subrogation or salvage are deducted. Claims paid are recognised at the moment that the claim is approved for settlement.

The change in technical provisions represents change in provisions for claims reported by policyholders, change in provision for IBNR and change in other technical provisions.

Bonuses comprise all amounts chargeable for the financial year representing an allocation of surplus or profit arising on business as a whole or from a section of business, after the deduction of amounts provided in previous years which are no longer required. Rebates comprise such amounts to the extent that they represent a partial refund of premiums resulting from the experience of individual contracts.

C.1.23 Benefits from investment contracts with DPF (investment contract benefits)

Investment contract benefits represent changes in financial liabilities resulting from investment contracts with DPF (for definition see C.1.15.6).

The change in financial liabilities from investment contracts with DPF involves guaranteed benefits credited, change in DPF liabilities from investment contracts with DPF and change in liability resulting from a liability adequacy test of investment contracts with DPF.

C.1.24 Interest and similar income and interest and similar expense

Interest income and interest expense are recognised in the income statement on an accrual basis, taking into account the effective yield of the asset or liability, or an applicable floating rate. Interest income and interest expense includes the amortisation of any discount or premium or other differences between the initial carrying amount of an interest bearing instrument and its amount at maturity calculated using the effective interest method.

Interest on financial assets fair valued to profit or loss is reported as a part of net income from financial instruments at fair value through profit or loss. Interest income and interest expense on other assets or liabilities is reported as Interest and other investment income or as Interest expense in the income statement.


C.1.25 Other income and expense from financial assets

Other income and expenses from financial assets comprise realised and unrealised gains/losses, dividends, impairment loss and net trading income.

A realised gain/loss arises on the derecognition of financial assets other than financial assets at fair value through profit or loss. The amount of the realised gain/loss represents the difference between the carrying value of a financial asset and the sales price adjusted for any cumulative gain or loss that had been recognised directly in the equity.

Net fair value gains on financial assets and liabilities at fair value through profit or loss not held for trading represent the amount of the subsequent measurement of financial assets and liabilities designated at fair value through profit or loss to their fair value or the gain/loss from disposal thereof.

Dividends from investments are recorded when declared and approved by the shareholder’s meeting of the respective company.

Net trading income represents the subsequent measurement of the “Trading assets” and “Trading liabilities” to fair value or the gain/loss from disposal of the “Trading assets” or “Trading liabilities”. The amount of the trading income to be recorded represents the difference between the latest carrying value and the fair value as at the date of the financial statements or the sale price.

C.1.26 Income and expense from investment property

Income and expense from investment property comprise realised gains/losses triggered by derecognition, unrealised gains/losses from subsequent measurement at fair value, rental income and other income and expense related to investment property.

C.1.27 Other income and other expense

C.1.27.1 Other incomeThe main part of other income arises from administration services relating to the Employer’s liability provided by the Group for the state. For this type of insurance, the Group bears no insurance risk; it only oversees the fee collection and claims settlement. The revenue is recognised in the accounting period when services are provided and in the amount stated by law.

C.1.27.2 Operating lease paymentsPayments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total lease expense.

C.1.28 Acquisition costs

Acquisition costs are costs arising from the conclusion of insurance or investment contracts with DPF and include direct costs, such as acquisition commissions or the cost of drawing up the insurance document or including the insurance contract in the portfolio, and indirect costs, such as advertising costs or the administrative expenses connected with the processing proposals and issuing policies.

In non-life insurance, acquisition costs that vary with and are directly related to the acquisition of new policies or the renewal of existing policies are deferred. Deferred acquisition costs represent the proportion of acquisition costs incurred that corresponds to the provision for unearned premiums.

Deferred acquisition costs are subject to recoverability testing at the time the policy is issued and at the end of each accounting period. Deferred acquisition costs which are not deemed to be recoverable are charged to the income statement.

For life insurance policies and investment contracts with DPF, acquisition costs are charged to the income statement as incurred.

In the income statement, they are presented net of reinsurance commissions (C.1.30).


C.1.29 Administrative expenses

Administrative expenses include expenses relating to the administration of the Group. This includes personnel costs, office rental expenses and other operating expenses. Staff costs include expenses arising from employee benefits, such as salaries and wages, management remuneration and bonuses, social insurance. Other operating expenses include costs of premium collection, portfolio administration and the processing of inwards and outwards reinsurance.

C.1.30 Reinsurance commissions and profit participations

Reinsurance commissions and profit participations include commissions received or the receivable from reinsurers and profit participations based on reinsurance contracts. Non-life reinsurance commissions are deferred in a manner consistent with the deferral of acquisition costs in non-life insurance.

C.1.31 Income tax

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly to equity, in which case it is recognised in other comprehensive income.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted as at the end of the reporting period, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

C.1.32 Employee benefits

C.1.32.1 Short-term employee benefitsShort-term employee benefits are employee benefits (other than termination benefits) that are due to be settled within twelve months after the end of the period in which the employees render the related service. Short-term employee benefits include mainly wages and salaries, obligatory social and health insurance paid by the Group on behalf of employees, management remuneration and bonuses, remuneration for membership in Group boards and non-monetary benefits. The benefits are recognised in an undiscounted amount as an expense and as a liability (accrued expense).

C.1.32.2 Other long-term employee benefitsOther long-term employee benefits are employee benefits (other than post-employment benefits and termination benefits) that are not due to be settled within twelve months after the end of the period in which the employees render the related service.

C.1.32.3 Post-employment benefitsPost-employment benefits are employee benefits (other than termination benefits) that are payable after the completion of employment. The Group does not provide any post-employment benefits.

C.1.32.4 Termination benefitsTermination benefits are employee benefits payable as a result of the Group’s decision to terminate an employee’s employment before the normal retirement date, or as a result of an employee’s decision to accept voluntary redundancy in exchange for those benefits.


C.1.33 Other accounting policies

C.1.33.1 Foreign currency translationA foreign currency transaction is a transaction which is denominated in or requires settlement in other than functional currency. Functional currency is the currency of the primary economic environment in which entity operates. A foreign currency transaction is recorded, on initial recognition in the functional currency, by applying the exchange rate effective as at the date of the transaction to the foreign currency amount.

At each end of the reporting period:

– Foreign currency monetary items are translated using the closing foreign exchange rate;

– Non-monetary items denominated in a foreign currency which are carried at historical cost are translated using the foreign exchange rate as at the date of the original transaction; and

– Non-monetary items denominated in a foreign currency, which are carried at fair value, are translated using the foreign exchange rates ruling as at the dates the fair values were determined.

– Exchange differences arising from the settlement of monetary items or from translation of the Group’s monetary items at rates different from those at which they were initially recorded or reported in previous financial statements are recognised as Other income or as Other expenses in the period in which they arise.

– Translation differences on non-monetary items, such as equities held at fair value through profit or loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary items, such as equities classified as available-for-sale financial assets, are included in other comprehensive income unless qualified as a fair value hedge.

C.1.33.2 Impairment The carrying amounts of the Group’s assets, other than investment property (see note C.1.2), deferred acquisition costs (C.1.11), goodwill (C.1.1.1), inventories and deferred tax assets (C.1.31), are reviewed as at each end of the reporting period to determine whether there is any indication of impairment. This determination requires judgement (C.4). If any such indication exists, the asset’s recoverable amount is estimated. The recoverable amount is measured annually regardless of any indication of impairment for intangible assets not yet available for use.

An impairment loss is recognised to the extent that the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in the income statement.

Individual impairment losses are losses that are specifically identified. Collective impairment losses are losses that are present in a portfolio of loans or receivables but not specifically identified.

Impairment of financial assetsA financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

Evidence of impairment includes, for example, significant financial difficulties of the issuer, default or delinquency in interest or principal payments, the probability that the borrower will enter bankruptcy or other financial reorganisation and the disappearance of an active market for the financial asset.

A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is considered to be objective evidence of impairment.

In all these cases, any impairment loss is recognised only after a careful analysis of the type of loss has established that the conditions exist to proceed with the corresponding recognition. The analysis includes considerations of the recoverable value of the investment, checks on the volatility of the stock versus the reference market or compared to competitors, and any other possible quality factor. The analytical level and detail of the analysis varies based on the significance of the latent losses of each investment.

The recoverable amount of the Group’s investments in held-to-maturity securities is calculated as the present value of expected future cash flows, discounted at the original effective interest rate inherent in the asset. Receivables with a short duration are not discounted.


Loans and advances are reported net of allowances for loan losses to reflect the estimated recoverable amounts. Receivables are stated at their cost less impairment losses.

The recoverable amount of an available-for-sale asset is the current fair value. When there is objective evidence that it is impaired, the decline in fair value that had been recognised directly in other comprehensive income is recognised into the income statement.

An impairment loss in respect of a held-to-maturity security, loan, advance or receivable, available-for-sale debt instrument is reversed through the income statement (up to the amount of the amortised cost) if the subsequent increase in recoverable amount can be attributed objectively to an event occurring after the impairment loss was recognised.

An impairment loss in respect of available-for-sale equity instruments is not reversed through the income statement and any subsequent increase in fair value is recognised in other comprehensive income.

Impairment of non financial assetsThe recoverable amount of other assets is greater of their fair value less cost to sell and the value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

In respect of other assets, an impairment loss is reversed through the income statement if there has been an increase in the recoverable amount and the increase can be objectively related to an event occurring after the date of the impairment. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount of the asset that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Goodwill impairment testing is disclosed in Notes C.1.1.1 and F.1.1.

C.1.33.3 Discretionary participation features (DPF)A discretionary participation feature (DPF) represents a contractual right to receive, as a supplement to guaranteed benefits, additional benefits that constitute a significant portion of the total contractual benefits, whose amount or timing is at the discretion of the Group and are based on the performance of pooled assets, profit or loss of the Group or investment returns.

As the amount of the bonus to be allocated to policyholders has been irrevocably fixed as at the end of the reporting period, the amount is presented as a guaranteed liability in the financial statements, i.e. within the life assurance provision in the case of insurance contracts or within the Guaranteed liability for investment contracts with DPF in the case of investment contracts.

C.1.33.4 Segment reportingA segment is a component of the Group that engages in business activities from which the Group may earn revenues and incur expenses and whose operating results are regularly reviewed by the management of the Group to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available (business segment).

Measurement of segment assets and liabilities and segment revenues and results is based on the accounting policies set out in the accounting policy notes.

The reportable segments are strategic Group activities that offer different services. They are managed separately and have different marketing strategies.

C.1.33.5 Repo transactionsThe Group enters into purchases (sales) of investments under agreements to resell (repurchase) substantially identical investments at a certain date in the future at a fixed price. Investments purchased subject to commitments to resell them at future dates are not recognised. The amounts paid are recognised in loans to either banks or non-banks. The receivables are shown as collateralised by the underlying security. Investments sold under repurchase agreements continue to be recognised in the statement of financial position and are measured in accordance with the accounting policy for either assets held-for-trading or available-for-sale, as appropriate. The proceeds from the sale of the investments are reported as liabilities to either banks or non-banks.

The difference between the sale and repurchase considerations is recognised on an accrual basis over the period of the transaction and is included in interest.

C.1.33.6 Offsetting financial instrumentsFinancial assets and liabilities are offset and the net amount reported in the statement of financial position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.


C.2 Principal assumptions

C.2.1 Life assurance liabilities

Actuarial assumptions and their sensitivities underline the insurance calculation. The life insurance provision is calculated by a prospective net premium valuation (see C.1.15.2) using the same statistical data and interest rates used to calculate premium rates (in accordance with relevant national legislation). The assumptions used are locked-in at policy inception and remain in-force until expiry of the liability. The adequacy of insurance liabilities is tested with a liability adequacy test (see C.2.3).

The guaranteed technical rate of interest included in policies varies from 2% to 7.5% according to the actual technical rate used in determining the premium.

As a part of the life insurance provision, an additional provision is established in respect of bonuses payable under certain conditions, referred to as “special bonuses”. This provision corresponds to the value of special bonuses calculated using the prospective method and using the same interest rate and mortality assumptions used to calculate the basic life insurance provision. No allowance is made for lapses.

C.2.2 Non-life insurance liabilities

As at the end of the reporting period, a provision is made for the expected ultimate cost of settling of all claims incurred in respect of events up to that date, whether reported or not, together with related claims handling expenses, less amounts already paid.

The liability for reported claims (RBNS) is assessed on a separate case-by-case basis with due regard to the claim circumstances, information available from loss adjusters and historical evidence of the size of similar claims. Case reserves are reviewed regularly and are updated as and when new information arises.

The estimation of claims incurred but not reported (IBNR) is generally subject to a greater degree of uncertainty than reported claims. IBNR provisions are predominantly assessed by the Group’s actuaries using statistical techniques such as chain ladder methods, whereby historical data is extrapolated in order to estimate ultimate claims costs.

To the extent that these methods use historical claims development information, they assume that the historical claims development pattern will occur again in the future. There are reasons why this may not be the case, which, insofar as they can be identified, have been allowed for by modifying the methods. Such reasons include:

a) economic, legal, political and social trends (resulting in different than expected levels of inflation);

b) changes in the mix of insurance contracts incepted;

c) random fluctuations, including the impact of large losses.

IBNR provisions are initially estimated at a gross level and a separate calculation is carried out to estimate the size of reinsurance recoveries.

The assumptions which have the greatest effect on the measurement of the insurance liabilities of the non-life insurance are as follows:

Tail factors For long-tail business, the level of provision is significantly influenced by the estimate of the development of claims from the latest development year for which historical data is available to ultimate settlement. These tail factors are estimated prudently using mathematical curves, which project observed development factors.

AnnuitiesIn MTPL insurance and other third party liability lines, part of the claims payment may be in the form of an annuity. The provision for such claims is established as the present value of expected future claims payments.


The key assumptions involved in the calculation are the discount rate, the expected increase in wages and disability pensions which influence the amount of annuities to be paid. The Group follows guidance issued by the Czech Bureau of Insurers and similar bodies in other countries in setting these assumptions.

Under current legislation, future increases in disability pensions are set by governmental decree and may be subject to social and political factors beyond the Group’s control. The same applies to the real future development of annuity inflation (it is also dependent on governmental decrees).

DiscountingWith the exception of annuities, non-life claims provisions are not discounted. For annuities, discounting is used as described in the table below.

Life Annuities Certain Annuities

Discount rate 2% p.a. 2% p.a.

Annuity inflation 4.8% p.a. (4.9% for old legal MTPL) 5.7% p.a. (6.4% for old legal MTPL)

Life annuities are paid until death of the claimant whereas certain annuities are paid for a fixed term.

In addition, the Group takes mortality into account through the use of mortality tables recommended by National Insurance Bureau.

C.2.3 Liability adequacy test

C.2.3.1 Life assuranceThe life assurance provision is tested as at each end of the reporting period against a calculation of future cash flows using explicit and consistent assumptions of all factors – future premiums, mortality, morbidity, investment returns, lapses, surrenders, guarantees, policyholder bonuses, expenses and exercise of policyholder options.

Where reliable market data is available, assumptions are derived from observable market prices.

However, in the absence of market transactions in the economies in which the Group operates, there remain significant difficulties in calibrating the assumptions used by the Group in the liability adequacy test to observable market conditions in most cases.

Assumptions which cannot be reliably derived from market values are based on current estimates calculated by reference to the Group’s own internal models, on guidance notes issued by the Czech Society of Actuaries and similar bodies in other countries and publicly available resources (e.g. demographic information published by national Statistical Bureau).

Due to the levels of uncertainty in the future development of the insurance markets and the Group’s portfolio, the Group uses conservative margins for risk and uncertainty within liability adequacy test. Margins are in accordance with recommendations from Professional Guidance of Czech Society of Actuaries and similar bodies in other countries.

Input assumptions are updated annually based on recent experience.

The methodology of testing considers current estimates of all future contractual cash flows including cash flows from embedded options and guarantees. This methodology enables quantification of correlation between all risks factors.

The principal assumptions used (see note C.2.4.1) are:

SegmentationThe Group segments the products into several homogenous groups according to the characteristics of individual products (type of product and guaranteed interest rates). Each group is tested separately for liability adequacy. Liability inadequacies of individual groups are not offset against surpluses arising on other groups in determining the additional liability to be established.

The net present value of future cash flows calculated using the assumptions described below is compared with the insurance liabilities, for each product group separately. If that comparison shows that the carrying amount of the insurance liabilities is inadequate in the light of the estimated future cash flows, the entire deficiency is recognised in profit or loss, by establishing an additional provision.


Mortality and morbidity Mortality and morbidity are usually based on data supplied by the Czech Statistical Office as amended by the Group based on a statistical investigation of the Group’s mortality experience over the last 15 years. For pension insurance, the Group uses generation mortality tables, developed in co-operation with Munich Re, which allow for future mortality assessment improvements.

Morbidity tables are made as an aggregation of Czech probabilities of death and German probabilities of Dread Disease diagnose.

Assumptions for mortality and morbidity are adjusted by margins for risk and uncertainty.

PersistencyFuture contractual premiums are included without any allowance for premium indexation. Estimates for lapses and surrenders are based on the Group’s past experience with insurance policies (split by type and policy durations). The Group regularly investigates its actual persistency rates by product type and duration and amends its assumptions accordingly.

The assumptions as derived above are adjusted by a margin for risk and uncertainty.

Expense Estimates for future renewal and maintenance expenses included in the liability adequacy test are derived from the Group’s statistical data. The Group’s estimate of annual inflation for particular expense items is used to allow for future expense inflation. The resulting annual expense inflation is in the range of 2.63%–4.22% (in 2008: 2.30%–3.45%).

The assumptions are adjusted by a margin for risk and uncertainty.

Discount rateThe Group discounts all expected cash flows at a rate equal to the risk-free rate less 0.25%.

Up to September 2008, interest rate swaps were used by the Group for derivation of risk-free yield. Starting October 2008, the Group uses Czech government bonds for derivation of risk-free yield curve.

Interest rate guaranteeThe Group makes an additional allowance for the potential volatility of actual investment returns compared to the risk-free rate. The interest rate guarantee is calculated using stochastic option pricing techniques (Ornstein-Uhlenbeck processes), whereby the Group divides the policy duration into a series of one-year put options. The interest rate guarantee is mainly influenced by volatility of investment returns.

Profit sharingWhile, for most life assurance policies, the amount and timing of the bonus to policyholders is at the discretion of the Group, the assessment of liability adequacy takes into account future discretionary bonuses, calculated as a fixed percentage of the excess of the risk-free rate over the guaranteed technical interest rate on individual policies. The percentage applied is consistent with the Group’s current business practice and expectations for bonus allocation.

Annuity optionThe option to choose between a lump sum payment and an annuity is available to policyholders under pension insurance. For the purposes of the liability adequacy test, the Group assumes an annuity option take-up rate increasing from the level of 1%-3% to 10%- 20% in the long-term horizon for all eligible policyholders. The estimate of the take-up rate of 20% applied in previous years was refined during 2009 based on the Group’s analysis of past experience and future expectations.

C.2.3.2 Investment contracts with Discretionary Participation Features (DPF)Investments contracts with DPF are included within the liability adequacy test for life insurance as described above.

C.2.3.3 Non-life insuranceContrary to life insurance, insurance liabilities connected with non-life insurance are calculated by using current (not historical) assumptions and therefore no additional liabilities are established for outstanding claims as a result of a liability adequacy test.


The liability adequacy test for non-life insurance is therefore limited to the unexpired portion of existing contracts. It is performed by comparing the expected value of claims and expenses attributable to the unexpired periods of policies in force at the end of the reporting period with the amount of unearned premiums in relation to such policies after deduction of deferred acquisition costs. Expected cash flows relating to claims and expenses are estimated by reference to the experience during the expired portion of the contract, adjusted for significant individual losses which are not expected to recur.

The test is performed by product groups which comprise insurance contracts with a similar risk profile.

For annuities, the assumptions used to establish the provision include all future cash flows with changes being recognised immediately in the income statement. As such, no separate liability adequacy test is required to be performed.

C.2.4 Significant variables

Profit or loss and insurance liabilities are mainly sensitive to changes in mortality, lapse rate, expense rate, discount rates and annuitisation which are estimated for calculating adequate value of insurance liabilities during the Liability Adequacy Test (“LAT”).

The Group has estimated the impact on profit for the year and equity as at the year end of changes in key variables that have a material impact on them.

C.2.4.1 Life insurance

In CZK million for the year ended 31 December 2009 Change in variable Change in P/L Change in insurance Variable liabilities

Mortality 10% (30.5) 30.5

Lapse rate (10%) (4.0) 4.0

Expense rate 10% (64.9) 64.9

Discount rate 100 bp 666.6 (666.6)

(100) bp (1,386.9) 1,386.9

Annuitisation 10% (10.4) 10.4

In CZK million for the year ended 31 December 2008 Change in variable Change in P/L Change in insuranceVariable liabilities

Mortality 10% (47.1) 47.1

Lapse rate (10%) (24.4) 24.4

Expense rate 10% (110.5) 110.5

Discount rate 100 bp 1,030.7 (1,030.7)

(100) bp (1,809.3) 1,809.3

Annuitisation 10% (213.1) 213.1

Changes in variables represent reasonably possible changes in variables mentioned which could have occurred and would have led to significant changes in insurance liabilities as at the end of the reporting period. The reasonably possible changes represent neither expected changes in variables nor worst case scenarios.

The analysis does not include reinsurance, as the only significant reinsured life insurance product is an accident rider that does not bring about the liabilities’ inadequacy and therefore is not subject to LAT. Other life insurance products, which are reinsured, are insignificant in the sum at risk. Therefore gross values are a reliable approximation of that net of reinsurance.

The analysis has been prepared for a change in variables with all other assumptions remaining constant and ignores changes in the values of the related assets.

Sensitivity was always calculated for the worse direction in movement; therefore, sensitivity to changes in mortality was calculated for a 10% decrease in mortality for pension products and a 10% increase in mortality for other types of products, sensitivity to changes in lapse rates was calculated to decrease by 10%, sensitivity to changes in expense rates and annuitisation (take-up rate) was calculated to increase by 10%.

The income statement and insurance liabilities are mostly influenced by a change in the discount rate in both directions. Hence changes in discount rates are stated in 100 basis points for both directions.


C.2.4.2 Non-life insuranceIn non-life insurance, variables that would have the greatest impact on insurance liabilities relate to annuities.

The key variable in the calculation of the provision for the annuities is a discount rate. A 100 bp decrease in the discount rate would lead to a CZK 755.0 million (2008: CZK 810.0 million) increase in the liability.

An increase in wages and disability pensions which also significantly influence the amount of annuities to be paid is dependant on an adjustment rate. A 100 bp increase in the adjustment rate would lead to a CZK 628.0 million (2008: CZK 618.0 million) increase in the liability.

Considering a reinsurance effect a 100 bp decrease in the discount rate would lead to a CZK 471.0 million (2008: CZK 493.0 million) increase in the liability and a 100 bp increase in the adjustment rate would lead to a CZK 388.0 million (2008: CZK 382.0 million) increase in the liability.

