PDF version - Česká pojišťovna

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185
1885
1910
A subsidiary – Česká vzájemná
životní pojišťovna – is formed.
Another crucial test for První česká vzájemná pojišťovna
is the bankruptcy of Český pozemkový úvěrní ústav
(Bohemian Land Credit Institute), resulting in a financial
loss of approximately 130,000 Gulden for the insurance
company Again, the company copes with this challenge.
YEARS
OF HELP
1955
1960
Combined youth insurance introduced.
The insurer includes “risk of flooding and
similar inundations” in its natural-perils
insurance range.
Česká pojišťovna a.s.
Annual Report 2012
2013
Česká pojišťovna develops a new concept
of products, services and branches,
reflecting customer needs under the slogan
“Helping you go further”.
1835
1827_____________2013
První česká vzájemná pojišťovna reliably
covers the extensive damage resulting
from large-scale fires.
1910
A subsidiary – Česká vzájemná životní pojišťovna
– is formed.
Česká pojišťovna
1919
The managem
pojišťovna, he
jumps at the o
rivals from the
insurance ma
is a composite insurer
with 185 years of experience.
It traces its origins to the year 1827 when its predecessor, První
Despite the unfavourable war period,
1946 Five insurance companies (national enterprises)
1953 Československá pojišť
česká
vzájemná
pojišťovna
Insurance
První česká
vzájemná pojišťovna
boasts (First Czech
areMutual
formed, with
První československá
Státní pojišťovna, subs
16 valid insurance contracts passed
pojišťovna, n. p. assuming the liabilities
insurance and reinsura
Company),
was offounded
in Prague. It ofinitially
only
fire
down the generations
the same
První českáprovided
and a further 109
insurance
families for a hundred or more years.
companies and provident societies named
insurance
for properties, before expanding
into cover
against hail
in the implementing
regulation.
damage. When the Czechoslovak Republic was formed in 1918,
the company changed its name to První vzájemná pojišťovna
(First Mutual Insurance Company) and added life and personal
injury insurance, burglary insurance, statutory liability insurance
and glass breakage insurance to its portfolio. It also entered the
field of reinsurance. The end of the Second World War first
sawbuilding
the nationalization
ofyouth
insurance
companies and
ve Art Nouveau
1960 Combined
insurance introduced.
1986then
Českáthe
státní pojišťovna starts to build
treet opens its doors.
a Commodore PC 20 network of
monopolization of the insurance industry. Československá
personal computers, with more than
deployed by November 1987.
pojišťovna had a monopoly until 1991. In the budding 100
competitive
environment, Česká pojišťovna held
on to its market-leader status
2002 The Czech Republic is hit
by catastrophic
and, by engaging in innovation and adhering
tofloods.
a customerThe extent of damage
by Česká position.
oriented approach, has maintained itscovered
privileged
1941
pojišťovna is even greater
than in the 1990s.
2011
Česká pojišťovna is the first insurer to
launch a smartphone motor insurance
application on the Czech market.
ment of První česká vzájemná
eaded by Bedřich Schwarzenberg,
opportunity to remove foreign
e positions they enjoy on the
rket in Czechoslovakia.
ťovna is renamed
sequently an
ance company.
1999
1965
1920
Automobile traffic expanded rapidly in the 1920s. První
česká vzájemná pojišťovna had the foresight to include
this type of insurance in its portfolio in the very early
days of motoring in the Czech Republic, offering
coverage of self-propelled machines as of 1909.
Státní pojišťovna covers one of the
biggest flood disasters ever when
widespread damage is caused after
the Danube breaks its banks.
1972
1936
Following the construction of the film
studios in Barrandov, an insurance
pool is created to insure film
production; the highest valued
negative was that for the film Fire
on the Volga, at 3 million crowns.
An international seminar on the
promotion of insurance is held, initiated
by Česká státní pojišťovna.
The Česká pojišťovna general meeting approves
a strategic plan to create a holding structure
for the Česká pojišťovna a.s. Group.
2013
Česká pojišťovna develops a new concept of products,
services and branches, reflecting customer needs under
the slogan “Helping you go further”.
1827
1827______
______1881
1830
The registered office of První česká
vzájemná pojišťovna is temporarily
relocated from Spálená 76-II to Sněmovní
175-II. In 1872, the complex of grandiose
buildings in Spálená Street and
Vladislavova Street is completed.
Approval of the articles of
association of “Císařsko
královský privilegovaný český
společný náhradu škody
ohněm svedené pojišťující
ústav” (“Imperial-Royal
Privileged Bohemian
Joint Fire Damage Insurance
Institute”), subsequently
renamed První česká
(First Czech Mutual
Insurance Company).
Císařsko-královský, privilegovaný,
český, společný náhradu škody
ohněm svedené pojišťující ústav
(Imperial-Royal Privileged
Bohemian Joint Fire
Damage
1835 První česká vzájemná pojišťovna reliably
Insurance Institute) wascovers the extensive damage resulting
from large-scale fires.
established with the idea of
reciprocity in mind by two counts,
Franz Joseph von Vrtba and
Joseph Matthias von Thun und
Hohenstein, under the auspices
of Franz Anton von KolowratLiebsteinsky. They soon renamed
1863 A pension fund is set up for První česká
1864 The company introduces fire coverage
the vzájemná
company
První
pojišťovna
staffčeská
with an initial
for movable property.
investment of 21,045 Guldens.
vzájemná pojišťovna. In addition
to real estate, the company also
began covering movable assets,
and later moved into hail damage
insurance. The insurer faced its
1881 The company is faced
with the largest insured
biggest challenge when the
event in the 19th
century following
National Theatre burned down.
a fire at the National
Theatre. První česká
Despite the high compensation
pays indemnity of
paid to cover this damage, the
297,869 Guldens (for
the sake of perspective,
company was not ruined. In fact,
a
men’s suit cost about
1880 “Insurance Regulation” published to
14 Guldens and
the
public
came
tocompanies
view itareas a
ensure that
insurance
a mason’s weekly
operated properly, to safeguard
solid,policyholder
reliablerights,
company.
wage
was around
and to provide
state supervision.
35 Guldens).
1879
Establishment of the
Prague Society of Officials
and Employees of
Insurance Companies
(Spolek úřednictva
a zaměstnanců
pojišťoven), focusing on
cultural and supportive
activities for members.
Annual Report 2012
Contents
5
Contents
Letter from the Chairman
6
Description of Česká pojišťovna – Company and Group
8
Česká pojišťovna Highlights
11
Awards Received
18
Key Indicators
19
Description of Group Structure, Position of Česká pojišťovna
23
Corporate Governance
38
Board of Directors Report on the Company’s Business Activities and Financial Situation
42
Financial Performance in 2012
46
Report on Business Activities
49
Report on Operations
58
Report of the Supervisory Board
67
Independent Auditor’s Report to the Annual Report
68
Persons Responsible for the Annual Report
70
Organization and Contact Details
71
Supplemental Information on the Financial Situation and Information for Investors
76
Independent Auditor’s Report on the Individual Financial Statements
90
Česká pojišťovna a.s. Financial Statements, Year Ended 31 December 2012
92
Independent Auditor’s Report on the Consolidated Financial Statements
178
Česká pojišťovna a.s. Consolidated Financial Statements, Year Ended 31 December 2012
180
Report on Relations among Related Parties in the Accounting Period 2012
277
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Annual Report 2012
01 – Letter from the Chairman
6
Letter from the Chairman
Dear Business Friends,
For Česká pojišťovna, 2012 was a year in which we toasted both success and an anniversary.
Česká pojišťovna has now been providing services to clients for 185 years, making it one of
the oldest insurance companies in Europe and, indeed, anywhere in the world. In terms of
our capitalization and financial stability, we are the strongest insurance company ever to
emerge in the Czech Republic, while our
 solvency is above average for the European
market. Although the Czech insurance market stumbled and stagnated last year, Česká
pojišťovna dramatically improved its results in most
 key indicators relevant to the
company’s financial health while defending its excellent Standard & Poor’s A- rating with a
stable outlook, the highest possible grade Česká pojišťovna could achieve.
Česká pojišťovna reported an almost 10% year-on-year rise in profit to CZK 3.9 billion in
2012. Shareholders’ equity also grew quickly, climbing to more than CZK 21 billion, 22% up
on 2011. Total assets increased by CZK 5 billion to almost CZK 122 billion. Česká pojišťovna’s
improved
 performance was underpinned by its operating results and, in particular, the
savings it made in administrative costs, which decreased by 13%.
Česká pojišťovna’s total premiums written in 2012, reported according to the methodology
used by the Czech Insurance Association, were in excess of CZK 29.9 billion, of which
CZK 19 billion was in
 non-life and CZK 10.9 billion in
 life insurance. The
market share of Česká pojišťovna, which has long been the insurance market leader in both
principal segments, stood at 26%. Positive trends were recorded primarily in the insurance of
large risks, transport insurance, personal liability insurance, personal building insurance and,
above all, travel insurance, which expanded by more than a quarter on the previous year.
The insurance of motor vehicles remained challenging in 2012 as fierce competition
continued to push down premiums written throughout the Czech market.
The total
 consolidated assets of the ČP Group shot up from CZK 178 billion to
CZK 196 billion, with the
 consolidated shareholders’ equity rising from CZK 17 billion
to CZK 25 billion. Insurance provisions totalled CZK 87 billion.
 Penzijní fond České pojišťovny, the company’s largest subsidiary and the pension fund
market leader, reported its best ever results last year. The fund was particularly successful at
winning over new clients towards the end of 2012, when the conditions under which Pension
System Pillar 3 is operated were revised. A full quarter of the 5.2 million clients of domestic
pension funds have entrusted their money to Penzijní fond České pojišťovny, which entered
into 250,000 new contracts last year alone. The fund’s profits swelled by 57% year on year to
CZK 1.4 billion.
Annual Report 2012
01 – Letter from the Chairman
7
 Česká pojišťovna ZDRAVÍ, the largest provider of commercial health insurance in the
Czech market, also posted the best results since it was founded in 1993, recording premiums
written of CZK 468 million (a 7% rise year on year) and 43% higher after-tax profit of
CZK 100 million.
Last year, Česká pojišťovna set up a new subsidiary,
 ČP ASISTENCE, as a joint venture
with Europ Assistance to focus on the provision of assistance services, which are becoming
increasingly popular among clients not only for car and travel insurance, but also for the
insurance of buildings and household contents.
By considerably honing its operating efficiency, Česká pojišťovna was able to invest in the
development of its branch network and other activities in the field of advanced technologies
and customer services. Starting in late 2012, the company embarked on a policy of opening
 new modern offices equipped with cutting-edge technology for the fast and
convenient handling of customer requirements. In 2013, more than two dozen of these sites
will spring up across the Czech Republic. Last year we also extended our range of mobile
applications, enabling customers to service their policies, deal with claims or take out new
insurance on the go. These applications are also a godsend for travellers and road safety.
Preparations for the implementation of the EU’s unisex measures, unifying life insurance rates
for men and women from the end of 2012, were a major challenge. While this move bucks
the fundamental principles of insurance, Česká pojišťovna was required to reflect it in its
products, and offered additional services, especially to women, to compensate for the higher
cost of insurance they found themselves facing.
In November, Česká pojišťovna was named Insurance Company of the Year – in the prestigious
contest of the same name organized by Fincentrum – for the sixth time running, thus
confirming its status among financial professionals as
 the top rated insurance company
in the more than ten-year history of this award. Česká pojišťovna also won many other plaudits,
the most pleasing of which came in the TOP Responsible Company initiative, which singled out
some of our community activities as among the best in the Czech Republic. We implemented
several major projects and engaged in employee volunteering to help the disabled and
vulnerable children, and to promote road safety and the prevention of risky behaviour by
children in schools. Awards are proof that Česká pojišťovna’s “help” concept is more than
a strapline and that it extends into the everyday work of all our company’s employees.
Ladislav Bartoníček
Chairman of the Board of Directors, Česká pojišťovna
31 March 2013
Annual Report 2012
02 – Description of Česká pojišťovna – Company and Group
8
Description of Česká pojišťovna –
Company and Group
ČP Group Profile
Česká pojišťovna is the largest Czech insurance company with a history dating back more
than 185 years. As a composite insurer, Česká pojišťovna provides a comprehensive range of
services, encompassing life and non-life personal lines, insurance for small, mid-sized, and
large customers covering industrial and business risks, and agriculture.
 The ČP Group is structured for optimal management of a spectrum of services
connected with the provision of private insurance, retirement savings and investment services
(within the applicable legislative framework). It leverages the advantages of this structure to
the full, while exploiting the fact that, since 2008, Česká pojišťovna and its subsidiaries have
been part of Generali Group (specifically, Generali PPF Holding, B.V.).
Therefore, in addition to their core business activities, most companies in the ČP Group also
provide services to their affiliates within the Generali PPF Holding Group by sharing capacity
and through the mutual provision of services on an arm’s-length basis.
185 Years of Česká pojišťovna
Česká pojišťovna boasts a long, rich history. It is the oldest insurance institution in the Czech
Lands, tracing its origin to 27 October 1827, when the articles of an institution called
Císařsko-královský, privilegovaný, český, společný náhradu škody ohněm svedené pojišťující
ústav (Imperial-Royal Privileged Bohemian Joint Fire Damage Insurance Institute) were
approved. This institution, which initially offered only insurance against fire, later changed its
name to První česká vzájemná pojišťovna (First Czech Mutual Insurance).
The Company’s main founders were two counts, Franz Joseph von Vrtba and Joseph Matthias
von Thun und Hohenstein, both of whom later held office as managing directors. The clients
of První česká vzájemná pojišťovna soon numbered Czech luminaries, including the poet
Adolf Heyduk, the writer Eliška Krásnohorská and the violinist Alfred Škroup, son of František
Škroup (the man who wrote the Czech national anthem).
Annual Report 2012
9
Česká pojišťovna’s mission, which it has always been proud to declare, is to help customers
when they find themselves in the most difficult moments of their lives. The first major claim to
be settled was a fire at the Žehušice estate in 1828. Arguably the best-known and largest
insured event in the Company’s history was the National Theatre fire in 1881. Česká pojišťovna
paid out 297,869 Guldens for the reconstruction of the theatre, incurring a major financial loss
in the process, but also gaining considerable prestige in the eyes of the Czech nation.
The beginning of the 20th century saw the insurance industry as a whole take off. As early as
the 1920s, První česká vzájemná pojišťovna was offering virtually all the different kinds of
insurance – alongside property, it also provided life insurance, statutory liability insurance and
personal accident insurance. Towards the end of the 1920s, První česká vzájemná pojišťovna
also contributed to the completion of St Vitus’ Cathedral at Prague Castle.
In 1945, the insurance industry was nationalized. After 1948, five insurers were merged into
the single Československá pojišťovna (Czechoslovak Insurance Company), which went on to
change its name twice: it was renamed Státní pojišťovna (State Insurance Company) in 1953,
and then Česká státní pojišťovna (Czech State Insurance Company) in 1969. Even in the face
of keen competition, Česká pojišťovna, as it is today, has continued to hold on to its
privileged position as the largest domestic insurance company offering the widest range of
products and services.
Modern History of the Česká pojišťovna Group
Today’s Česká pojišťovna was founded by the National Property Fund of the Czech Republic
by a memorandum of association of 28 April 1992, and was incorporated by registration in
the Commercial Register on 1 May 1992. The Company’s shares were listed on the Prime
Market of the Prague Stock Exchange in 1993. Česká pojišťovna was delisted from the
Exchange and the RM-System on 31 August 2005 in conjunction with a squeeze-out of
minority shareholders.
In 1991, Česká pojišťovna set up the subsidiary KIS a.s. kapitálová investiční společnost České
pojišťovny, currently named ČP INVEST investiční společnost, which is active in collective
investment services. In 1992, Česká pojišťovna and its partner Vereinte Krankenversicherung
AG Munich founded Česká pojišťovna ZDRAVÍ, which has since grown to become the largest
provider of private health and sickness insurance in the Czech Republic. Five years later, Česká
pojišťovna acquired a 100% stake in the company. In the same decade, ČP Group entered the
supplemental pension insurance market with the establishment of Penzijní fond České
pojišťovny, a.s., currently the largest supplemental pension fund in the Czech Republic. ČP
DIRECT, an important member of the Group since 1998, operates as an agent for sales of
motor damage and motor third-party liability insurance.
Annual Report 2012
10
The next important date in the modern history of Česká pojišťovna and its Group is
17 January 2008, when the Joint Venture Agreement signed on 10 July 2007 between
Assicurazioni Generali and PPF Group N.V. took effect, giving rise to Generali PPF Holding B.V.,
in which Generali Group holds a 51% stake and the remaining 49% is held by the PPF Group.
Česká pojišťovna and its subsidiaries consequently became part of one of the largest
insurance groups in Central and Eastern Europe. Under an agreement between the two
owners concluded in January 2013, Česká pojišťovna and its subsidiaries will be fully owned
by the Generali Group by the end of 2014.
ČP Group has continued to grow, and now includes, for example, the Romanian pension
fund Generali de Societate Administrare a Fondurilor de Pensii Private S.A., the service
organization Generali PPF Services, which is primarily used to manage selected agendas of
Česká pojišťovna and Generali Pojišťovna, and ČP ASISTENCE, in which it holds a 51% stake.
Through a branch based in Poland and the transfer of the portfolio of the Polish branch of
the French insurance group Groupama, the Group has also expanded its reach into the Polish
insurance market.
Milestones in the History of Česká pojišťovna
1827
Establishment of První česká vzájemná pojišťovna
1881
Fire at the National Theatre – claim of 297,869 Guldens paid out
1909
Establishment of the subsidiary Česká vzájemná životní pojišťovna in Prague,
ushering in the first universal insurance institution in the Czech Lands
1910
Launch of insurance covering burglary, personal accident and statutory liability
1911
Insurance covering liability in the operation of automobiles is offered by the
company
1920
První česká vzájemná pojišťovna contributes to the establishment of the specialized
travel insurer Evropská akciová společnost pro pojišťování nákladů a cestovních
zavazadel
1945
Under a Decree of the President of the Republic of 24 October, all Czech and Slovak
insurers are nationalized
1948
Decree of the Ministry of Finance of 25 May merges all existing insurance
companies into a single entity, the national enterprise Československá
pojišťovna, n. p.; subsequently (in the late 1960s) it is split into two separate
(Czech and Slovak) companies
1992
Česká pojišťovna becomes a joint-stock company and presses ahead with business
insurance
2000
The monopolistic Czech market in motor third party liability insurance is liberalized
2008
Assicurazioni Generali and PPF Group N.V. create the joint holding venture Generali
PPF Holding B.V. (GPH), owned 51% by the Generali Group. Česká pojišťovna and
its subsidiaries consequently become part of one of the largest insurance groups in
Central and Eastern Europe. By the end of 2014, the Generali Group is to become
the sole owner of the Česká pojišťovna Group.
2012
Česká pojišťovna establishes a branch in Poland.
Annual Report 2012
03 – Česká pojišťovna Highlights
11
Česká pojišťovna Highlights
2012
January
Marek Krejsa is appointed Česká pojišťovna’s new
 Executive Board Member for
Financial Management, effective as of 1 February 2012, having previously served as Director
of Strategic Planning. Also effective as of 1 February 2012, Lukáš Klášterský joins ČP senior
management as Acting Executive Board Member for IT and System Architecture.
Česká pojišťovna, in conjunction with the Police of the Czech Republic, presents an award to
the Hrbáček family for its quick-thinking assistance to the driver of an overturned tanker.
Members of the family displayed great courage by instantly helping to free the trapped tanker
driver from his cab, which had caught fire after overturning. Since 2004, more than
70 selfless citizens have received similar recognition.
Česká pojišťovna customers can now benefit from an expanded and significantly
 innovated on-line customer zone. The simple and intuitive structure and well-
organized content give customers easy access to important information and services
connected with their insurance contracts and enables them to report claims and monitor
pending claims 24 hours a day, seven days a week online and via a new version of the
Pojišťovna mobile application.
February
Česká pojišťovna’s travel insurance receives
 the top award in the TTG Travel Awards,
a public poll. Česká pojišťovna’s travel insurance is ranked first by members of the public
voting in the category of “Insurance Company with the Best Travel Insurance” and second
by an expert panel.
 The Česká pojišťovna Foundation provides financial support for two next-generation
“babyboxes”, which are installed in Karlovy Vary District Hospital and Cheb Hospital.
March
Česká pojišťovna clients can rely on the assistance of new subsidiary
 ČP ASISTENCE s.r.o.
A joint venture between Česká pojišťovna (with a 51% stake) and Europ Assistance (49%),
the new service will initially focus on roadside assistance for motorists and, by the end of year,
will expand its business to include all types of assistance services currently provided to Česká
pojišťovna customers. Jaroslav Hanzlík is appointed as an executive director.
Česká pojišťovna remains the most trustworthy domestic insurance company according to the
latest results of a Reader’s Digest poll. In this survey on the trustworthiness of brands, held for
the twelfth time, more than 15,500 respondents received an electronic questionnaire.
Annual Report 2012
12
April
Česká pojišťovna becomes a partner to McDonald’s Olympic Hopefuls, a project aimed at
developing the ideal conditions and facilities for young talented athletes to make the
transition from junior to senior level.
To mark its
 185th anniversary, Česká pojišťovna plants 40 small-leaved lime trees in
Horní Slavkov, a town in the Karlovy Vary Region. This 400-metre avenue, promoting the
restoration of a traditional feature of the Czech landscape, features trees with unusual names
such as “Oxygen Healthy”, “Stopworthy” and “Cimrman”, the result of nominations and
votes by employees and fans on the ČP Facebook page.
The Česká pojišťovna RunTour series undergoes major expansion for the 2012 season, with six
races planned across the Czech Republic – in Brno, Liberec, Olomouc, Hradec Králové, České
Budejovice and Plzeň (the latter being the sole race in the previous year).
May
A survey by Česká pojišťovna reveals that most customers believe property insurance is too
complicated. In response, Česká pojišťovna introduces a number of innovations to contents
and building insurance that are intended to help speed up and simplify the process of taking
out such insurance.
Smartphone users can now use the Pojišťovna mobile application for easy reporting of any
property damage or for the photographic documentation of their insured household
contents. With the advent of Version 5.0, Pojišťovna also benefits from other significant
enhancements, such as the option of priority calling to the Česká pojišťovna infoline. User
applications can make direct contact with specific communication centre specialists and
experts in claims handling and assistance services, where they will receive priority treatment.
 The Česká pojišťovna Foundation, in cooperation with the Association of Professional
Ice-Hockey Clubs, prepares a second auction of original ice-hockey jerseys and additional items
of value bearing the autographs of famous Czech ice-hockey players. As in the previous year,
the proceeds are donated to the HAIMA CZ civic association, which helps children suffering
from cancer and haematological disorders and their parents to make the return to normal life.
June
A series of concerts called Habera & Team Final Tour, sponsored by Česká pojišťovna, reaches
its climax in early June. The fans’ response to this concert tour of Bohemian and Moravian
towns is quite extraordinary, with ticket sales totalling 69,000. As CZK 25 is donated to
charity for each ticket sold, the overall sum raised is CZK 1,725,000. The recipient of these
funds is Šance na vzdělání o.p.s., a public-benefit organization supporting social and labourmarket integration.
Annual Report 2012
13
July
In early July, a new grant scheme is set up for regional projects nominated by the public.
Nominations can be submitted via the ČP Foundation section of the website at
http www.ceskapojistovna.cz. A grant committee then considers the merits of each
project in assessment procedure.
August
Teams face off in the twelfth annual Floorball Cup, a competition held in the colours of Česká
pojišťovna for the second time.
Česká pojišťovna and the Police of the Czech Republic jointly present the Gentleman of the
Road awards in Telč. Irena Dřevňáková, Roman Červenka and Jiří Kadlec receive the 79th,
80th and 81st awards under this programme for not hesitating to provide assistance in
serious road accidents.
September
Pavel Fuchs is named Česká pojišťovna’s new
 Executive Board Member for
Investment Policy.
Česká pojišťovna joins a project implemented by the CAR CLUB and the National Council of
Persons with Disabilities in order to promote the idea of a special programme supplying the
disabled with discounted products and services. Using the Handy Card (a loyalty card), people
with disabilities have access to a wide range of insurance protection from Česká pojišťovna at
much lower prices.
October
Česká pojišťovna introduces a
 concept of new branches as a template for the
rebuilding of its entire distribution network in the coming years.
 The Česká pojišťovna Foundation and ice-hockey star Jaromír Jágr present an
interactive whiteboard to Kladno Primary School 12. Besides this multimedia board, Kladno’s
junior ice-hockey base also receives an interactive textbook entitled Preventing High-risk
Behaviour in Children.
Česká pojišťovna and the Leontinka Foundation hand over a service dog in Karlovy Vary as
part of the “Dog Eyes” project. The dog, a golden retriever named Roky, becomes an
assistant to Tomáš, a young boy suffering from an autistic disorder. This was the latest dog to
be trained with the support of Česká pojišťovna and the Leontinka Foundation in the Dog
Eyes project, which contributes to the financing of assisted-therapy dogs.
Česká pojišťovna celebrates its
 185th anniversary.
Annual Report 2012
14
November
 The Česká pojišťovna Foundation and NHL star Ladislav Šmíd present an interactive
whiteboard to Liberec Sports Primary School. A little later, players from HC Škoda Plzeň and the
Foundation present a board to the Beneš Primary School in Plzeň.
Česká pojišťovna retains its primacy in the Fincentrum Bank of the Year contest, defending the
title of Insurance Company of the Year. This is its second major accolade in quick succession,
following on from its victory in the WebTop100 competition for the best web presentation.
ČP has now won the Insurance Company of the Year category six times – previously in 2004,
2005, 2006, 2007, 2011 (when it was also named Insurance Company of the Decade) and 2012.
The ČP Foundation disburses more than CZK 600,000 in its first grant assessment procedure. Its
new regional grant scheme now reaches out to the needy in eight regions of the Czech Republic.
December
A courageous man from Šumperk joins the ranks of the Gentlemen of the Road after rushing
– in freezing conditions – to the aid of a woman whose car had careered off the road and
into a pond.
Česká pojišťovna purchases a portfolio from the French insurer Groupama for its new branch
in Poland.
Výroční zpráva 2012
15
2013
January
Česká pojišťovna launches operations as a non-life insurer under the brand name Proama at
its branch in Poland.
Česká pojišťovna now offers life insurance with the Lady health programme, which in case of
cancer of female organs provides extra insurance benefits during convalescence.
Plzeň is the second city in the country to feature a Česká pojišťovna branch set up according to
the new concept. It will offer clients speed, convenience, and a new method of service provision.
February
 The Česká pojišťovna Foundation is the lead donor supporting the creation of
a new babybox in Tábor. The new-generation babybox is installed at a retirement home near
Tábor Hospital.
In the second round of grant assessment procedure, the Česká pojišťovna Foundation again
disburses more than CZK 600,000. Non-profit organizations and citizens throughout the
Czech Republic can approach the scheme to seek financial support for their projects. The
grant scheme is focused primarily on helping socially and physically disadvantaged citizens,
improving road safety, promoting the prevention of risk behaviour in children and young
people, and supporting financial literacy projects.
March
In its regular assessment, the international credit rating agency Standard & Poor’s (S&P)
reaffirms Česká pojišťovna’s current A- rating with a stable outlook.
Kolín becomes the third city in the country to feature a Česká pojišťovna branch set up
according to the new concept. The concept of the
 new branch has been designed so
that customers can handle all their requirements quickly and conveniently.
Česká pojišťovna once again scores as a
 Good Brand in the Most Trusted Insurance
Company Category. This survey is held by Reader's Digest, which sends electronic
questionnaires to 15,500 respondents throughout the Czech Republic. This was the thirteenth
year that readers were invited to vote for the top brands in 30 categories.
Further to a shareholder agreement to sell the PPF Group stake in the GPH company
Assicurazioni Generali S.p.A., Mr Ladislav Bartoníček ceased to be the GPH Chief Executive
Officer and Chairman of the Board of Directors of Česká pojišťovna at the end of March 2013.
Annual Report 2012
16
April
The latest version of the "Pojišťovna" application (Version 6.0) introduces further useful
features for motorists, especially in the section on the reporting of car insurance claims, such
as the possibility of searching for inspection offices and authorized service centres.

The Česká pojišťovna Foundation and the Leontinka Foundation hand over another
assisted-therapy dog in Zlín as part of the “Dog Eyes” project. The dog, a golden retriever
named Max, became an assistant and companion to 12-year-old Lukáš, who suffers from
cerebral palsy.
According to the ČP Index used to compile the ranking for Safety on the Roads in Czech
Cities in 2012, the safest regional city is Karlovy Vary. At the other end of the table, České
Budějovice plummeted from ninth place in 2011. In the assessment of district towns, Hodonín
came top last year, shooting up from 28th place the year before.
1885
1907
Another crucial test for První česká vzájemná
pojišťovna is the bankruptcy of Český pozemkový
úvěrní ústav (Bohemian Land Credit Institute),
resulting in a financial loss of approximately
130,000 Gulden for the insurance company
Again, the company copes with this challenge.
The impressive Art Nouveau building
in Spálená Street opens its doors.
1915
František Ženíšek Jr. is commissioned
by První česká vzájemná pojišťovna
to paint a set of pictures collectively
entitled Allegory of Insurance.
The Czech Technical University in Prague
introduces a course on insurance techniques
in its general department. The course takes
two years. Graduates are not awarded an
academic title.
První česká vzájemná
pojišťovna was the oldest
Czech insurance institution.
In the second half of the
19th century, numerous other
insurers were established that
were
frequently1910
specific
to –
1910 Services expanded to include
burglary
A subsidiary
insurance and statutory liability insurance.
Česká vzájemná
a particular region orživotní
sector.
pojišťovna –
is
formed.
Apart from home-grown
insurance institutions,
insurers from other parts
of Austria-Hungary also had
operations in the Czech Lands.
Establishment
of the Prague
The First World War destabilized
Association
of Insurance
the insurance market.
Companies
(Pražské sdružení
pojišťoven), later
replaced by the
Association of
Czechoslovak
Insurance
Companies (Svaz
československých
pojišťoven), in
order to make
effective progress
in important
insurance issues.
1912
1882______
______1917
1904
Annual Report 2012
04 – Awards Received
18
Awards Received
Česká pojišťovna has long been the Czech insurance market leader. Group companies are
faring just as well, as evidenced by the numerous awards heaped on them by customers, the
general public and professionals.
In 2012, Česká pojišťovna held onto its crown as Insurance Company of the Year. It also
tasted success in WebTop100, the competition for the best web presentations, when it came
first in the industry-specific Insurance Companies category and was also named the overall
winner in the Finance category.
Since 2005, Penzijní fond České pojišťovny has consistently topped the pension funds
category in the CZECH TOP 100 competition.
Other Awards Won in 2012:
First place, Golden Euro 2012 – best car insurance on the market
First place, IEA, for the Horská služba (Mountain Ranger) product
Second place, TTG survey – best travel insurance
Second place, Fincentrum Bank of the Year 2012 – Life Insurance Category
Third place, TOP Responsible Company – Community Projects Category
Fourth place, TOP Responsible Company – Most Hands-on Employees Category
Good Brand, an independent Reader’s Digest survey, singled out ČP as the most trusted
insurance company on the market again.
Penzijní společnost České pojišťovny
Third place, Golden Crown 2012
Third place, Golden Euro 2012
ČP Invest
First and third place, Golden Crown, Mutual Funds Category
First place, Fincentrum Investment of the Year 2012
Annual Report 2012
05 – Key Indicators
19
Key Indicators
Key Consolidated Financial Figures Reported by the Česká pojišťovna Group
(CZK millions)
Total assets
Capital and reserves attributable to the parent company’s equity holder
Result of the period attributable to the parent company’s equity holder
Total income
Net earned premiums
Net insurance benefits and claims
As at 31 December 2012
196,084
25,320
3,705
33,976
23,298
(16,101)
As at 31 December 2011
178,230
17,109
3,121
31,200
23,911
(15,816)
xls
More detailed information on the key figures of the Česká pojišťovna Group presented above
can be found in
 the consolidated financial statements, which are an integral part of
this consolidated annual report. Most of the analyses and details presented in the annual
report relate to individual legal entities of the Česká pojišťovna Group, with special attention
paid to Česká pojišťovna as the consolidating entity and the Group’s largest member.
Annual Report 2012
20
Key Financial Indicators of the Parent Company
Basic indicators
Highlights from the financial
statements
Total assets
Share capital
Shareholders’ equity
Dividend per share
Number of shares
Retained earnings
Net profit
Performance indicators
Gross earned premiums
– non-life insurance
– life insurance
Gross insurance benefits and claims
– life insurance
Insurance provisions included
in insurance liabilities
– life insurance provision
– other insurance provisions
Number of claims processed
Number of policies
Other figures
Market share in premiums written
– life insurance
Average number of employees
Performance ratios
ROA
ROE
Equity per share
Earnings per share
Premiums written/number of employees
xls
Units
2012
2011
2010
2009
2008
CZK millions
CZK millions
CZK millions
CZK
number
CZK millions
CZK millions
121,743
4,000
21,331
75,000
40,000
13,570
3,883
116,515
4,000
17,455
235,000
40,000
12,659
3,553
126,410
4,000
24,755
219,950
40,000
18,506
10,772
126,430
4,000
21,851
146,829
40,000
14,810
7,380
128,376
4,000
18,451
112,500
40,000
11,598
5,873
CZK millions
CZK millions
CZK millions
CZK millions
CZK millions
CZK millions
32,140
19,678
12,462
21,517
10,431
11,086
33,586
20,381
13,205
22,965
11,353
11,612
37,108
21,452
15,656
23,990
12,749
11,241
38,641
25,056
13,585
23,079
12,404
10,675
38,594
24,632
13,962
21,306
11,880
9,426
CZK millions
CZK millions
CZK millions
thousands
thousands
85,640
63,283
22,357
957
8,368
86,282
64,826
21,456
1,077
8,389
89,794
67,259
22,535
1,063
8,770
88,948
67,524
21,424
1,028
9,466
92,681
69,049
23,632
1,009
9,724
%
%
%
number
25.9
27.9
23.1
4,014
26.9
28.4
24.6
3,845
25.4
28.2
22.2
3,957
27.2
30.2
23.0
4,113
29.6
32.8
25.0
4,519
%
%
CZK
CZK
CZK millions
3.2
18.2
533,275
97,066
8.0
3.0
20.4
436,425
88,825
8.7
8.5
43.5
618,875
269,300
9.4
5.8
33.8
546,275
184,500
9.4
4.6
31.8
461,275
146,825
8.5
Annual Report 2012
21
Key Financial Figures of the Parent Company
Shareholders’ Equity (CZK billions)
Current Period Earnings (CZK billions)
18.5
2008
21.9
2009
21.3
10
3.6
2011
2012
5
10.8
2010
17.5
0
7.4
2009
24.8
2010
2011
5.9
2008
15
3.9
2012
20
25
0
2
4
6
8
10
12
Total Assets (CZK billions)
128.4
2008
2009
126.4
2010
126.4
116.5
2011
121.7
2012
0
30
60
90
120
150
Gross Earned Premiums (CZK billions)
Insurance Provisions Included
in Insurance Liabilities (CZK billions)
69.0
2008
67.5
2009
67.3
64.8
63.3
■
■
10
20
life insurance provision
other insurance provisions
30
40
50
60
21.5
13.2
20.4
12.5
2012
22.4
0
25.1
15.7
2011
21.5
2012
13.6
2010
22.5
2011
24.6
2009
21.4
2010
14.0
2008
23.6
70
19.7
0
80
■
■
5
life insurance
non-life insurance
10
15
20
25
30
1918
In the newly established Czechoslovak
Republic, První česká vzájemná
pojišťovna makes an impression
as a highly solvent insurance company
run by Czechs for Czechs.
1918______
______1944
1923
První česká vzájemná pojišťovna
donates 10,000 Guldens from
the 4% Austria Gold Rentes
to the country’s gold reserves.
1919
In the inter-war First Czechoslovak
Republic, there were almost
20 domestic insurance companies
and many foreign ones operating
in the Czech Lands. První česká
1925 The balance-sheet net profit reported by
vzájemná pojišťovna celebratedPrvní česká vzájemná pojišťovna is
4.5 million crowns, or 8% of premiums
its hundredth anniversary. By written, in the boom years.
this time, První česká vzájemná
pojišťovna was a leading
composite insurance company by
virtue of offering almost all types
of insurance. As the situation
1924after
The management
of První
1939 escalated,
První česká
česká vzájemná pojišťovna
lost
a number
ofreach
clients because
attempts
to extend its
not only in the Czech Lands,
1936
thebutinsurance
of Following the construction of the film
also in Slovakia portfolios
and
studios in Barrandov, an insurance pool
Ruthenia.
is created to insure film production; the
those
regions that had broken
highest valued negative was that for the
away from the republic hadfilm Fire on the Volga, at 3 million crowns.
to be transferred to the
1920 Automobile traffic
respective Reich, Slovak
expanded rapidly in
or Hungarian companies.
the 1920s. První
1928
Production of the first Czech promotional
film “The Raving”, about the importance
of insurance. The screenwriter was Karel
Driml, a tireless promoter of insurance.
1927
česká vzájemná
pojišťovna had the
foresight to include
this type of insurance
in its portfolio in the
very early days of
motoring in the
Czech Republic,
offering coverage
of self-propelled
machines
as of 1909.
The management of První česká
vzájemná pojišťovna, headed by
Bedřich Schwarzenberg, jumps at the
opportunity to remove foreign rivals
from the positions they enjoy on the
insurance market in Czechoslovakia.
To mark the centennial of its
foundation, První česká vzájemná
pojišťovna presents St Vitus’s
Cathedral with a stained-glass window
of high artistic quality by František
Kysela, depicting themes related to the
insurance of risk to life and property.
Annual Report 2012
06 – Description of Group Structure, Position of Česká pojišťovna
23
Description of Group Structure,
Position of Česká pojišťovna
As at 31 December 2012, Česká pojišťovna was
 part of a group; the company at the
pinnacle of that group’s holding structure is Generali PPF Holding B.V. The ultimate owner of
Česká pojišťovna is Assicurazioni Generali S.p.A., which held a 51% stake in the voting rights
associated with the shares of Generali PPF Holding B.V. as at 31 December 2012 (a 49%
stake was held by PPF Group N.V.). The Company’s sole shareholder is CZI Holdings N.V.