C.3 Terms and conditions of insurance and investment contracts with DPF that have a material impact on the amount, timing and uncertainty of future cash flows

C.3.1 Non-life insurance contracts

The Group offers many forms of general insurance, mainly motor insurance, property insurance and liability insurance. Contracts may be concluded for a fixed term of one year or on a continuous basis with either party having the option to cancel at 8 weeks’ notice. The Group is therefore generally able to re-price the risk by revising the premium at intervals of not more than one year. It also has the ability to impose deductibles and reject fraudulent claims.

Future insurance claims are the main source of uncertainty which influences the amount and the timing of future cash flows.

The amount of particular claim payments is limited by the sum insured which is established in the insurance policy.

The other significant source of uncertainty connected with non-life insurance arises from legislative regulations which entitle the policyholder to report a claim before the time of expiration, which usually lasts 3–4 years from the date, when the policyholder becomes aware of the claim. This feature is particularly significant in case of permanent disability arising from accident insurance, because of the difficulty in estimating the period between occurrence and confirmation of permanent effects.

The following statements describe characteristics of particular types of insurance contracts if they are significantly different from the above-mentioned features.

Motor insuranceThe Group motor portfolio comprises both motor third party liability insurance (MTPL) and motor (casco) insurance. MTPL insurance covers bodily injury claims and property claims in the Czech Republic as well as claims caused abroad by insured motorists under the Green Card system.

Property damage under MTPL and casco claims are generally reported and settled within a short period of the accident occurring. Payments relating to bodily injury claims, however, take longer to finalise and are more difficult to estimate. Such claims may be settled in the form of a lump-sum settlement or an annuity.

With regards to claims relating to bodily injury and related losses of earnings, the amount of the related claim payments is derived from governmental decree. This requirement may have a retrospective effect on claims incurred before the effective date of this requirement.

Policyholders are entitled to a no-claims-bonus on renewal of their policy where the conditions are fulfilled.

The amount of claim payment for damage of property and compensation of losses of earnings does not exceed CZK 100 million per claim, as well as compensation of damage to health.

Casco insurance represents standard insurance against damage; claim payment is limited by the sum insured and the amount of participation.


Property insuranceThis is broadly split into Industrial and Personal lines. For Industrial lines the Group uses risk management techniques to identify and evaluate risks and analyse possible losses and hazards and also cooperates with reinsurers. Risk management techniques include primarily inspection visits in the industrial areas performed by risk management team which consist of professionals with a long term experience and deep safety rules knowledge. Personal property insurance consists of the standard buildings and contents insurance.

Claims are normally notified promptly and can be settled without delay.

Liability insuranceThis covers all types of liabilities and includes commercial liabilities, directors and officers and professional indemnity as well as personal liability.

While the majority of general liability coverage is written on a „claims-made“ basis, certain general liability coverage is typically insured on an “occurrence basis“ basis.

Accident insuranceAccident insurance is traditionally sold as an add-on to the life products offered by the Group and is included in the life insurance segment. Only a small part of accident insurance is sold without life insurance.

C.3.2 Life insurance contracts

BonusesOver 90% of the Group’s life insurance contracts include an entitlement to receive a bonus. Bonuses to policyholders are granted at the discretion of the Group and are recognised when proposed and approved by the Board of Directors in accordance with the relevant legal requirements. Once allocated to policyholders, bonuses are guaranteed (see C.1.33.3).

PremiumsPremiums may be payable in regular instalments or as a single premium at inception of the policy. Most endowment-type insurance contracts contain a premium indexation option which may be exercised at the discretion of the policyholder annually. Where the option is not exercised, premiums are not increased with inflation.

Term life insurance productsTraditional term life insurance products comprise risk of death, waiver of premium in case of permanent disability and accident rider. Premium is paid regularly or as a single premium. Policies offer fixed or decreasing sum insured of death. The policies offer protection from a few years up to medium long-term. Death benefits are paid only if the policyholder dies during the term of insurance. A waiver of premium arises only in case of an approved disability pension of the policyholder.

The period of disability is the main source of uncertainty connected with life insurance products. It is limited by contractual minimum duration of the insurance policy and by the end of the insurance period.

Endowment productsThese are also traditional term life insurance products providing life-long financial protection. Many long-term policies have tax advantages and give the insured the possibility to finance their needs in retirement. Capital life insurance products for regular or single premium offers covering risk of death, endowment, deadly diseases, waiver of premium in case of disability and accident rider. Insurance benefits are usually paid as a lump-sum.

Variable capital life insurance productsVariable capital life insurance products offer all types of insurance risk as traditional capital life insurance products. In addition, they offer the policyholder the possibility to pay an extra single premium during the term of the insurance. The policyholder can ask to interrupt payment for regular premium, to withdraw a part of the extra single premium, to change the term of insurance, risks, sums insured and premium.


Children’s insurance productsThese products are based on traditional life risk: death or endowment of assured, waiver of premium in case of disability and accident rider. They are paid regularly. The term of insurance is usually limited by the 18th birthday of the child for which the policy is negotiated. Benefits may be in the form of a lump-sum or annuity payment.

Unit-linked life insuranceUnit-linked are those products, where the policyholders carry the investment risk.

The Group earns management and administration fees and mortality results on these products.

Unit-linked life insurance combines traditional term life insurance, with risks of death or deadly diseases together with waiver of premium in case of permanent disability, and the possibility to invest regular premium or extra single premium to some investment funds. The policyholder defines funds and ratio of premium where payments are invested and can change the funds and ratio during the contract. He can also change sums assured, regular premium, and insurance risks. He can pay an additional single premium or withdraw a part of extra single premium.

Retirement insurance for regular payments (with interest rates)Life-long retirement programme products include pensions paid off in case of death, dread diseases or maturity of agreed age of assured, options for variable combination of component. The policyholder can pay the premium regularly or in a single payment. Basic types of pension are short-term pension and lifetime pension.

C.3.3 Investment contracts with DPF

Adult deposit life or accident insurance with returnable lump-sum principalThese types of life or accident products allow policyholders to pay a single returnable deposit at the beginning of the policy. The interest earned on the deposit is used to pay the annual premiums. The deposit is returned at the end of assurance or on death. These contracts also entitle the policyholder to a discretionary bonus, determined as under life insurance contracts.

C.4 Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

C.4.1 Assumptions used to calculate insurance liabilities

The Group uses certain assumptions when calculating its insurance liabilities. The process used to determine the assumptions that have the greatest effect on the measurement of the items in the Group’s financial statements, and the effects of changes in the assumptions that would have a material effect on the recognised amounts, are discussed in part C.2.4.

C.4.2 Fair value of derivatives and other financial instruments

The fair value of financial instruments that are not traded on an active market (for example, over-the-counter derivatives) is determined using valuation techniques. The Group uses its judgement to select a variety of methods and makes assumptions that are mainly based on the market conditions existing as at each end of the reporting period.

As at 31 December 2008, the Group held 6,620,641 shares in Zentiva. The management of the Group had intended to accept the public offer made by Anthiarose Ltd. and as a result it arranged for a put and call option on the price of Zentiva shares with Anthiarose Ltd. Upon an amended public offer made by Sanofi Aventis Europe to buy the shares of Zentiva for CZK 1,150 per share, the companies (the Group and Anthiarose Ltd.) agreed to terminate the collar. Anthiarose kept the right of first refusal for the purchase of Zentiva’s shares held by the Group if and when the Group decided to sell the shares. The Group was obliged to pay one half of the difference between the purchase price and CZK 1,088 to Anthiarose if the purchase price is higher than CZK 1,088 per share. As a result the Group reported a liability calculated on a probability weighted expectation that Zentiva shares are to be sold to Sanofi Aventis Europe. The value of potential liability recorded as at 31 December 2008 was CZK 153.9 million. The Group, subsequent to the year end, sold the shares at CZK 1,150 per share and on 12 March 2009 the Group paid CZK 205.2 million to Anthiarose.


C.5 Changes in accounting policies

C.5.1 Standards, amendments and interpretations to existing standards relevant for the Group and applied in the reporting period

The following published amendments and interpretations of existing standards are mandatory and relevant to the Group and have been applied by the Group since 1 January 2009:

IAS 1 – Presentation of Financial Statements – Complete revision including a requirement to present Statement of comprehensive income (Statement of comprehensive income, effective from 1 January 2009)This revision especially introduces a comprehensive income statement. This enables users of the financial statements to analyse changes in a company’s equity resulting from transactions with owners in their capacity as owners (such as dividends and share repurchases) separately from ‘non-owner’ changes (such as transactions with third parties). The revised standard gives the option of presenting items of income and expense and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by a comprehensive income statement). Presentation in two separate statements has been applied by the Group.

IFRS 8 – Operating segments (effective from 1 January 2009)This standard requires that an entity adopt the ‘management approach’ to reporting on the financial performance of its operating segments. Generally, the information to be reported is that which management uses internally for evaluating segment performance and deciding how to allocate resources to operating segments. Such information may be different from what is used to prepare the income statement and statement of financial position. The standard therefore requires explanations of the basis on which the segment information is prepared and reconciliations to the amounts recognised in the income statement and statement of financial position. This standard replaces IAS 14 Segment reporting and only applies to listed entities.

IAS 23 – Borrowing cost, amendment to the standard (effective from 1 January 2009)This amendment removes the option of immediately recognising borrowing costs, as an expense, that relate to assets that take a substantial period of time to get ready for use or sale. The revised standard requires that an entity capitalise such borrowing costs as part of the cost of that asset. This was a permitted alternative treatment under IAS 23. This treatment was not previously relevant for the Group and it will be applied for newly occurring events.

IAS 32 – Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation (effective from 1 January 2009)IAS 32 requires a financial instrument to be classified as a liability if the holder of that instrument can require the issuer to redeem it for cash. Many financial instruments that would usually be considered equity, including some ordinary shares and partnership interests, allow the holder to ‘put’ the instrument (to require the issuer to redeem it for cash). Currently these financial instruments are considered liabilities, rather than equity. They require entities to classify these types of financial instruments as equity, provided they have particular features and meet specific conditions. This was not previously relevant for the Group and it will be applied for newly occurring events.

Improvements to International Financial Reporting Standards (issued in May 2008) In 2007, the International Accounting Standards Board decided to initiate an annual improvements project as a method of making necessary, but non-urgent, amendments to IFRS. The amendments consist of a mixture of substantive changes, clarifications, and changes in terminology in various standards. The substantive changes relate to the following areas: classification as held-for-sale under IFRS 5 in case of a loss of control over a subsidiary; possibility of presenting financial instruments held-for-trading as non-current under IAS 1; accounting for sale of IAS 16 assets which were previously held-for-rental and classification of the related cash flows under IAS 7 as cash flows from operating activities; clarification of the definition of a curtailment under IAS 19; accounting for below-market interest rate government loans in accordance with IAS 20; making the definition of borrowing costs in IAS 23 consistent with the effective interest method; clarification of accounting for subsidiaries held-for-sale under IAS 27 and IFRS 5; reduction in the disclosure requirements relating to associates and joint ventures under IAS 28 and IAS 31; enhancement of disclosures required by IAS 36; clarification of accounting for advertising costs under IAS 38; amending the definition of the fair value through profit or loss category to be consistent with hedge accounting under IAS 39; introduction of accounting for investment properties under construction in accordance with IAS 40; and reduction in restrictions over how the fair value of biological assets are determined under IAS 41. Further amendments made to IAS 8, 10, 18, 20, 29, 34, 40, 41 and to IFRS 7 represent terminology or editorial changes only, which the IASB believes have no or minimal effect on accounting. The amendments do not have any material effect on the financial statements of the Group.

Amendment to IFRS 4 – Insurance Contracts and IFRS 7 – Financial instruments: Disclosures (effective from 1 January 2009)The amendments to IFRS 4 and IFRS 7 aim at requiring enhanced disclosures about fair value measurements and liquidity risk associated with financial instruments.


An entity shall disclose for each class of financial instruments the methods and, when a valuation technique is used, the assumptions applied in determining fair values of each class of financial assets or financial liabilities. An entity shall classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. If there has been a change in valuation technique, the entity shall disclose that change and the reasons for making it.

Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate – IFRS 1 and IAS 27 Amendment (issued in May 2008; effective for annual periods beginning on or after 1 January 2009) The amendment allows first-time adopters of IFRS to measure investments in subsidiaries, jointly controlled entities or associates at fair value or at previous GAAP carrying value as deemed cost in the separate financial statements. The amendment also requires distributions from pre-acquisition net assets of investees to be recognised in profit or loss rather than as a recovery of the investment. The amendments do not have any impact on the Group’s financial statements.

C.5.2 Standards, interpretations and amendments to published standards that are not yet effective

The following new standards, amendments and interpretations to existing standards have been published and are mandatory and relevant for the Group’s accounting periods beginning on or after 1 January 2010 but have not been applied earlier by the Group:

Amendment to IAS 32: Classification of Right issues (effective for annual periods beginning on or after 1 February 2010, not yet adopted by the EU)The amendment to IAS 32 clarifies how to account for certain rights when the issued instruments are denominated in a currency other than the functional currency of the issuer. If such instruments are issued pro rata to the issuer‘s existing shareholders for a fixed amount of cash, they should be classified as equity even if their exercise price is denominated in a currency other than the issuer‘s functional currency.

Eligible Hedged Items – Amendment to IAS 39, Financial Instruments: Recognition and Measurement (effective with retrospective application for annual periods beginning on or after 1 July 2009) The amendment clarifies how the principles that determine whether a hedged risk or portion of cash flows is eligible for designation should be applied in particular situations. The amendment has no impact on the Group and will be evaluated in case of newly occurring events.

Amendments to IFRIC 9 – Reassessment of Embedded Derivatives and IAS 39 – Financial Instruments: Recognition and Measurement (effective for annual periods ending on or after 30 June 2009, endorsed by the EU for annual periods beginning on or after 1 January 2010, earlier application is permitted)The amendments to IFRIC 9 and IAS 39 clarify the treatment of derivative financial instruments embedded in other contracts when a hybrid financial asset is reclassified out of the fair value through profit or loss category.

The reclassification amendment issued by IASB in October 2008 allows entities to reclassify particular financial instruments out of the ‘at fair value through profit or loss’ category in specific circumstances. The amendments to IFRIC 9 and IAS 39 clarify that on reclassification of a financial asset out of the ‘at fair value through profit or loss’ category all embedded derivatives have to be assessed and, if necessary, separately accounted for in the financial statements.

The Group will apply these IFRS from the reporting period beginning 1 January 2010 and is currently assessing the impact of the implementation.

IFRS 3, Business Combinations (revised January 2008; effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009) The revised standard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the profit and loss account. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs should be expensed. The revised standard is not expected to have a material impact on the Group’s financial statements.

IAS 27, Consolidated and Separate Financial Statements (revised January 2008; effective for annual periods beginning on or after 1 July 2009) The revised IAS 27 will require an entity to attribute total comprehensive income to the owners of the parent and to the non-controlling interests (previously “minority interests”) even if this results in the non-controlling interests having a deficit balance (the current standard requires the excess losses to be allocated to the owners of the parent in most cases).


The revised standard specifies that changes in a parent’s ownership interest in a subsidiary that do not result in the loss of control must be accounted for as equity transactions. It also specifies how an entity should measure any gain or loss arising on the loss of control of a subsidiary. At the date when control is lost, any investment retained in the former subsidiary will have to be measured at its fair value. The amendment to the standard will not have any significant impact on the Group’s financial statements.

IAS 24, Related Party Disclosures (amended November 2009, effective for annual periods beginning on or after 1 January 2011, not yet adopted by the EU) IAS 24 was revised in 2009 by:

(a) simplifying the definition of a related party, clarifying its intended meaning and eliminating inconsistencies from the definition; and

(b) providing a partial exemption from the disclosure requirements for government-related entities. The Group is currently assessing the impact of the amended standard on disclosures in its financial statements.

IFRS 9, Financial Instruments (issued in November 2009, effective for annual periods beginning on or after 1 January 2013, with earlier application permitted, not yet adopted by the EU) IFRS 9 replaces those parts of IAS 39 relating to the classification and measurement of financial assets. Key features are as follows:

– it is required that financial assets be classified into two measurement categories: those to be measured subsequently at fair value, and those to be measured subsequently at amortised cost. The decision is to be made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument;

– an instrument is subsequently measured at amortised cost only if it is a debt instrument and both (i) the objective of the entity’s business model is to hold the asset to collect the contractual cash flows, and (ii) the asset’s contractual cash flows represent only payments of principal and interest (that is, it only has “basic loan features”). All other debt instruments are to be measured at fair value through profit or loss; and

– all equity instruments are to be measured subsequently at fair value. Equity instruments that are held-for-trading will be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can be made at initial recognition, to recognise unrealised and realised fair value gains and losses through other comprehensive income rather than profit or loss. There is to be no recycling of fair value gains and losses to profit or loss when the asset is derecognised. This election may be made on an instrument-by-instrument basis. Dividends are to be presented in profit or loss, as long as they represent a return on investment.

The Group is considering the implications of the standard, the impact on the Group and the timing of its adoption by the Group.

Group Cash-settled Share-based Payment Transactions – Amendments to IFRS 2, Share-based Payment (effective for annual periods beginning on or after 1 January 2010) The amendments provide a clear basis to determine the classification of share-based payment awards in both consolidated and separate financial statements. The amendments incorporate into the standard the guidance in IFRIC 8 and IFRIC 11, which are withdrawn. The amendments expand on the guidance given in IFRIC 11 to address plans that were previously not considered in the interpretation. The amendments also clarify the defined terms in the Appendix to the standard. The amendments will not have any impact on the Group’s financial statements as the Group does not have any Share-based payments.

IFRS 1 amendment – limited exemption from comparative IFRS 7 disclosures for first-time adopters (The proposed amendment will be effective for annual periods beginning on or after 1 July 2010, with early application permitted, not yet adopted by the EU) Existing IFRS preparers were granted relief from presenting comparative information for the new disclosures required by the March 2009 amendments to IFRS 7 ‘Financial Instruments: Disclosures’. The relief was provided because the amendments to IFRS 7 were issued after the comparative periods had ended, and the use of hindsight would have been required. The amendment to IFRS 1 provides first-time adopters with the same transition provisions (and thereby the same relief) as included in the amendment to IFRS 7 for other companies.

Embedded Derivatives – Amendments to IFRIC 9 and IAS 39 (effective for annual periods ending on or after 30 June 2009, endorsed by the EU for annual periods beginning on or after 1 January 2010, earlier application is permitted) The amendments clarify that on reclassification of a financial asset out of the ‘at fair value through profit or loss’ category, all embedded derivatives have to be assessed and, if necessary, separately accounted for. The Group concluded that the revised standard does not have any effect on its financial statements.


Improvements to International Financial Reporting Standards (issued in April 2009; amendments to IFRS 2, IAS 38, IFRIC 9 and IFRIC 16 are effective for annual periods beginning on or after 1 July 2009; amendments to IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 36 and IAS 39 are effective for annual periods beginning on or after 1 January 2010) The improvements consist of a mixture of substantive changes and clarifications in the following standards and interpretations:

– clarification that contributions of businesses in common control transactions and formation of joint ventures are not within the scope of IFRS 2;

– clarification of disclosure requirements set by IFRS 5 and other standards for non-current assets (or disposal groups) classified as held for sale or discontinued operations;

– requiring to report a measure of total assets and liabilities for each reportable segment under IFRS 8 only if such amounts are regularly provided to the chief operating decision maker;

– amending IAS 1 to allow classification of certain liabilities settled by entity’s own equity instruments as non-current;

– changing IAS 7 such that only expenditures that result in a recognised asset are eligible for classification as investing activities;

– allowing classification of certain long-term land leases as finance leases under IAS 17 even without transfer of ownership of the land at the end of the lease;

– providing additional guidance in IAS 18 for determining whether an entity acts as a principal or an agent;

– clarification in IAS 36 that a cash generating unit shall not be larger than an operating segment before aggregation;

– supplementing IAS 38 regarding measurement of fair value of intangible assets acquired in a business combination;

– amending IAS 39 (i) to include in its scope option contracts that could result in business combinations, (ii) to clarify the period of reclassifying gains or losses on cash flow hedging instruments from equity to profit or loss and (iii) to state that a prepayment option is closely related to the host contract if upon exercise the borrower reimburses economic loss of the lender;

– amending IFRIC 9 to state that embedded derivatives in contracts acquired in common control transactions and formation of joint ventures are not within its scope; and

– removing the restriction in IFRIC 16 that hedging instruments may not be held by the foreign operation that itself is being hedged.

The Group does not expect the amendments to have any material effect on its financial statements.

IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments (effective for annual periods beginning on or after 1 July 2010, not yet adopted by the EU) This IFRIC clarifies the accounting when an entity renegotiates the terms of its debt with the result that the liability is extinguished through the debtor issuing its own equity instruments to the creditor. A gain or loss is recognised in the profit and loss account based on the fair value of the equity instruments compared to the carrying amount of the debt. The interpretation will not have any impact on the Group’s financial statements.

C.5.3 Standards, interpretations and amendments to published standards that are not relevant for the Group’s financial statements

IFRIC 13, Customer Loyalty Programmes (effective for annual periods beginning on or after 1 July 2008) IFRIC 13 clarifies that where goods or services are sold together with a customer loyalty incentive (for example, loyalty points or free products), the arrangement is a multiple-element arrangement and the consideration receivable from the customer is allocated between the components of the arrangement using fair values. IFRIC 13 is not relevant to the Group’s operations because Group does not operate any loyalty programmes.


IFRIC 15, Agreements for the Construction of Real Estate (effective for annual periods beginning on or after 1 January 2009) The interpretation applies to the accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors, and provides guidance for determining whether agreements for the construction of real estate are within the scope of IAS 11 or IAS 18. It also provides criteria for determining when entities should recognise revenue on such transactions. IFRIC 15 is not relevant to the Group’s operations because it does not have any agreements for the construction of real estate.

IFRIC 17 – Distributions of Non-cash Assets to Owners (effective for annual periods beginning on or after 1 July 2009)The IFRIC clarifies that a dividend payable should be recognised when the dividend is appropriately authorised and is no longer at the discretion of the entity. An entity should measure the dividend payable at the fair value of the net assets to be distributed. An entity should recognise the difference between the dividend paid and the carrying amount of the net assets distributed in profit or loss and an entity has to provide additional disclosures if the net assets being held for distribution to owners meet the definition of a discontinued operation. This was not previously relevant for the Group and it will be applied for newly occurring events.

IFRIC 16, Hedges of a Net Investment in a Foreign Operation (effective for annual periods beginning on or after 1 October 2008) The interpretation explains which currency risk exposures are eligible for hedge accounting and states that translation from the functional currency to the presentation currency does not create an exposure to which hedge accounting could be applied. The IFRIC allows the hedging instrument to be held by any entity or entities within a group except the foreign operation that itself is being hedged. The interpretation also clarifies how the gain or loss recycled from the currency translation reserve to profit or loss is calculated on disposal of the hedged foreign operation. Reporting entities will apply IAS 39 to discontinue hedge accounting prospectively when their hedges do not meet the criteria for hedge accounting in IFRIC 16. IFRIC 16 does not have any impact on these financial statements as the Group does not apply hedge accounting for hedging of net investment in a foreign operation.

IFRIC 18, Transfers of Assets from Customers (effective for annual periods beginning on or after 1 July 2009, endorsed by the EU for annual periods beginning on or after 31 October 2009, earlier application is permitted) The interpretation clarifies the accounting for transfers of assets from customers, namely, the circumstances in which the definition of an asset is met; the recognition of the asset and the measurement of its cost on initial recognition; the identification of the separately identifiable services (one or more services in exchange for the transferred asset); the recognition of revenue, and the accounting for transfers of cash from customers. IFRIC 18 is not expected to have any impact on the Group’s financial statements.

Vesting Conditions and Cancellations – Amendment to IFRS 2, Share-based Payment (issued in January 2008; effective for annual periods beginning on or after 1 January 2009) The amendment clarifies that only service conditions and performance conditions are vesting conditions. Other features of a share-based payment are not vesting conditions. The amendment specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The Group does not expect the amendment to have a material effect on its financial statements.

IFRS 1, First-time Adoption of International Financial Reporting Standards (following an amendment in November 2008, effective for the first IFRS financial statements for a period beginning on or after 1 July 2009, endorsed by the EU for annual periods beginning on or after 31 December 2009, earlier application is permitted) The revised IFRS 1 retains the substance of its previous version but within a changed structure in order to make it easier for the reader to understand and to better accommodate future changes. The Group concluded that the revised standard does not have any effect on its financial statements.

Prepayments of a Minimum Funding Requirement – Amendment to IFRIC 14 (effective for annual periods beginning on or after 1 January 2011, not yet adopted by the EU) This amendment will have a limited impact as it only applies to companies that are required to make minimum funding contributions to a defined benefit pension plan. It removes an unintended consequence of IFRIC 14 related to voluntary pension prepayments when there is a minimum funding requirement. The amendments will not have any impact on the Group’s financial statements.

IFRS 1 amendment – limited exemption from comparative IFRS 7 disclosures for first-time adopters (The proposed amendment will be effective for annual periods beginning on or after 1 July 2010, with early application permitted, not yet adopted by the EU) Existing IFRS preparers were granted relief from presenting comparative information for the new disclosures required by the March 2009 amendments to IFRS 7 ‘Financial Instruments: Disclosures’. The relief was provided because the amendments to IFRS 7 were issued after the comparative periods had ended, and the use of hindsight would have been required. The amendment to IFRS 1 provides first-time adopters with the same transition provisions (and thereby the same relief) as included in the amendment to IFRS 7 for other companies.


D. Segment reporting

The Board of Directors as a Group’s chief operating decision maker makes decisions on how to allocate resources and assesses performance of three operating segments: the Česká pojišťovna life insurance operating segment, Česká pojišťovna non-life insurance operating segment, pension funds. In 2008 there was also a segment of captive Group reinsurance, which was disposed in 2008. These segments represent a component of the Group:

– that engages in business activities from which the Group may earn revenues and incur expenses;

– whose operating results are regularly reviewed by the management of the Group to make decisions about resources to be allocated to the segment and assess its performance; and

– for which discrete financial information is available.

The Group comprises Non-life insurance, Life insurance and Pension funds as the main business segments. Note C of the financial statements provides further information about significant terms and conditions of insurance products.

Products offered by reported business segments include:

Non-life Life

Property and liability Traditional life

Motor third party liability Unit linked

Casco Additional pension insurance

Health

The Board of directors assesses the performance of the operating segments based on a measure of profit after taxes for all segments and for insurance segments the results are measured also based on net technical results.



CP Life CP Non-life Pension Total(CZK milion) funds

Gross

Insurance premiums 13,600.5 25,055.6 0.0 38,656.1

Technical benefits and claims (6,867.5) (14,749.5) 0.0 (21,617.0)

Total costs (2,969.7) (5,667.5) 0.0 (8,637.2)

Commissions and other acquisition costs (1,971.1) (4,073.2) 0.0 (6,044.3)

Administration expenses (998.6) (1,594.3) 0.0 (2,592.9)

Other technical items (122.0) (119.6) 0.0 (241.6)

Gross technical result 3,641.3 4,519.0 0.0 8,160.3

Reinsurance

Premiums ceded to reinsurers (1,156.9) (10,075.8) 0.0 (11,232.7)

Reinsurer‘s share on claims 308.4 5,114.8 0.0 5,423.2

Total costs 287.6 2,295.8 0.0 2,583.4

Commissions and other acquisition costs 287.6 2,295.8 0.0 2,583.4

Other technical items 0.0 55.7 0.0 55.7

Reinsurance technical result (560.9) (2,609.5) 0.0 (3,170.4)

Net

Insurance premiums 12,443.5 14,979.9 0.0 27,423.4

Technical benefits and claims (6,559.1) (9,634.8) 0.0 (16,193.9)

Total costs (2,682.0) (3,371.7) 0.0 (6,053.7)

Commissions and other acquisition costs (1,683.5) (1,777.4) 0.0 (3,460.9)

Administration expenses (998.5) (1,594.3) 0.0 (2,592.8)

Other technical items (122.0) (63.9) 0.0 (185.9)

Net technical result 3,080.4 1,909.5 0.0 4,989.9

Total financial investments income 4,384.3 2,377.9 6,762.2

Acquisition expenses relating to investment contracts 0.0 (748.0) (748.0)

Total other income and expenses (589.4) (107.1) (696.5)

Income taxes (1,404.7) 0.0 (1,404.7)

Profit after taxes 7,380.1 1,522.8 8,902.9

Contribution of other entities 1,616.2

Elimination of dividends (688.9)

Other intercompany eliminations 196.8

Gains/losses relating to disposal of subsidiaries (1,068.5)

Other consolidation adjustments (132.0)

Elimination of Intragroup transactions (1,692.6)

Profit after taxes 8,826.5

Nearly all segment revenues in 2009 are generated from sales to external customers. There is no single external customer that would amount to 10 percent or more of the Group’s revenues.



CP Life CP Pension Reinsurance Total(CZK milion) Non-life funds

Gross

Insurance premiums 14,057.1 24,632.6 0.0 11,728.3 50,418.0

Technical benefits and claims (9,489.4) (13,415.0) 0.0 (5,406.1) (28,310.5)

Total costs (911.2) (7,349.8) 0.0 (2,577.9) (10,838.9)

Commissions and other acquisition costs (911.2) (4,760.4) 0.0 (2,573.2) (8,244.8)

Administration expenses 0.0 (2,589.4) 0.0 (4.7) (2,594.1)

Other technical items (50.3) (0.3) 0.0 (10.6) (61.2)

Gross technical result 3,606.2 3,867.5 0.0 3,733.7 11,207.4

Reinsurance

Premiums ceded to reinsurers (1,114.5) (8,921.5) 0.0 (1,093.5) (11,129.5)

Reinsurer‘s share on claims 276.7 4,413.0 0.0 268.1 4,957.8

Total costs 280.1 2,015.5 0.0 18.1 2,313.7

Commissions and other acquisition costs 280.1 2,015.5 0.0 18.1 2,313.7

Other technical items 0.0 0.0 0.0 0.0 0.0

Reinsurance technical result (557.7) (2,493.0) 0.0 (807.3) (3,858.0)

Net

Insurance premiums 12,942.6 15,711.1 0.0 10,634.8 39,288.5

Technical benefits and claims (9,212.7) (9,002.0) 0.0 (5,138.0) (23,352.7)

Total costs (631.1) (5,334.3) 0.0 (2,559.8) (8,525.2)

Commissions and other acquisition costs (631.1) (2,744.9) 0.0 (2,555.1) (5,931.1)

Administration expenses 0.0 (2,589.4) 0.0 (4.7) (2,594.1)

Other technical items (50.3) (0.3) 0.0 (10.6) (61.2)

Net technical result 3,048.5 1,374.5 0.0 2,926.4 7,349.4

Total financial investments income 2,725.9 560.7 (566.2) 2,720.4

Acquisition expenses relating to investment contracts 0.0 (813.5) 0.0 (813.5)

Total other income and expenses (1,166.0) (32.5) (6.4) (1,204.9)

Income taxes (109.7) 0.0 (317.9) (427.6)

Profit after taxes 5,873.2 (285.3) 2,035.9 7,623.8

Contribution of other entities (29.1)

Elimination of dividends (406.6)

Other intercompany eliminations 427.4

Gains/losses relating to disposal of subsidiaries (6,384.9)

Other consolidation adjustments 406.4

Elimination of Intragroup transactions (5,957.6)

Profit after taxes 1,637.0

Segment revenues in 2008 are generated from sales to external customers with the exception of the reinsurance segment where the contribution of internal customers amounts to CZK 9,000.2 million. The main intra-segment transaction occurred between Reinsurance and CP Life (CZK 1,011.2 million) and Reinsurance and CP Non-life (CZK 7,437.4 million).


The following table represents the reconciliation of insurance premiums reported in the segment report and the income statement:


CP Life 13,600.5 14,057.1

CP Non-life 25,055.6 24,632.6

Reinsurance 0.0 11,728.3

Other entities 445.2 2,653.5

Elimination of intragroup transactions (1.5) (9,040.7)

Insurance premiums in the income statement 39,099.8 44,030.8

The following table shows key figures per business segment:

2009 CP Life CP Non-life Pension Others(CZK million) funds

Segment revenue 13,600.5 25,055.6 1,585.7 3,854.0

Capital expenditure (385.3) (153.5) (35.3) (10.9)

Interest income 2,815.7 924.4 1,481.4 229.4

Interest expense 18.4 27.3 0.0 6.1

Depreciation and amortisation (192.7) (444.4) (17.1) (16.8)

Impairment losses recognised (344.7) (222.9) (18.4) (12.7)

Reversal of impairment losses 0.0 1.0 0.0 0.0

2008 CP Life CP Non-life Pension Others(CZK million) funds

Segment revenue 14,057.1 24,632.6 960.9 6,237.8

Capital expenditure (586.7) (175.9) (24.5) (403.7)

Interest income 2,690.8 927.5 1,625.1 696.2

Interest expense 63.2 21.1 0.0 1.3

Depreciation and amortisation (254.2) (617.2) (17.1) (39.8)

Impairment losses recognised (1,113.5) (1,114.2) (209.0) (58.6)

Reversal of impairment losses 37.2 160.7 0.0 3.3


Segment assets and liabilities by business segment as at 31 December 2009:

CP Life CP Non-life Pension Others Consolida- Total funds tion (CZK milion) adjustments

Total assets 81,619.5 46,517.1 51,919.7 11,387.2 (11,281.7) 180,161.7

Intangible assets 372.5 978.1 145.8 15.6 1,322.6 2,834.6

Goodwill 0.0 0.0 0.0 0.0 1,323.0 1,323.0

Other intangible assets 372.5 978.1 145.8 15.6 (0.4) 1,511.6

Tangible Assets 218.6 185.3 21.8 57.2 (34.0) 448.8

Land and buildings (self used) 115.3 0.0 0.0 0.0 0.0 115.3

Other tangible assets 103.3 185.3 21.8 57.2 (34.0) 333.6

Reinsurance assets 829.9 8,410.2 0.0 31.3 (6.8) 9,264.6

Investments 78,442.2 26,791.9 50,508.6 9,553.2 (12,175.6) 153,120.3

Land and buildings 85.1 0.0 0.0 0.0 0.0 85.1

Investments in subsidiaries and associated companies 4,184.5 1,540.5 0.0 21.3 (5,737.7) 8.6

Held to maturity investments 87.5 0.0 0.0 0.0 0.0 87.5

Loans and receivables 9,852.4 6,748.5 3,006.4 4,122.5 (2,078.7) 21,651.1

Available for sale financial assets 43,446.7 13,163.4 38,896.3 1,614.8 (1,910.1) 95,211.1

Financial assets at fair value through profit or loss 20,786.0 5,339.5 8,605.9 3,794.6 (2,449.1) 36,076.9

of which financial assets relating to unit-linked policies 3,450.1 0.0 0.0 0.0 0.0 3,450.1

Receivables 1,168.6 7,113.1 487.6 193 (96.0) 8,866.3

Receivables arising out of direct insurance operations 718.5 2,950.0 3.5 59.8 (24.8) 3,706.9

Receivables arising out of reinsurance operations 122.3 2,879.0 0.0 8.2 (1.4) 3,008.2

Other receivables 327.8 1,284.2 484.1 125.0 (69.8) 2,151.2

Other assets 480.8 2,990.5 499.1 1,115.0 1.9 5,087.3

Non-current assets or disposal groups classified as held for sale 291.7 0.0 0.0 0.0 3,586.1 3,877.8

Deferred acquisition costs 0.0 770.5 0.0 982.4 (962.0) 790.9

Deferred tax assets 79.3 22.6 0.0 7.4 2.7 112.0

Tax receivables 13.5 32.7 4.0 90.4 (72.5) 68.1

Other assets 96.3 2,164.7 495.1 34.8 (2,552.6) 238.3

Cash and cash equivalents 106.9 47.9 256.8 421.9 (293.8) 539.7

Total liabilities 74,077.8 32,608.0 48,884.1 2,867.5 (1,415.3) 157,022.1

Other provisions 31.8 1,998.8 5.6 39.7 (19.8) 2,056.1

Insurance provisions 67,523.8 21,424.8 64.8 2,388.1 (1,952.1) 89,449.4

Financial liabilities 1,387.6 536.4 48,551.7 85.9 657.2 51,218.8

Financial liabilities through profit or loss 759.3 286.9 349.6 79.8 (15.0) 1,460.6

Other financial liabilities 628.3 249.5 48,202.1 6.1 672.2 49,758.2

Payables 1,277.0 6,840.0 205.8 299.8 (220.5) 8,402.1

Payables arising out of direct insurance operations 775.5 1,339.5 0.0 207.9 (192.6) 2,130.3

Payables arising out of reinsurance operations 276.4 4,639.7 0.0 22.5 (4.1) 4,934.4

Other payables 225.1 860.8 205.8 69.4 (23.8) 1,337.3

Other liabilities 3,857.6 1,808.0 56.2 54.0 119.9 5,895.7

Liabilities directly associated with non-current assets and disposal groups classified as held for sale 0.0 0.0 0.0 0.0 2,190.0 2,190.0

Deferred tax liabilities 51.1 17.2 0.1 24.7 (16.1) 77.0

Tax payables 3,170.6 469.3 17.5 20.3 (2,039.6) 1,638.1

Other liabilities 635.9 1,321.5 38.6 9.0 (14.4) 1,990.6

Segment assets and liabilities are not regularly included in the reports provided to the Board of Directors.


Segment assets and liabilities by business segment as at 31 December 2008:

CP Life CP Non-life Pension Reinsurance Others Consolida- Total funds tion (CZK milion) adjustments

Total assets 78,834.7 52,540.4 44,703.4 15,038.9 16,355.2 (32,922.4) 174,550.2

Intangible assets 351.5 926.0 157.0 0.0 273.7 1,109.4 2,817.6

Goodwill 0.0 0.0 0.0 0.0 116.8 1,257.2 1,374.0

Other intangible assets 351.5 926.0 157.0 0.0 156.9 (147.8) 1,443.6

Tangible Assets 195.2 226.4 23.9 0.5 145.4 (91.7) 499.7

Land and buildings (self used) 107.2 0.0 0.0 0.0 40.6 (40.6) 107.2

Other tangible assets 88.0 226.4 23.9 0.5 104.8 (51.1) 392.5

Reinsurance assets 829.5 7,720.7 0.0 260.1 1,132.3 (1,375.5) 8,567.1

Investments 75,409.8 28,928.2 41,868.9 10,708.2 8,842.6 (22,055.7) 143,702.0

Land and buildings 83.9 0.0 0.0 0.0 0.0 0.0 83.9

Investments in subsidiaries and associated companies 5,309.9 2,030.7 0.0 0.0 13.3 (5,895.4) 1,458.5

Held to maturity investments 81.7 0.0 77.0 0.0 0.0 0.0 158.7

Loans and receivables 7,235.3 7,569.8 1,148.5 3,543.4 1,785.6 (3,831.6) 17,451.0

Available for sale financial assets 32,433.0 9,225.8 27,196.2 0.0 2,993.3 (1,771.9) 70,076.4

Financial assets at fair value through profit or loss 30,266.0 10,101.9 13,447.2 7,164.8 4,050.4 (10,556.8) 54,473.5

of which financial assets relating to unit-linked policies 1,810.3 0.0 0.0 0.0 0.0 0.0 1,810.3

Receivables 1,402.3 9,879.1 1,517.9 315.0 2,916.8 (2,197.4) 13,833.7

Receivables arising out of direct insurance operations 1,007.7 4,885.7 3.2 0.0 436.9 (323.3) 6,010.2

Receivables arising out of reinsurance operations 75.6 1,827.8 0.0 315.0 513.2 (823.0) 1,908.6

Other receivables 319.0 3,165.6 1,514.7 0.0 1,966.7 (1,051.1) 5,914.9

Other assets 430.8 4,783.1 582.7 36.3 2,543.5 (4,581.9) 3,794.5

Non-current assets or disposal groups classified as held for sale 276.4 0.0 0.0 0.0 0.0 0.0 276.4

Deferred acquisition costs 0.0 763.2 0.0 0.0 1,684.8 (479.1) 1,968.9

Deferred tax assets 7.9 67.2 0.0 0.0 95.7 (60.0) 110.8

Tax receivables 29.5 912.1 5.7 0.7 199.2 (17.7) 1,129.5

Other assets 117.0 3,040.6 577.0 35.6 563.8 (4,025.1) 308.9

Cash and cash equivalents 215.6 76.9 553.0 3,718.8 500.9 (3,729.6) 1,335.6

Total liabilities 76,665.3 36,258.3 42,017.1 7,345.4 9,658.0 (14,998.1) 156,946.0

Other provisions 174.6 2,137.4 0.0 0.0 27.6 (0.5) 2,339.1

Insurance provisions 69,049.2 23,632.2 (2,445.6) 7,252.6 7,339.0 (9,601.9) 95,225.5

Financial liabilities 2,250.5 2,186.8 44,020.7 2.6 107.5 463.2 49,031.3

Financial liabilities through profit or loss 877.1 637.5 311.6 2.6 105.3 (55.3) 1,878.8

Other financial liabilities 1,373.4 1,549.3 43,709.1 0.0 2.2 518.5 47,152.5

Payables 1,476.7 7,030.8 386.3 0.5 1,609.1 (2,335.2) 8,168.2

Payables arising out of direct insurance operations 978.0 1,511.7 0.0 0.0 326.8 (122.3) 2,694.2

Payables arising out of reinsurance operations 176.4 3,525.5 0.0 0.0 1,086.0 (1,072.3) 3,715.6

Other payables 322.3 1,993.6 386.3 0.5 196.3 (1,140.6) 1,758.4

Other liabilities 3,714.3 1,271.1 55.7 89.7 574.8 (3,523.7) 2,181.9

Deferred tax liabilities (45.8) 181.7 0.0 0.0 22.1 (22.1) 135.9

Tax payables 2,926.3 48.8 14.6 80.1 486.6 (3,432.6) 123.9

Other liabilities 833.8 1,040.6 41.1 9.6 66.1 (69.0) 1,922.1


Geographical informationTotal assets are allocated as follows:


Czech Republic 174,933.9 167,927.8

Russia 3,877.8 3,450.0

Ukraine 0.0 107.8

Slovakia 0.0 15.7

Others 1,350.0 3,048.9

Total 180,161.7 174,550.2

The Group operates mainly in the Czech Republic and in other CEE countries (A.1). The decline in total assets in the Ukraine and Slovakia is due to the disposal of Generali PPF Life insurance and Generali Poisťovňa Slovensko, a.s. (see B.1).

The geographical structure of total costs incurred to acquire segment assets that are expected to be used during more than one period is highly concentrated in the Czech Republic, the share of other countries is not significant.

Earned premiums from insurance business (including both life and non-life) are set out below by country:


Czech Republic 38,998.7 38,892.1

Slovakia 0.0 2,280.9

Others 101.1 2,857.8

Total 39,099.8 44,030.8

E. Risk report

In the risk report the Group presents further information in order to enable an assessment of the significance of financial instruments and insurance contracts for an entity‘s financial position and performance. Furthermore, the Group provides information about its exposure to risks arising from financial instruments and insurance contracts, and it discloses the management‘s objectives, policies and processes for managing those risks, in accordance with IFRS 7, endorsed by Regulation (EC) no.108 of 11 January 2006.

E.1 Risk Management System

The Group is a member of the Generali Group and is part of its risk management structure. The Generali Group has implemented a risk management system that aims at identifying, evaluating and monitoring the most important risks to which the Generali Group and the Group are exposed, which means the risks whose consequences could affect the solvency of the Generali Group or the solvency of any single business unit, or negatively hamper any Group goals.

The risk management processes apply to the whole Generali Group, all the countries where it operates and each business unit. However, the degree of integration and depth varies with the complexity of the underlying risks. Integration of processes within the Generali Group is fundamental to assure an efficient system of risk management and capital allocation for every business unit.

The main objectives of the risk management processes of Generali Group is to maintain the identified risks below an acceptable level, to optimize the capital allocation and to improve the risk-adjusted performance.

In 2009, Risk Management guidelines of the Group related to investment risk management, the system of limits, credit ratings and guidelines on an approval process for new instruments were introduced as well as the investment risk reporting for management on monthly basis.

Risk management system is based on three main pillars:

a) risk measurement process: aimed at assessing the solvency of the Group as well as all individual units,

b) risk governance process: aimed at defining and controlling the managerial decisions in relation with relevant risks,

c) risk management culture: aimed at increasing the value creation.


E.2 Roles and responsibility

The system is based on three levels of responsibility:

– Assicurazioni Generali (Generali Group) – for every country, it sets the targets in terms of solvency, results and risk exposure, moreover it defines the risk management policy through a list of Guidelines for acceptance of the main risks. The Generali Group has developed the Enterprise Risk Management Policy to align the risk measurement methodology, the governance and the reporting of each company of the Group.

– Generali PPF Holding – defines strategies and objectives for every firm, taking into account the local features and regulations, providing support for the implementation and controlling the results. In particular, in order to assure a better solution to the specific features of local risks and changes in local regulation, the risk management responsibility and decisions are delegated to the Chief Risk Officer (CRO) of GPH respecting the Generali Group policy framework. These groups are also assigned performance targets for their respective areas.

– Business Unit – defines strategies and targets for the lines of business, in respect of the policy and the guidelines established by GPH. Risk management involves the corporate governance of the Group and the operational and control structure, with defined responsibility levels, and aims to ensure the adequacy of the entire risk management system at every moment.