On 8 January 2013, the PPF Group announced that it had agreed to sell its 49% stake in
Generali PPF Holding B.V. to Assicurazioni Generali S.p.A. This is a two-stage transaction:
Generali purchased 25% as at 28 March 2013, with the remaining 24% PPF stake to be
purchased by the end of 2014.
CZI Holdings N.V.
Date of inception:
6 April 2006
Registered office:
Herengracht 516, 1017 CC Amsterdam, Netherlands
Tower B, Level 9, Strawinskylaan 933,
1077 XX Amsterdam (change in registered office
effective as of 1 April 2007)
File number at the Register of the
Amsterdam Chamber of Commerce
and Industry:
34245976
Share capital:
EUR 100,000,000
Principal business:
holding activities and financing thereof
The Company has not entered into a control agreement with its sole shareholder, CZI
Holdings N.V. The Company compiles a Report on Related-Party Transactions pursuant to
Section 66a(9) of Act No 513/1991.
Generali PPF Holding B.V.
Date of inception:
8 June 2007
Registered office:
Strawinskylaan 933,
1077XX Amsterdam
File number at the Register of the
Amsterdam Chamber of Commerce
and Industry:
34275688
Share capital:
EUR 100,000
Principal business:
Generali PPF Holding B.V. directs the business of its subsidiaries through an organizational
unit based in Prague, Czech Republic. The Holding has operations not only in the Czech
Republic, but also in Slovakia, Poland, Hungary, Romania, Bulgaria, Ukraine, Russia, Serbia,
Slovenia, Montenegro, Croatia and Kazakhstan.
http www.generalippf.eu
Annual Report 2012
24
Group Structure as at 31 December 2012
Assicurazioni Generali S.p.A. (IT)
51%
Generali PPF Holding B.V. (NL)
PJSC IC
GENERALI LIFE
INSURANCE
(UA)
19.9%
YU – ID B.V.
(NL)
100%
100%
99.9805%
Gradua
Finance,
a.s.(SK)
Generali PPF Asset
Management a.s. (CZ)
100%
OOO Asset
Management
Company
“Lighthouse
Capital” (RUS)
84.490061%
(+15.424292%
owns Iberian Str.
Investments I. B.V.)
SC GENERALI
ROMANIA
ASIGURARE
REASIGURARE
SA. (RO)
51%
Nadace
Národní
galerie
v Praze (CZ)
100%
100%
Iberian Structured
Investments I B.V.
(NL)
Nadace České
pojišťovny
(CZ)
50,02%
99,8%
Generali
Zavarovalnica d.d.
(SLO)
Generali
Osiguranje d.d.
(HR)
99.9% (0.1%)
ČP ASISTENCE
s.r.o. (CZ)
Generali
Fond de Pensii
Societate de
Administrare
a Fondurilor
de Pensii Private
S.A. (RO)
100%
GP Reinsurance
EAD
(BG)
Delta Generali
Osiguranje a.d.o.
(SRB)
100%
Generali Suport
GIE(RO)
100%
Health center
„Dom zdravlja“
JEDRO(SER)
99,689%
Generali
Insurance
Life AD
(BG)
Generali
Profesional
Training S.R.L.
(RO)
100%
99,9%
Novi Blutek
d.o.o. Beograd
(SER)
100%
Blutek Auto d.o.o.
Beograd(SER)
100%
Delta Generali
Reosiguranje a.d.o.
(SRB)
100%
JSC „Generali
Life“, subsidiary
of Assicurazioni
Generali S.p.A.
(KAZ)
Pankrác
Services s.r.o.
(CZ)
100%
Generali Bulgaria
Holding AD
(BG)
Generali
Slovensko
Poisťovňa a.s.
(SLK)
94,47%
Generali
Insurance AD
(BG)
Generali Zakrila
Health-Insurance
AD
(BG)
100%
51%
Akcionarsko društvo
za upravljanje
dobrovoljnim
penzijskim fondom
DELTA GENERALI
(SRB)
(SRB)
Generali
„Foreign
Insurance
Company
Inc.“ (BY)
100%
100%
99,56%
100%
35% (65%)
Delta Generali
Holding d.o.o.
(MNG)
Generali Zakrila
Medical
and Dental
Center EOOD
(BG)
100%
Akcionarsko društvo
za osiguranje DELTA
GENERALI
OSIGURANJE
Podgorica (MNG)
50%
100%
VUB Generali
dôchodková
správcovská
spoločnost’,
a.s.
(SLK)
GSL
Services.
s.r.o.
(SLK)
* Generali PPF Invest Plc (IR) is an open-ended investment company with variable capital and segregated liability between sub-funds. Česká pojišťovna a.s.’s
share depends on the proportion of investments in each fund. Investments in mutual funds are reported in the Česká pojišťovna a.s. financial statements
as securities held for sale.
Annual Report 2012
25
PPF Group N.V. (NL)
100%
49%
100%
100%
100%
Česká
pojišťovna
Spolka
Akcyjna
Oddzial
w Polsce
(organizational
unit in PL)
Česká
pojišťovna
a.s.
(CZ)
100%
100%
100%
ČP INVEST
invest.
spol., a.s.
(CZ)
OOO
Finansovyj
servis
(RUS)
PPF Co1 B.V. (NL)
PPF Co2 B.V. (NL)
CZI Holdings N.V. (NL)
100%
100%
100%
100%
100%
LLC Generali
PPF General
Insurance
(RUS)
Generali
PPF Fund
Management
(RUS)
Non state
pension fund
"Generali PPF"
(RUS)
100%
ČP DIRECT,
a.s.
(CZ)
Univerzální
správa
majetku,
a.s.
(CZ)
100%
100%
Public Stock
Company
„Generali PPF
Insurance“
(RUS)
100%
Česká
pojišťovna
ZDRAVÍ a.s.
(CZ)
Generali
PPF Life
Insurance
(RUS)
80% (20%)
68% (27%
GP Re, 5%
Generali
Pojišťovna)
Generali PPF
Services a.s.
(CZ)
REFICOR
s.r.o. (CZ)
100%
ČP INVEST
Realitní
uzavřený
investiční
fond a.s. (CZ)
CITY EMPIRIA
a.s. (CZ)
100%
Generali
pojišťovna a.s.
(CZ)
Generali
PPF Invest
Plc.
(Ireland) *
61%
Generali
Multiinvest
Pénzügyi
Tanácsadó
Kft. (HUN)
26%
14.9%
Europ
Assistance
Magyarország
Befektetési és
Tanácsadó
Kft.(HUN)
Európai
Utazási
Biztosító
Zrt. (HUN)
CP Strategic
Investments
N.V. (NL)
100%
Penzijní fond
České
pojišťovny, a.s.
(CZ)
Generali
Penzijní fond
a.s. (CZ)
100%
GeneraliProvidencia
Biztosító Zrt.
(HUN)
100%
100%
100%
100%
Solitaire
Real Estate, a.s.
(CZ)
100%
46.24% (48.46%)
74% (26%)
100%
Generali
FundamentaAlapkezelő
Lakáskassza
Zrt.(HUN)
Lakástakarékpénztár
Zártkörűen
Működő
Részvénytársaság
(HUN)
100%
Generali Zycie
Towarzystwo
Ubezpieczen
S.A. (PL)
100%
GeneraliIngatlan
Vagyonkezelő és
Szolgáltató
Kft.(HUN)
100%
Genertel
Biztosító Zrt.
(HUN)
100%
GP
Consulting
Pénzügyi
Tanácsadó
Kft. (HUN)
Autotal
Biztosítási
Szolgáltat
ó Kft.
(HUN)
Familio
Befektetési
és Tanácsadó
Kft.(HUN)
51%
AUTOTÁL
Expertize
Daune
Srl.(RO)
100%
100%
Generali
Finance spólka
z ograniczona
odpowiedzialnoscia
(PL)
100%
Generali
Development
s.r.o. (CZ)
100%
Generali
Servis s.r.o.
(CZ)
100%
Generali Car
Care s.r.o.
(CZ)
Nadace
pojišťovny
Generali (CZ)
Generali
Towarzystwo
Ubezpieczen S.A.
(PL)
Generali
Powszechne
Towarzystwo
Emerytalne S.A.
(PL)
Annual Report 2012
26
Description of Selected Companies within the Česká pojišťovna Group
Below we provide information on companies that form part of the Česká pojišťovna Group and
are of fundamental importance either for the Company’s business or its capital position.
Information on certain other companies that belong to the same group as Česká pojišťovna may
also be found in the Notes to Consolidated Financial Statements for the Year Ended
31 December 2012, in the section describing the subsidiaries and associates of Česká pojišťovna.
CP Strategic Investments B.V.
Principal business:
Date of incorporation:
6 December 1999
Share capital:
EUR 225,000
Česká pojišťovna’s stake: 100% (96.7% as of the annual report date)
Registered office:
Netherlands
The end of 2012 was a time of restructuring, in which Generali PPF Holding’s operations in
supplemental pension insurance and savings were concentrated within the ČP Group.
Through its subsidiary CP Strategic Investments N.V., Česká pojišťovna continued to own
Penzijní fond České pojišťovny and became the owner of Generali Penzijní fond.
Annual Report 2012
27
Penzijní fond České pojišťovny, a.s.
Principal business:
supplemental pension insurance
19 September 1994
Share capital:
CZK 300 million
Česká pojišťovna’s stake: 100% (96.7% as of the annual report compilation date)
Registered office:
Czech Republic
Penzijní fond České pojišťovny (now Penzijní společnost České pojišťovny) has been active in
the supplemental pension insurance market since 1994. Its founder and sole shareholder is
Česká pojišťovna.
Last year, Penzijní fond České pojišťovny again positioned itself as the leader in the
supplemental pension insurance sector in the Czech Republic. Its image as a provider of highquality services linked with saving for old age has long been underlined by its financial and
commercial performance results.
The company’s total assets at the end of 2012 were in excess of CZK 67 billion. In 2012, the
company reported its highest ever profit of CZK 1.431 billion. The pension fund currently
takes care of nearly 1.3 million customers, of whom more than 331,000 increased their
monthly deposits last year.
Penzijní fond Česká pojišťovna has a diversified distribution network capable of reaching out
to a wide range of customer segments. In addition to consultants and branches of the parent
company Česká pojišťovna, the fund also works closely with independent external networks
of financial intermediaries.
At the end of 2012, Penzijní fond České pojišťovny underwent transformation from a pension
fund to a pension company, becoming Penzijní společnost České pojišťovny as of 1 January 2013.
Sales of Důchodové spoření (Retirement Savings – Pillar 2) and Doplňkové penzijní spoření
(Supplemental Retirement Savings – Pillar III) were launched at the start of the year. The assets
of clients who took out supplemental pension plans before the start of the pension reform
have continued to be managed in the “Transformed Fund”.
http www.pfcp.cz
Annual Report 2012
28
Generali Penzijní fond a.s.
Principal business:
supplemental pension insurance
25 September 1995
Share capital:
CZK 50 million
Česká pojišťovna’s stake: 100% (96.7% as of the annual report compilation date)
Registered office:
Czech Republic
Generali Penzijní fond (now Generali Penzijní společnost) was founded in 1995 by Generali
Pojišťovna a.s. At the end of 2012, Česká pojišťovna became an indirect shareholder through
CP Strategic Investments N.V.
Generali Penzijní fond is a stable player in the market of retirement-related saving services. In
view of the nature of the products provided, the company is committed to achieving longterm performance and stability.
The company’s total assets at the end of 2012 were in excess of CZK 3.9 billion. In 2012, the
company made a profit of CZK 45 million. The pension fund currently takes care of nearly
76,000 customers, of whom more than 15,000 increased their monthly deposits last year.
The pension company, as it is now, mainly sells its products in cooperation with the insurance
company Generali Pojišťovna. Customers have access to the sales points of Generali
Pojišťovna throughout the Czech Republic. In order to reach out to the broadest possible
range of customer segments, the company draws on the capacity of consultants and
branches of parent company Generali Pojišťovna a.s. and other independent external
networks run by financial intermediaries.
At the end of 2012, Generali Penzijní fond underwent transformation from a pension fund to
a pension company, becoming Generali Penzijní společnost as of 1 January 2013. The assets
of clients who took out supplemental pension plans before the start of the pension reform
have continued to be managed in the “Transformed Fund”.
http www.generali.ps.cz
Annual Report 2012
29
Generali Societate de Administrare a Fondurilor de Pensii Private S.A.
Principal business:
management of compulsory and voluntary pension insurance funds
9 July 2007
Share capital:
RON 89 million
Česká pojišťovna’s stake: 99.99 %
Registered office:
Romania
From the outset, Generali Societate de Administrare a Fondurilor de Pensii Private has been an
active player in the compulsory supplemental pension insurance market that emerged
following the reform of the Romanian pension system in 2007. It manages two funds, ARIPI
and STABIL.
The ARIPI fund (compulsory supplemental pension insurance) is intended for customers aged
18 to 45 who are just entering the supplemental pension insurance system. The STABIL fund
(voluntary supplemental pension insurance), on the other hand, is open to customers of all ages.
Since it was formed in May 2008, the ARIPI (“WINGS”) pension fund has become the third
largest compulsory supplemental pension insurance fund in Romania with a customer base
numbering over 533,000 and EUR 177 million in funds (as at 31 December 2012).
In February 2009, the company was granted a licence to manage a voluntary supplemental
pension insurance fund, and in April 2009 it opened the STABIL fund.
http www.pensii.generali.ro
Annual Report 2012
30
ČP INVEST investiční společnost, a.s.
Principal business:
collective investment, management of collective investment funds
19 November 1991
Share capital:
CZK 91 million
Česká pojišťovna’s stake: 100%
Registered office:
Czech Republic
In 2012, ČP INVEST, together with Generali PPF Asset Management a.s. – which has been
entrusted by ČP INVEST to manage its funds – reaffirmed its position as the largest asset
manager in the Czech Republic.
At 31 December 2012, the aggregate total net asset value of ČP INVEST’s 29 CZKdenominated funds and Generali PPF Invest’s eight funds denominated in a variety of
currencies (of which ČP INVEST is the sole distributor) exceeded CZK 23 billion. The total
assets under management increased by 22% last year. During 2012, new inflows into the
ČP INVEST and Generali PPF Invest mutual funds totalled nearly CZK 4.5 billion.
Last year, ČP INVEST successfully entered the Polish investment market, launched further
qualified investor funds and expanded its offering of the funds of the Irish investment
company Generali PPF Invest. The ČP INVEST corporate bonds fund was awarded the Golden
Crown 2012 and was named overall winner of the Fincentrum Investment of the Year 2012.
In 2013, ČP INVEST plans to continue its international activities, with its primary focus on the
markets of Central and Eastern Europe.
http www.cpinvest.cz
Annual Report 2012
31
ČP INVEST Realitní uzavřený investiční fond a.s.
Principal business:
collective investment
15 September 2010
Share capital:
CZK 74 million
Česká pojišťovna’s stake: 67.57% (50/74)
Registered office:
Czech Republic
ČP INVEST Realitní uzavřený investiční fond a.s. is a special qualified investor fund within the
meaning of Section 56 of Act No 189/2004 on collective investment, as amended. The
investment fund’s assets are managed by the investment company ČP INVEST investiční
společnost, a.s.
ČP INVEST Realitní uzavřený investiční fond a.s. focuses primarily on the real property market,
investing in the stock of real estate companies. Additionally, the investment fund may invest in
money market instruments, demand deposits, term deposits, government bonds, and
receivables. The investment fund’s objective is to generate stable, long-term positive returns on
the assets entrusted to it while achieving better liquidity, lower risk, and greater diversification
than is possible when investing individually, and at the same time to maintain returns on
investors’ funds above the level of interest rates offered by banks on medium-term deposits.
The investment fund’s total assets at the end of 2012 were CZK 1,063 million, while its net
asset value was CZK 1,060 million.
Annual Report 2012
32
Česká pojišťovna ZDRAVÍ a.s.
Principal business:
private health and sickness insurance
17 June 1993
Registered capital:
CZK 100 million
Registered office:
Czech Republic
Česká pojišťovna ZDRAVÍ a.s. (“ČP ZDRAVÍ”) is a 100% subsidiary of Česká pojišťovna a.s.
Within the Generali PPF Holding Group, ČP ZDRAVÍ focuses on a portfolio of insurance
products associated with health, the provision of health care and customers’ hardship when
they lose their source of income. For a number of years now, the product range has been
closely interlinked with the products of the Holding’s other members in the Czech Republic.
ČP ZDRAVÍ shares its sales network with its parent company, enabling it to leverage the
biggest network of sales points and insurance intermediaries.
In 2012, ČP ZDRAVÍ posted gross premiums written of CZK 467.5 million, continuing the
growth reported in the previous year. ČP ZDRAVÍ posted its highest-ever net technical result
(net of the transfer of investment returns) of CZK 97.7 million; gross earnings before taxation
(CZK 123.95 million) once again exceeded the target.
ČP ZDRAVÍ’s strategic plan is to continue the positive trend in the key indicators of new
business and economic results, while avoiding a hike in operating costs. In 2013, particular
attention will continue to be paid to legislative changes in public health insurance and to the
identification of opportunities for the creation of new insurance products designed to
guarantee a superior standard of health care. Cooperation will be intensified with selected
public health insurance companies and with a planned network of preferred healthcare
facilities necessary to form a comprehensive range of insurance programmes for the provision
of health care and professional medical assistance.
Improvements in the attractiveness and quality of the range of supplemental products offered
as riders to Česká pojišťovna’s core programmes will remain a priority. Another area of ČP
ZDRAVÍ’s added value is its capacity to respond readily to evolving market conditions and to
launch new insurance products and programmes in remarkably short time.
http www.zdravi.cz
Annual Report 2012
33
ČP DIRECT, a.s.
Principal business:
insurance agency services, consulting
1 January 1998
Share capital:
CZK 20 million
Registered office:
Czech Republic
ČP DIRECT is registered in the Register of Insurance Intermediaries maintained by the Czech
National Bank as an insurance agent as defined by Section 7 of Act No 38/2004 on insurance
intermediaries and independent loss adjusters and amending the Trading Act. The company is
contractually authorized to act as an intermediary for Česká pojišťovna a.s.
In its operations as an insurance intermediary, ČP DIRECT focuses primarily on non-life
insurance – motor damage insurance and motor third-party liability insurance in particular.
To develop its business the company has built up a network of cooperating subordinate
insurance agents, mostly automotive dealerships.
In addition to its cooperation with automotive dealerships, the company’s business activity
also included comprehensive administration services for a significant portion of the Česká
pojišťovna lease portfolio.
The company also expanded its business by launching a car rental service, which it operates in
cooperation with selected automotive dealers. The new service loans cars to customers of
Česká pojišťovna as part of the insurer’s roadside assistance service.
In 2012, the company posted total revenues of CZK 124 million and net after-tax earnings of
CZK 1 million.
http www.cpdirect.cz
Annual Report 2012
34
REFICOR s.r.o.
Principal business:
administrative management services, organizational and
economic services, business, financial, organizational and
economic consulting services
12 August 1997 (a Česká pojišťovna subsidiary
since 9 March 2006)
Share capital:
CZK 100,000
Registered office:
Czech Republic
The company’s core business is servicing selected insurance receivables of Česká pojišťovna
and coordinating activities related to their recovery, primarily through the courts, conducted
by a law firm retained for this purpose.
A greater emphasis on communication between Česká pojišťovna and customers improved
the payment discipline of customers in 2012, leading to a reduction in the number of
receivables serviced by REFICOR as well. We expect this trend to continue in 2013.
As at 31 December 2012, REFICOR posted pre-tax earnings of CZK 3.9 million.
Annual Report 2012
35
Generali PPF Services a.s.
Principal business:
insurance agency services, independent loss-adjustment,
processing and digitization of documents, fraud detection
10 December 2003
Share capital:
CZK 3 million
Registered office:
Czech Republic
Generali PPF Services has acted as a service company for Česká pojišťovna, Generali Pojišťovna
and other members of the Generali PPF Holding Group since mid-2010, when the first
agendas from both insurance companies were transferred to it. Subsequently, the sharedservice strategy was gradually expanded to embrace the current range of services.
Generali PPF Services is registered in the Register of Insurance Intermediaries maintained by
the Czech National Bank as an insurance agent as defined by Section 7 of Act No 38/2004, as
well as in the Register of Independent Loss Adjusters maintained by the Czech National Bank
as an independent loss adjuster as defined by Section 10 of Act No 38/2004 on insurance
intermediaries and independent loss adjusters. The company has a contractual relationship
with Česká pojišťovna a.s., under which it provides services covering the settlement of foreign
claims, the handling of suspicious claims, the detection and investigation of fraud, the repair
of road vehicle windscreens, the digitization, indexing and archiving of documents, a mail
registry and dispatch service, telephone support for direct marketing campaigns, active
telesales, and a call service to make appointments between customers and sales staff.
In 2013, the company is preparing to address the impact of a draft amendment to Act
No 38/2004 governing conditions under which activities linked to CNB licences are carried out.
Annual Report 2012
36
ČP ASISTENCE s.r.o.
Principal business:
provision of assistance services
1 March 2012
Share capital:
CZK 3 million
Registered office:
Czech Republic
ČP ASISTENCE s.r.o. is a Česká pojišťovna subsidiary and exclusive provider of assistance
services. It is a joint venture between Česká pojišťovna and Europ Assistance. This marriage
between ČP, wielding the largest network of contractual partners, and Europ Assistance, one
of Europe’s largest providers of assistance services, means that ČPA customers benefit from
comprehensive assistance in case of insured events both at home and abroad. The ČPA head
office boasts a professionally trained team of coordinators with wide-ranging language skills
supported by modern telecommunication solutions and innovative systems. This set of
strengths guarantees continuity of operation and services of the highest quality.
http www.cpasistence.cz
Česká pojišťovna Foundation
Principal business:
support of public-benefit activities
30 December 2009
Foundation capital:
CZK 500
Founder:
Registered office:
Czech Republic
The Foundation’s mission is to support the achievement of goals and aims, by individuals and
legal entities, that are beneficial to the public or whose support is in the public interest,
particularly in the arts, health care, sports, social affairs, and education. In 2012, the Česká
pojišťovna Foundation sponsored several dozen cultural, sports, educational, preventive,
safety and charity projects and activities.
http www.nadaceceskapojistovna.cz
1946
Five insurance companies (national enterprises) are
formed, with První československá pojišťovna, n. p.
assuming the liabilities of První česká and a further
109 insurance companies and provident societies
named in the implementing regulation.
1945______
______1967
1945
All private insurance companies and
provident societies are nationalized.
At this time, there are 730 of them in
operation in Czechoslovakia.
1951
Československá pojišťovna prepares an extensive
information campaign on the theme “Protecting
crops and forests from fires”. The company
delivers 100,000 leaflets, a large number of
negatives, and arranges for the publication of
more than 800 educational articles in the press.
1960
Combined youth insurance introduced.
After the Second World War,
five national companies
1948 The five existing insurance
companies
were
formed,1949
withČeskoslovenská
První pojišťovna
are nationalized and merged within
introduces combined househo
československá
pojišťovna,
n. p.
Československá pojišťovna,
n. p.
insurance.
assuming the rights and
obligations of První česká
vzájemná pojišťovna and
a number of other smaller
insurers. The insurance market
was monopolized in 1948, as
Československá pojišťovna, n.p.
(transformed into Státní
1953 Československá pojišťovna is renamed
Státní pojišťovna,
subsequently anin the 1950s) became
pojišťovna
insurance and reinsurance company.
the sole insurer in operation.
The change in the way society
1965 Státní pojišťovna covers one of the biggest flood disasters ever when
structured
had
a itsmajor
widespread damagewas
is caused
after the Danube
breaks
banks.
influence on insurance needs.
Insurance coverage was drawn
up for national enterprises
and collective agricultural
organizations, while
comprehensive insurance
was introduced for citizens.
Annual Report 2012
07 – Corporate Governance
Corporate Governance
(as at the annual report compilation date)
Board of Directors
Chairman
Ladislav Bartoníček
Resigned: 31 March 2013
Born: 1964
Education: Faculty of Electrical Engineering, Czech Technical University,
Rochester Institute of Technology
Experience: ČKD Elektrotechnika, PPF investiční společnost a.s., Generali PPF Holding B.V.
Address: Evropská 2690/17, 160 41 Praha, Czech Republic
Vice-Chairman
Pavel Řehák
Appointment: 1 July 2010
Born: 1975
Education: Faculty of International Relations, University of Economics, Northwestern
University, Kellogg School of Management
Experience: McKinsey & Company, Inc.
Address: Na Pankráci 1720/123, 140 21 Praha, Czech Republic
Member
Milan Beneš
Appointment: 1 February 2011
Born: 1968
Education: Faculty of Electrical Engineering, University of West Bohemia, Plzeň
Experience: ZČE Plzeň a.s., FCC Folprecht s.r.o., LogicaCMG, Accenture Central Europe B.V.
Member
Pavel Fuchs
Appointment: 1 October 2012
Born: 1974
Education: Faculty of Economics and Administration, Masaryk University, Brno
Experience: Generali PPF Holding, PIF – 1. Privatizační investiční fond, Czech Airlines
38
Annual Report 2012
Supervisory Board
Chairman
Milan Maděryč
Appointment: 1 June 2007
Born: 1955
Education: secondary vocational, with school-leaving certificate (maturita), postgraduate
studies at Brno University of Technology
Address: Evropská 2690/17, 160 41 Praha, Czech Republic
Member
Lorenzo Kravina
Appointment: 3 December 2008
Born: 1964
Education: degree in Economics at the University of Venice
Address: Piazza Duca degli Abruzzi 2, I – 34132 Trieste, Italy
Member
Irena Špatenková
Appointment: 23 September 2011
Born: 1956
Education: University of Economics, Prague
39
Annual Report 2012
40
Company Management
Chief Executive Officer
Pavel Řehák
Born: 1975
Education: Faculty of International Relations, University of Economics,
Northwestern University, Kellogg School of Management
Experience: McKinsey & Company, Inc.
Executive Board Member for Investment Policy and Asset and Liability Management
Pavel Fuchs
Appointment: 1 October 2012
Born: 1974
Education: Faculty of Economics and Administration, Masaryk University, Brno
Experience: Generali PPF Holding, PIF – 1. Privatizační investiční fond, Czech Airlines
Executive Board Member for Industrial Insurance and Reinsurance
Milan Beneš
Born: 1968
Education: Faculty of Electrical Engineering, University of West Bohemia, Plzeň
Experience: ZČE Plzeň a.s., FCC Folprecht s.r.o., LogicaCMG, Accenture Central Europe B.V.
Executive Board Member for Change Management and IT
Lukáš Klášterský
Born: 1969
Education: Czech Technical University, Prague, Automation and Computer Science,
Faculty of Mechanical Engineering
Experience: Telefónica O2, Lucent technologies, Debis IT Services Czech (subsequently T-System)
Executive Board Member for Retail Trade
Robert Hlava
Born: 1970
Education: Brno University of Technology, Faculty of Civil Engineering
Experience: ČSOB a.s., ČP INVEST investiční společnost, a.s.
Annual Report 2012
41
Executive Board Member for CRM, Marketing and Product Management
Zdeněk Románek
Appointment: 1 April 2010
Born: 1976
Education: Faculty of Mathematics and Physics, Charles University – Operations
Research/Optimization, University of Economics, Prague, Insurance Engineering, INSEAD – MBA
Experience: KPMG Česká republika, s.r.o., Revitalizační Agentura, a.s. (Lazard Frerés and
Latona Associates), McKisney & Company Inc.
Executive Board Member for SME Business
Petr Lehký
Appointment: 1 January 2011
Born: 1970
Education: Faculty of Mechanical Engineering, Czech Technical University, Prague
Experience: ŠKODA AUTO a.s., GE Money Multiservis, a.s., ŠkoFIN s.r.o.
Executive Board Member for Customer Services
Jiří Doubravský
Born: 1972
Education: University of West Bohemia, Faculty of Economics, University of Economics –
postgraduate studies, Nottingham Trent University
Experience: HVB Bank, a.s., Komerční banka, a.s.
Executive Board Member for Financial Management
Marek Krejsa
Born: 1973
Education: University of Economics, Prague, Business Economics and Commercial Law
Experience: McKinsey & Company
Annual Report 2012
08 – Board of Directors Report on the Company’s Business Activities
and Financial Situation
42
Board of Directors Report on the Company’s
Business Activities and Financial Situation
185 Years of Help
The largest Czech insurer is building on its strong tradition and making changes aimed at
high-end, modern insurance for the 21st century.
Simple Products
During 2012, Česká pojišťovna followed up on the successful late-2011 launch of its motor
vehicle insurance package incorporating the concept of the Pojišťovna (Insurance Company)
smartphone application and introduced revamped property insurance, again with a mobile
dimension, and life insurance with a concept of integrated prevention in the Zdravý život
(Healthy Living) programme.
Faster Services
To make Česká pojišťovna services even faster while maintaining their quality, an innovated
customer zone, now also in a mobile version, was introduced to customers in 2012. The
Pojišťovna mobile application was expanded to enable the reporting of property insurance
claims and the sending of photographic documentation of the insured property. Claims
settlement was broadened to include the possibility of advance settlement (so that advances
can be paid out in claims before the case is closed), while-you-wait windscreen repair at
a location of the customer’s choice, the service of a personal loss adjuster and the use of tablet
technology in damage inspections in order to accelerate and refine the settlement process.
New Branch
In October 2012, the new Česká pojišťovna branch network concept was launched. The main
attributes of the new concept are its open environment, a combination of domestic and
modern design, round shapes, cutting-edge technology and a comfortable waiting area with
a children’s corner. Customer service itself has also been revised to include personal greeting,
an updated and clear customer ticketing system, consultative selling and an optimized system
for branch service zones.
All of this has been introduced with the aim of providing clients with faster service, greater
convenience and an enjoyable experience.
Always a Little Extra
In 2012 Česká pojišťovna, in partnership with the Česká pojišťovna Foundation, sponsored
socially responsible projects in keeping with its “Helping you go further” motto. Examples of
this include the Česká pojišťovna Foundation project called Accident Prevention in Schools
(encompassing 75,000 children and 50,000 parents in 230 schools), the Good Angel project
run by ČP employees, and another Česká pojišťovna Foundation – Gentleman of the Road.
Employees themselves collected more than a million crowns for charity.
Annual Report 2012
43
Situation in the Czech Insurance Market
The insurance market in the Czech Republic has stagnated in the last three years, with total
volume premiums written hovering around CZK 116 billion. The economic recession and the
highly competitive environment in the insurance market have been reflected particularly in
non-life insurance, where premiums written actually declined in this period.
That is not to say that the significance of the insurance sector is waning – quite the contrary.
Each year, ever more frequent and devastating natural disasters are a reminder of the
importance of insurance protection, as manifested above all in the long-running rise in the
number of non-life policies in the Czech Republic. At present, there are nearly 20 million
insurance contracts covering various non-life risks.
In motor insurance, average prices have plummeted by tens of percent over the past few
years. Likewise, we have witnessed efforts to cut prices by diminishing the extent of insurance
coverage. Perhaps the best-known example of a conscious lack of coverage was the insurance
of the National Theatre after its completion. Only the stage and the roof were insured,
because it was assumed that the non-wood parts (the walls and eaves) would not succumb to
fire. Yet succumb they did, and in the end the resulting damage after the fire on 12 August
1881 was five times higher than the agreed sum insured. This prompted a national collection
in which more than a million Guldens were donated.
In regular-premium life insurance, the trend is following a trajectory diametrically opposed to
that of non-life insurance. In the past year, the Czech insurance market reported 2.5%
growth (the growth rate after adjustment of Czech Insurers' Bureau data for the premiums of
the Slovak branch of AXA životní pojišťovna a.s., which are included in the Bureau's figures),
which is consistent with previous years, even though the number of insured persons declined.
A very important change in life insurance was the European Commission’s decision to prohibit
the use of gender-specific premium rates. This means that the price of insurance must be the
same for both sexes, regardless of demographic statistics. In response, insurers unified their
tariffs as of 21 December 2012, resulting in significant price increases for women and
a certain reduction for men.
Česká pojišťovna’s share of total premiums written in 2012 was 25.9%. Česká pojišťovna was
the largest insurer in both life and non-life insurance. Česká pojišťovna (or more precisely its
predecessors) made a positive impression on the public as far back as 1828 (185 years ago),
when it paid out its first claim to a certain Mr J Lipšanský from Loučice, in the Žehušice estate,
following a fire. And while it is well over a century since Mr Lipšanský passed away, Česká
pojišťovna has since gone on to become the best-known and largest insurance company in
the Czech Republic.
Annual Report 2012
44
Outlook for the Czech Economy and Insurance Market
The Czech economy will face many obstacles in 2013. It will have to endure government
austerity measures and low levels of business investment, which will mainly affect the
construction industry. Nor will consumption act as a growth driver, because the financial
situation of households has stalled. No major improvements are projected in exports either, as
these continue to be suppressed by the problems of key trading partners. While the US
economy is reporting modest growth, it still faces a number of fiscal, healthcare and other
reforms. The eurozone is even worse off. Taken as a whole, it is already in recession, and the
countries that have so far proved to be most durable, such as Germany, are on the cusp of
such a downturn.
With this in mind, the Czech economy is in for a difficult year which, even assuming
developments will be positive, will only report slight growth in the order of tenths of a
percent. Consequently, there will be no relief for unemployment, which will remain at around
9% (the registered unemployment rate). On the other hand, there will be no reason for a
surge in inflation, which in 2013 will once again be in line with the CNB’s 2% inflation target,
and the current period of record-low interest rates will continue.
These parlous economic conditions will be reflected in the insurance market, which is likely to
achieve only moderate growth. Non-life insurance market will remain under pressure from
declining premiums written in motor vehicle insurance, although there are indications that
this contraction will not be as pronounced as in previous years. The prices of new contracts
covering motor third-party liability and motor damage insurance are very close to the breakeven point, meaning there is hardly any more room for downward movement. Starting in
2014, we can expect the price of MTPL insurance and some other forms of insurance to be
affected considerably by the new Civil Code (effective as of 1 January 2014), which no longer
regulates the ceiling on compensation for any personal injury, potentially pushing up
indemnification to unprecedented levels.
Continued growth in the average premium revenue from regular-premium insurance is
expected to keep driving the life insurance market forward. The enduring period of low
interest rates will continue in 2013, which could mean that single-premium life insurance will
remain a competitive alternative to term deposits. Notwithstanding the probability of a slight
decline, high sales volumes are likely to remain relatively buoyant on a scale similar to those of
previous years.
In early 2013, the pension reform was launched, resulting in the emergence of Pillar 2 of the
pension system. Penzijní společnost České pojišťovny is actively involved in this reform, and,
within the scope of the newly created pillar, offers clients another option of saving long term
for their pension, and as such of diversifying and increasing their income in retirement. The
Česká pojišťovna Group has continued its successful operations in the private Pillar 3 (referred
to as “supplemental pension insurance” until the end of the year), managing the largest
pension fund of this kind in the Czech Republic.
1969
1977
1986
Česká státní pojišťovna is formed with headquarters in
Prague, and Slovenská státní pojišťovna is formed with
headquarters in Bratislava.
At a show of promotional films, the
absolute winner chosen by the jury and
the audience is Česká státní pojišťovna’s
“The Driver and the Pedestrian”.
Česká státní pojišťovna starts to build
a Commodore PC 20 network of personal
computers, with more than 100 deployed
by November 1987.
1989
1968______
______1989
1969
The inaugural Česká státní
pojišťovna sports games are
held in Pardubice.
The federal structure of
Czechoslovakia resulted in the
creation of two separate
insurance monopolies – Česká
státní pojišťovna in the Czech
1971 Automation at Česká státní pojišťovna is launched with
the installation of a modern
Siemens
4004/45
computer. štátna
Republic
and
Slovenská
Until Gamma punch card computers had been used.
poisťovňa in Slovakia. These two
insurance companies had to work
out how to split the portfolio,
how to deal with the presence of
Soviet troops, for whom they
were required to provide motor
insurance, and what products and
services to offer that would reflect
1972 An international seminar on the promotion
of
insurance is held, initiated
by Česká
developments
in the
standard of
státní pojišťovna.
living of Czechoslovak people,
The
including advances in modern
beginning
of major
technology. Activities related to
changes in
Česká státní pojišťovna’s
all areas of
company
automated insurance operations
organization.
were introduced and overseen by
Závod výpočetní techniky
(Computer Technology Plant).
Annual Report 2012
09 – Financial Performance in 2012
46
Financial Performance in 2012
Assets
Česká pojišťovna has long been a highly capitalized and stable company, with assets totalling
CZK 121.7 billion at 31 December 2012. Shareholders’ equity is CZK 21 billion and the share
capital stands at CZK 4 billion.
In terms of volume, the biggest asset items are investments, amounting to CZK 91.6 billion as
at 31 December 2012 (up by CZK 3.4 billion on 2011). Available-for-sale financial assets grew
by CZK 4.5 billion, while financial assets at fair value through profit or loss increased by
CZK 0.2 billion. There was a significant decrease in other investments following a CZK 0.9 billion
reduction in term deposits at banks.
Another major asset component is investments in subsidiaries and associates, which was up
by CZK 0.1 billion year on year to CZK 5.4 billion.
The Company’s cash and cash equivalents grew by CZK 1.2 billion year on year due to an
increase in short-term deposits.
Reinsurance assets increased by CZK 0.2 billion to CZK 9.7 billion.
More details on the Company’s asset position are provided in the financial section of this
Annual Report.
Treasury Stock
Česká pojišťovna did not hold any of its own shares during the 2011 accounting period.
Earnings
In 2012, Česká pojišťovna reported a post-tax profit of CZK 3.9 billion according to
International Accounting Standards.
Česká pojišťovna’s total premiums written in 2012, reported according to Czech Insurance
Association guidelines, were CZK 29.9 billion. Of this figure, non-life insurance accounted for
CZK 19.0 billion and life insurance CZK 10.9 billion.
Annual Report 2012
47
Share Capital and Reserves
The Company’s share capital was unchanged at CZK 4 billion in 2012.
In 2012, shareholders’ equity grew by CZK 3.9 billion to CZK 21.3 billion.
Earnings Distribution Proposal
No decesion on the distribution of 2012 earnings had been taken as at the date of
preparation of this Annual Report.