E.3 Risk measurement and control

Through its insurance activity, the Group is naturally exposed to several types of risks, which are related to movements of financial markets, to adverse development of insurance-related risks, both in life and non-life business, and generally to all the risks that affect ongoing organised economic operations.

These risks can be grouped in the following five main categories which will be later detailed: market risk, credit risk, liquidity, insurance risk and operational risk.

Along with the specific measures for the risk categories considered by the Group, the calculation of the Economic Capital represents a comprehensive measure of risk that can be aggregated at the different organisational levels (Group, country and operative entity) and at the main business lines (life, non-life and asset management).

The Economic Capital is a risk measure that corresponds to the amount of capital to be held so that the market value of assets is greater than the market value of liabilities in twelve months’ time, with a confidence level consistent with the target rating.

The internal models of risk measurement are constantly being improved, in particular those relating to calculation of the Economic Capital and Asset Liability Management (ALM) approaches have been harmonized at all different organisational levels within the Generali Group.

E.4 Market risk

Unexpected movements in prices of equities, real estate, currencies and interest rates might negatively impact the market value of the investments.

These assets are invested to meet the obligation towards both life and non-life policyholders and to earn a return for the capital expected by the shareholder. The same changes might affect both assets and the present value of the insurance liabilities.

The market risk of the Group’s financial asset and liability trading positions is monitored and measured on a continuing basis, using a Value at Risk analysis and other methods (cash-flow matching, duration analysis, etc.).

Trade receivables face mainly risk of credit default. Due to the short-term pattern of trade receivables the Group considers a market risk of trade receivables as an insignificant.


At year-end 2009, the investments whose market risk affects the Group were of CZK 128,5 billions at market value1) .

31. 12. 2009 31. 12. 2008 Total Weight Total Weight (CZK million) fair value (%) fair value (%)

Equities 14,603.1 11.4% 19,756.8 16.0%

Bonds 114,578.0 89.1% 104,091.8 84.5%

Derivatives (691.0) -0.5% (703.7) -0.5%

Total 128,490.1 100.0% 123,144.9 100.0%

1) Investments whose market risk affects the Group are total investments, excluding investments backing unit-linked policies since the risk is borne by policyholders, investments in subsidiaries and associated companies, mortgage loans, receivables from banks or customers and other financial investments other than equities and bonds.

E.4.1 Interest rate risk

The Group’s operations are subject to the risk of interest rate fluctuations to the extent that interest-earning assets (including investments) and interest-bearing liabilities mature or reprice at different times or in differing amounts. In the case of floating rate assets and liabilities the Group is also exposed to an interest rate cash flow risk, which varies depending on the different repricing characteristics of the various floating rate instruments.

Interest rate derivatives are primarily used to bridge the mismatch in the repricing of assets and liabilities. In some cases derivatives are used to convert certain groups of policyholder loans and other interest-earning assets to floating or fixed rates to reduce the risk of losses in value due to interest rate changes or to lock-in spreads. In addition, the Group enters into interest rate swaps to fix the interest rates on its floating-rate debts at a certain level.

The assets whose value is subject to interest rate risk are represented mainly by bonds. The below table summarises the breakdown of their carrying amount by company.

31. 12. 2009 31. 12. 2008 Total Weight Total WeightInterest rate risk exposure carrying (%) carrying (%)(CZK million) amount amount

Česká pojišťovna 69,449.3 60.7% 64,691.8 62.3%

Penzijni Fond CP 44,208.0 38.6% 37,046.0 35.6%

Other companies 838.1 0.7% 2,184.3 2.1%

Total 114,495.4 100.0% 103,922.1 100.0%

Sensitivity analysis to interest rate movements is presented for the two biggest companies (Česká pojišťovna and Penzijni Fond CP), since the Group exposure to interest rate movements is highly concentrated in these two companies.

Česká pojišťovna portfolioThe Company monitors the sensitivity of financial assets and liabilities to various standard and non-standard interest rate scenarios. Standard scenarios, that are considered on a monthly basis, include a 100 basis point (bp) parallel fall or rise in all yield curves worldwide.

Assets are divided into 3 groups: Bonds, Interest-rate-sensitive instruments (group Interest rate derivatives) and others (group Money market instruments) which are almost insensitive to interest rate shocks. Unit-linked instruments are excluded from sensitivities due to the fact that investment risk is borne by the policyholders. The sensitivities shown in the following table concern only assets in their fair value as at he end of the year. The overall impact on the Company’s position is the result of sensitivities on both the asset and liability side that creates a mitigating effect.


(CZK million) Fair value 100bp parallel increase 100bp parallel decrease

31. 12. 2009

Bonds 69,614.6 66,271.1 73,470.0

Money market instruments 13,640.0 13,631.6 13,653.3

Interest rate derivatives 79.7 333.0 (194.8)

Total 83,334.3 80,235.7 86,928.5

31. 12. 2008

Bonds 65,001.3 61,530.9 69,053.2

Money market instruments 11,303.4 11,301.4 11,305.7

Interest rate derivatives 65.2 125.7 (24.4)

Total 76,369.9 72,958.0 80,334.5

Penzijni Fond CP portfolioConcerning Penzijni Fond CP, sensitivity to interest risk movements has been calculated by applying a stress test (+/- 100 basis points parallel fall or rise in all yield curves) to all bonds portfolios as at 31 December 2009 and 31 December 2008.

The impact is detailed in the table below.

31. 12. 2009 31. 12. 2008 Income Equity Income Equity(CZK million) statement statement

100 bp parallel increase Impact on on interest income 72.6 0.0 58.1 0.0

Impact on fair value (365.5) (1,565.5) (393.2) (1,091.6)

Total impact (292.9) (1,565.5) (335.1) (1,091.6)

100 bp parallel decrease Impact on interest income (72.6) 0.0 (58.1) 0.0

Impact on fair value 399.5 1,710.6 429.4 1,192.2

Total impact 326.9 1,710.6 371.3 1,192.2

E.4.2 Asset liability matching

As substantial part of insurance liabilities may imply interest rate risk, also asset-liability management is significantly involved in interest rate risk management. The management of interest rate risk implied from the net position of assets and liabilities is a key task of asset-liability management (ALM).

The GPH Group has an Asset and Liability Committee which is an advisory body of the Board of Directors and is in charge of the most strategic investments and ALM-related decisions. The committee is responsible for setting and monitoring the Group‘s strategic asset allocation in the main asset classes, i.e. government and corporate bonds, equities, real estate, etc. and also the resulting asset and liability strategic position. The objective is to establish appropriate return potential together with ensuring that the Group can always meet its obligations without undue cost and in accordance with the Group‘s internal and regulatory capital requirements. In order to guarantee the necessary expertise and mandate, the Committee consists of representatives of top management and of the asset management, risk management and ALM experts from business units.

The ALM manages the net asset-liability positions in both, life and non-life insurance, with the main focus on traditional life with long-term nature and often with embedded options and guarantees. The insurance liabilities are analysed, including the embedded options and guarantees and models of future cash-flows are prepared in cooperation with actuaries. The models allow for all guarantees under the insurance contracts and for expected development of the key parameters, primarily mortality, morbidity, lapses, administration expenses.

At first, government bonds are used to manage the net position of assets and liabilities and in particular its sensitivity to parallel and non-parallel shifts in the yield curve. Next, corporate bonds and derivatives, primarily interest rate swaps, can be used. However, in line with the credit risk management policy, investments in long-term and thus also high-duration instruments focus on government bonds. The use of interest rate swaps is limited due to their accounting treatment – as their revaluation which is reported in the income statement does not match with the reporting of the insurance liabilities. There is a strategic target asset-liability interest rate position set in line with the risk and capital management policy – to strictly focus on intended risks and reduce capital needed for risks with lower expected gain potential. The prevailing policy is to reduce this position to a minimum level and even though it is not possible to perfectly match future cash flows of assets and liabilities, the position has been substantially reduced within the last years and currently the parallel and non-parallel sensitivities are low. With investments in emerging long-term government bonds also contributing to this result.

In addition to the management of the strategic position, there are certain limits allowed for tactical asset manager positions, so that asset interest rate sensitivity can deviate from the benchmark in a managed manner.


E.4.3 Equity price risk

Equity price risk is the risk that equity prices will fluctuate affecting the fair value of equity investments and other instruments that derive their value from a particular equity investment or index of equity prices.

The Group manages its use of equity investments in response to changing market conditions using the following risk management tools:

a) the limits for investments are set and carefully monitored for each business unit in its investment policy,

b) the portfolio is diversified (limits are set per single counterparty exposition).

The table below summarises the breakdown of the carrying amount of equities and investment fund unit portfolios by company.

31. 12. 2009 31. 12. 2008Equity risk exposure Total carrying Weight Total carrying Weight (CZK million) amount (%) amount (%)

Česká pojišťovna 11,255.6 77.1% 15,627.7 79.1%

Penzijni Fond CP 3,198.5 21.9% 3,671.7 18.6%

Other companies 149.0 1.0% 457.4 2.3%

Total 14,603.1 100.0% 19,756.8 100.0%

Sensitivity analysis to equity prices is only presented for the two biggest companies (Česká pojišťovna and Penzijni Fond CP), since they represent the vast majority of the Group overall equity portfolio.

Česká pojišťovna portfolioThe equity price risk for Česká pojišťovna portfolio is part of the market value at risk (MVaR) calculation and through it the equity price risk is measured (for details on a methodology, see E.4.5).

The positive impact of diversification can be seen in the table below.

(CZK million) 31. 12. 2009 31. 12. 2008

Portfolio exposed to equity risk 11,404.7 16,633.9

Sum of MVaR for individual instrument 5,605.0 15,599.9

Portfolio MVaR after diversification 2,841.8 8,332.4

Penzijni Fond CP portfolioConcerning Penzijni Fond CP, equity risk evaluation has been performed by applying a stress test (+/- 10% change in equity prices) to all equities and investment fund unit portfolios at 31 December 2009 and 31 December 2008.

The impact is detailed in the table below.

(CZK million) 31. 12. 2009 31. 12. 2008

Equity price +10% Gross impact on P&L 319.8 367.2

Equity price -10% Gross impact on P&L (319.8) (367.2)

Since all Penzijni Fond CP equities and investment fund units are classified as Fair Value through Profit or Loss investments, changes in equity prices have direct impact on the income statement.

E.4.4 Currency risk

The Group is exposed to currency risk through transactions in foreign currencies and through its assets and liabilities denominated in various currencies. The business units of the Group present their financial statements in different currencies.

The currency risk is highly concentrated in Česká pojišťovna.

The only exception is represented by the bond portfolio held by Penzijni Fond CP for an overall amount of CZK 6,283.4 million at 31 December 2009 (out of which CZK 3,640.7 million is denominated in EUR and CZK 1,981.2 million is denominated in USD), and of CZK 4,975.1 million at 31 December 2008 (out of which CZK 3,170.1 million is denominated in EUR and CZK 1,255.3 million is denominated in USD).


This exposure is however matched by the use of FX hedging derivatives, and therefore the net exposure of Penzijni Fond CP is not material.

In light of the above-mentioned concentration, the information provided in the remaining part of this paragraph concerns only the Česká pojišťovna portfolio.

Česká pojišťovna portfolioThe Company is exposed to currency risk through transactions in foreign currencies and through its assets and liabilities denominated in foreign currencies. As the currency in which the Company presents its financial statements is CZK, movements in the exchange rates between selected foreign currencies and CZK affect the Company’s financial statements.

The general strategy of the Company is to fully hedge currency risk exposure. The Company ensures that its net exposure is kept to an acceptable level by buying and selling foreign currencies at spot rates when considered appropriate, or using short-term FX operations. The FX position is regularly monitored and the hedging instruments are reviewed on a monthly basis and adjusted accordingly. Derivative financial instruments are used to manage the potential earnings impact of foreign currency movements, including currency swaps, spot and forward contracts. If suitable, options and other derivatives are also considered and used.

The Company’s main foreign exposures are to European countries and the United States of America. Its exposures are measured mainly in Euros (“EUR”), U.S. Dollars (“USD”), and Russian Roubles (“RUR”).

The currency exposure is shown in the following tables:

The following table shows sensitivities of the portfolio to changes in currency risk, the portfolio does not contain instruments covering unit-linked policies, as the investment risk is transferred from the Company to the policyholder. Currency shocks are considered to be a rise or a fall in the value of a foreign currency position by a specified percentage. Such an approach is in line with the Solvency II definition of currency risk.

As a result of fair value hedge accounting, virtually the whole potential rise or fall has an impact only in the income statement:

(CZK million)31. 12. 2009 EUR USD CZK Other Total

FX investment portfolio exposure 1,268.1 176.7 93,034.7 14.5 94,494.0

Shock up (+10%) 1,394.9 194.4 93,034.7 16.0 94,640.0

Shock down (-10%) 1,141.3 159.1 93,034.7 13.0 94,348.1

(CZK million) 31. 12. 2008 EUR USD CZK Other Total

FX investment portfolio exposure 112.0 (289.3) 92,837.0 (19.8) 92,639.9

Shock up (+10%) 100.8 (260.4) 92,837.0 (17.8) 92,659.6

Shock down (-10%) 123.2 (318.2) 92,837.0 (21.8) 92,620.2

The following table shows sensitivities of the insurance provisions to change in currency risk.

(CZK million) 31. 12. 2009 EUR USD CZK Other Total

FX insurance provisions exposure 1,170.8 30.4 87,585.6 161.8 88,948.6

Shock up (+10%) 1,287.9 33.4 87,585.6 178.0 89,084.9

Shock down (-10%) 1,053.7 27.3 87,585.6 145.7 88,812.3


FX insurance provisions exposure 1,281.1 26.7 91,211.6 162.0 92,681.4

Shock up (+10%) 1,409.2 29.4 91,211.6 178.2 92,828.4

Shock down (-10%) 1,153.0 24.0 91,211.6 145.8 92,534.4


The following table shows the composition of financial assets and liabilities with respect to the main currencies:


Loans 0.0 0.0 7,860.6 0.0 7,860.6

Financial assets held-to-maturity 0.0 0.0 87.5 0.0 87.5

Financial assets available-for-sale 12,367.1 8,182.2 35,602.9 458.0 56,610.2

Financial assets at fair value through profit or loss 1,603.8 (159.3) 24,932.4 (251.3) 26,125.5

Other investments 206.9 1,238.2 7,193.4 101.8 8,740.3

Reinsurance assets 9.5 8.8 9,220.8 0.9 9,240.0

Receivables 1,965.2 121.2 6,142.0 99.4 8,327.9

Cash and cash equivalents 13.0 29.5 110.2 2.1 154.8

Total 16,165.5 9,420.6 91,149.8 410.9 117,146.8


Insurance provisions 1,170.8 30.4 87,585.6 161.8 88,948.6

Financial liabilities 12,857.5 9,112.6 (20,343.9) 297.9 1,924.1

Payables 939.7 32.3 8,630.4 116.0 9,718.4

Other liabilities 0.0 0.0 1,957.3 0.0 1,957.3

Total 14,968.0 9,175.3 77,829.4 575.7 102,548.4

Net foreign currency position – 2009 1,197.5 245.3 13,320.4 (164.8) 14,598.4

Slovakia has adopted Euro as national currency since 1 January 2009. Financial assets and liabilities, that were reported in Slovak crowns (SKK) in 2008 were translated into the EUR column. To provide a reliable comparison in the following tables, 2008 SKK amounts were translated into EUR.


Loans 0.0 0.0 4,898.8 0.0 4,898.8

Financial assets held-to-maturity 0.0 0.0 81.7 0.0 81.7

Financial assets available-for-sale 3,829.3 4,649.3 33,085.0 95.2 41,658.8

Financial assets at fair value through profit or loss 4,840.9 906.3 34,613.5 7.2 40,367.9

Other investments 357.4 2,237.5 7,224.1 87.2 9,906.2

Reinsurance assets 28.5 0.0 8,521.7 0.0 8,550.2

Receivables 1,092.9 139.9 8,442.0 2,548.2 12,223.0

Cash and cash equivalents 10.9 22.4 257.3 2.0 292.6

Total 10,159.9 7,955.4 97,124.1 2,739.8 117,979.2

Amount of SKK 1,069.1 million is included in EUR column.


Insurance provisions 1,281.1 26.8 91,211.6 162.0 92,681.5

Financial liabilities 8,844.8 8,095.5 (12,714.5) 211.5 4,437.3

Payables 867.2 37.0 7,634.4 20.4 8,559.1

Other liabilities 0.1 0.0 1,874.3 0.0 1,874.4

Total 10,993.2 8,159.3 88,005.8 393.9 107,552.2

Net foreign currency position – 2008 (833.3) (203.9) 9,118.3 2,345.9 10,427.0

The amount of SKK 1,037.4 million is included in EUR column.

E.4.5 Market Value at risk

The principal tool used to measure and control market risk exposure within the investment portfolios of the Parent Company Česká pojišťovna is Market Value at Risk (MVaR).

Investment portfolios include all Investments except for Investment property, Investments in subsidiaries and associates, Unit-linked policies, Receivables from subsidiaries and some specific immaterial investments. It also includes Cash and cash equivalents and Financial liabilities.


Value at Risk represents the potential losses from adverse changes in market factors for a specified time period and confidence level. The approach, based on JP Morgan Risk Metrics methodology, calculates the Value at Risk using a covariance matrix of relative changes in market factors and net present value of actual positions assuming that these relative changes are normally distributed. The MVaR is calculated for a one-year time horizon at a 99% confidence level regularly; for decision making processes (such as determining limits), 99.5% is used.

The assumptions on which the MVaR model is based give rise to some limitations, especially the following:

a) A holding period assumes that it is possible to hedge or dispose of positions within that period. This is considered to be a realistic assumption in almost all cases but may not be the case in situations in which there is severe market illiquidity for a prolonged period.

b) A confidence level does not reflect losses that may occur beyond this level. Even within the model used, there is a one percent probability that losses could exceed the MVaR.

c) The methodology is applicable to instruments with a linear relationship between position value and market risk factors. In the case of nonlinearity (e.g. for options), the analytical delta/gamma approximation is used.

d) MVaR is calculated on an end-of-day basis and does not reflect exposures that may arise on positions during the trading day.

e) The use of historical data as a basis for determining the possible range of future outcomes may not always cover all possible scenarios, especially those of an exceptional nature.

f) The model is also very sensitive on the length of the historical data used as an input and therefore the Company also considers the purpose of the MVaR analysis when determining it. For regular calculations (as disclosed below), data for the most recent quarter is used as this best reflects the current market conditions. For longer-term analysis (such as determination of investment policies), longer data series are considered.

g) The MVaR measure is dependent upon the Company’s position and the volatility of market prices. The MVaR of an unchanged position reduces if the market price volatility declines and vice versa.

The market VaR positions of the whole portfolio of the Parent Company were as follows. To show the sensitivity and the development of the total MVaR, the average, minimum and maximum of the MVaR within the year (calculated from end-of-month values) and their corresponding distribution into three main categories (FX risk, IR risk, Equity price risk) are also presented:

As at 31 December Average Maximum Minimum(CZK million) VaR

2009

Foreign currency risk 52.6 163.1 344.2 52.6

Interest rate risk 1,020.6 2,519.2 3,950.6 1,020.6

Other price risk 2,841.8 4,052.0 5,427.0 2,841.8

Covariance (845.7) (1,558.5) (2,971.6) (845.7)

Overall 3,069.3 5,175.8 6,750.2 3,069.3

2008

Foreign currency risk 33.5 144.1 38.2 93.6

Interest rate risk 4,509.6 2,165.7 2,910.7 1,365.7

Other price risk 8,332.4 8,810.3 14,124.8 5,535.2

Covariance (3,684.0) (2,309.7) (1,474.8) (3,505.1)

Overall 9,191.5 8,810.4 15,598.9 3,489.4

E.5 Credit risk

Credit risk refers to the economic impact on the Group’s financial strength, from downgrades and defaults of fixed income securities or counterparty. Furthermore, a general rise in spread level, due to credit crunch or liquidity crisis, impacts the financial strength of the Group.

The Group has adopted guidelines to limit the credit risk of the investments. These favour the purchase of investment-grade securities and encourage the diversification and dispersion of the portfolio.

The Chief Risk Officer of the Group collects monthly reports on the Group’s exposure to the components of the credit risk and evaluates this risk. Credit risk is also evaluated at the GPH and Generali Group level.


For the rating assessment of an issue or issuer, ratings from rating agencies are used. Securities without a rating are given an internal one based on credit analysis. To manage the level of credit risk, the Group deals with counterparties with a good credit standing and enters into master netting agreements whenever possible. Master netting agreements provide for the net settlement of contracts with the same counterparty in the event of default.

The Group sets up issuer/counterparty limits according to their credit quality and monitors compliance with these limits on a monthly basis.

The Group’s assets relevant for the credit risk exposure are shown in the following table. This table presents the Group’s overall exposure to the credit risk (carrying amounts):

(CZK million) 31. 12. 2009 31. 12. 2008

Loans and advances 21,651.1 17,450.8

Bonds 112,643.0 102,083.0

Reinsurance assets 9,264.6 8,567.1

Receivables 8,866.4 13,833.7

Total 152,425.1 141,934.6

A more detailed analysis of the carrying amounts for selected positions is provided in following table.

The positions of reinsurance assets are not included in this analysis, as they are neither past due nor impaired. As far as bonds are concerned, the figure shown is already net of an impairment on a single bond which was fully impaired for an amount of 7.6 CZK million.

Loans and advances Receivables(CZK million) 31. 12. 2009 31. 12. 2008 31. 12. 2009 31. 12. 2008

Individually impaired – carrying amount 254.8 254.8 5,483.4 9,178.1

Gross amount 8,310.7 8,873.2 7,981.1 11,268.1

up to 90 days after maturity 0.0 0.0 3,268.6 4,842.5

91 days to 180 days after maturity 0.0 0.0 1,288.6 3,239.1

181 days to 1 year after maturity 0.0 0.0 628.4 360.8

More than 1 year after maturity 8,310.7 8,873.2 2,795.5 2,825.7

Allowance for impairment (8,055.9) (8,618.4) (2,497.7) (2,090.0)

Collectively impaired – carrying amount 0.0 0.0 0.0 120.3

Gross amount 0.0 0.0 0.0 171.2

Up to 30 days after maturity 0.0 0.0 0.0 171.2

Allowance for impairment 0.0 0.0 0.0 (50.9)

Neither past due nor impaired – carrying amount 21,396.3 17,196.0 3,383.0 2,924.6

Amounts not included in analysis 0.0 0.0 0.0 1,610.7

Total 21,651.1 17,450.8 8,866.4 13,833.7

Loans and advances that are neither past due nor impaired, consists mostly of receivables from term deposits and buy-sell agreements with banks.

The Group place term deposits with institutions having a rating from A+ to AA. Significant portion of term deposits is placed with a related party, PPF Banka a.s. (see F.30.3) There were no past due or impaired term deposits either in 2009 or 2008.

The following tables show the Group’s exposure to credit risk for bonds and reinsurance assets (only official ratings are used, securities without a rating are shown as non-rated even if internal rating was allocated to them):

Rating of bonds 31. 12. 2009 31. 12. 2008(CZK million) Fair value Weight (%) Fair value Weight (%)

AAA 3,022.4 2.6% 7,232.7 6.9%

AA 898.4 0.8% 4,491.1 4.3%

A 92,251.4 80.5% 72,854.2 70.0%

BBB 3,181.0 2.8% 3,909.3 3.8%

Non-investment grade 2,133.0 1.9% 2,645.3 2.5%

Not Rated 13,092.0 11.4% 12,959.2 12.5%

Total 114,578.0 100.0% 104,091.8 100.0%


The bond rating shown above corresponds to the second best rating available from external rating agencies. Such rating is then converged to S&P scale.

The somehow high percentage of Not Rated bonds is also explained by the fact that – as already mentioned – securities without a rating are shown as Not Rated even if an internal rating was allocated to them.

Rating of reinsurance assets 31. 12. 2009 31. 12. 2008(CZK million) Amount Weight (%) Amount Weight (%)

AAA 166.0 1.8% 229.0 2.7%

AA 227.3 2.5% 402.5 4.7%

A 399.6 4.3% 330.2 3.9%

BBB 4.4 0.0% 8.2 0.1%

Captive reinsurance 7,825.3 84.5% 0.0 0.0%

Not Rated 642.0 6.9% 7,597.2 88.6%

Total 9,264.6 100.0% 8,567.1 100.0%

The very high amount in the Not Rated category as at 31 December 2008 is explained by the sale of the captive reinsurer of the Group, CP Reinsurance company Ltd. (CP RE), to PPF Group N.V on 12 December 2008. All the business reinsured as at 31 December 2008 with CP RE, amounting to CZK 7.091,6 million, is therefore reported as not rated. On 1 January 2009, the reinsurance business was transferred to GP Reinsurance EAD, the new captive reinsurance company of the GPH Group.

There were no past due or impaired reinsurance assets in either 2009 or 2008.

The individual business units of the Group hold collateral for loans and advances to banks in the form of securities as part of reverse repurchase agreements, collateral for loans and advances to non-banks in the form of mortgage interest over property and guarantees received.

The following table shows the fair value of collateral held by the Group:

Loans and advances to banks and non-banks(CZK million) 31. 12. 2009 31. 12. 2008

Against individually impaired 58.1 427.4

Property 55.5 72.1

Other 2.6 355.3

Against neither past due nor impaired 4,230.3 2,745.0

Debt securities 4,230.3 2,745.0

Total 4,288.4 3,172.4

E.6 Liquidity risk

Liquidity risk arises in the general funding of the Group’s activities and in the management of its positions. It includes both the risk of being unable to fund assets using instruments with appropriate maturities and rates and the risk of being unable to liquidate an asset sufficiently quickly and in the appropriate amount, and the risk of being unable to meet obligations as they become due.

All the business units have access to a diverse funding base. Apart from insurance provisions, which serve as a main source of financing, funds are raised using a broad range of instruments including deposits, other liabilities evidenced by paper, reinsurance policy, subordinated liabilities and shareholder equity. This enhances funding flexibility, limits dependence on any one source of funds and generally lowers the cost of funds.

The business units strive to maintain a balance between continuity of funding and flexibility through the use of liabilities with a range of maturities. In addition, all the business units hold a portfolio of liquid assets as part of its liquidity risk management strategy. Special attention is paid to the liquidity management of non-life insurance business requiring sufficient funding to meet all the potential obligations in the event of a natural disaster or other extraordinary event.


All the business units as well as the Group as a whole continually assesses the liquidity risk by identifying and monitoring changes in the funding required to meet business goals and the targets set in terms of the overall strategy.

The following table shows an analysis of the Group’s financial liabilities broken down into their relevant maturity bands based on the remaining period to repayment.

Residual contractual maturitiesof financial liabilities Less than Between Between Between More Non Total31. 12. 2009 1 month 1 and 3 3 months 1 and 5 than specified (CZK million) months and 1 year years 5 years

Financial liabilities 1,894.2 210.0 126.0 763.1 84.2 4.4 3,081.9

Financial liabilities at fair value through profit or loss 837.3 210.0 126.0 262.3 84.2 4.4 1,524.2

Other financial liabilities 1,056.9 0.0 0.0 500.8 0.0 0.0 1,557.7

Payables 7,247.7 303.0 838.2 1.7 0.0 11.4 8,402.0

Other liabilities 3,739.8 0.0 0.0 1.3 0.0 0.0 3,741.1

Total financial liabilities 12,881.7 513.0 964.2 766.1 84.2 15.8 15,225.0

Less than Between Between Between More Non Total31. 12. 2008 1 month 1 and 3 3 months 1 and 5 than specified (CZK million) months and 1 year years 5 years

Financial liabilities 3,596.9 382.9 (49.1) 1,161.8 309.5 0.0 5,402.0

Financial liabilities at fair value through profit or loss 652.1 382.9 (49.5) 661.0 309.5 0.0 1,956.0

Other financial liabilities 2,944.8 0.0 0.4 500.8 0.0 0.0 3,446.0

Payables 6,556.3 26.1 620.5 5.0 0.0 960.3 8,168.2

Other liabilities 2,204.0 0.0 0.0 1.3 0.0 0.0 2,205.3

Total financial liabilities 12,357.2 409.0 571.4 1,168.1 309.5 960.3 15,775.5

The following table shows the amount of insurance liabilities and financial liabilities for investment contracts broken down by contractual maturity.

Estimated timing of the net cash outflows resulting from recognized insurance liabilities and contractual maturities of financial liabilities for investmentcontracts with DPF Less than Between Between Between Between More than Total31. 12. 2009 1 year 1 and 5 5 and 10 10 and 15 15 and 20 20 years (CZK million) years years years years

Non Life insurance liabilities 11,523.2 3,885.0 1,818.6 1,653.2 1,405.2 1,157.2 21,442.4

UPR 4,670.4 0.0 0.0 0.0 0.0 0.0 4,670.4

RBNS & IBNR 6,612.2 3,885.0 1,818.6 1,653.2 1,405.2 1,157.2 16,531.4

Other insurance provisions 240.6 0.0 0.0 0.0 0.0 0.0 240.6

Life assurance liabilities 2,934.5 13,981.3 12,685.3 11,510.8 8,563.6 18,331.5 68,007.0

Financial liabilities for investment contracts 4,909.0 15,223.1 15,009.9 7,826.2 2,556.7 2,676.3 48,201.4

Less than Between Between Between Between More than Total31. 12. 2008 1 year 1 and 5 5 and 10 10 and 15 15 and 20 20 years (CZK million) years years years years

Non Life insurance liabilities 15,347.3 4,300.0 1,754.7 1,558.7 1,312.6 1,148.5 25,421.8

UPR 7,820.6 526.5 32.0 0.0 0.0 0.0 8,379.1

RBNS & IBNR 6,912.4 3,773.5 1,722.7 1,558.7 1,312.6 1,148.5 16,428.4

Other insurance provisions 614.3 0.0 0.0 0.0 0.0 0.0 614.3

Life assurance liabilities 2,684.0 9,155.7 16,428.5 12,169.3 9,951.5 19,414.9 69,803.8

Financial liabilities for investment contracts 4,451.4 13,804.0 13,610.6 7,096.7 2,318.4 2,426.8 43,707.9

E.7 Insurance risks

Insurance risk results from the uncertainty surrounding the timing, frequency and size of claims under insurance contracts. The principal risk is that the frequency or size of claims is greater than expected. In addition, for some contracts, there is uncertainty about the timing of insured events. These are, by their nature, random, and the actual number and size of events during any one year may vary from those estimated using established statistical techniques.


The Group is exposed to actuarial and underwriting risk through a wide range of life and non-life products offered to customers: participating and non-participating traditional life products, unit-linked, annuities, universal life products, guaranteed investment products and all lines of non-life products (property, accident and health, car, third party liability and disability).

The most significant components of actuarial risk concern the adequacy of insurance premium rate levels and the adequacy of provisions with respect to insurance liabilities and the capital base. The adequacy is assessed taking into consideration the supporting assets (fair and book value, currency and interest sensitivity), changes in interest rates and exchange rates and developments in mortality, morbidity, non-life claims frequency and amounts, lapses and expenses as well as general market conditions. Specific attention is paid to the adequacy of provisions for the life business. For a detailed description of the liability adequacy test, see note C.2.3.

The Group manages the insurance risk in the individual business units using internal guidelines for product design, reserving, pricing criteria, reinsurance strategy and guidelines for underwriting. Monitoring risk profiles, reviewing insurance-related risk control and asset/liability management are also carried out by senior management. For those insurance contracts that contain high interest rate guarantees, stochastic modelling is used to assess the risk of these rate guarantees. The pricing reflects the cost of the guarantees and appropriate reserves are established accordingly.

New methods based on dynamic and stochastic modelling have started to be implemented throughout the Group and are continuously being improved. These methods will be used, among others, to measure the economic capital of insurance risks.

E.7.1 Concentration of insurance risk

A key aspect of the insurance risk faced by the Group is the extent of the concentration of insurance risk, which determines the extent to which a particular event or series of events could impact significantly upon the Group’s liabilities. Such concentrations may arise from a single insurance contract or through a number of related contracts where significant liabilities could arise. An important aspect of the concentration of insurance risk is that it could arise from the accumulation of risks within a number of different insurance classes.

Concentrations of risk can arise in low frequency, high-severity events such as natural disasters; in situations where the Group is exposed to unexpected changes in trends, for example, unexpected changes in human mortality or in policyholder behaviour; or where significant litigation or legislative risks could cause a large single loss, or have a pervasive effect on many contracts.

E.7.1.1 Geographic and sector-related concentrationsThe risks underwritten by the Group are primarily located in the Czech Republic.

The following tables provide an overview of the direct gross written premiums according to the countries in which the Group operates and according to the different lines of business2).

Life gross direct premiums written by lineof business and by geographical area Individual Individual Health Group Total2009 traditional unit/index(CZK million) linked

Czech Republic 9,439.7 1,292.7 3,107.2 0.0 13,839.6

Other countries 24.2 0.0 0.0 9.4 33.6

Total 9,463.9 1,292.7 3,107.2 9.4 13,873.2

Individual Individual Health Group Total2008 traditional unit/index(CZK million) linked

Czech Republic 9,795.7 1,400.4 2,991.4 0.0 14,187.5

Slovakia 370.4 384.2 108.6 0.0 863.2

Other countries 112.2 0.0 0.0 4.3 116.5

Total 10,278.3 1,784.6 3,100.0 4.3 15,167.2

2) Premiums written in Russia by the company Generali PPF Life Insurance are not included in these tables, since this company is treated as a Discontinued operation in accordance with IFRS 5.


Non-Life gross direct premiums writtenby line of business and by geographical area Non motor2009 Motor Personal Commercial/ Accident/ Total(CZK million) Industrial Health

Czech Republic 12,675.6 3,690.6 5,433.7 779.1 22,579.0

Other countries 0.0 0.0 0.0 90.1 90.1

Total 12,675.6 3,690.6 5,433.7 869.2 22,669.1

Non motor2008 Motor Personal Commercial/ Accident/ Total(CZK million) Industrial Health

Czech Republic 13,745.3 3,586.4 6,581.5 677.8 24,591.0

Slovakia 1,016.4 54.3 336.6 23.2 1,430.5

Other countries 0.0 0.0 0.0 77.6 77.6

Total 14,761.7 3,640.7 6,918.1 778.6 26,099.1

The breakdown according to gross direct premium written is a reliable approximation of the concentration of the total sum insured from the geographical perspective.

The reinsurance has no significant impact on the concentration of the insurance risk.

E.7.1.2 Low-frequency, high-severity risksSignificant insurance risk is connected with low-frequency and high-severity risks. The Group manages these risks through its underwriting strategy and adequate reinsurance arrangements.

According to its underwriting strategy, the most significant risk of natural disaster to which the Group is exposed is the risk of flooding in the Czech Republic. In the event of a major flood, the Group expects the property portfolio to see high claims for structural damage to properties and contents, and high claims for business interruption while transport links are inoperable and business properties are closed for repair. Apart from the risk of flooding, other climatic phenomena, such as long-lasting snow-fall, claims caused by snow-weight or strong wind-storms or hail-storms would have a similar effect.

The underwriting strategy is an integral part of the annual business plan that specifies the classes of business to be written within the planned period and the target sectors of clients. Following approval of underwriting limits, the strategy is cascaded to the individual underwriters in the form of underwriting limits (each underwriter can write business by line size, class of business, territory and industry in order to ensure the appropriate risk selection within the portfolio).

E.7.1.3 Life underwriting riskIn the life portfolio of the Group, there is a prevailing component of saving contracts, but there are also pure risk covers (death plus riders, such as accident, disability, dread disease, etc.) and some annuity portfolios, with the presence of the longevity risk.

The risks related to policies with prevailing saving component are considered in a prudential way when pricing the guaranteed interest rate, in line with the particular situation of the local financial market, and also taking into account any relevant regulatory constraint. In the recent past a policy of re-definition of the structure of minimum guarantees has been pursued in order to lower their risk impact and their cost.

As far as the demographic risk related to pure risk portfolios is concerned, the mortality tables used in the pricing are prudent. The standard approach is to use population or experience tables with adequate safety loadings.

For the most important risk portfolios a detailed analysis of mortality experience is carried out every year in comparison with the expected mortality of the portfolio, determined according to the most up-to-date mortality tables available in each market. This analysis takes into consideration the mortality by sex, age, policy year, sum assured, other underwriting criteria and also mortality trends.

As far as lapse risk (risks related to voluntary withdrawal from the contract) and expense risk (risks related to inadequacy of charges and loadings in the premiums in order to cover future expenses) is concerned, it is evaluated in a prudent manner in the pricing of new products, considering the construction and the profit testing of new tariff assumptions derived from the experience of the Group, or if it is not sufficiently reliable or suitable, the experience of the other Generali Group entities or the general experience of the local market. In order to mitigate lapse risk, surrender penalties are generally considered in the tariff and are determined in such a way to compensate, at least partially, the loss of future profits.


The table below shows the concentration of insurance provisions of life gross direct business by guaranteed interest rate. Financial liabilities related to investment contracts with DPF are included as well.

Gross direct insurance(CZK million) 31. 12. 2009 31. 12. 2008

Liabilities with guaranteed interest 100,187.1 97,976.7

Between 0% and 2.49% 63,429.2 57,890.2

Between 2.5% and 3.49% 5,950.6 6,240.6

Between 3.5% and 4.49% 7,664.5 9,216.1

More than 4.5% (incl.) 23,142.8 24,629.8

Provisions without guaranteed interest 8,996.2 9,490.4

Total 109,183.3 107,467.1

E.7.1.4 Non-life underwriting riskThe pricing risk covers the risk that the premium charged is insufficient to cover actual future claims and expenses.

The reserving risk relates to the uncertainty of the run-off of reserves around its expected value, which is the risk that the actuarial reserve is not sufficient to cover all liabilities of claims incurred. Its assessment is closely related to the estimation of reserves and both processes are performed together for consistency reasons using claim triangles and all other relevant information collected and analysed according to specific guidelines.

The Group has the right to re-price the risk on renewal and reject fraudulent claims. These contracts are underwritten by reference to the commercial replacement value of the properties and contents insured, and claims payment limits are always included to cap the amount payable on occurrence of the insured event.


The following table shows the cumulative claim payments and the ultimate cost of claims by underwriting year and their development from 2001 to 2009. The ultimate cost includes paid losses, outstanding reserves on reported losses, estimated reserves for IBNR claims and claim handling costs. The amounts refer to direct business gross of reinsurance.

(CZK million) 2001 2002 2003 2004 2005 2006 2007 2008 2009 Total

Cumulative claim payments

at the end of underwriting year 4,992.5 6,453.2 6,680.5 7,700.0 8,087.7 8,179.9 7,150.0 7,103.2 7,502.4

one year later 7,501.2 9,672.9 9,955.7 10,573.0 11,076.6 10,712.4 9,621.7 9,452.9

two years later 7,916.9 10,186.0 10,359.1 11,003.7 11,426.6 11,128.5 10,104.8

threes years later 8,104.7 10,361.2 10,524.6 11,177.7 11,579.2 11,260.7

four years later 8,197.7 10,446.2 10,607.5 11,261.0 11,632.1

five years later 8,270.4 10,492.1 10,659.0 11,337.9

six years later 8,299.6 10,541.9 10,703.4

seven years later 8,332.5 10,575.4

eight years later 8,357.3

Estimate of ultimate cumulative claims costs:

at the end of underwriting year 7,199.1 11,348.1 12,154.2 13,371.8 13,991.8 13,887.6 12,581.9 11,979.7 12,174.7 108,688.9

one year later 9,925.6 11,512.9 12,093.7 13,037.7 13,464.2 13,299.5 12,416.6 11,826.9

two years later 9,361.3 11,441.9 11,927.6 12,854.7 13,096.3 13,219.4 12,215.4

threes years later 9,361.8 11,503.7 11,656.7 12,617.9 12,810.8 12,931.4

four years later 9,207.3 11,354.0 11,605.2 12,343.3 12,572.2

five years later 9,060.7 11,324.7 11,490.1 12,202.1

six years later 8,991.4 11,183.0 11,440.9

seven years later 8,894.7 11,124.3

eight years later 8,829.6

Estimate of ultimate cumulative claims costs at the end of the reporting period 8,829.6 11,124.3 11,440.9 12,202.1 12,572.2 12,931.4 12,215.4 11,826.9 12,174.7 105,317.5

Cumulative payments to date (8,357.3) (10,575.4) (10,703.4) (11,337.9) (11,632.1) (11,260.7) (10,104.8) (9,452.9) (7,502.4) (90,926.9)

Provision recognised in the Statement of financial position 472.3 548.9 737.5 864.2 940.1 1,670.7 2,110.6 2,374.0 4,672.3 14,390.6

Provision not included in the claims development table 2,140.7

catastrophic events 531.2

accepted reinsurance 299.7

Provisions for outstanding claims not included in underwriting years 1,309.8

Total provision as at 31 December 2009 16,531.3

Provisions for outstanding claims which were not included in underwriting years include provisions for claims which occurred before 2001 (CZK 1,214.6 million), provision related to minor Non Life insurance products (CZK 93.6 million) and provision of Generali Foreign Insurance (CZK 1.4 million).

The observed trend in the ultimate cost for generations 2002-2009 indicates the adequate level of prudence adopted by the Group in its reserving policy.

E.7.2 Reinsurance strategy

All the business units of the Group reinsure some of the risks they underwrite in order to control exposures to frequent and catastrophic losses and protect their capital resources.


The Group concludes a combination of proportionate and non-proportionate reinsurance treaties to reduce its net exposure. The maximum net exposure limits for particular business lines are reviewed annually. To provide additional protection, The Group uses facultative reinsurance for certain insurance policies.

The reinsurance arrangements include quota-share, excess of loss, stop-loss and catastrophe coverage. The majority of reinsurance treaties are concluded with GP RE – the GPH group captive reinsurance company based in Bulgaria. On the top of it the Group benefits from the consolidated reinsurance programme and diversification of its risks due to the GP RE group cover which is retro-ceded on the regular reinsurance market.

Ceded reinsurance contains a reinsurers´ credit risk as the cession does not relieve the Group of its obligations to its clients. Through the GPH credit risk management, the Group regularly evaluates the financial status of its reinsurers and monitors the concentration of credit risk to minimise its exposure to financial loss caused by a reinsurer’s insolvency. Placement of reinsurance treaties is managed by the GPH and is guided by the Security List of Generali Trieste.

All reinsurance issues are subject to strict review. This includes the evaluation of reinsurance arrangements, setting the minimum capacity and retention criteria, monitoring the purchase of reinsurance against those criteria, erosion of the reinsurance programme and its ongoing adequacy and credit risk. Treaty capacity needed is based on both internal and group modelling.

The overview of parameters of obligatory reinsurance treaties for the main programme and underwriting year 2009:

Line of business / Treaty Form of reinsurance Leader of GPH Group programme

Property

Property/Engineering per Risk QS + Risk X/L Munich Re

Property Catastrophe CAT XL Paris Re

Liability

Liability per Risk QS + Risk X/L Partner Re

Motor Third Party Liability Risk X/L Munich Re

Marine

Marine Cargo Risk X/L Munich Re

Agriculture

Livestock Risk + CAT X/L Swiss Re

Hail Stop Loss Swiss Re

Bonds

Bond Quota Share Hannover Re

Life, pensions

Life Surplus Generali Trieste

Life & Disability Surplus Swiss Re

E.8 Operating risk and other risks

Operational risk is defined as the potential losses, including opportunity costs, arising from lack or underperformance in internal processes, human resources and systems or from other causes which may result from internal or external reasons.

As part of the on-going processes of Generali Group, the Group has set some common principles for these kinds of risks:

– policies and basic requirements to handle specific risk-sources as defined at the Generali Group level;

– criteria to measure operational risk. Moreover, a specific worldwide task force has been settled to define a common Generali Group methodology in order to identify, measure and monitor operational risks;

– common methodologies and principles guiding internal audit activities in order to identify the most relevant processes to be audited.

The operational risk management process is based primarily on analysing the risks and designing modifications for work procedures and processes to eliminate, as far as possible, the risks associated with operational events (losses caused by risks other than market and credit risk). Work procedures governing the investment and risk management processes constitute a part of the Group’s system of mandatory policies and procedures.


E.8.1 Operating systems and IT security management

The Parent Company’s IT Organisation is based on separating the IT security unit from IT operations and IT development. The rules set by the Company regarding IT risk management and IT security are based on the rules and recommendations contained in ISO/IEC 17799:2000 Information Technology – Code of practice for information security management.

E.9 Risk monitoring by third parties

The Group’s risks are also monitored by third parties such as the insurance regulators and external rating agencies.

The leading rating agencies periodically assess the financial strength of the whole Generali Group expressing a judgment on the ability to meet the ongoing obligations assumed toward policyholders.

This assessment is performed taking into account several factors such as, financial and economic data, the positioning of the Group within its market, and the strategies developed and implemented by the management.

On 26 January 2010, the rating agency Standard & Poor’s (S&P) confirmed the long-term counterparty credit and insurer financial strength ratings of the Parent Company to be A+ with a stable outlook.

E.10 Capital management

The objectives of Generali Group’s as well as the individual business units’ capital management policy are:

– To guarantee the accomplishment of solvency requirements as defined by the specific laws of each sector where the participated companies operate (insurance, banking and financial sector).

– To safeguard the going concern and the capacity to develop own activities.

– To continue to guarantee an adequate remuneration of the shareholder’s capital.

– To determine adequate pricing policies that are suitable for the risk level of each sectors’ activity.

E.10.1 Solvency I

The Group undertakes insurance business, a regulated industry. In every country in which the Group operates, local law and or local supervisory authorities have minimum capital requirements for insurance companies.

The Group closely monitors its compliance with regulatory capital requirements. The minimum capital should be maintained by each business unit to face its insurance obligations and operational risks.