Dividends in Previous Years
In April 2012, the sole shareholder, acting in the capacity of the General Meeting, decided on
the pay-out of a gross dividend for 2011 totalling CZK 3 billion.
In May 2011, the sole shareholder, acting in the capacity of the General Meeting, decided on
the pay-out of a gross dividend for 2010 totalling CZK 9.4 billion.
Insurance Provisions
Insurance provisions (net of the reinsurers’ share) under the Insurance Act were down by
CZK 0.9 billion year on year to CZK 86.8 billion as at 31 December 2012 (of which, in
accordance with IFRS, a CZK 1 billion provision for liabilities to the Czech Insurers’ Bureau was
included in other provisions and a CZK 0.5 billion equalization provision was included in equity).
Life Insurance Provisions
These provisions account for roughly three quarters of the overall insurance provisions and
consist primarily of a life insurance premium provision and a provision for life insurance where
the risk is borne by the policyholder. As at 31 December 2012, the gross life insurance
provision totalled CZK 63.3 billion, a year-on-year fall by CZK 1.5 billion.
Annual Report 2012
48
Provision for Non-life Insurance Claims
This provision includes claims reported but not settled (RBNS) and claims incurred but not
reported (IBNR). As at 31 December 2012, the provision for non-life insurance claims totalled
CZK 17.1 billion, up by CZK 0.3 million on the previous year.
Provision for Unearned Non-life Insurance Premiums
The total amount of provisions for unearned premiums rose by CZK 0.4 billion to stand at
CZK 4.8 billion as at 31 December 2012.
Receivables
Receivables remained unchanged year on year at CZK 6.6 billion as at 31 December 2012.
Payables
Payables rose year on year by CZK 1.1 billion, to CZK 7.9 billion, mainly due to an increase in
tax liabilities by CZK 0.7 billion.
Annual Report 2012
10 – Report on Business Activities
49
Report on Business Activities
Non-life Insurance
Non-life premiums written came to CZK 19.5 billion, down by CZK 0.6 billion on the previous
year. In this respect, premiums written reflect the slowdown in Czech and European
economies and essentially mirror trends in the insurance market as a whole. Another external
factor muzzling the overall is the drop in the price of motor insurance. Somewhat in line with
these trends, the main reason is part of the decline in premiums written compared to 2011,
as recorded in the segment of motor insurance, where premiums written fell by
CZK 770 million year on year, with the number of policies shrinking by 49,000 (–2.2%).
Taken as a whole, the other non-life insurance segments actually saw their premiums written
increase slightly – by CZK 150 million (1.5%) – despite a fall in the number of policies by
92,000 (–2.3%).
Česká pojišťovna remains the leading non-life insurer with a market share of 27.9% in terms
of total premiums written.
Insurance of Business Risks
Premiums written increased year on year by 1.3%. We have maintained our leading position
in the market with a share of 29%. In an environment of increasing competition and
a stagnant economy, we consider this result a success. Technical risks and transport insurance
were particularly successful. On the other hand, the volume of agricultural insurance
premiums fell.
Claims incurred in 2012 rose by CZK 0.8 billion, or 31.2%, compared to 2011, which had
been an exceptionally favourable year. This situation was caused by extraordinary loss events
in natural hazards insurance, aircraft insurance and a devastating hail storm which resulted in
damage of CZK 430 million under crop insurance.
Annual Report 2012
50
Non-life Personal Lines
Premiums written in the personal lines segment (property, liability, personal accident, travel
insurance) grew by CZK 75 million (1.7 %) year on year. In 2012, medical expenses insurance
was the fastest growing segment, rising by CZK 40 million (26%).
In relation to property insurance, certain activities continued to target the updating of older
contracts with a view to enhanced customer protection and the elimination of potential
adverse impacts in the event of underinsurance, especially for contents and real estate.
In 2012, cooperation with the biggest Czech travel agency, CK EXIM Tours, intensified to the
satisfaction of both parties. We now provide travel insurance to Fio banka cardholders.
Despite the overall decline in sales in the tourism market in the Czech Republic, travel agent
insurance generated the highest level of new business in the seven years of its existence. In
personal lines of insurance, we approached tourists constructively by including recreational
sports in tourist packages. The biggest travel insurance event of 2012 was the transition to
a new assistance service in the form of our subsidiary ČP ASISTENCE s.r.o. This is another
move designed to make further improvements in the service provided to our clients.
Claims incurred in 2012 reported much the same positive trend as in 2011, primarily due
to the absence of major disasters. Their overall increase by CZK 58 million is primarily
attributable to the higher costs of claims related to travel expenses insurance, reflecting the
mushrooming costs of handling damage to health.
Motor Insurance
Motor Third Party Liability Insurance
Motor third party liability insurance registered a further decline in average prices.
Consequently, the total volume of MTPL premiums written shrank by CZK 1.06 billion
(5.2% on 2011) in 2012, even though the total number of vehicles insured increased (from
6,695,000 in 2011 to 6,803,000 in 2012). Česká pojišťovna remains the largest player in this
segment with a market share of 26.1%, despite seeing its premiums written fall by
CZK 470 million (–8.4%) compared to 2011. We are gradually stabilizing ČP’s share of the
MTPL market in the face of stiff competition.
In this period, claims incurred dropped by 15.9% year on year. As a result, the efficiency of
this insurance is at an acceptable level considering the competitive challenges.
Annual Report 2012
51
Motor Damage Insurance
As the markets for motor damage and MTPL insurance are closely related, the figures for both
segments were similar. In 2012, motor damage premiums written decreased somewhat
slower than was the case for MTPL, but still fell by CZK 300 million (–2.1%). Česká pojišťovna’s
market share declined by 1.6 percentage points to 27.3%.
Two contradictory factors had a negative impact on performance in motor damage insurance
during the period: falling car prices, on the one hand, and stagnating or even growing prices
of spare parts and repairs, on the other. Compared to 2011, the amount of losses incurred by
Česká pojišťovna was down by CZK 0.4 billion in 2012, reversing the adverse trend reported
in the prior period and helping to improve the economic results of motor damage insurance.
Innovation and Future Developments
New Products
In the spring of 2012, Česká pojišťovna launched a new product: Premium comprehensive
MTPL insurance combined with motor damage insurance. This insurance is unique in that it
provides the customer with complete protection against risks borne as both a car owner and
a driver. By simply purchasing Premium, customers meet their legal obligation and, into the
bargain, also have protection for their vehicle in case of theft, collision with animals, and
natural perils such as hail or flood.
At the same, the range of supplemental insurance for other types of MTPL was expanded to
include cover of theft and natural perils.
Another product that we started marketing in 2012 was Pojištění Domova (Home Insurance),
which stands out because of its comprehensiveness and variability. The scope of assistance
services and choice of five variants of cover, including – in addition to cover of ordinary
insurance risks – special risks associated, for example, with new technologies and the
changing nature of household equipment and furnishings, is particularly unique. For those
who have just set up home, there is also the option of a simple product – insurance for
students (and others) with very competitive pricing and adequate basic insurance protection.
Judging by the success of sales, this type of product is popular among customers and has
enabled us to carry out better targeted work with the insurance portfolio.
In the autumn of 2012, Česká pojišťovna innovated its range of fleet insurance to include
Public, a product designed for businesses with smaller fleets (up to 30 vehicles) and for
ordinary citizens who own more cars within the family. This insurance introduces the benefits
of fleet insurance to personal lines.
Annual Report 2012
52
Outlook
In its business insurance products, Česká pojišťovna will strive to ensure insurance stability
and optimize the economic parameters of these products in a competitive environment. In
this context, in our work with customers we will focus on deepening cooperation in the
optimization of risk coverage, drawing on our experience of risk management as applied
when underwriting such risks. Not least, we will concentrate on seeking out and developing
new business opportunities in the business risks market, which we consider to be dynamic.
In its personal lines, Česká pojišťovna will continue to focus on updating the portfolio of older
policies which may be of a nature that does not provide customers with the current scope of
insurance coverage available. Modern products offer a number of innovations, such as
assistance services. Naturally, we will continue to innovate products so that we are able to
cover increasingly demanding customer standards.
In motor insurance, Česká pojišťovna will mainly endeavour to keep enhancing quality of
service, not just in terms of selling policies, but throughout their entire duration, as well as in
the provision of loss adjustment.
In the past two years, Česká pojišťovna has introduced new risks and benefits to its MTPL
coverage – in particular, the opportunity to connect MTPL with a mobile phone on which the
Pojišťovna application has been pre-installed so that it is easier for motorists to contact Česká
pojišťovna, for example, in case of an accident. We have also expanded our product range to
include other risks, such as supplemental cover of collision with animals or the protection of
no-claims bonuses. In 2012, we decided to go a step further and add risks to MTPL that
motorists had previously associated exclusively with motor damage insurance. As a result,
customers purchasing MTPL can also receive assistance if their vehicle is stolen or is damaged
by hail, storm or other natural disaster.
In our view, a comprehensive range of cover that allows all customers to select the mix which
suits them best is a factor that will help Česká pojišťovna to keep increasing customer
satisfaction in the future.
Annual Report 2012
53
Life insurance
Life Insurance Product Portfolio in 2012
In 2012, the most successful life insurance products were, once again, MULTIRISK and
DIAMANT, which provide cover for all common life and personal accident risks and enable the
whole family to be protected by a single contract. Along with the third most successful product,
SLUNÍČKO Plus, these all-risk insurance products were supplemented by two new programmes
in May – Zdravý život (Healthy Living) and Návrat do života (Return to Life).
The Zdravý život programme delivers a unique combination of services based on active health
prevention. Customers receive a complete overview of the preventive care they can claim under
public health insurance. More importantly, the ČP assistance service organizes these preventive
examinations for them and sends them an SMS alert shortly before their appointment. If,
despite approaching their health responsibly, women contract breast or cervical cancer or men
get prostate or rectal cancer, ČP will support them in their illness with double the amount of
insurance benefit. Double the benefit is also paid out if the insured dies from such diagnosed
cancer. During the five-year Zdravý život programme, customers also receive an annual CZK 500
Vital Pass which they can use, for example, to pay for rehabilitation or purchases at a pharmacy.
Under the Návrat do života programme, the insured may receive benefit of half a million crowns
in case of accident-related permanent disability. In case of accident-related death, benefit at
double the amount agreed in the insurance contract is paid out to help the insured’s family to
cope with this difficult situation.
On aggregate, our regular-premium life insurance products were purchased by over 180,000
customers in 2012, which is 7% more than in the previous year. In particular, we noticed an
increased interest in purely risk contracts. Despite an 8% year-on-year decrease, total annual
premium revenues under new contracts still amounted to CZK 1.5 billion. The high quality of
our products is evidenced by our customers and the professional community, which praised our
Zdravý život and Návrat do života programmes in the Best Life Insurance of the Year 2012
category of the Fincentrum Bank of the Year competition.
Annual Report 2012
54
In response to Member States’ obligation to transpose anti-discrimination measures
(sometimes also referred to as “unisex” measures) into national law, Česká pojišťovna has not
only unified its tariffs for men and women, but also introduced a Lady programme for the life
insurance DIAMANT Zdravý život and MULTIRISK Zdravý život and for the children’s insurance
SLUNÍČKO Zdravý život. Customers automatically receive the Lady programme if, when
entering into a new life insurance contract, they also take out insurance on death with a sum
insured of at least CZK 20,000. Customers who, in the course of their existing life insurance
policy, add insurance on death with a sum insured of at least CZK 20,000 to their cover also
qualify for this programme.
Fierce competition in the savings market caused premiums written for single-premium
products to fall by CZK 0.5 billion year on year. In new business generated by single-premium
life insurance, KOMBI and the unit-linked life insurance Výnos PLUS maintained their strong
position, building on the successful GARANCE product line. In 2012, the twelfth tranche, at
an amount exceeding CZK 300 million, was sold. Despite the crisis raging on the financial
markets, this unique insurance offered a fixed return of 3.5% p.a. for four years. Through the
GARANCE and Výnos PLUS unit-linked life insurance products, customers have invested over
CZK 5 billion with us. Thanks to this type of product, Česká pojišťovna maintains a strong
position in the market for single-premium life insurance amongst insurance companies not
directly affiliated with a large retail bank.
Claims Paid
In 2012, life claims paid rose by 5% on the previous year’s figure to a total of CZK 11.2 billion.
As in previous years, the greatest number of claims was registered in the “insurance on death
or survival” class. In terms of monetary volume, most funds (CZK 5.3 billion) were released in
the form of surrenders.
The total number of claims settled was 495,000.
Outlook
During 2013, we expect the entire market to be exposed to more significant changes than in
2012. Pension reform, increasing competition among savings products, and low returns in the
financial markets will continue to steer the market into the hedging of risks associated with
loss of income and the need for extraordinary outgoings in case of personal accident or
disease. However, the most significant change for the life insurance market should be the
obligation to implement new legislative measures that could significantly affect current
practices in the distribution of insurance products.
Annual Report 2012
55
Sales of Insurance
Internal Distribution Channels
Internal distribution channels consist of a network of exclusive insurance agents and the
Česká pojišťovna branch network.
In 2012, a major development in the management of Česká pojišťovna’s network of exclusive
insurance agents selling retail insurance was the introduction of a new business model
including a career scheme, an adaptation process and a new system of remuneration for
intermediaries. A key change was the strong support and rewards for long-term professional
work in the management of customers in the portfolio, and a focus on fostering long-term
relationships with new customers.
This new business model will continue unaltered in 2013. As 2013 progresses, the concept
may be revised to reflect trends in the insurance market.
The main branch network development in 2012 focused on increasing sales efficiency,
moving forward with the business model, and combining intensive and extensive growth. In
2013, there will be further advances in sales tools and skills, as well as in the ability to service
the portfolio, and in the development of the managerial competencies of the branch
network’s middle management. At the same time, the trend of increasing sales efficiency and
intensive and extensive growth will be maintained.
Specific Distribution Channels
External Retail Partners – Focused on Personal Lines
In 2012, Česká pojišťovna built on its established strategy of fostering collaboration with
selected external partners. We continued to reinforce our cooperation with our two biggest
partners in this respect: OVB Allfinanz, a.s. and ZFP Akademie, a.s. At the same time, we
developed our relationships with potentially significant partners.
Cooperation with selected partners in this distribution channel was supported by a completely
new life insurance product that facilitates the smooth transition from risk insurance to
investment insurance, underpinned by a number of new risks. A software modeller has been
developed for sales of this product and is constantly being honed in response to comments
and suggestions from agents.
In addition to the development and implementation of the new product, work continued on
improving services for external partners. An important feature in the improvement of services
for intermediaries is the new partner communication channel – a personalized website that
offers a comprehensive overview of all partner-specific products, tools and news.
The main task in this area in 2013 is to stabilize new sales, build up the portfolio and increase
the share among the market’s major players. This distribution channel will make a sizeable
contribution to sales of products related to the pension reform.
Annual Report 2012
56
Česká pošta (Czech Post)
Since 2001, Czech Post has been a strategic partner of Česká pojišťovna, providing insurance
services within the post-office network. In the course of this partnership, the scope and level
of service provision has been gradually developed with a view to maximizing the benefit to
customers as we meet their needs related to the insurance of risks arising from everyday
situations. The current business model comprises the post-office network, with a blanket offer
of basic insurance products serviced by certified post-office workers, a group of specialized
centres providing comprehensive and business services, and a network of exclusive insurance
agents actively supporting the entire distribution channel.
In 2012, in line with the long-term strategy, further steps were taken to improve the quality
and scope of insurance services within the Czech Post sales network. This action has resulted
in the opening of a further 47 dedicated Česká pojišťovna counters at selected post offices.
The total number of outlets providing a comprehensive service to all Česká pojišťovna
customers in the post-office network has been increased to 80 counters geographically
covering the whole country. The potential of this partnership has been efficiently harnessed by
building up increasing numbers of specialized centres, by life insurance product innovations, by
new marketing communications, and by the deployment of new business tools.
The positive trend in the way this cooperation is advancing has also been reflected in the sales
results for 2012, when the highest ever increase in the portfolio of this distribution channel
was recorded – the total portfolio value was in excess of CZK 600 million. In regular-premium
life insurance in 2012, insurance contracts totalling CZK 166 million were concluded (2011:
CZK 155 million). Single-premium life insurance generated CZK 139 million (2011:
CZK 268 million).
In 2013, there will be targeted support of specialized counters in order for staff to increase
their skills and come to grips with standard business tools. At the same time, action will be
taken so that the core parts of the post-office network can be connected to Česká
pojišťovna’s systems. This is expected to increase the range and quality of services, particularly
in non-life insurance, and streamline workflows for Czech Post employees.
1991
1990______
______2000
Private insurance companies enter the
Czechoslovak insurance market and
a competitive environment is formed.
1992
1996
The PPF financial group enters Česká pojišťovna.
1998
Česká pojišťovna settles the claims of all policyholders
affected by extensive flooding in 1997 and 1998.
Incorporation of Česká pojišťovna as a joint stock company.
1999
Česká státní pojišťovna, n. p.
was caught up in the sea-change
from a socialist structure to
a democratic society and became
a state enterprise in 1990–1992,
and thereafter a joint-stock
company. In the 1990s, the
foundations of the Česká
pojišťovna Group were laid.
Significant events in the
1995 insurance
becomes thewere
lead insurer,
in
industry
market
cooperation with 15 non-life insurance
de-monopolization
and
companies in the Czech market,
in thethe
provision
of nuclear risk liability and property insurance.
emergence of a competitive
environment. Even in the face
of competition following the
market entry of major European
The Česká
pojišťovna insurance companies, Česká
general
pojišťovna continued to profile
meeting
approves
as the market leader and
a strategic plan
to create a strong insurance group
a holding
structure forwith international reach.
the Česká
pojišťovna a.s.
Group.
Annual Report 2012
11 – Report on Operations
58
Report on Operations
Customer Services
Česká pojišťovna’s Customer Services department encompass all activities related to the
provision of services to customers and the administration of their insurance contracts, such as
entering contracts in internal systems, making changes in contract specifications, processing
premium payments, and handling all aspects of claims – from initial reporting to pay-out.
In 2012, Customer Services continued to pursue a strategy of improving customer
satisfaction, managing claims, increasing cost effectiveness, developing direct sales by
telephone, and leveraging and protecting the portfolio.
A key indicator of Česká pojišťovna’s success remains the index of customer satisfaction with
services. In 2012, this indicator increased by a further 7% in comparison with the previous
year. The growth in index values was accompanied by better cost-effectiveness, with an
emphasis placed on measures that would not adversely affect customers.
In 2012, in the field of retail loss adjustment the concept of “personal loss adjuster” was
extended into all areas, including liability insurance claim settlement, without relinquishing any
principles of risk management. Mobile technicians conduct on-site investigations and now also
enter loss reports in the expert system electronically. The extent and quality of the services is
supported by an updated network of over 1,500 authorized vehicle repair shops and
replacement car lending services. The range of services provided by authorized service centres
was also expanded. New windscreen repair contracts were established with leading specialized
vehicle repair shops and České pojišťovna became the only insurance company in the Czech
Republic to start offering on-site windscreen repair by mobile technicians at the place of the
customer’s choice. A new PRM (Partner Relationship Management) system was put into
operation so that customers can be guided to Česká pojišťovna authorized repair shops as
smoothly as possible. In the management of claims incurred, we continue to move towards the
utilization of modern technologies to combat insurance fraud and speed up the entire loss
adjustment process. In the summer months, all capacities were deployed to cope effortlessly
with the natural disasters which hit the Czech Republic over the space of a few weeks.
In the field of business class settlement, steps to improve customer service include the
configuration of a product management system to simplify and speed up the whole process
and efficiently optimize the capacity management of claims. Previously distinct parts of the
process of claim registration and loss adjustment were merged. Now all customer-related
operations are handled by a “personal loss adjuster”, without compromising any principles of
risk management. During 2012, we employed our broad network of specialized regional loss
adjusters to successfully handle a large-scale disaster related to agricultural crop insurance.
Annual Report 2012
59
In the settlement of life and personal accident claims, we significantly increased customer
satisfaction by means of new measures aimed at speeding up and simplifying the entire
process of handling claims for the customer. We are developing an “advance settlement”
concept so that claims can be paid during – rather than after – treatment of an injury.
Combined with the option of reporting claims by means of an online form, we are able (for
a selected segment of insured events) to pay out claims to customers in a matter of hours. In
this area of this insurance, an emphasis is also placed on managing the risk of, and
eliminating, fraudulent behaviour among groups or individuals. Risk management is aimed at
timely identification, quantification and elimination so as to avoid a negative impact on the
Company’s financial results.
Communication with customers in 2012 benefited from more active use of electronic media.
The customer zone, which provides an overview of the contracted insurance products and
communication via secure internet access, is undergoing further improvement and is now
used by for more than 115,000 customers. It will soon be possible, for example, to view
selected written correspondence in the electronic display. Starting in 2012, it has also been
possible to send certain important documents electronically, including proof of payment of
life insurance premiums paid for tax return purposes.
The Česká pojišťovna multi-channel communication centre continued to develop its services
and selling operations in 2012. The service part focused on speeding up the response to
customer requests. Multirisk life insurance was added to the portfolio of products offered in
incoming phone calls in 2012. Contact centre improved its performance in the retention of
insurance contracts, thus contributing significantly to portfolio stability. The largest changes
were in active sales via outgoing calls, not only in sales via the internal call centre, but also in
cooperation with external call centres. A new service is the active telephone appointment of
meetings for our business advisers. In 2012, Česká pojišťovna’s around-the-clock contact
centre operators served 1.6 million customer requests via incoming calls and 1.8 million via
outgoing calls. They also processed 1.8 million requests received electronically or on paper. In
2012, the Česká pojišťovna contact centre upheld call centre quality standards prevailing in
the Czech Republic, as reflected in the quality of service and rise in customer satisfaction.
We expanded our police and payment administration services in 2012 in line with new
technologies, with an emphasis on quality and efficiency. Our goal is to be a reliable partner
for both internal and external customers. We offered our customers quality service, less
paperwork and on-line support, thereby saving their time. It was in this spirit that we
expanded services for the segment of external distribution channels and increased dedicated
phone support in 2012. Our services were provided with a guarantee according to defined
SLAs. Naturally, we also continued to focus on activities to prevent fraud against our
customers and shareholders. We were able to significantly reduce the volume of receivables
and thus contribute to the success of Česká pojišťovna.
Annual Report 2012
60
The Customer Services department is also responsible for handling customer complaints,
which are dealt with by a specialized team. Customer complaints are also perceived as an
important source of feedback. We follow up all of these leads thoroughly and, where
shortcomings are found, we correct our processes and services in order to constantly increase
customer satisfaction. In 2012, we cut the complaint processing time by a further 10%. There
was also a reduction in the number of complaints found to be warranted.
The fact that Customer Services met its goals in 2012 contributed substantially to the overall
earnings result of Česká pojišťovna.
Investment Policy
Financial investments stand alongside insurance and reinsurance as another important area of
operations for the Company. They contribute significantly to overall Company assets and are
financed primarily from insurance provisions (for this reason, they are sometimes referred to
as “financial placements of insurance provisions”), as well as from equity. Financial
placements of insurance provisions account for 95% of the overall financial investments; the
remaining five per cent are financed from other sources.
Requirements regarding the structure of financial placements of insurance provisions are set forth
in Decree No 434/2009 implementing certain provisions of the Insurance Act (Act No 277/2009).
The decree regulates the structure of a substantial portion of financial investments through a
system of limits. Česká pojišťovna reflects these limits in its internal policies and procedures by
means of internal regulations with the aim of achieving safety, liquidity and profitability and to
ensure that the Company is always capable of meeting its commitments to customers.
The structure and volume of the Company’s financial investments as at 31 December 2011
are shown in the graph and table entitled “Structure of Financial Investments (IFRS, Book
Value), by Business Segment”.
Structure of Financial Investments (IFRS, Book Value), by Business Segment
25,4 %
24,8
■
■
74,6 %
life insurance
non-life insurance
Annual Report 2012
61
The 2012 gross investment result before adjustment for portfolio management fees was
a profit of CZK 4.421 billion. At the beginning of 2012, the financial markets reacted strongly
to a move by the ECB which, in two auctions, injected a large amount of liquidity into the
financial sector in order to prevent the impending return of the financial crisis. This triggered
growth in markets of virtually all types of financial assets, with the steepest rises recorded by
the higher-risk assets. Around the middle of the year, concerns about the debt crisis in the
eurozone temporarily resurfaced. This was reflected in another spurt of growth in the yields of
government bonds issued by the affected states and, conversely, by a further decline in yields
on the debt instruments of countries perceived to be a safe haven. Equity markets also
underwent correction, though not as deeply as in 2008 and 2011. This negative trend was
reversed when central banks took action in the summer – the Federal Reserve came up with
another round of quantitative easing, while the ECB’s pledge that it was prepared to do
everything necessary to prevent the collapse of the euro area and that, in particular, it would
buy up – without limit – the bonds of any countries that officially asked for help was even
more important. This statement averted the immediate risk of eurozone collapse and paved
the way for new growth on markets in risky assets. Over the year, the CNB reduced the base
interest rate three times, most recently in November, when it was cut to a technical zero. The
yields of Czech government bond descended to all-time lows. Market trends in 2012 had
a positive impact on Česká pojišťovna thanks to its judicious investment strategy, enabling it to
make a decent profit on financial investments. The Company’s strong capital position meant it
could afford to increase the share of riskier security classes in its portfolio compared to 2011.
Consequently, it benefited from the sound trajectory of such investments without
compromising its commitments to customers.
In 2013, the most likely scenario is that the expected global economic recovery will finally
materialize, albeit very slowly. Although the ECB’s statement on its readiness to defend the
euro countered the risk of immediate eurozone meltdown, the European debt crisis can hardly
be considered resolved and remains a major risk factor. Another factor strongly influencing
how the investment policy is set is that we are currently in an environment of extremely low
interest rates which, in view of the latest developments, are not expected to rise much in the
short term. Therefore, in terms of yield, higher-risk asset classes, especially corporate bonds
and stocks, seem to be an appealing prospect. On the other hand, these investments require
the allocation of more capital to investment risks in order to cover any temporary negative
swings. Obviously, the situation needs to be monitored constantly so that investment policy
can be adjusted ad hoc where necessary.
Annual Report 2012
62
Financial investments within the life insurance segment
At the end of 2012, the life insurance segment contained a total of CZK 70.3 billion in
investments. Of this amount, CZK 10.6 billion (15%) consisted of investments covering
provisions for policies where the investment risk was borne by the policyholder. The growing
share of this component in the total volume of investments is connected with the prevalence of
this type of insurance in newly concluded contracts, and with the rising share of this type of
provision in overall life insurance provisions. The remaining financial investments in the life
segment are financed by conventional life insurance provisions and by a portion of the
Company’s own equity allocated to this segment. For the most part, this money is invested in
fixed-income instruments (CZK 52 billion), consisting mainly of debt securities (CZK 50.1 billion),
especially Czech and foreign government bonds and securities of issuers with an investment
grade rating, and deposits at capital-intensive domestic and foreign banks (CZK 3.2 billion).
In accordance with a feature typical for life insurance liabilities, i.e. their longer time frame,
debt securities covering life insurance provisions have, on average, longer to maturity. The aim
is to safeguard a sufficient and stable yield in the long run that will enable obligations arising
from insurance contracts to be met. In terms of accounting classification, almost 81% of debt
securities are classified as available-for-sale financial assets, so as to align the reporting of
their result with the method used to account for insurance liabilities, and reduce earnings
volatility resulting from changes in market interest rates.
The second largest group in the structure of financial investments comprises equity securities
(shares, unit certificates, and other variable-yield securities). Their share at the end of 2012
was 10.9%, or CZK 7.7 billion in absolute terms. These instruments are purchased for the
portfolio to act as a suitable counterweight to fixed-interest instruments for purposes of risk
diversification and to optimize medium- and long-term returns.
The investment portfolio is rounded out by other fixed assets – buildings and land. This
category has been low in importance over the long term, and at year-end 2012 its book value
was CZK 65 million, i.e. 0.1% of total life insurance investments.
The gross return on financial investments in this segment, prior to the deduction of
management fees, was CZK 3.7 billion. Interest on debt securities and deposits was the
biggest source of returns. The actual result of investments covering provisions for policies
where the investment risk is borne by the policyholder was very good in 2012 (a gain of
CZK 859 million), due in particular to the growth of the world equity markets to which most
of these investments are exposed.
Structure of Financial Investments (IFRS, Book Value),
in the Life Insurance Business Segment
15.0%
0.1%
24,8
■ Fixed-income instruments
■ Equity securities
■ Investments financed by insurance provisions
where the investment risk is borne by the policyholder
■ Other assets
10.9%
74.0%
Annual Report 2012
63
Financial investments within the non-life insurance segment
Investments in the non-life segment are mainly financed by non-life insurance provisions and
the equity allocated to this segment. Since the non-life liabilities are shorter than life liabilities,
there are more assets with shorter times to maturity in the portfolio, as well as more liquid
instruments, which can be readily converted into cash when needed to pay insurance claims.
As at 31 December 2012, the book value of the portfolio of non-life insurance was
CZK 23.9 billion; 91% (CZK 21.8 billion) of the portfolio consisted of fixed-income
instruments, of which debt securities had a book value of CZK 20.1 billion and term deposits
with banks CZK 1.9 billion. The remaining 9% of the portfolio comprised equity securities.
A long-term growth trend is evident in assets classified, for accounting purposes, as available
for sale (currently 84%), with a corresponding declining trend in investments classified as
financial assets measured at fair value (9%).
The total return on investments within the non-life insurance segment, before the deduction of
management expenses, was CZK 741 million in 2012. As in the life insurance segment, the
biggest contributor to this result was interest income from bonds and term deposits.
Structure of Financial Investments (IFRS, Book Value),
in the Non-life Insurance Business Segment
9.0%
24,8
■
■
91.0%
Fixed-income instruments
Equity securities
Annual Report 2012
64
Structure of Financial Investments (IFRS, Book Value), by Business Segment
Buildings and land (fixed assets)
Loans
Unlisted debt securities
Loans and advances provided under repo transactions
Other loans
Financial assets available for sale
Debt securities
Shares, unit certificates and other variable-yield securities
Financial assets at fair value through profit or loss
Debt securities
Shares, unit certificates and other variable-yield securities
Investments covering provisions for policies
where the investment risk is borne by the policyholder
Positive market value of derivatives
Other investments
Fixed-term bank deposits (net of reinsurance deposits received)
Financial liabilities (net of bonds outstanding)
Loans and advances received under repo transactions
Negative market value of derivatives
Life insurance
CZK millions
%
65
0.09%
956
1.36%
956
1.36%
0
0.00%
0
0.00%
47,815
67.98%
40,393
57.43%
7,422
10.55%
19,987
28.41%
8,729
12.41%
247
0.35%
10,559
452
3,161
3,161
(1,645)
(28)
(1,617)
70,339
15.01%
0.64%
4.49%
4.49%
(2.34%)
(0.04%)
(2.30%)
100.00%
Non-life insurance
CZK millions
%
0
0.00%
63
0.26%
0
0.00%
0
0.00%
63
0.26%
20,233
84.49%
18,082
75.50%
2,151
8.98%
2,096
8.75%
2,022
8.44%
0
0.00%
0
74
1,859
1,859
(302)
0
(302)
23,949
0.00%
0.31%
7.76%
7.76%
(1.26%)
0.00%
(1.26%)
100.00%
xls
Reinsurance
Česká pojišťovna’s reinsurance programme is a long-term contributor to the Company’s balanced
earnings and stability. As a risk management tool, reinsurance protects Česká pojišťovna, along
with its customers and shareholders, from unexpected catastrophic events, as well as from
random variations in loss frequency. Analysis of reinsurance needs and the optimization of the
reinsurance structure take place using modern dynamic financial analysis tools exploiting the
know-how of Generali PPF Holding and with the support of reinsurance brokers.
Česká pojišťovna’s principal and obligatory reinsurance partner is the Group’s captive
reinsurer, GP Reinsurance EAD, based in Bulgaria. Through GP Reinsurance EAD, risks are
further retroceded into the Group’s reinsurance contracts. Thanks to this optimization, Česká
pojišťovna can profit from the advantages of Group coverage and thereby further reduce
reinsurance costs while expanding coverage terms. Group reinsurance coverage has been
taken out at many of the world’s leading reinsurers, selected upon careful analysis of their
financial stability and quality of service. It goes without saying that our partners in this area
have a high rating and clear Group rules determine the maximum possible exposure that
Česká pojišťovna may have towards each one of them. Geographical diversification is a
necessary precondition, supported by the stability of proper business relationships that Česká
pojišťovna has built up in years past.
Annual Report 2012
65
Thanks to intensive, painstaking work detailing information on individual risks in the portfolio,
Česká pojišťovna is able, through the use of sophisticated models, to control its exposure to
catastrophic risks. Currently, flood losses are modelled regularly over the personal lines,
commercial lines, and large risks portfolios. Windstorm losses are modelled in a similar
structure and analysis of hail risk is under development as well.
At the reinsurance and underwriting level, information and know-how are regularly shared
within the Group, particularly in the areas of product management and loss adjustment.
Procedures in the areas of risk management and exposure control are also consulted with our
affiliates. This know-how is further transferred to the Company and serves us well in
negotiations with reinsurers on the optimization of reinsurance conditions in terms of scope,
exceptions, and special accepts.
Thanks to our high credit rating, Česká pojišťovna is perceived by partners both in the Czech
Republic and internationally as a stable and strong reinsurance partner in its own right. This
fact is evident in both rising volumes of inwards obligatory reinsurance within the Group, as
well as the rising number of facultative deals in the large industrial risks insurance.
Each year, the reinsurance programme is modified by Generali PPF Holding to ensure that it
reflects changes in the portfolio and the product line and responds to the differences
between individual insurance companies in the Group.
Nuclear Pool
The Czech Nuclear Insurance Pool (“CNIP”) is an informal consortium of non-life insurers based
on the co-insurance and reinsurance of nuclear risks. It offers insurance and reinsurance services
for liability and material risks, including risks related to the transportation of nuclear material.
The CNIP operates both as an insurer of domestic risks and in the area of inwards reinsurance.
Due to the unique character of nuclear risks, individual insurance companies do not usually
insure them. The insurers in the CNIP each provide their own net lines, the sum of which forms
the overall capacity of the CNIP for individual types of insured risks. Every year, the CNIP’s overall
capacity rises (by 2% to 5%, depending on the type of insurance); Česká pojišťovna’s net
exposure remained unchanged in 2012. Since the CNIP’s inception, Česká pojišťovna a.s. has
been the lead co-insurer under an agreement among insurers participating in the pool. The
CNIP’s executive body is the CNIP Office, which is part of the Reinsurance Department within
Česká pojišťovna’s organizational structure.
Annual Report 2012
66
Human Resources
The physical number of employees at the end of 2012 was 4,209, which was 194 more than
at the end of 2011. The Company supports an employee performance management system
and seeks to emphasize the role of the manager in employee evaluation and in the provision
of performance feedback. It is developing an evaluation system aimed at stressing positive
motivation and the strengths of individuals. The employee development system is linked to
the employee evaluation system. Top-rated employees receive the most development support.
The development focus is on strengthening expertise and insurance know-how. We are also
expanding training in this field via internal trainers, according to the principle of a selflearning organization. We are forging ahead with afternoon workshops, which have an ideal
half-day format, and with the Insurance Academy (Pojišťovácká akademie), which is
particularly important for new colleagues.
In 2012, in addition to these professional training programmes, support was also channelled
into specific programmes for key groups (Talents, Graduates and Managers), for whom we
prepared an annual intensive training course aimed at developing their key managerial role.
Practical development tools, especially the Customer Day (a day spent with a mentor in the
front line), were enriched by the Branch Manager Rotation project. This activity will continue in
2013 with a view to forging strong bonds between front-line teams and nurturing teamwork.
Development activities also include support for soft skills, which are generally tailored to the
different groups of employees.
In 2012, all professions were standardized and seniority grades were set for each profession.
Each profession is now described in detail. The previous hierarchical approach to professions
has been changed to an approach based on the importance or scope of a profession. By
making this transition, the Company has increased opportunities for professional career
growth alongside promotion.
The range of employee benefits was expanded to incorporate more third-party offers,
a higher discount on property and liability insurance, and employees’ access to their annual
remuneration review, where, in addition to income, the value of significant benefits received
by the employee is specified. Social and sports events for employees and their family
members remain an integral part of life at the Company.
Annual Report 2012
12 – Report of the Supervisory Board
67
Report of the Supervisory Board
During 2012, the Supervisory Board discharged its duties under the law and the Articles of
Association. It met five times. It oversaw the Board of Directors’ performance and the
implementation of the Company’s business operations. It verified whether the Company
conducted its business operations in accordance with applicable law, the Articles of
Association, and instructions given by General Meetings and/or decisions of the sole
shareholder. The Supervisory Board also dealt with complaints delivered to the Supervisory
Board from the Company’s customers and business partners.
During its meetings, the Supervisory Board discussed the Company’s financial performance,
the fulfilment of the financial and commercial plan, the investment policy, and the financial
performance of the Company’s subsidiaries. The Supervisory Board monitored the company’s
strategic objectives as well as those of its subsidiaries, and regularly discussed the Audit
Committee’s reports.
The Supervisory Board reviewed the Company’s financial statements for the 2012 accounting
period, the Company’s consolidated financial statements for the 2011 accounting period, and
the Report on Relations Between the Company and Related Parties for the 2011 accounting
period, and found nothing therein that would give the Supervisory Board reason to
pronounce a negative opinion on the contents of said documents.
Prague, April 30 2013
Milan Maděryč
Chairman of the Supervisory Board
68
Independent Auditor’s Report
To the Shareholder of Česká pojišťovna a.s.:
I. We have audited the financial statements of Česká pojišťovna a.s. (“the Company”) as at
31 December 2012 presented in the annual report of the Company and issued our audit
report dated 14 March 2013 presented in the annual report. We have also audited the
consolidated financial statements of the Company as at 31 December 2012 presented in
the annual report and issued our audit report dated 26 April 2013 presented in the annual
report.
II. We have also audited the consistency of the annual report with the financial statements
described above. The management of Česká pojišťovna a.s. is responsible for the accuracy
of the annual report. Our responsibility is to express, based on our audit, an opinion on the
consistency of the annual report with the financial statements.