The following table summarises the minimum capital requirements prescribed by different local supervisory authorities and the available capital for each company.

required solvency available solvency(CZK million) margin marginCompany 2009 2008 2009 2008

Česká pojišťovna a.s. 5,698.5 6,076.6 24,059.6 21,094.1

Česká pojišťovna ZDRAVÍ a.s. 45.0 60.0 216.9 133.8

JSC “Generali Life”, Kazakhstan 8.1 17.0 160.7 148.3

Generali PPF Life Insurance LLC, Russia 498.1 579.9 1,630.8 1,043.1

Generali foreign insurance Co, Belarus 5.9 0.2 55.7 39.0

Česká pojišťovna Ukraine – Life Insurance 0.0 1.4 0.0 79.2

Total 6,255.6 6,735.1 26,123.7 22,537.5

The Group closely monitors its compliance with regulatory capital requirements. The current approach for calculating capital requirements is based on Solvency I principles which are to be replaced by a new system of regulatory capital calculation - Solvency II. The Group is gradually implementing the Solvency II standards into its own risk capital management procedures.


E.10.2 Solvency II

The Group is gradually implementing the Solvency II standards into its own risk capital management procedures, starting with its most important business units.

The capital management policy is based on a consistent approach for the evaluation of the economic value and its related risks and makes use of proper internal models (Embedded value, Economic Balance Sheet).

This approach in fact anticipates the expected development within the “Solvency II” framework, that is the solvency regulation for insurance companies which European Union is now developing. As confirmed in the Framework Directive issued in 2007, the future capital requirements will focus on economic solvency of insurance companies and will reflect more precisely the specific risk positions, also giving possible credits for better risk management policies.

In this phase of changes in the law and market conditions, the capital management policy integrates the internal economic logic with the necessary considerations about existing capital constraints, with reference in particular to current local and Group solvency requirements and Rating Agency requirements.

F. Notes to the consolidated statement of financial position and income statement

F.1 Intangible assets

(CZK million) 31. 12. 2009 31. 12. 2008

Goodwill 1,323.0 1,374.0

of which is goodwill on Penzijní fond České pojišťovny, a.s. 584.0 584.0

of which is goodwill on Generali SAF de Pensii Private S.A. 739.0 790.0

Other intangible assets 1,511.6 1,443.6

Software 1,314.2 1,230.3

Present value of future profits from portfolios acquired 133.5 144.3

Other intangible assets 63.9 69.0

Total 2,834.6 2,817.6

F.1.1 Goodwill

The balance of the goodwill on Penzijní fond České pojišťovny, a.s. represents the goodwill that arose from the acquisition of ABN AMRO Penzijní fond, a.s. in 2004. The amount of goodwill CZK 739.0 million refers to the acquisition of the company Generali SAF de Pensii Private S.A. in 2008.

A cash-generating unit to which goodwill has been allocated is tested for impairment annually by comparing the carrying amount of the unit, including the goodwill, with the recoverable amount of the unit. Annual impairment review resulted in no impairment charge for 2009 nor 2008.

The following sections describe how the Group determines the recoverable amount of its goodwill carrying cash-generating units and provides information on certain key assumptions on which management based its determination of the recoverable amount.

Generali SAF de Pensii Private S.A.The recoverable amount of Generali SAF de Pensii Private S.A. is calculated on the basis of value in use. The Group employs a valuation model based on discounted cash flows. The model calculates the present value of the estimated future cash inflows and outflows, considering projections on budgets/forecasts approved by a management. Key assumptions used for value-in-use calculations to test the recoverability of goodwill are as follows:

Long-term growth rate 2.0%Discount rate 16.2%

These key assumptions have been made by management reflecting past experience and are consistent with relevant external sources of information. The key assumptions to which the calculation of value-in-use is most sensitive are the earnings projection, long term growth and discount rate. The discount rate applied is comprised of a risk-free interest rate and a market risk premium. Cash flows for the periods included in the projections were translated into the presentation currency using the exchange rate at the time the budgets were prepared and are held constant over the budgeted and planned years. Management believes that, currently, there are no reasonably possible changes in any of the key assumptions, which would lead to the recoverable amount being below the carrying amount.


Penzijní fond České pojišťovnyThe Group performs the valuation of present value of future profits related to ABN portfolio, within the annual embedded value calculations. This valuation showed the present value of the respective portfolio in the amount of CZK 661.3 million, which is higher than its carrying amount (CZK 133.4 million).

Embedded value calculation follows the Market Consistent European Embedded Value (MCEEV) Principles. The reference rates used for derivation of risk neutral economic scenarios are calibrated to CZK government bonds and both investment rates and implied volatilities are as of the end of year 2009. The following chart presents the applied rates:

F.1.2 Other intangible assets

Tables below show the development of individual classes of other intangible assets.

Software Other PVFP Total31. 12. 2009 intangible (CZK million) assets

Balance as at 1 January 4,262.6 148.6 152.7 4,563.9

Additions 548.0 54.3 0.0 602.3

Disposals (48.9) (27.9) 0.0 (76.8)

Net exchange differences (0.2) (0.7) 0.0 (0.9)

Balance as at 31 December 4,761.5 174.3 152.7 5,088.5

Accumulated amortisation and impairment losses

Balance as at 1 January (3,032.3) (79.6) (8.5) (3,120.4)

Amortisation charge for the year (415.5) (30.9) (10.8) (457.2)

Disposals 0.5 0.0 0.0 0.5

Net exchange differences 0.1 0.1 0.0 0.2

Balance as at 31 December (3,447.2) (110.4) (19.3) (3,576.9)

Total 1,314.3 63.9 133.4 1,511.6

Software Other PVFP Total31. 12. 2008 intangible (CZK million) assets

Balance as at 1 January 3,895.1 89.7 311.1 4,295.9

Additions 491.4 59.1 0.0 550.5

Disposals (126.6) (0.2) (162.8) (289.6)

Net exchange differences 2.7 0.0 4.4 7.1

Balance as at 31 December 4,262.6 148.6 152.7 4,563.9

Accumulated amortisation and impairment losses

Balance as at 1 January (2,524.8) (42.6) (124.9) (2,692.3)

Amortisation charge for the year (594.0) (37.1) (32.9) (664.0)

Disposals 88.5 0.1 152.8 241.4

Net exchange differences (2.0) (0.0) (3.4) (5.4)

Balance as at 31 December (3,032.3) (79.6) (8.4) (3,120.3)

Total 1,230.3 69.0 144.3 1,443.6

The derecognition of the present value of future profits is related to the sale of the subsidiary Česká poisťovna – Slovensko, a.s.

7,00

6,00

5,00

4,00

3,00

2,00

1,00

0,00

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

203

0

2032

203

4

203

6

203

8

204

0

2042

204

4

204

6

204

8

Investment Income (%)

Discount Rate (%)


F.2 Tangible assets

F.2.1 Land and buildings (self-used)


Gross book value as at 1 January 194.8 774.5

Accumulated depreciation and impairment as at 1 January (87.6) (130.9)

Carrying amount as at 31 December previous year 107.2 643.6

Foreign currency translation effects 0.0 2.1

Increases 41.7 176.0

Changes in consolidation scope 0.0 (75.5)

Decreases (33.5) (596.5)

Depreciation of the period (0.1) (42.5)

Carrying amount as at 31 December 115.3 107.2

Accumulated depreciation and impairment as at 31 December 87.6 87.6

Gross book value as at 31 December 202.9 194.8

Fair value 115.3 107.2

In 2008, the Group continued the internal reorganisation project and has sold a major part of its land and buildings. Most of it was sold to the companies controlled by Tenacity Ltd (Cyprus) a subsidiary of PPF Group N.V. (minority shareholder of GPH). As a result, there is a significant decrease in the balance of land and buildings as at 31 December 2008.

F.2.2 Other tangible assets

The CZK 333.5 million in other tangible assets net of accumulated depreciation and impairment losses consist mainly of furniture, office and IT equipment.

F.3 Reinsurance assets

Direct insurance Accepted reinsurance Total(CZK million) 31. 12. 2009 31. 12. 2008 31. 12. 2009 31. 12. 2008 31. 12. 2009 31. 12. 2008

Non-life 8,280.1 7,694.8 130.0 27.7 8,410.1 7,722.5

Provision for unearned premiums 1,906.9 1,789.4 79.0 1.8 1,985.9 1,791.2

Provision for outstanding claims 4,277.3 3,886.6 35.9 12.6 4,313.2 3,899.2

IBNR 2,081.0 2,012.0 15.1 13.3 2,096.1 2,025.3

Other insurance provisions 14.9 6.8 0.0 0.0 14.9 6.8

Life 854.5 844.6 0.0 0.0 854.5 844.6

Provision for unearned premiums 68.0 61.3 0.0 0.0 68.0 61.3

Provision for outstanding claims 578.1 532.2 0.0 0.0 578.1 532.2

IBNR 207.7 250.4 0.0 0.0 207.7 250.4


Total 9,134.6 8,539.4 130.0 27.7 9,264.6 8,567.1

The amounts included in reinsurance assets represent expected future claims to be recovered from the Group’s reinsurers and the reinsurers’ share of unearned premiums.

Ceded reinsurance arrangements do not relieve the Group of its direct obligations to policyholders. Thus, a credit exposure exists with respect to reinsurance ceded to the extent that any reinsurer is unable to meet the obligations assumed under the reinsurance agreements.


F.4 Investments

F.4.1 Investment properties


Carrying amount as at 1 January 83.9 524.0

Reclassifications 0.0 (433.4)

Disposals (0.3) (5.0)

Revaluation 1.5 (1.7)

Carrying amount as at 31 December 85.1 83.9

Other 2008 movements in land and buildings (investment properties) of CZK 433,4 million represent reclassification of land and buildings into non-current assets held for sale.

The fair value of investment property is based on the valuation of an independent valuator who holds a recognised and relevant professional qualification and has recent experience in the location and category of the investment property being valued.

F.4.2 Investments in subsidiaries and associated companies

(CZK million) 31. 12. 2009 31. 12. 2008

Investments in non-consolidated subsidiaries 8.6 8.1

První Callin agentura a.s. 3.0 3.0

REFICOR s.r.o. 0.1 0.1

Karlův most foundation 5.0 5.0

Nadace České pojišťovny 0.5 0.0

Investments in associated companies valued at equity 0.0 1,450.3

Generali Poisťovňa Slovensko, a.s. (B.1). 0.0 1,450.3

Movements in associated companies


Balance as at 1 January 1,450.3 0.0

Acquisitions 0.0 1,434.5

Disposals (1,678.1) 0.0

Change in value recognised in income statement 117.9 (134.5)

Change in value recognised directly in other comprehensive income 109.9 150.3

Balance as at 31 December 0.0 1,450.3

F.4.3 Held-to-maturity investments

31. 12. 2009 31. 12. 2008(CZK million) Book value Fair value Book value Fair value

Quoted bonds 87.5 99.2 158.7 172.4

Fair value of quoted bonds is determined in accordance with the principles described in C.1.5.

F.4.4 Loans and receivables


Loans 21,651.1 21,721.7 17,450.8 17,606.7

Unquoted bonds 1,852.4 1,923.2 1,839.2 1,995.1

Deposit under reinsurance business accepted 0.5 0.5 0.6 0.6

Other loans and receivables 19,798.2 19,798.0 15,611.0 15,611.0

Term deposit with credit institutions 12,244.6 12,244.6 12,551.4 12,551.4

Buy-sell transactions 4,230.3 4,230.2 2,801.1 2,801.1

Other loans 3,323.2 3,323.2 258.5 258.5

In November 2009, the Group has provided a short-term loan to East Bohemia Energy Holding Ltd. in the amount of CZK 1,500 million which was repaid on 24 March 2010.


F.4.5 Available-for-sale financial assets

31. 12. 2009(CZK million) Fair value Gains/Losses Amortised cost

Unquoted equities at cost 100.0 (119.4) 219.4

Equities at fair value 3,058.4 218.8 2,839.6

Bonds 87,404.7 1,252.3 86,152.4

Investments in fund units 4,648.0 (272.4) 4,920.4

Total 95,211.1 1,079.3 94,131.8

31. 12. 2008(CZK million) Fair value Gains/Losses Amortised cost

Unquoted equities at cost 215.4 214.8 0.6

Equities at fair value 9,504.9 (1,718.8) 11,223.7

Bonds 57,792.1 (953.1) 58,745.2

Investments in fund units 2,564.0 (468.7) 3,032.7

Total 70,076.4 (2,925.8) 73,002.2

(CZK million) 31. 12. 2009 31. 12. 2008

Unquoted equities at cost 100.0 215.4

Equities at fair value 3,058.4 9,504.9

Quoted 3,057.5 9,503.6

Unquoted 0.9 1.3

Bonds 87,404.7 57,792.1

Quoted 77,781.1 56,909.2

Unquoted 9,623.6 882.9

Investments in fund units 4,648.0 2,564.0

Total 95,211.1 70,076.4

In 2009, the Group continued the process of restructuring its financial asset portfolios in line with its investment strategy which caused the significant increase in this category.


31. 12. 2009(CZK million) Level 1 Level 2 Level3 Total

Unquoted equities at cost 0.0 0.0 100.0 100.0

Equities at fair value 3,057.5 0.0 0.9 3,058.4

Quoted 3,057.5 0.0 0.0 3,057.5

Unquoted 0.0 0.0 0.9 0.9

Bonds 77,780.8 9,623.6 0.3 87,404.7

Quoted 77,780.8 0.0 0.3 77,781.1

Unquoted 0.0 9,623.6 0.0 9,623.6

Investments in fund units 4,630.2 17.9 0.0 4,648.1

Total 85,468.5 9,641.5 101.2 95,211.2



The following table presents the changes in level 3 instruments for the year ended 31 December 2009.

(CZK million) 2009

Opening balance 217.0

Total gains or losses (115.8)

in income statement (115.4)

in other comprehensive income (0.4)

Closing balance 101.2

Total gains/losses for the period included in income statement for assets held at the end of the reporting period (115.4)

Maturity of available-for-sale financial assets - bonds(CZK million) Fair Value 2009 Fair Value 2008

Up to 1 year 6,193.7 5,980.1

Between 1 and 5 years 39,810.6 18,376.2

Between 5 and 10 years 18,731.7 14,798.4

More than 10 years 22,668.7 18,637.5

Total 87,404.7 57,792.2

Realised gains and losses, and unrealisedlosses on available-for-sale financial assets31. 12. 2009 (CZK million) Realised gains Realised losses Impairment losses

Equities (1,273.3) 6.3 116.7

Bonds (566.7) 165.0 7.7

Investment fund units (247.6) 190.4 27.6

Total (2,087.6) 361.7 152.0

31. 12. 2008 (CZK million) Realised gains Realised losses Impairment losses

Equities (27.4) 594.2 1,579.4

Bonds (1,304.7) 120.4 251.3

Investment fund units 0.0 53.5 56.4

Total (1,332.1) 768.1 1,887.1

F.4.6 Financial assets at fair value through profit or loss

Financial assets held Financial assets Total financial for trading designated as at fair assets at fair value value through through profit profit and loss and loss(CZK million) 31. 12. 2009 31. 12. 2008 31. 12. 2009 31. 12. 2008 31. 12. 2009 31. 12. 2008

Equities 807.9 3,403.8 1,111.3 46.6 1,919.2 3,450.4

Quoted 807.9 3,403.8 1,111.1 46.4 1,919.0 3,450.2

Unquoted 0.0 0.0 0.2 0.2 0.2 0.2

Bonds 5,404.3 815.6 19,746.6 43,316.6 25,150.9 44,132.2

Quoted 5,404.3 815.6 7,933.9 31,074.3 13,338.2 31,889.9

Unquoted 0.0 0.0 11,812.7 12,242.3 11,812.7 12,242.3

Investments in fund units 2,390.6 1,457.0 2,486.9 2,564.9 4,877.5 4,021.9

Derivates 679.2 1,059.0 0.0 0.0 679.2 1,059.0

Unit-linked investments 0.0 0.0 3,450.1 1,810.3 3,450.1 1,810.3

Total 9,282.0 6,735.4 26,794.9 47,738.4 36,076.9 54,473.8

All financial instruments held for trading are valued based on quoted market prices, except derivatives, which are valued based on generally accepted valuation techniques depending on the product (i.e. discounted expected future cash flows, Black-Scholes model, etc.).



31. 12. 2009 (CZK million) Level 1 Level 2 Level3 Total

Equities 1,918.9 0.0 0.2 1,919.1

Quoted 1,918.9 0.0 0.0 1,918.9

Unquoted 0.0 0.0 0.2 0.2

Bonds 12,397.7 12,676.4 76.7 25,150.8

Quoted 12,397.7 863.7 76.7 13,338.1

Unquoted 0.0 11,812.7 0.0 11,812.7

Investments in fund units 4,662.5 215.1 0.0 4,877.6

Derivates 91.6 587.6 0.0 679.2

Unit-linked investments 3,398.0 52.1 0.0 3,450.1

Total 22,468.7 13,531.3 76.9 36,076.8


The following table presents the changes in level 3 instruments for the year ended 31 December 2009. There were no changes in inputs for fair value measurement that would significantly change fair value.

(CZK million) 2009

Opening balance 66.7

Total gains or losses 10.2

in income statement 10.2

Closing balance 76.9

Total gains/losses for the period included in income statement for assets held at the end of the reporting period 10.2

F.4.7 Reclassifications between categories of financial assets

High price volatility and low liquidity of markets and instruments were the main features of the development on financial markets in 2008. This negative development lasted the whole year and even accelerated during the second half of the year. Such market behaviour represented rare circumstances which led the Group to change its investment strategy and reclassify financial assets (equities) in the amount of CZK 14,135.3 million from the Fair value through profit and loss category to Available-for-sale category. The reclassification was done on 1 October 2008. The carrying amount and fair value of the reclassified financial assets outstanding as at 31 December 2009 is CZK 1,573.0 million (2008 is CZK 11,329.0 million).

Had these financial assets not been reclassified, the profit and loss account would show a revaluation profit in the amount of CZK 497.2 million (2008 loss CZK 2,107.6 million). Out of this revaluation, nothing (2008 CZK 1,924.9 million) is reported in the profit and loss account as an impairment loss and CZK 58.9 million (2008 CZK 402.1 million) is reported in the profit and loss account as a loss (2008 profit) on foreign currency revaluation under fair value hedge accounting. Had these financial assets not been reclassified, the profit and loss account would not show loss on realisation of CZK 430.0 million (2008 – nil).

F.5 Receivables

(CZK million) 31. 12. 2009 31. 12. 2008

Receivables arising out of direct insurance operations 3,706.9 6,010.2

Amounts owed by policyholders 3,661.8 5,913.4

Amount owed by intermediaries and others 45.1 96.8

Receivables arising out of reinsurance operations 3,008.2 1,908.6

Other receivables 2,151.3 5,914.9

Total receivables 8,866.4 13,833.7

Trade and other receivables include a receivable from the sale of interest in CP Strategic Investments B.V. in the amount of CZK 840.1 million. As at 31 December 2008, there was a receivable from the sale of the reinsurance company CP RE amounting to CZK 2,690.0 million.


F.6 Other assets

(CZK million) 31. 12. 2009 31. 12. 2008

Non-current assets or disposal groups classified as held-for-sale 3,877.8 276.4

Deferred acquisition costs 790.9 1,968.8

Deferred tax assets 112.0 111.0

Tax receivables 68.2 1,129.5

Other assets 238.4 308.8

Other assets total 5,087.3 3,794.5

Tax receivables were exceptionally high in 2008 due to the high advances on income tax paid in 2008 resulting from the 2007 tax.

F.6.1 Non-current assets held for sale

As at 31 December 2009, the assets classified as held-for-sale amounted to CZK 3,877.8 million (2008: CZK 276.4 million) and the related liabilities amounted to CZK 2,190.0 million (2008:nil).

The balance as at 31 December 2009 relates to a subsidiary Generali PPF Life Insurance LLC. The intention to sell the interest in the subsidiary was approved by the Board of ČP in November 2009 and the Group subsequently obtained the consent of the Russian authorities. It is expected that the sale will be realised during the first half of 2010.

The following table shows details of assets and liabilities of Generali PPF Life Insurance which are disclosed as non-current assets and liabilities held-for-sale in the statement of financial position:

(CZK million) 2009

Total assets held-for-sale 3,877.8

Investments 2,459.9

Available-for-sale 1,303.8

Other investments 1,156.1

Reinsurance assets 5.0

Receivables 142.0

Receivables arising out of insurance operations 23.9

Receivables arising out of reinsurance operations 0.8

Receivables relating to taxation 67.5

Other Receivables 49.8

Cash and cash equivalents 258.1

Other assets 1,012.8

Deferred acquisition costs 962.0

Tangible assets and inventories 32.1

Accrued income and prepayments 18.7

Total liabilities related to assets held-for-sale 2,190.0

Insurance provisions 1,937.4

Other provisions 19.9

Financial liabilities at fair value through profit or loss 3.0

Derivatives 3.0

Payables 205.0

Payables arising out of insurance operations 190.4

Payables arising out of reinsurance operations 0.6

Other payables 14.0

Deferred tax liabilities 24.7


The income statement includes net profit related to discontinued operations in the total amount of CZK 941.3 million (2008: CZK 840.1 million). The following table shows details of the profit of Generali PPF Life Insurance in the income statement:


Total income 3,923.4 3,729.0

Earned premiums 3,395.5 3,488.4

Gross earned premiums 3,393.7 3,489.3

Earned premiums ceded 1.8 (0.9)

Interests and other investment income 236.7 137.7

Interests and other income from investments AFS 110.9 53.8

Interests on repurchase agreement 0.1 0.0

Interests from term deposits 71.3 83.9

Interests on bank accounts 54.4 0.0

Other income from financial instruments and other investments 75.3 9.7

Reversal impairment on receivables 0.0 9.7

Realised gains from investments AFS 75.3 0.0

Net income from financial instruments at fair value through profit or loss (11.6) 0.0

Realised losses from derivatives (8.8) 0.0

Unrealised losses on derivatives (2.8) 0.0

Other income 227.5 93.2


Gains on foreign currency 3.4 0.0

Total expenses (2,702.4) (2,602.5)

Net insurance benefits and claims (329.8) (242.3)

Gross insurance benefits and claims (330.7) (244.4)

Reinsurers‘ share 0.9 2.1

Interest expenses (9.6) 0.0

Interest expenses on reverse repurchase agreement (9.6) 0.0

Other expenses for fin. instruments and other investments (44.8) (176.0)

Impairment (35.2) (166.1)

Realised losses on investments AFS (9.3) (9.6)

Other expenses for investments (0.3) (0.1)

Unrealised losses on hedging derivatives 0.0 (0.2)

Acquisition costs (1,986.3) (1,972.2)

Acquisition commissions, net of reinsurance (1,841.5) (2,428.9)

Change in deferred acquisition costs (144.8) 456.7

Administration costs (206.8) (181.4)

Other expenses (125.1) (30.6)

Other charges (125.1) (24.8)

Depreciation of tangible assets 0.0 (5.8)

Profit from discontinued operations before tax 1,221.0 1,126.5

Income taxes (279.7) (286.4)

Net profit for the period 941.3 840.1

Profit from discontinued operations before tax is a part of the cash-flow statement.