We conducted our audit in accordance with International Standards on Auditing and the
related implementation guidance issued by the Chamber of Auditors of the Czech
Republic. Those standards require that we plan and perform the audit to obtain reasonable
assurance as to whether the information presented in the annual report that describes the
facts reflected in the financial statements is consistent, in all material respects, with the
financial statements. We have checked that the accounting information presented in the
annual report is consistent with that contained in the audited financial statements as at
31 December 2012. Our work as auditors was confined to checking the annual report with
the aforementioned scope and did not include a review of any information other than that
drawn from the audited accounting records of the Company. We believe that our audit
provides a reasonable basis for our opinion.
Based on our audit, the accounting information presented in the annual report is
consistent, in all material respects, with the financial statements described above.
Annual Report 2012
13 – Independent Auditor’s Report
69
III. In addition, we have reviewed the accuracy of the information contained in the report on
related parties of Česká pojišťovna a.s. for the year ended 31 December 2012 presented in
the annual report of the Company. The management of Česká pojišťovna a.s. is
responsible for the preparation and accuracy of the report on related parties. Our
responsibility is to issue a report based on our review.
We conducted our review in accordance with the applicable International Standard on
Review Engagements and the related Czech standard No. 56 issued by the Chamber of
Auditors of the Czech Republic. Those standards require that we plan and perform the
review to obtain moderate assurance as to whether the report on related parties is free
from material misstatement. The review is limited primarily to enquiries of company
personnel, to analytical procedures applied to financial data and to examining, on a test
basis, the accuracy of information, and thus provides less assurance than an audit. We
have not performed an audit and, accordingly, we do not express an audit opinion.
Based on our review, nothing has come to our attention that causes us to believe that the
report on related parties of Česká pojišťovna a.s. for the year ended 31 December 2012 is
materially misstated.
Ernst & Young Audit, s.r.o.
License No. 401
Represented by
Jan Niewold
Partner
Jakub Kolář
Auditor, License No. 2280
26 April 2013
Prague, Czech Republic
Annual Report 2012
14 – Persons responsible for the Annual Report
Persons responsible for the Annual Report
Declaration
We hereby declare that the information presented in this Annual Report is true to the facts
and that no material information has been omitted that could influence an accurate and
precise assessment of the issuer and the securities issued by it.
Marek Krejsa
Executive Board Member for Financial Management
Milan Beneš
Member of the Board of Directors and Executive Board Member
for Industrial Insurance and Reinsurance
Pavel Řehák
Vice-Chairman and CEO
Audit of the Financial Statements
Since 2012, the financial statements have been audited by Ernst & Young Audit, s.r.o.
The financial statements of Česká pojišťovna were audited on 14 March 2013, and the
consolidated financial statements of Česká pojišťovna were audited on 26 April 2013.
Registration number: 267 04 153
Registered office: Karlovo náměstí 10, 120 00 Praha 2
Statutory audit firm licence number: 401
Auditor-in-charge: Jakub Kolář
License No. 2280
70
Annual Report 2012
15 – Organization and Contact Details
71
Organization and Contact Details
Basic Organization Chart of Česká pojišťovna
General Meeting
Supervisory Board
Audit Committee
Board of Directors
Executive
Executive
Board
Member for
Retail Trade
Executive
Executive
Executive
Board Member Board
Board
for Industrial
Member for
Member
Insurance and
Customer
Reinsurance
Services
Executive
Executive
Board
Board
Board Member Board
Member
Member for
for CRM,
Member for
for IT and
for Financial
Investment
Marketing
SME Business
System
Management
Policy
and Product
and Asset
Management
Architecture
Executive
and Liability
Management
Directory of Selected Companies in the Česká pojišťovna Financial Group
Address:
Litevská 1174/8, 100 05 Praha 10
Info line:
+420 841 111 132
Telephone:
+420 267 222 515
Fax:
+420 267 222 936
E-mail:
info@zdravi.cz
Website:
www.zdravi.cz
http
Penzijní společnost České pojišťovny, a.s.
Address:
Na Pankráci 1658/121, 140 21 Praha 4
Info line:
+420 840 111 280
Fax:
+420 222 314 191
E-mail:
pfcp@pfcp.cz
Website:
www.pfcp.cz
http
Generali penzijní společnost a.s.
Address:
Bělehradská 132, 120 84 Praha 2
Info line:
+420 840 132 132
Fax:
+420 221 109 810
E-mail:
info@generali-ps.cz
Website:
www.generali-ps.cz
http
Annual Report 2012
72
Address:
Info line:
+420 844 111 121
Telephone:
+420 545 596 104
Fax:
+420 241 400 917
E-mail:
info@cpinvest.cz
Website:
www.cpinvest.cz
http
ČP INVEST Realitní uzavřený investiční fond a.s.
Address:
Address:
Address:
Na Pankráci 1658, 140 21 Praha 4
ČP DIRECT, a.s.
Address:
Pankrác services s. r. o.
Address:
REFICOR s.r.o.
Address:
Česká pojišťovna Foundation
Address:
Directory of Česká pojišťovna Head Office and Regions
Head Office:
Registered office:
Spálená 75/16, 113 04 Praha 1
Head office address:
ČP Customer Services:
841 114 114
ČP Asistent,
roadside assistance service: +420 224 557 004
Telephone:
+420 224 550 444
E-mail:
klient@cpoj.cz
Internet:
www.ceskapojistovna.cz
http
Annual Report 2012
73
Regions:
Address:
Dolní nám. 342,
Address:
U Nádraží 1098/II.
377 42 Jindřichův Hradec
755 22 Vsetín
Tel.:
+420 557 042 613
Tel.:
+420 384 373 211
Address:
28. října 60,
Address:
Holečkova 418,
386 39 Strakonice
702 65 Ostrava
Tel.:
+420 596 271 654
Tel.:
+420 384 373 352
Address:
Hrnčířská 1,
Address:
nám. 28. října 20,
500 02 Hradec Králové
746 01 Opava
Tel.:
+420 553 688 102
Tel.:
+420 495 076 401
Address:
nábřeží Přemyslovců 8,
Address:
Žižkova 89
586 01 Jihlava
772 00 Olomouc
Tel.:
+420 585 519 216
Tel.:
+420 567 146 213
Address:
Masarykovo nám. 34
Address:
Wágnerovo nám. 1541
266 01 Beroun
686 01 Uherské Hradiště
Tel.:
+420 571 773 113
Tel.:
+420 318 470 413
Address:
náměstí T.G.M. 10A,
Address:
V. Klementa 1228/1,
293 01 Mladá Boleslav
690 66 Břeclav
Tel.:
+420 519 301 114
Tel.:
+420 326 741 013
Address:
Rašínova 7,
Address:
Mírové nám. 37,
400 64 Ústí nad Labem
601 66 Brno
Tel.:
+420 542 594 302
Tel.:
+420 472 768 103
Address:
Gen. Svobody 38
Address:
Moskevská 1/14,
434 01 Most
787 30 Šumperk
Tel.:
+420 583 390 113
Tel.:
+420 476 140 413
Address:
tř. Míru 2647,
Address:
Felberova 4/8,
460 95 Liberec
532 12 Pardubice
Tel.:
+420 466 677 118
Tel.:
+420 485 343 309
Address:
Purkyňova 65,
Address:
Slovanská alej 24A,
568 20 Svitavy
Tel.:
+420 461 571 713
326 00 Plzeň
Tel.:
+420 377 170 614
Annual Report 2012
Address:
Jaltská 1,
74
Address:
360 01 Karlovy Vary
Štefánikova 10,
150 00 Praha 5
Tel.:
+420 353 337 103
Tel.:
+420 224 556 402
Address:
Sadová 636,
Address:
Oskol 3192,
344 17 Domažlice
Tel.:
Address:
767 21 Kroměříž
+420 379 792 804
Tel.:
+420 577 691 514
Hráského 2231/24,
Address:
Havlíčkovo náměstí 1963,
140 00 Praha 4
580 01 Havlíčkův Brod
Tel.:
+420 224 551 503
Tel.:
+420 569 472 002
Address:
Molákova 11/576,
Address:
Pražská 1280,
186 00 Praha 8
370 04 České Budějovice
Tel.:
+420 224 559 845
Tel.:
+420 387 841 562
Address:
Václavské nám. 780/18,
Address:
Na Pankráci 1658/121,
110 00 Praha 1
Tel.:
+420 224 558 713
140 00, Praha 4
Tel.:
+420 224 550 690
2000
2002
2008
The Czech Republic is hit by catastrophic floods.
The extent of damage covered by Česká pojišťovna
is even greater than in the 1990s.
PPF and Generali form the joint holding venture Generali
PPF Holding (including Česká pojišťovna), which combines
the insurance and related operations of both groups in
Central and Eastern Europe.
2011
Česká pojišťovna is the first insurer to
launch a smartphone motor insurance
application on the Czech market.
De-monopolization of the MTPL
insurance market. Until then, Česká
pojišťovna had been the sole statutory
provider of this insurance.
2001______
______2013
Česká pojišťovna entered the new
millennium as the most powerful
insurer on the Czech market and
as a leading European insurer.
Thanks to its professionalism,
fair approach and agile,
well-structured services,
Česká pojišťovna is viewed as
a reliable insurance company
where customer interests come
first. Česká pojišťovna holds
a leading position in innovation,
marketing products and services
using modern communication
2003 Česká pojišťovna launches a new customer service
enabling it to provide
servicesthe
at thefirst
highest level.
technology.
It was
The company’s customer orientation is reflected
in the motto
insurer
to“Protecting
deliver,your
fordreams”.
example,
a smartphone motor insurance
2012 Česká pojišťovna introduces
a new to
concept
products, market,
application
theofCzech
services and branches, reflecting
and continues
to roll
fresh
customer needs
underout
the slogan
“Helping you go further”.
innovations.
2013
Česká pojišťovna develops a new
concept of products, services and
branches, reflecting customer
needs under the slogan “Helping
you go further”.
Annual Report 2012
16 – Supplemental Information on the Financial Situation
and Information for Investors
76
Supplemental Information on the Financial
Situation and Information for Investors
Listed Security Issuer Information
Company name
Legal form
Registered office
Registered number
VAT number
Bank
Account
Date of occurrence
Legal reference
Incorporated in the Commercial Register
Joint-stock company
Spálená 75/16, 113 04 Praha 1
452 72 956
CZ 4527 2956
Crédit Agricole Corporate and Investment Bank
1000524511/3500
1 May 1992
The Company was founded for an unlimited duration.
The Company was founded (pursuant to Section 11(3) of Act No 92/1991 on conditions
for the transfer of state property to other entities, as amended) by the National Property Fund
of the Czech Republic under a memorandum of association dated 28 April 1992, and was
incorporated by registration in the Commercial Register on 1 May 1992.
Municipal Court in Prague
Register entry: Section B, Entry 1464
xls
Shareholder Structure
Since 2006, the Company’s sole shareholder has been CZI Holdings N.V.
Securities Issued by Česká pojišťovna
Shares
As at 31 December 2010, the approved share capital consisted of 40,000 dematerialized,
registered ordinary shares totalling CZK 4,000,000,000.
Issue (ISIN)
Type of security
Type
Form
Nominal value
Number of shares issued
Total volume
Issue date
Admission to trading on a regulated (public) market
xls
CZ0009106043
ordinary
registered
dematerialized
CZK 100,000
40,000
CZK 4,000,000,000
15 November 2006
unlisted security (not tradable in public markets)
Annual Report 2012
77
Bonds
On 13 December 2012, as part of its bond programme, Česká pojišťovna issued 500,000,000
bonds with a total nominal value of CZK 500 million. The bonds bear interest at a fixed rate
of 1.83% p.a.
Issue (ISIN)
Type of security
Type
Form
Nominal value per bond
Number of securities
Total volume
Issue date
Redeemable
Admission to trading on the free market
CZ0003703555
bond
bearer
dematerialized
CZK 1
500,000,000
CZK 500,000,000
13 December 2012
13 December 2017
admitted to the Prague Stock Exchange
xls
The lead manager of the bond issue is Raiffeisenbank a.s.
Principal Business According to the Current Articles of Association
and Types of Insurance Written
Česká pojišťovna is a composite insurer offering a wide range of life and non-life insurance classes.
Under Decision of the Ministry of Finance of the Czech Republic Ref. No 322/26694/2002,
dated 11 April 2002, which entered into force on 30 April 2002 and which grants the
Company a licence to engage in insurance, reinsurance and related activities, under Decision
of the Ministry of Finance of the Czech Republic Ref. No 32/133245/2004-322, dated
10 January 2005, which entered into force on 14 January 2005 and which expands the
Company’s licence to engage in insurance- and reinsurance-related activities, and under
Decision of the Czech national Bank Ref. No 2012/11101/570, amending the scope of
licensed activities, the Company’s principal business objects are as follows:
1. Insurance activities pursuant to Act No 277/2009 on insurance, comprising
– the life insurance classes referred to in Annex 1 to the Insurance Act, Part A, I, II, III, VI, VII
and IX;
– the non-life insurance classes referred to in Annex 1 to the Insurance Act, Part B, 1, 2, 3,
4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15,16, 17 and 18.
2. Reinsurance activities, comprising all types of reinsurance activities under the Insurance Act.
Annual Report 2012
78
3. Insurance- and reinsurance-related activities
– intermediary services related to insurance and reinsurance activities under the Insurance Act;
– consultancy services related to the insurance of natural and legal persons under the
Insurance Act;
– investigations into insurance claims pursuant to an agreement with an insurer under the
Insurance Act;
– the exercise of rights and fulfilment of obligations for and on behalf of the Czech Insurers
Bureau pursuant to Act No 168/1999, as amended;
– the intermediation of financial services referred to in a) to j) below:
a) intermediation of the acceptance of deposits and other funds due from the public,
including intermediation in building savings schemes and supplemental pension insurance;
b) intermediation of loans of all types, including, without limitation, consumer loans,
mortgage loans, factoring and the financing of commercial transactions;
c) intermediation of finance leases;
d) intermediation of all payments and money transfers, including credit and debit cards,
travellers’ cheques and bank drafts;
e) intermediation of guarantees and promissory notes;
f) intermediation of customer trading on individual customer accounts on the stock
exchange or other markets, for cash or otherwise, concerning negotiable instruments
and financial assets;
g) intermediation of the management of assets, such as cash or portfolios, all forms
of collective investment management, pension fund management, escrow accounts
and custodianships;
h) intermediation of payment and clearing services relating to financial assets, including
securities, derivatives and other negotiable instruments;
i) advisory-based intermediation and other ancillary financial services relating to all
activities listed in a) to h), including references to loans and analysis thereof, research
and consultancy in the field of investments and portfolios, consultancy in the field of
acquisitions and restructuring, and corporate strategy;
j) intermediation of the provision and transmission of financial information, financial data
processing. and relevant software from providers of other financial services.
– training activities for insurance intermediaries and independent loss adjusters.
The Company also engages in all activities related to its ownership interests in other legal entities.
Annual Report 2012
79
Shareholder Rights and Obligations
Holders of the Company’s ordinary shares are entitled to receive dividends approved in individual
time periods, and are entitled to exercise one vote per share held at General Meetings.
The rights and obligations of the Company’s shareholders are set forth in Act No 513/1991,
the Commercial Code, as amended, and Česká pojišťovna’s Articles of Association, which are
available in the Collection of Documents of the Commercial Register. These rights include,
most importantly:
– the right to a share in the Company’s earnings;
– the right to attend General Meetings, vote, demand explanations and raise motions at
General Meetings;
– the pre-emptive right to subscribe new shares if the share capital is increased, in proportion
to the shareholder’s stake in the Company’s existing share capital. Conditions applying to
changes in the share capital are set out in the Articles of Association;
– the right to share in the liquidation surplus remaining upon dissolution of the Company.
Capital gains and other income from shares are taxed in accordance with Czech legislation,
i.e. Act No 586/1992 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
Česká pojišťovna’s Articles of Association valid in 2012 were approved by the Company’s sole
shareholder on 3 November 2006 and further amended in 2009, 2010 and 2011.
Fees Paid to the Audit Firm in 2012
The audit firm’s fees for audit services provided to the ČP Group in 2012 totalled
CZK 24.08 million.
(CZK millions)
For Česka
pojišťovna
Audit-related services
13.23
For other entities
in the Česká
pojišťovna Group
10.85
xls
Solvency of Česká pojišťovna
(CZK billions)
Life insurance
Required solvency margin
Available solvency margin
Non-life insurance
xls
31 December 2012
31 December 2011
31 December 2010
31 December 2009
2.9
13.3
3.1
14.0
3.3
18.2
3.4
11.9
2.2
6.5
2.2
5.9
2.0
7.2
2.3
12.2
Annual Report 2012
80
Remuneration principles
Remuneration Principles – Members of the Board of Directors and Supervisory Board
In general, the compensation model applied to the Company’s governing bodies and
executives reflects the long-term strategy of simplicity and transparency in the 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 the “Board Membership Contract”.
Each member of the Board of Directors and Supervisory Board is entitled to the regular, fixed,
monthly remuneration designated for members of the Company’s governing bodies and preapproved by the General Meeting. The amount is paid monthly, by the 15th calendar day of
the month following the month in which the board member’s claim arose.
Should a member of one of the Company’s governing bodies discharge his or her office only
for part of the calendar month (e.g. in cases where he or she ceases to be a member of
a Company body), he or she is entitled to remuneration on a pro rata basis.
Members of governing bodies who 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 Programme, which is 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 Wage
For 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
executive positions is stipulated individually in each executive’s contract, or by a wage
directive, and is in line with standard practice in the Czech market. Typically, the base wage
accounts for approximately 50% of the executive’s overall cash income from employment.
Bonus and Other Variable Wage Components
Variable remuneration at ČP follows the guidelines on remuneration for individual
departments. The rules in those guidelines are updated regularly. For executives (i.e. executive
directors and directors) the rules laid down in the Executive Motivation directive are subject to
approval by an Executive Board. All executives are set targets in financial, business/functional
and development areas. The process of the final evaluation of targets and the subsequent
payment of remuneration is in accordance with the process described in the relevant directive
at the end of the year. An employee’s specific amount of remuneration is approved by the
executive board member responsible for the area concerned and by the CEO. The payment of
executives’ remuneration is conditional on the resulting performance of selected economic
indicators. The same applies to executive board members and the CEO.
The bonus base for executives depends on the magnitude of the profession and its impact on the
Company’s earnings (the base wage multiple varies from a multiple of three to twelve). This
specification is also enshrined in writing in directives or in the individual contracts with employees.
Annual Report 2012
81
Other Benefits
All Company employees, including executives, are entitled to a CZK 333 per month life
insurance contribution under the Social Programme, as provided for in 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 may be replaced by a financial contribution
of up to CZK 15,000 per year towards medical care and preventive treatment.
In total, members of the Board of Directors drew healthcare contributions in an aggregate
amount of CZK 58,000; members of the Supervisory Board did not draw on these
contributions.
Executive cars, pursuant to an internal standard laid down in internal regulations, were used
by one member of the Supervisory Board during a part of the year. Vehicle use is governed by
tax legislation.
Additional Information to Members of the Board of Directors
and the Supervisory Board
In 2012, the Company recorded no loans or advances extended to members of the Board of
Directors or the Supervisory Board.
No member of the Company’s Board of Directors or Supervisory Board is in a conflict of
interest due to membership of another company’s governing bodies.