The cash flows from discontinued operations were as follows:


Net cash flow from operating activities 383.9 762.4

Net cash flow from investing activities 17.0 (606.7)

Net cash flow from financing activities (0.2) (0.2)

Two investment properties, classified as non-current assets held-for-sale which represented the balance outstanding as at 31 December 2008 in the amount of CZK 276.4 million were sold during 2009.


F.6.2 Deferred acquisition costs

Deferred acq. costs(CZK million) 2009 2008

Carrying amount as at 1 January 1,968.8 1,663.6

Changes in Group structure 0.0 (87.5)

Reclassification to non-current assets held for sale (961.9) 0.0

Movements of the period (216.0) 392.7

Carrying amount as at 31 December 790.9 1,968.8

The Group defers only non-life insurance acquisition costs. All deferred acquisition costs are usually to be released within one year. The balance in the line Reclassification to non-current assets held for sale relates to the subsidiary Generali PPF Life Insurance LLC.

F.7 Cash and cash equivalents

(CZK million) 31. 12. 2009 31. 12. 2008

Cash and cash equivalents 7.8 9.4

Cash at bank 531.9 1,326.2

Total cash from continued operations 539.7 1,335.6

Total cash from discontinued operations (F.6.1) 258.1 0.0

Total 797.8 1,335.6

Additional information about cash is available in the cash-flow statement.

F.8 Shareholder’s equity

(CZK million) 31. 12. 2009 31. 12. 2008

Shareholder’s equity attributable to the Group 23,119.6 17,592.7

Share capital 4,000.0 4,000.0

Revenue reserves and other reserves 9,091.6 13,327.7

Reserve for currency translation differences (290.6) (58.8)

Reserve for unrealised gains and losses on available for sale financial assets 1,552.9 (1,316.9)

Reserve for other unrealised gains and losses through equity 3.7 3.7

Result of the period 8,762.0 1,637.0

Shareholder‘s equity attributable to minority interests 20.0 11.5

Total 23,139.6 17,604.2

The following table provides details on reserves for unrealised gains and losses on investments available-for-sale.


Beginning of the year (1,316.9) (736.8)

Gross revaluation as at the beginning of the year (1,433.4) (741.8)

Tax on revaluation as at the beginning of the year 116.5 5.0

Revaluation gain/loss in equity – gross 5,123.7 (1,981.3)

Revaluation gain/loss on realisation in income statement – gross (1,725.9) (564.0)

Impairment losses 152.0 1,887.1

Changes related to accounting for associated companies 60.7 47.7

Changes in Group structure (110.6) (81.1)

Tax on revaluation (630.0) 111.5

Gross revaluation as at the end of the year 2,066.4 (1,433.4)

Tax on revaluation as at the end of the year (513.5) 116.5

End of the year 1,552.9 (1,316.9)


The following table provides details on revaluation of land and buildings.


Beginning of the year 3.7 12.3

Gross revaluation as at the beginning of the year 4.6 15.5

Tax on revaluation as at the beginning of the year (0.9) (3.2)

Revaluation gain/loss in equity - gross 0.0 (10.8)

Tax on revaluation 0.0 2.2

Gross revaluation as at the end of the year 4.6 4.6

Tax on revaluation as at the end of the year (0.9) (0.9)

End of the year 3.7 3.7

The following table provides details of authorised and issued shares.

31. 12. 2009 31. 12. 2008

Number of shares authorised 40,000 40,000

Number of shares issued, out of which: 40,000 40,000

fully paid 40,000 40,000

Par value per share (CZK) 100,000 100,000

F.8.1 Dividends

As at the Annual General Meeting on 24 August 2009, the shareholder of the Group approved the distribution of the retained earnings in the form of a dividend in the amount of CZK 146,829.23 per share in the nominal value of CZK 100,000 amounting to CZK 5,873.2 million. The dividend was paid out on 31 August 2009.

F.9 Other provisions (CZK million) 2009 2008

Provisions for taxation 18.8 2.4

Provisions for commitments 1,974.6 2,270.8

Provision for restructuring charges 56.0 41.2

Other provisions 6.6 24.7

Total 2,056.0 2,339.1



Foreign currency translation effects (0.9) 7.6

Changes in consolidation scope (19.8) (275.1)

Variations (262.4) (103.8)

Carrying amount as at 31 December 2,056.0 2,339.1

Provisions for commitments consist of provisions for the MTPL deficit in the amount of CZK 1,854.6 million (2008: CZK 2,041.7 million) and other provisions.

Provision for MTPL deficitOn 31 December 1999, statutory MTPL insurance was replaced by contractual MTPL insurance in the Czech Republic. All rights and obligations arising from statutory MTPL insurance prior to 31 December 1999, including the deficit of received premiums to cover the liabilities and costs, were transferred to the Czech Bureau of Insurers („the Bureau“).

On 12 October 1999, the Parent Company obtained a license to write contractual MTPL insurance in the Czech Republic and, as a result, the Parent Company became a member of the Bureau (see also F.29.2.3).

Each member of the Bureau guarantees the appropriate portion of the Bureau’s liabilities based on the member’s market share for this class of insurance.


Based on information publicly available and information provided by members of the Bureau, the Group created a provision adequate to cover the cost of claims likely to be incurred in relation to the liabilities ceded. However, the final and exact amount of the incurred cost of claims will only be known in several years.

F.10 Insurance provisions

Direct insurance Accepted reinsurance Total(CZK million) 31. 12. 2009 31. 12. 2008 31. 12. 2009 31. 12. 2008 31. 12. 2009 31. 12. 2008

Non-life insurance provisions 20,930.6 25,013.9 511.8 407.9 21,442.4 25,421.8

Provisions for unearned premiums 4,481.8 8,262.8 188.6 116.3 4,670.4 8,379.1

Provisions for outstanding claims 16,231.7 16,142.9 299.7 285.5 16,531.4 16,428.4


Life insurance provisions 68,007.0 69,803.7 0.0 0.0 68,007.0 69,803.7

Provisions for unearned premiums 37.9 45.2 0.0 0.0 37.9 45.2

Provisions for outstanding claims 2,107.4 2,087.8 0.0 0.0 2,107.4 2,087.8

Mathematical provisions 60,982.0 63,643.2 0.0 0.0 60,982.0 63,643.2

Provisions for unit-linked policies 3,391.2 1,800.2 0.0 0.0 3,391.2 1,800.2

Other insurance provisions 1,488.5 2,227.3 0.0 0.0 1,488.5 2,227.3

of which provisions for liability adequacy test 1,249.2 2,000.0 0.0 0.0 1,249.2 2,000.0

Total 88,937.6 94,817.6 511.8 407.9 89,449.4 95,225.5

F.10.1 Life insurance provisions

2009(CZK million) Gross Reinsurers’ share Net

Balance as at 1 January 69,803.8 (844.6) 68,959.2

Premium allocation 11,909.7 0.0 11,909.7

Release of liabilities due to benefits paid, surrenders and other terminations (12,455.8) 0.0 (12,455.8)

Fees deducted from account balances (2,503.8) 0.0 (2,503.8)

Unwinding of discount/accretion of interest 2,064.1 0.0 2,064.1

Changes in unit-prices 483.4 0.0 483.4

Change in liability arising from liability adequacy test (763.3) 0.0 (763.3)

Change in IBNR and RBNS (4.7) (2.4) (7.1)

Change in UPR (21.8) (7.0) (28.8)

Changes in Group structure (472.9) 0.0 (472.9)

Currency translation differences (31.7) 0.1 (31.6)

Balance as at 31 December 68,007.0 (853.9) 67,153.1



Premium allocation 11,768.6 0.0 11,768.6

Release of liabilities due to benefits paid, surrenders and other terminations (10,076.7) 0.0 (10,076.7)

Fees deducted from account balances (2,374.5) 0.0 (2,374.5)

Unwinding of discount/accretion of interest 2,152.6 0.0 2,152.6

Changes in unit-prices (432.4) 0.0 (432.4)

Change in liability arising from liability adequacy test 694.0 0.0 (694.0)

Change in IBNR and RBNS 29.8 (782.1) (752.3)

Change in UPR (9.1) (61.1) (70.2)

Changes in Group structure (2,763.8) 0.0 (2,763.8)

Currency translation differences 57.1 0.2 57.3

Balance as at 31 December 69,803.7 (844.6) 68,959.1


Provisions for unit-linked policies Gross direct amount(CZK million) 2009 2008



Premiums, payments and interests 1,583.6 708.4

Changes in Group structure 7.4 (736.6)

Carrying amount as at 31 December 3,391.2 1,800.2

F.10.2 Non-Life insurance provisions

F.10.2.1 Provision for unearned premiumsThe tables below show the roll forward of the non-life provision for unearned premiums:


Balance as at 1 January 8,379.0 (1,791.2) 6,587.8

Change of the period (1,936.2) (195.1) (2,131.3)

Change of the period related to discontinued operations (F.6.1) (346.8) (2.9) (349.7)


Balance as at 31 December 4,670.4 (1,986.0) 2,684.4



Change of the period 359.0 195.0 554.0

Change of the period related to discontinued operations (F.6.1) 514.0 55.7 569.7

Changes in Group structure (450.8) (1,758.8) (2,209.6)


F.10.2.2 Provisions for outstanding claims

Gross direct insurance(CZK million) 31. 12. 2009 31. 12. 2008

Motor 11,325.3 11,403.0

Non Motor 4,906.4 4,739.9

Personal and commercial lines 4,468.6 4,295.7

Personal 700.1 560.6

Commercial/industrial 3,768.5 3,735.1

Accident/Health 437.8 444.2

Total 16,231.7 16,142.9

The following tables show the roll forward of provisions for outstanding claims:

2009(CZK million) Gross Reinsurance Net


Change of current year 3,049.9 (1,257.6) 1,792.3

Change of previous year (2,748.6) 842.4 (1,906.2)






Change of current year 5,615.7 (675.9) 4,939.8

Change of previous year (3,274.1) (91.7) (3,365.8)


Foreign currency translation (17.9) (0.4) (18.3)

Portfolio movement 0.0 (2,898.5) (2,898.5)


F.10.2.3 Claims incurred but not reported

The following tables show the roll forward of claims incurred but not reported:



Change of current year 1,969.3 (790.0) 1,179.3

Change of previous year (2,116.3) 719.2 (1,397.1)





Change of current year 2,746.2 132.1 2,878.3

Change of previous year (2,359.8) (189.8) (2,549.6)


Foreign currency translation (14.6) 0.0 (14.6)

Portfolio movement 0.0 (1,675.2) (1,675.2)


F.10.2.4 Other insurance provisions (CZK million) 2009 2008

Gross

Balance as at 1 January 614.3 411.7


Creation of provisions 2,223.3 1,448.9

Utilisation of provisions (2,597.0) (1,254.6)

Balance of gross provisions as at 31 December 240.6 614.3

Balance of reinsurers‘ share as at 31 December (14.9) (6.8)

Balance of net provisions as at 31 December 225.7 607.5

Creation and utilisation of provisions relates mainly to provision for non-discretionary bonuses.

F.11 Financial liabilities


Financial liabilities at fair value through profit or loss 1,460.6 1,460.6 1,878.8 1,878.8

Other financial liabilities 49,758.3 49,760.6 47,153.9 47,155.2

Financial liabilities at amortised cost related to investment contracts 48,201.3 48,201.3 43,707.9 43,707.9

Bonds issued 499.1 501.3 498.6 501.3

Net asset value attributable to unit holders in consolidated investment funds 672.3 672.3 520.8 520.8

Other 385.6 385.7 2,426.6 2,426.5

Total 51,218.9 51,221.2 49,032.7 49,034.0


On 13 December 2007, the Group issued 250 fixed-coupon bonds with a total nominal value of CZK 500.0 million. The issue price was CZK 2,000 thousand each. The bonds bear an interest rate of 5.10% p.a. Transaction costs related to the bonds issue amounted to CZK 2.3 million.

The amortisation of any discount, premium or direct transaction cost and interest related to other liabilities, evidenced by paper, is calculated using an effective interest rate method, and is recognised in interest expense and similar charges.

Other liabilities consist of Reverse repurchase agreements in the amount of CZK 378.4 million (2008 CZK 1,124.0 million). In 2008 the balance included a short-term loan from CZI Holdings in the amount of CZK 1,300.0 million which was outstanding as at 31 December 2008 and was repaid in 2009 in accordance with the contractual terms.

Fair value measurement as at the end of the reporting period:31. 12. 2009(CZK million) Level 1 Level 2 Level3 Total

Financial liabilities at fair value through profit or loss 67.2 1,393.4 0.0 1,460.6


F.12 Payables (CZK million) 31. 12. 2009 31. 12. 2008

Payable arising out of direct insurance operations 2,130.3 2,694.2

Payable arising out of reinsurance operations 4,934.4 3,715.6

Other payables 1,337.3 1,758.4

Payables to employees 211.0 166.8

Payables to clients and suppliers 285.6 459.4

Social security 74.4 71.8

Other payables 766.3 1,060.4

Total 8,402.0 8,168.2

F.13 Other liabilities (CZK million) 31. 12. 2009 31. 12. 2008

Liabilities directly associated to non-current assets and disposal groups classified as held-for-sale (F.6.1) 2,190.0 0.0

Deferred tax liabilities 77.0 135.9

Tax payables 1,638.1 123.9

Other liabilities 1,990.6 1,920.7

Accrued interest expense 1.3 0.3

Other accrued expenses 1,956.4 1,895.4

of which: Commissions 869.9 646.0

of which: Accrual for personal expenses 97.6 206.3

of which: Non-invoiced supplies 930.6 814.1

Deferred expenses 8.8 7.8

Other liabilities 24.1 17.2

Total 5,895.7 2,180.5

F.14 Net earned premiums

Gross amount Reinsurers‘ share Net amount(CZK million) 2009 2008 2009 2008 2009 2008

Non-life earned premium 25,070.7 28,738.1 (10,075.8) (2,783.5) 14,995.0 25,954.5

Premiums written 23,134.5 29,097.1 (10,270.8) (2,588.6) 12,863.7 26,508.5

Change in the provision for unearned premium 1,936.2 (359.0) 195.0 (195.0) 2,131.2 (554.0)

Life premium 14,029.1 15,292.7 (1,223.2) (109.4) 12,805.9 15,183.3

Total 39,099.8 44,030.8 (11,298.9) (2,892.9) 27,800.9 41,137.9


F.15 Fee and commission income and income from financial services activities


Fee and commission income from asset management activities 99.1 136.4

Total 99.1 136.4

F.16 Net income from financial assets at fair value through profit or loss

Financial investments Financial investments Financial investments Total financial held-for-trading back to unit-linked designated as at investments at policies fair value through fair value through profit or loss profit or loss(CZK million) 2009 2008 2009 2008 2009 2008 2009 2008

Net interest and other income 665.4 549.1 2.2 2.5 1,289.8 2,354.7 1,957.4 2,906.3

Realised gains 7,811.7 8,291.8 3.8 1.2 1,489.9 4,685.8 9,305.4 12,978.8

Realised losses (6,688.0) (10,168.9) (1.4) (3.4) (884.5) (6,231.5) (7,573.9) (16,403.8)

Unrealised gains 320.9 724.9 66.5 60.1 2,723.3 2,195.6 3,110.7 2,980.6

Unrealised losses (1,039.2) (2,254.2) (0.1) (528.8) (1,379.1) (6,437.4) (2,418.4) (9,220.4)

Total 1,070.8 (2,857.3) 71.0 (468.4) 3,239.4 (3,432.8) 4,381.2 (6,758.5)

F.17 Income and expenses from subsidiaries and associates (CZK million) 2009 2008

Income from subsidiaries and associated companies 166.7 1,288.5

Realised gains 10.3 1,423.0

Share of the profit or loss of associates accounted for using the equity method 117.9 (134.5)

Dividends from non-consolidated subsidiaries 38.5 0.0

Expense from subsidiaries and associated companies (647.5) (370.6)

Impairment of non-consolidated subsidiaries 0.0 (1.6)

Realised losses (647.5) (369.0)

Net income from subsidiaries and associated companies (480.8) 917.9

Realised losses relate mainly to disposal of associate Generali Slovensko poisťovna, a.s.

F.18 Income from other financial instruments and investment properties (CZK million) 2009 2008

Interest income 3,907.2 3,067.9

Interest income from held-to-maturity investments 5.8 8.8

Interest income from loans and receivables 576.4 1,000.7

Interest income from available-for-sale financial assets 3,313.2 2,044.3

Interest income from cash and cash equivalents 11.8 14.1


Income from investment properties 3.8 2.7

Other income from available-for-sale financial assets 128.0 109.8

Realised gains 2,093.8 1,381.5

Realised gains on investment properties 0.0 48.3

Realised gains on loans and receivables 0.5 1.1

Realised gains on available-for-sale financial assets 2,087.6 1,332.1

Realised gains on other receivables 5.7 0.0

Total 6,132.8 4,561.9


F.19 Other income (CZK million) 2009 2008

Gains on foreign currencies 0.0 1,548.7

Income from tangible assets 45.5 170.4

Income from service and assistance activities and recovery of charges 281.8 252.1

Leasing fees 0.0 1.7

Other technical income 137.5 80.8


Total 532.6 2,301.3

F.20 Net insurance benefits and claims

Gross amount Reinsurers‘ share Net amount(CZK million) 2009 2008 2009 2008 2009 2008

Non-life net insurance benefits and claims 14,752.4 15,889.5 (5,114.7) (1,625.8) 9,637.7 14,263.7

Claims paid 15,001.6 14,151.7 (4,620.3) (810.9) 10,381.3 13,340.8

Change in technical provisions (249.2) 1,737.8 (494.4) (814.9) (743.6) 922.9

Of which: Change in the provisions for outstanding claims 124.5 1,573.5 (486.3) (811.4) (361.8) 762.1

Of which: Change in other insurance provisions (373.6) 164.3 (8.1) (3.5) (381.8) 160.8

Life net insurance benefits and claims 9,520.7 11,637.3 (348.6) (21.0) 9,172.1 11,616.3

Claims paid 11,010.9 10,002.4 (340.6) (21.2) 10,670.3 9,981.2

Change in technical provisions (1,490.2) 1,634.9 (8.0) 0.2 (1,498.2) 1,635.1

Of which: Change in the provisions for outstanding claims 22.5 96.1 (3.4) 1.5 19.1 97.6

Of which: Change in the mathematical provisions (2,358.0) 52.8 (4.6) (1.3) (2,362.6) 51.5

Of which: Change in the provisions for unit-linked policies 1,583.6 712.9 0.0 0.0 1,583.6 712.9

Of which: Change in other insurance provisions (738.3) 773.1 0.0 0.0 (738.3) 773.1

Total 24,273.1 27,526.8 (5,463.3) (1,646.8) 18,809.8 25,880.0

Life insuranceThe increase in gross claims payments in 2009 is mainly a result of higher surrenders. Surrenders increased by CZK 1,127.6 million, maturity payments decreased by CZK 53.4 million.

The change in the mathematical provision and in the provision for unit-linked policies arises from claims paid and new premiums allocated to reserves. The resulting change is due to the increase in gross claims payments and due to a more significant portion of premium allocated to provision for unit-linked policies in comparison to 2008.

The change in other insurance provision relates to the change in Additional reserve resulting from Liability adequacy testing (see C.2.3) and is determined by the development of the portfolio and relevant assumptions.

Non-life insuranceSignificant decrease in other insurance provisions is mainly caused by increase of provision of profit sharing and premium refunds in 2009 which was caused by the termination of insurance of the financial risk line of business, resulting from the termination of cooperation with Home Credit, a.s. and the resulting settlement of mutual obligations.

F.21 Fee and commission expenses and expenses from financial services activities


Fee and commission expenses from banking activities 0.0 0.5

Fee and commission expenses from asset management activities 56.7 99.1

Fee and commission expenses related to investment management services 456.2 520.8

Total 512.9 620.4


F.22 Expenses from other financial instruments and investment properties (CZK million) 2009 2008

Interest expense 578.0 154.8

Interest expense on loans, bonds and other payables 571.1 152.3

Interest expense on deposits received from reinsurers 0.1 0.0

Other interest expense 6.8 2.5

Other expenses 9.0 18.3

Expenses from investment properties 9.0 18.3

Realised losses 362.0 801.4

Realised losses on investment properties 0.3 29.2

Realised losses on held-to-maturity investments 0.0 0.1

Realised losses on available-for-sale financial assets 361.7 768.1

Realised losses on other receivables 0.0 4.0

Impairment losses 597.6 2,495.4

Impairment of loans and receivables 450.2 618.8

Impairment of available for sale financial assets 153.0 1,887.1

Reversal of impairment of available-for-sale financial assets (1.0) 0.0

Impairment of other receivables (4.6) (10.5)

Total 1,546.6 3,469.9

F.23 Acquisition and administration costs

Non-life segment Life segment Financial segment(CZK million) 2009 2008 2009 2008 2009 2008

Acquisition costs and other commissions 1,789.0 4,016.4 1,699.7 2,181.1 0.0 0.0

Change of DAC (7.3) 15.1 (2.2) (14.2) 0.0 0.0

Investment management expenses 66.9 93.7 197.6 239.3 4.1 3.7

Other administration costs 1,604.0 1,824.4 1,399.3 1,384.3 85.8 98.0

Total 3,452.6 5,949.6 3,294.4 3,790.5 89.9 101.7

F.24 Other expenses (CZK million) 2009 2008

Amortisation and impairment of intangible assets 486.1 664.0

Depreciation of tangible assets 195.7 296.5

Expenses from tangible assets 44.8 183.4

Losses on foreign currencies 294.1 0.0

Restructuring charges and allocation to other provisions 45.8 224.7

Expenses from service and assistance activities and charges incurred on behalf of third parties 121.8 227.8

Other expenses 148.2 45.1

Total 1,336.5 1,641.5

F.25 Income taxes (CZK million) 2009 2008

Income taxes 1,469.4 818.1

Czech Republic 1,461.4 472.1

Other countries 8.0 346.0

Deferred taxes (85.1) (426.7)

Czech Republic (93.7) 185.0

Other countries 8.2 (611.7)

Total 1,384.3 391.4


The table below shows the reconciliation between expected and effective tax rate, which is based on tax rates currently in force in each country for each consolidated subsidiary and takes into consideration the impact of the intra-group operations. (CZK million) 2009 2008

Expected income tax rate 20.0% 21.0%

Earnings before taxes 9,273.3 1,186.2

Expected income tax expense 1,854.7 249.1

Income not subject to tax (380.7) (170.6)

Realized gains on investments in subsidiaries tax exempt 127.4 (221.3)

Expenses not allowable for tax purposes 406.0 557.0

Effect of different tax rates in other countries (371.0) 320.4

Consolidation and other adjustments (252.1) (343.0)

Tax expenses 1,384.3 391.6

Effective tax rate 14.9% 33.0%

Due to significance of Czech entities in the Group, the expected tax rate is based on tax rate applicable in the Czech Republic.

The tax authorities of the territories in which group entities operate may at any time inspect the books and records of group entities within a maximum period of 3 to 10 years depending on the tax jurisdiction subsequent to the reported tax year, and may impose additional tax assessments and penalties. The Group‘s management is not aware of any circumstances which may give rise to a potential material liability in this respect.

F.25.1 Deferred tax

Deferred tax Deferred tax assets liabilities(CZK million) 31. 12. 2009 31. 12. 2008 31. 12. 2009 31. 12. 2008

Intangible assets 0.0 0.0 (85.2) (42.5)

Tangible assets and Land and buildings 7.0 7.9 (20.0) (20.9)

Loans 59.7 59.7 0.0 0.0

Financial assets held-to-maturity 0.0 0.0 (0.7) (10.5)

Financial assets at fair value through profit and loss 0.0 0.0 (5.2) (64.1)

Receivables 0.0 11.3 0.0 0.0

Deferred acquisition costs 2.5 0.0 0.0 0.0

Insurance provisions 7.4 7.2 0.0 0.0

Other 35.4 24.8 (1.2) (22.7)

Total deferred tax asset/liability 112.0 110.9 (112.3) (160.7)

Net deferred tax asset/liability (0.3) (49.8)

In accordance with the accounting method, the amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted as at the end of the reporting period. For Czech Republic, the expected changes in taxation are reflected - for the year 2009, it is 20% and for the year 2010 it is 19% (2008 – 21%).

F.26 Information on employees

31. 12. 2009 31. 12. 2008

Managers 425 415

Employees 3,192 3,583

Sales attendants 793 1,361

Others 11 35

Total 4,421 5,394

The decrease in number of employees is due to the development in the Parent Company, as well as reclassification of Generali PPF Life Insurance LLC to a held-for-sale asset.



Wages and salaries 2,006.7 2,428.1

Compulsory social security contributions 628.3 673.6

Others 39.2 71.3

Total 2,674.2 3,173.0

Total remuneration included in staff cost for directors and executive officers 219.9 337.0

Staff costs are reported in the sections Acquisition costs, Insurance Benefits and Claims and Administrative expenses.

Other expenses include the costs of the Group’s health and social programmes (e.g. health programme for managers, medical check-up for employees and social benefits).

Compulsory social security contributions comprise mainly contributions to state-defined contribution pension plans.

F.27 Hedge accounting

Starting 1 October 2008, hedge accounting is applied by the Group on foreign currency risk (FX risk). The Group applies fair value hedge.

The functional currency of the Group and the currency of its liabilities is CZK. However, in the investment portfolios, there are also instruments denominated in foreign currencies. According to the general policy, all these instruments are dynamically hedged into CZK via FX derivatives.

Foreign currency hedging is in place for all foreign currency investments, i.e. bonds, investment fund units, equities, etc. in order to fully hedge the implied FX risk. The process is in place which guarantees the high efficiency of the hedging.

The FX difference on all financial assets and derivatives, except for equities classified in the available-for-sale portfolio, are reported in the profit or loss account according to standard rules. FX revaluation on AFS equities is within the hedge accounting reported in the profit or loss account either as other income – gains on foreign currency or other expenses – losses on foreign currency.

Hedged itemsHedge accounting is applied on financial assets – defined as all non-derivative financial assets denominated or exposed in foreign currencies (i.e. all bonds, equities, investment fund units, term deposits and current bank accounts denominated in EUR, USD and other currencies) except for:

a) financial assets backing unit-linked products;

b) cross-currency swaps and bonds are economically hedged by them;

c) other particular exclusions predefined by the investment management strategy.

Hedged items include financial assets classified in the available-for-sale category, fair value through profit or loss, other investments and cash and cash equivalents. The hedged items include no financial liabilities.

Hedging instrumentsHedging instruments are defined as all FX derivatives except for cross-currency swaps as described above and options. The derivatives are designated as hedging instruments in its entirety.


Assets according to this definition can be clearly identified at any time. As at 31 December, hedged items and hedging instruments were as follows:

Fair value as at FX gain/loss for 31. 12. 2009 the period from(CZK million) 1. 1. to 31. 12. 2009

Equities, bonds, investment funds units 18,516.8 (293.4)

Term deposits and current bank accounts 1,490.7 (177.5)

Derivatives (518.2) 571.1

Hedging effectiveness – 121.3%

Fair value as at FX gain/loss for 31. 12. 2008 the period from(CZK million) 1. 10. to 31. 12. 2008

Equities, bonds, investment funds units 13,036.0 1,516.0

Term deposits and current bank accounts 5,659.3 287.8

Derivatives (467.2) (1,834.8)

Hedging effectiveness – 101.7%

F.28 Earnings per share

The next table shows the earnings per share:

(CZK thousands) 2009 2008

Result of the period 8,826,500 1,637,000

Weighted average number of ordinary shares outstanding 40,000 40,000

Earnings per share (basic, diluted) 221 41

The earnings per share figure is calculated by dividing the result of the period by the weighted average number of ordinary shares outstanding. There were no share transactions, changes in number of shares or issued any instruments which could cause dilution of shares in 2009 and 2008.

F.29 Off balance sheet items

F.29.1 Commitments

The Group had no significant contractual commitments as at 31 December 2009.

F.29.2 Other contingencies

F.29.2.1 LegalAs at the release date of the financial statements, there were 4 cases concerning the decision of the general meeting of the Group in 2005 approving a squeeze-out of minority shareholders pending. Based on legal analyses carried out by external legal counsel, management of the Group believes that none of these cases gives rise to any contingent future liabilities for the Group.

F.29.2.2 Participation in nuclear poolAs a member of the Czech Nuclear Pool, the Parent Company is jointly and severally liable for the obligations of the pool. This means that, in the event that one or more of the other members are unable to meet their obligations to the pool, the Parent Company would take over the uncovered part of this liability, pro-rata to its own net retention used for the contracts in question. The management does not consider the risk of another member being unable to meet its obligations to the pool to be material to the financial position of the Group. In addition, the potential liability of the Group for any given insured risk is contractually capped at twice the Parent Company’s net retention for that risk.


The subscribed net retention is as follows:

(CZK thousands) 31. 12. 2009 31. 12. 2008

Liability 132,892 132,892

Fire, lightning, explosion, aircraft (“FLEXA“) and break down of operations 480,000 480,000

Transportation risk 96,000 96,000

Technical insurance and breakdown of operations 240,000 240,000

Total 948,892 948,892

F.29.2.3 Membership in the Czech Insurance BureauAs a member of the Czech Insurance Bureau (“the Bureau”) related to MTPL insurance, the Group is committed to guarantee the MTPL liabilities of the Bureau. For this purpose, the Group makes contributions to the guarantee fund of the Bureau based on the calculations of the Bureau (see F.9).

In the event of a fellow member of the Bureau being unable to meet its liabilities arising from MTPL due to insolvency, the Group may be required to make additional contributions to the guarantee fund. The management does not believe the risk of this occurring to be material to the financial position of the Group.

F.29.2.4 Česká pojišťovna – LitigationExcept for legal contingencies described in F.29.2.1 the Group is party to a litigation with Čásenský & Hlavatý, s.r.o., an insurance broker, in which the insurance broker is seeking compensation for lost trade. The Group’s position in the dispute is that the alleged claim has no foundation. Based on the legal analyses carried out to date, the management of the Group is of the opinion that the plaintiff will not be successful in this action.

F.30 Related parties

This chapter contains information about all important transactions with related parties excluding those which are described in other parts of notes.

F.30.1 Identity of related parties

As at 31 December 2009, CZI Holdings N.V. is the sole shareholder of the Group. The ultimate parent company is Assicurazioni Generali S.p.A.

The Group is related to its parent company which is CZI Holdings N.V., Assicurazioni Generali S.p.A. and to companies controlled by them.

The key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly.

The Group also has a related party relationship with its subsidiaries and associates.

The key management personnel of the Group and its parent, their close family members and other parties which are controlled, jointly controlled or significantly influenced by such individuals and entities in which such individuals hold significant voting power are also considered related parties.

Key management personnel of the Group comprise the members of the Board of Directors and the Supervisory Board.

In considering each possible related party relationship, attention is directed to the substance of the relationship and not merely the legal form.


F.30.2 Transactions with key management personnel of the Group

Board of Directors Supervisory Board Related to Related to Related to Related to the board employ- the board employ-For the period ended 31 December 2009 member- ment member- ment(CZK million) ship contract ship contract


Monetary benefits from the Group 2.4 53.5 1.5 5.3

Non-monetary benefits from the Group 0.0 0.3 0.4 0.0

Board of Directors Supervisory Board Related to Related to Related to Related to the board employ- the board employ-For the period ended 31 December 2008 member- ment member- ment(CZK million) ship contract ship contract


Monetary benefits from the Group 2.7 91.4 2.2 4.7

Non-monetary benefits from the Group 0.0 0.9 0.0 0.4

Short-term employee benefits include wages, salaries and social security contributions, allowances provided for membership in the statutory bodies, bonuses and non-monetary benefits such as medical care and cars.

There were no post-employment benefits, other long-term benefits or termination benefits paid to the key management personnel of the Group in 2009 and 2008.

As at 31 December 2009 and 31 December 2008, the members of the statutory bodies held no shares of the Group.

F.30.3 Related party transactions

The Group entered into no transactions and had no outstanding balances with the ultimate parent company Generali in 2008.

The dividend declared and paid to the sole shareholder is disclosed in the note F.8.1.

The other related parties fall into the following groups:

• Group 1 – CZI Holdings, N.V., the Company‘s shareholder

• Group 2 – Entities in the Generali Group

• Group 3 – other related parties.


31. 12. 2009(CZK million) Notes Group 1 Group 2 Group 3

Receivables from insurance and reinsurance business i 0.0 2,722.0 502.6

Technical provisions ceded to reinsurers ii 0.0 7,859.9 0.0

Other financial assets iii 0.0 0.0 7,251.1

Other assets iv 840.1 63.1 67.7

Total assets 840.1 10,645.0 7,821.4

Payables from insurance and reinsurance business v 0.0 4,576.5 49.7

Technical provisions 0.0 159.6 0.0

Other financial liabilities 0.0 0.0 42.1

Other liabilities 0.0 25.4 110.6

Total liabilities 0.0 4,761.5 202.4

Notes:i. The balances with companies in Group 2 comprise especially receivables from reinsurance from Generali Slovensko Poisťovňa, a.s. (Ge SK) in the amount of

CZK 970.4 million and receivables from reinsurance from GP Reinsurance EAD, Bulgaria (GP RE) in the amount of CZK 1,599.3 million. The balances with companies in Group 3 comprise receivables from Home Credit Group companies in amount of CZK 502.6 million.

ii. The balances with companies in Group 2 comprise technical provisions ceded to GP RECZK 7,819.3 million.iii. The balances with companies in Group 3 include bonds issued by Home Credit Group companies in the amount of CZK 2,573.4 million and bank deposits with PPF Banka

a.s. in the amount of CZK 4,219.7 millioniv. The balances with companies in Group 1 comprise receivables from CZI Holding of the sale of interest in CP Strategic Investments B.V. CZK 840.1 million.v. The balances with companies in the Group 2 comprise liabilities from reinsurance to GP RE in the amount of CZK 3,611.9 million and to Ge SK CZK 895.5 million.

31. 12. 2008(CZK million) Notes Group 1 Group 2 Group 3

Receivables from insurance and reinsurance business i 0.0 1,032.5 3,228.4

Technical provisions ceded to reinsurers ii 0.0 7.4 7,077.9

Other financial assets iii 0.0 0.0 7,442.6

Other assets iv 0.0 2,697.8 2,005.5

Total assets 0.0 3,737.7 19,754.4

Payables from insurance and reinsurance business v 0.0 863.1 2,598.0

Technical provisions vi 0.0 67.1 2,177.4

Other financial liabilities vii 1,300.0 0.0 161.3

Other liabilities viii 2.8 16.0 168.4

Total liabilities 1,302.8 946.2 5,105.1 Notes:i. The balances with companies in Group 2 comprise especially receivables from reinsurance from Generali Slovensko Poisťovňa. a.s. (Ge SK) in amount of

CZK 1,019.0 million. Group 3 comprises receivables from reinsurance from CP Reinsurance company Ltd. (CP RE) in amount of CZK 486.1 million and receivables from insurance from Home Credit Group companies in amount of CZK 2,513.4 million.

ii. The balances with companies in Group 3 comprise technical provisions ceded to CP RE.iii. The balances with companies in Group 3 include bonds issued by Home Credit Group companies in the amount of CZK 2,566.7 million and bank deposits with PPF Banka

a.s. (PPFB) in the amount of CZK 2,819.0 million.iv. The balances with companies in Group 2 comprise especially receivables from loan provided to PPF Group N.V. in amount of CZK 2,690.0 million. The balance in Group 3

represents the liability towards PPF Group related to disposal of real estate.v. The balances with companies in the Group 2 comprise liabilities from reinsurance to Ge SK. Balances in the Group 3 comprise especially liabilities from reinsurance to CP

RE in amount of CZK 2,542.9 million.vi. The balances with companies in the Group 3 comprise technical provisions from insurance to Home Credit Group companies.vii. The balances with companies in the Group 1 comprise loan from CZI Holdings N.V. in amount of CZK 1,300.0 million.viii. The balance in the Group 3 comprises mainly the liability towards Home Credit Russia in amount of CZK 119.7 million.


For the period ended 31. 12. 2009(CZK million) Notes Group 1 Group 2 Group 3

Income from insurance and reinsurance business i 0.0 5,484.6 2,310.7

Income from financial activities 0.0 510.3 544.3

Other income 0.0 1.3 2.5

Total income 0.0 5,996.2 2,857.5

Expenses from insurance and reinsurance business ii 0.0 (8,198.2) (2,259.9)

Expenses from financial activities (12.1) (717.5) (466.8)

Other expenses 0.0 (188.2) (390.0)

Total expenses (12.1) (9,103.9) (3,116.7)

Notes:i. The balances in Group 2 include ceded earned premium with GP RE in the amount of CZK 5,284.1 million. Group 3 includes earned premium from Home Credit a.s. in

the amount of CZK 2,246.7 million.ii. The balances in Group 2 include transactions from reinsurance with GP RE in the amount of CZK 8,016.5 million (reinsurance commission and claims paid). The balances

in Group 3 include expenses of the bonus of Home Credit a.s. (share in profit) in the amount of CZK 2,155.8 million.

For the period ended 31. 12. 2008(CZK million) Notes Group 1 Group 2 Group 3

Income from insurance and reinsurance business i 0.0 52.3 6,284.9

Income from financial activities 0.0 4.2 154.6

Other income ii 0.0 0.5 1,635.9

Total income 0.0 57.0 8,075.4

Expenses from insurance and reinsurance business iii 0.0 7.8 (4,618.3)

Expenses from financial activities 2.8 (95.2) (15.0)

Other expenses 0.0 (34.3) (92.4)

Total expenses 2.8 (121.7) (4,725.7) Notes:i. Group 3 includes earned premium from Home Credit Group companies in the amount of CZK 4,508.1 million. ceded earned premium to CP RE in the amount of CZK

794.4 million (transactions after the date of disposal). earned premium accepted from Generali Group in the amount of CZK 2,570.0 million (by CP Re before the date of disposal).

ii. Group 3 includes the income related to disposal of real estate to PPF Groupiii. Group 3 represents the claims from insurance business accepted from Generali Group and Home Credit. as described in the note i.

F.31 Audit fees

The following table shows audit fees:


Audit services 23.1 17.8

Other services 0.0 1.0

Total 23.1 18.8

G. Subsequent events

The Group has identified no significant events that have occurred since the end of the reporting period up to 19 April 2010.

Date: 19 April 2010

Statutory bodies – signature Štefan Tillinger Ivan Vodička

Responsibility for Accounting and annual closing Hana Pleskačová


Report on Relations Among Related Parties in the Accounting Period 2009

Company Česká pojišťovna a.s., incorporated in the Commercial Register maintained by the Municipal Court in Prague, Part B, insert 1464 on May 1, 2009 as a joint-stock company (ID number 45272956) with its seat at Prague 1, Spálená 75/16, postcode 11304 (the “Company”), is obligated to compile, for the accounting period 2009, a so-called “Report on Relations Among Related Parties” pursuant to Section 66a(9) of Act No. 513/1991 Sb. (the Commercial Code), as amended.

As at December 31, 2009 the Company’s sole shareholder was CZI Holdings N.V. with its seat at Herengracht 516, 1017 CC Amsterdam, Kingdom of the Netherlands (the controlling entity). The information in the financial statements of Česká pojišťovna a.s. is included in the consolidated financial statements of Generali PPF Holding B.V., Kingdom of the Netherlands and Assicurazioni Generali S.p.A., Italy, which is the final controlling company.

Description of relations between the Company and so-called related parties

During the accounting period consisting of the year 2009, the Company entered into the following contracts with related parties:

• With Assicurazioni Generali S.p.A., seat Italy, Piazza Duca degli Abruzzi 2, I – 34132 Trieste, the following:– reinsurance contract to cover Group Life International Plans.

• With CZI Holdings N.V., seat the Netherlands, Amsterdam, Tower B., Stravinskylaan 933, 1077 XX the following:– Agreement on the sale, purchase and transfer of shares in CP Strategic Investments B.V.,– Preliminary agreement of sale and purchase of Ownership Interest in Generali PPF Life Insurance LLC.

• With Česká pojišťovna ZDRAVÍ a.s., seat Prague 10, Litevská 1174/8, postcode 100 05, the following:– sub-lease of non-residential space,– reinsurance contracts,– agreement on fulfillment of Group membership-related duties – group VAT registration,– amendment no. 4 – 11 to the cooperation agreement,– commercial motor and property insurance contracts.

• With ČP Direct, a.s., seat Prague 4, Na Pankráci 1658, postcode 140 21, the following:– agreement on non-exclusive sales representation,– liability insurance contract.

• With ČP INVEST investiční společnost, a.s., seat Prague 1, Purkyňova 74/2, postcode 11000, the following:– sub-lease of non-residential space,– amendment nos. 1 – 7 to the sales representation agreement of 11 July 2006,– agreement on lease of vehicles,– agreement on fulfillment of Group membership-related duties – group VAT registration.

• With Generali Garant Insurance JSC, seat Ukraine, 19/3, Novo-Pecherskiy Lane, Kyiv, the following:– Excess of Loss and MET obligatory reinsurance contracts,– facultative reinsurance contracts.

• With Generali Insurance AD, seat Bulgaria, 68 Knyaz Al. Dondukov Blvd., City of Sofia, the following:– reinsurance contracts.

• With Generali Penzijní fond a.s., seat Prague 2, Bělehradská 132, postcode 12084, the following:– agreement on fulfillment of Group membership-related duties – group VAT registration.


• With Generali Pojišťovna a.s., seat Prague 2, Bělehradská 132, the following:– framework agreement on sharing of IT technologies and related operating expenses and implementation contracts no. 1 and 2 thereto,– amendment to sub-lease of non-residential space,– life insurance contracts,– agreement on fulfillment of Group membership-related duties – group VAT registration,– reinsurance contracts,– agreement on re-invoicing of services.

• With Generali PPF Asset Management a.s., seat Prague 4, Na Pankráci 121/1658, postcode 14021, the following:– amendment to the Management Agreement of 1 September 2003,– agreement on fulfillment of Group membership-related duties – group VAT registration,– motor insurance contracts,– revisions to premium balance summary insurance contract.

• With Generali PPF Holding B.V., seat the Netherlands, Amsterdam, Stravinskylaan 933, 1077 XX, the following:– sub-lease of non-residential space,– agreement between holding company and subsidiary on corporate governance and consulting services,– agreement on fulfillment of Group membership-related duties – group VAT registration,– motor insurance contracts.

• With Generali Servis s.r.o., seat Prague 2, Bělehradská 132, postcode 12000, the following:– agreement on fulfillment of Group membership-related duties – group VAT registration.

• With Generali Slovensko poisťovňa, a.s., seat Slovak Republic, Plynárenská 7/C, 824 79 Bratislava, the following:– reinsurance contracts.

• With Generali Towaryzstwo Ubezpieczeń S.A., seat Republic of Poland, ul. Postępu 15B 02-676, Warsaw, the following:– reinsurance contract.

• With GP Reinsurance EAD, seat Bulgaria, 68 Knyaz Al. Dondukov Blvd., City of Sofia, the following:– Excess of Loss, Quota Share, and Stop Loss obligatory reinsurance contracts,– retrocession of reinsurance contracts with Generali Insurance AD and Generali Garant Insurance Company.

• With Insurance Company StensInvest, seat Russia, 119034, Moscow, Prechistenka str., 17/9/8, build. 1, the following:– reinsurance contract on acceptance of Financial Risk Unemployment Insurance risk.

• With Nadace České pojišťovny, seat Prague 4, Na Pankráci 1658/121, the following:– agreement on provision of financial gift.

• With Pankrác services s.r.o., seat Prague 4, Na Pankráci 1658, postcode 14021, the following:– sub-lease of non-residential space.

• With Penzijní fond České pojišťovny, a.s., seat Prague 1, Truhlářská 1106/9, postcode 11000, the following:– motor insurance contracts,– agreement on fulfillment of Group membership-related duties – group VAT registration,– agreement on incentive competition.

• With První Callin agentura a.s., seat Prague 4, Na Pankráci 1658/121, postcode 140 00, the following:– sub-lease of non-residential space,– insurance contract – large risks,– agreement on fulfillment of Group membership-related duties – group VAT registration.

• With REFICOR s.r.o., seat Prague 4, Na Pankráci 1658, postcode 14021, the following:– lease of non-residential space.

• With Univerzální správa majetku a.s., seat Prague 4, Na Pankráci 1658, postcode 14021, the following:– lease of non-residential space, including furniture, fittings, and parking space


All of the above contracts were entered into under arm’s length terms, as were all performance and consideration provided and received under the contracts, and none of the contracts caused any harm to the Company.

No measures or other legal acts were taken by the Company in the accounting period consisting of the year 2009 in the interest or at the instigation of any related parties.

The statutory body hereby declares that this report was compiled with due care and that the information contained herein is accurate and complete.

Prague, 31 March 2010

Ivan Vodička Marcel DostalVice Chairman of the Board Vice Chairman of the Board of Directorsof Directors and CEO and Deputy CEO

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Česká pojišťovna a.s.Registered office: Spálená 75/16, 113 04 Praha 1, Czech RepublicHead office: Na Pankráci 123, 140 21 Praha 4, Czech RepublicPhone: +420 224 051 111Fax: +420 224 052 200E-mail: [email protected]: www.ceskapojistovna.czBankers: Komerční banka, a.s., číslo účtu: 17433-021/0100

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