Principal activities of members of the Board of Directors and Supervisory Board in other
companies, to the extent they are material for the Company:
– Ladislav Bartoníček: member of the Board of Directors of Generali PPF Holding B.V.; member
of the management of Generali PPF Holding B.V., organizační složka
– Pavel Řehák: member of the Supervisory Board of Penzijní fond České pojišťovny, a.s. and
Chairman of the Supervisory Board of ČP Direct, a.s.
– Marcel Dostal: member of the Supervisory Board of Generali PPF Asset Management a.s.;
Chairman of the Supervisory Board of ČP DIRECT, a.s.
– Lorenzo Kravina: Vice-Chairman of the Supervisory Board of Generali Pojišťovna, a.s.,
Generali penzijní fond a.s., Penzijní fond České pojišťovny, a.s.
– Milan Beneš: Vice-Chairman of the Supervisory Board of ČP DIRECT, a.s.
– Pavel Fuchs: member of the Board of Directors of ČP INVEST investiční společnost, a.s.
No member of the Board of Directors or Supervisory Board has been convicted of any fraudrelated crime.
By 30 April, 2013, the following changes had been made in the Company’s bodies: Marcel
Dostal’s membership of the Board of Directors ended on 30 September 2012; Pavel Fuchs was
appointed as a member of the Board of Directors as of 1 October 2012; Ladislav Bartoníček
resigned from the Board of Directors on 31 March 2013.
Annual Report 2012
82
Cash Income of Persons With Executive Authority in 2012
CZK millions
Cash income
from the Company
Cash income from
entities controlled
by the Company
In-kind income
from the Company
In-kind income from
entities controlled
by the Company
63
0.1
0.4
–
1
62
0.1
–
–
0.4
–
–
4
–
0,2
–
2
2
–
–
–
0.2
–
–
82
–
1
–
–
82
–
–
–
1
–
–
Board of Directors
Total:
of which:
– from board membership
– from employment
Supervisory Board
Total:
of which:
– from board membership
– from employment
Executive Board
Total:
of which:
– from office
– from employment
xls
Cash income is defined as the sum of all cash income received by the board member for the
2012 accounting period (in particular, board membership remuneration, executive pay,
wages, bonuses, income under other contracts and collective endowment life insurance on
death or survival).
Cash income received by members of the Company’s governing bodies (BoD and SB) directly
from the Company totalled CZK 67 million. This includes income both from acting as
members of a governing body and from acting as Company executives. Members of the
Executive Board received CZK 82 million from the Company, which includes all cash income
from employment as an executive.
In-kind income is defined as the sum of the values of all non-cash (in-kind) income items that
the board member received for the 2012 accounting period (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 or not they are
concurrently employed at the Company. The amount of remuneration 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 the fulfilment of tasks.
Bonuses and other possible variable wage components for persons with executive authority
are described above.
Annual Report 2012
83
Entities in which Česká pojišťovna Holds a Participating Interest
Exceeding 10% of its Own Net Current Period Earnings
As at 31 December 2012, based on figures available to Česká pojišťovna as at the compilation
date of this Annual Report:
Name
Registered office
Reg. No
Principal business
ČP INVEST
Realitní
Uzavřený IF a.s.
CP Strategic
Investments N.V.
Na Pankráci 1658/21,
Praha 4
24736694
Collective investment
Stravinskylaan 933,
Tower B, Level 9,
1077 XX Amsterdam
Romania, Bucharest,
District 1, 58-60 Gh.
Polizu Street
34124690
Acquisition, management,
6
holding and financing
of controlling interests in insurance
Administration of voluntary and
504
mandatory pension insurance
funds
Generali SAF
de Pensii
Private S.A.
1)
J40/13188/2007
Share
capital
(CZK millions)
74
Stake in
Acquisition
share
cost
capital (CZK millions)
67.57%
725
100.00%1)
3,120
99.99%
1,077
On 28 February, a 3.3% stake in CP Strategic Investments N.V. was sold, reducing the Company’s share to 96.7%
xls
Standalone Report on Company Management
I. Internal Process of Control over Compilation of the Financial Statements
The information set forth below concerns internal control principles and procedures and rules
governing the Company’s and the Group’s approach to risks to which the Company and the
ČP Group are exposed 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 policies defining terms and procedures for the processing of information
– Internal procedures defining checks to verify the accuracy of information
– IT governance system
– Accounting manual defining unified information content
– Internal audit competence
– External audit of the financial statements by a reputable audit firm
At 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.
Annual Report 2012
84
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 improve its internal control system in the field of
financial reporting; this process has accelerated since the Company and its subsidiaries
became part of Generali Group.
II. Compliance with the Code of Corporate Governance
The Code of Corporate Governance is not legally binding on 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 viewed at www.cap.cz.
The Generali Group Code of Conduct can be viewed at www.generali.com .
Description of the Principles and Functioning of Company Bodies
ČP Board of Directors
The Board of Directors is the governing body responsible for managing the Company’s
activities and acting in the Company’s name. The Board of Directors takes decisions on 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 legislation and the
Company’s Articles of Association.
The Board of Directors has four members. Members of the Board of Directors serve for fouryear terms. From among its members, the Board of Directors elects and removes from office
one Chairman and two Vice-Chairmen.
The Board of Directors’ activities are governed by the activity plan, which the Board of
Directors approves for each calendar year in advance. The draft plan, including, in particular,
the meetings schedule, 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 not less than once every two months. The Board of Directors’
activity plan is amended and clarified as necessary on an on-going basis during the year. If
necessary, 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 also exercises its authority outside of meetings, in the course 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 38 of this Annual Report.
Annual Report 2012
85
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 performance of the Company’s business
activities. Its authority ensues from Czech legislation 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 whom are elected and
removed from office by the Company’s General Meeting and one of whom 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 that
the nature of such matters so requires. Meetings of the Supervisory Board are held as needed,
but not 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 from 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 39 of this Annual Report.
Annual Report 2012
86
Senior Management
The Chief Executive Officer is responsible for the routine operational and business
management of the Company. Further to instructions from the Board of Directors, the CEO is
responsible in particular for:
a) the practical realization of the normal operation of the Company’s business activities and
the management thereof, including all legal acts,
b) the preparation of draft reports on the Company’s business activities,
c) the up-to-date keeping of prescribed records, accounting, business ledgers and other
Company documents,
d) the exercise of employer rights and obligations, subject to the limits laid down by
legislation of general application,
e) informing the Board of Directors without undue delay of important circumstances which
may affect the business activities, internal operations or existence of the Company,
f) submitting nominations to the Board of Directors for executive board members who are
also managed by the Board and are accountable to the Board for their actions,
g) the performance of all other tasks imposed on him by a decision of the Board of Directors,
h) approving financial transactions and contracts up to the financial limit approved by the
Board of Directors and consistent with the structure of the approved plan,
i) approving rules on the management of financial risk,
j) directly managing subordinate departments and employees according to the rules
of organization,
k) approving purchases of tangible and intangible assets and services up to the financial limit
approved by the Board of Directors and consistent with the structure of the approved plan,
l) issuing orders and other internal regulations,
m) setting the dates of leave of executive board members and direct subordinates,
n) arranging for the configuration and formalization of the Company’s management and
control system (the “MCS”), overseeing its operation and reporting regularly to the Board
of Directors on the functioning of the MCS as a whole and in its individual parts, and
submitting proposals for the further improvement thereof to the Board of Directors.
The Chief Executive Officer is empowered to perform all legal acts in the normal operation of
the Company. He is not authorized to dispose of or legally encumber Company’s real estate.
The Chief Executive Officer is authorized to perform all labour-law acts in relation to
Company employees.
Annual Report 2012
87
Executive Board Members
Executive Board Members have the competence to decide on and approve the following in
particular:
a) financial transactions and contracts within the scope of their authorization, up to the
financial limit approved by the Board of Directors and consistent with the structure of the
approved plan,
b) purchases of tangible and intangible assets and services within the scope of their
authorization, up to the financial limit approved by the Board of Directors and consistent with
the structure of the approved plan, all in accordance with the Company’s internal regulations,
c) standard texts of insurance contracts and clauses thereof,
d) rules on the taking of risks in insurance and rules for determining premium rates,
e) rules on the settlement of claims,
f) business approaches and acquisition bonuses,
g) preventive measures in the field of risk management,
h) orders, work directives, circulars and other internal standards,
i) their own business trips in the Czech Republic without approval from their supervisor,
j) the setting of the dates of leave of direct subordinates,
k) travel orders for direct subordinates.
In addition, the Executive Board Member for Investment Policy is authorized:
a) to approve rules for the creation and use of provisions,
b) to approve urgent decisions in cases where the Company is at risk of loss or other damage
relating to financial investments,
c) to arrange and order external legal, economic and other analyses.
In addition, the Executive Board Member for Financial Management is authorized:
a) to approve the Company’s accounting policies, including methods for the valuation of the
Company’s assets and liabilities;
b) to approve urgent decisions in cases where delay would expose the Company to the risk of
loss resulting from direct or indirect taxes which ČP should or could be liable to pay, if the
relevant decisions have not been taken.
Executive Board Members are authorized to perform labour-law acts in relation to
subordinates to the extent defined by the Company’s rules of organization and other internal
standards, with the exception of labour-law acts related to the creation, change or
termination of employment.
The composition of the senior management as at the date the Annual Report was published
is set forth on page 40 of this Annual Report.
Annual Report 2012
88
ČP Audit Committee
The Česká pojišťovna Audit Committee is a Company body that, in particular, supervises,
monitors, and reports on the quality, integrity, efficiency, and effectiveness of existing processes
and tools of internal control, financial reporting, and risk management, as well as on the
compliance of the Company’s operations with the laws and other binding regulations of the
Czech Republic. The Česká pojišťovna Audit Committee also influences the appointment/
removal, appraisal and remuneration of the Director of the Internal Audit Department.
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 ensues from the laws of the Czech Republic and the
internal directives of Česká pojišťovna. The Committee reports to the General Meeting and, in
certain areas, also operates as an advisory body to the Board of Directors. Its decisions
constitute recommendations to the Board of Directors, which bears final responsibility for the
Company’s system of internal controls, the proper conducting of internal checks, and the risk
management system. The Audit Committee also regularly informs the Supervisory Board of
the results of its activities.
The Audit Committee meets at least twice per year, and the Chairman of the ČP Board of
Directors, the ČP Chief Executive Officer, the ČP 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 as necessary to provide the
Committee with information. Their participation, however, is limited only to the relevant
agenda item(s).
General Meeting
The authority of the General Meeting encompasses the matters 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 four
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 has a quorum if shareholders are present, the aggregate nominal value
of whose shares is at least fifty per cent (50%) of the Company’s share capital.
After verifying the quorum, 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. If the General Meeting has been convened by the Supervisory Board, until election
of the chairman it is chaired by a person authorized to do so by the Supervisory Board. If the
General Meeting has been convened on the basis of a court order and the court has not
designated a General Meeting chairman, it may be chaired by any shareholder until such time
as the General Meeting elects a chairman.
Annual Report 2012
89
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, at least three days prior to the announced General Meeting date.
Should a shareholder wish to make a new motion or countermotion during the General
Meeting, he or she must submit it to the General Meeting chairman.
The chairman of the General Meeting:
1. examines new motions and countermotions submitted (shareholder countermotions
submitted to the Company prior to the General Meeting are also deemed to be new
motions and countermotions) without unnecessary delay,
2. acquaints the General Meeting with their contents,
3. notifies the General Meeting of the General Meeting agenda item under which a vote will
be taken on the submitted new motion or countermotion, or that the submitted new
motion or countermotion has been rejected because it does not relate to any item on the
General Meeting agenda and for this reason no vote can be held on it, unless all
shareholders are present and all shareholders agree with the decision on the submitted
new motion or countermotion,
4. enables shareholders and members of the Company’s Board of Directors and Supervisory
Board to acquaint themselves with such new motion or countermotion and express
opinions thereon prior to a vote,
5. holds a vote on the motion, provided that the new motion or countermotion was not
rejected on the grounds that it does not relate to any item on the General Meeting agenda
– in any case, the General Meeting votes in the following order:
a. first on the original motion,
b. if the original motion is not passed, 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 is not passed 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.
Česká pojišťovna currently has a sole shareholder, who wields the authority of the General
Meeting in accordance with the Commercial Code and the relevant procedures above.
90
To the Shareholder of Česká pojišťovna a.s.:
We have audited the accompanying financial statements of Česká pojišťovna a.s. which comprise the statement of financial position
as at 31 December 2012, and the income statement, statement of comprehensive income, statement of changes in equity and
statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory
information. For details of Česká pojišťovna a. s., see Note A.1. to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International
Financial Reporting Standards as adopted by the European Union, and for such internal control as management determines is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance
with the Act on Auditors and International Standards on Auditing as amended by implementation 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 an 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
entity'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 entity's internal control. An audit also
includes evaluating the appropriateness of 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.
Annual Report 2012
17 – Independent Auditor’s Report to the Separate FInancial Statements
91
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of Česká pojišťovna a.s. as at 31
December 2012, and 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.
Other Matter
The financial statements of Česká pojišťovna a.s., as at 31 December 2011, were audited by another auditor who expressed an
unmodified opinion on those statements on 14 March 2012.
License No. 401
Represented by
Jan Niewold
Partner
Jakub Kolář
14 March 2013
Annual Report 2012
18 – Separate Financial Statements for the Year Ended 31 December 2012
92
Separate Financial Statements
Contents
A.
Acronyms
94
Statement of Financial Position
95
Income Statement
96
Statement of Comprehensive Income
97
Statement of Changes in Equity
98
Statement of Cash Flows
99
Notes to the Separate Financial Statements
100
General Information
100
A.1.
Description of the Company
100
A.2.
Statutory bodies
100
A.3.
Statement of compliance
101
A.4.
Basis of preparation
101
B.
Subsidiaries
102
C.
Significant Accounting Policies and Assumptions
103
C.1.
Significant accounting policies
103
Principal assumptions
117
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
121
Critical accounting estimates and judgements
123
Changes in accounting policies
124
D.
Segment Reporting
126
E.
Risk Report
130
E.1.
Risk Management System
130
E.2.
Roles and responsibility
130
E.3.
Risk measurement and control
131
E.4.
Market risk
131
E.5.
Credit risk
137
E.6.
Liquidity risk
140
E.7.
Insurance risks
142
E.8.
Operational risk and other risks
145
E.9.
Financial strength monitoring by third parties
146
E.10.
Capital management
146
Annual Report 2012
F.
Notes to the Statements of Financial Position, Income and Comprehensive Income
93
147
F.1.
Intangible assets
147
F.2.
Tangible assets
148
F.3.
Investments
149
F.4.
Reinsurance assets
154
F.5.
Receivables
154
F.6.
Cash and cash equivalents
155
F.7.
Accruals and prepayments
155
F.8.
Shareholder’s equity
155
F.9.
Insurance liabilities
156
F.10.
Other provisions
161
F.11.
Financial liabilities
162
F.12.
Payables
163
F.13.
Accruals and deferred income
163
F.14.
Net earned premiums
164
F.15.
Income from other financial instruments and investment properties
164
F.16.
Income from subsidiaries companies
164
F.17.
Net income from financial assets at fair value through profit or loss
165
F.18.
Other income
165
F.19.
166
F.20.
Interest expense
166
F.21.
Other expenses for financial instruments and other investments
167
F.22.
Expenses from subsidiaries
167
F.23.
Acquisition and administration costs
167
F.24.
Other expenses
168
F.25.
Income taxes
168
F.26.
Information on employees
170
F.27.
Hedge accounting
170
F.28.
Earnings per share
172
F.29.
Off balance sheet items
173
F.30.
Related parties
174
G.
Subsequent Events
177
Annual Report 2012
Acronyms
Acronym
IFRIC
FVTPL
AFS
PPE
CDS
IRS
CCS
OTC
CDO
ABS
MTPL
QS
X/L
AGG
Interpretation of International Financial Reporting Interpretations Committee
Available-for-sale
Property, plant and equipment
Credit default swap
Interest rate swap
Cross currency swap
Over the counter derivate
Credit default option
Asset backed securities
Motor Third Party Liability
Quote-share reinsurance
Excess of Loss reinsurance
Property and CASCO aggregate X/L
CAT
D&O
DPF
ALM
MCEV
EBS
LAT
RBNS
IBNR
UPR
MVaR
CVaR
Catastrophic excess of loss reinsurance contract
Directors and officers liability
Discretionary participation features
Asset-liability management
Market Consistent Embedded Valuation
Economic balance sheet model
Liability adequacy test
Reported but not settled
Incurred but not reported
Unearned premium reserves
Market Value at Risk
Credit Value at Risk
94
Annual Report 2012
95
Statement of Financial Position
as at 31 December
In CZK million
Investments to subsidiaries
Intangible assets
Tangible assets
Investments
Investment properties
Loans
Available-for-sale
Other investments
Reinsurance assets
Receivables
of which: current income tax receivables
Deferred tax asset
Accruals and prepayments
of which: deferred acquisition costs
Total assets
Share capital
Retained earnings and other reserves
Total equity
Other provisions
Payables
of which: current income tax payables
Accruals and deferred income
Total liabilities
Total equity and liabilities
xls
Note
B.
F.1.
F.2.
F.3.
F.3.1.
F.3.2.
F.3.3.
F.3.4.
F.3.2.
F.4.
F.5.
F.5.
F.25.1.
F.7.
2012
5,406
1,843
477
91,595
65
1,019
68,048
22,082
381
9,702
6,647
32
14
970
2011
5,340
1,439
462
88,197
85
1,394
63,510
21,905
1,303
9,474
6,662
673
46
954
F.7.
F.6.
738
5,089
121,743
4,000
17,331
21,331
85,640
1,209
3,853
7,878
658
1,832
100,412
121,743
748
3,941
116,515
4,000
13,455
17,455
86,284
1,422
2,789
6,734
–
1,831
99,060
116,515
F.8.
F.9.
F.10.
F.11.
F.12.
F.12.
F.13.
Annual Report 2012
96
Income Statement
for the Year Ended 31 December
In CZK million
Net earned premiums revenue
Insurance premium revenue
Insurance premium ceded to reinsurers
Interest and other investment income
Income from subsidiaries
Other income from financial instruments and other investments
Net income/loss from financial instruments at fair value through profit or loss
Other income
Total income
Gross insurance benefits and claims
Reinsurers' share
Interest expense
Expenses from subsidiaries
Note
F.14.
Acquisition costs
Administration costs
Other expenses
Total expenses
Profit before tax
Income tax expense
Net profit for the year
Weighted average number of shares
Basic and Diluted earnings per share (CZK)
F.21.
F.23.
F.23.
F.24.
xls
F.15.
F.16.
F.15.
F.17.
F.18.
F.19.
F.20.
F.22.
F.25.
F.28.
2012
21,820
32,140
(10,320)
2,349
95
1,449
2,236
937
28,886
(15,916)
(20,656)
4,740
(51)
–
2011
23,173
33,586
(10,413)
2,344
610
1,489
(1,241)
2,925
29,300
(15,679)
(20,180)
4,501
(27)
(19)
(834)
(3,608)
(2,042)
(1,794)
(24,245)
4,641
(758)
3,883
40,000
97,066
(1,843)
(3,838)
(2,343)
(1,393)
(25,142)
4,158
(605)
3,553
40,000
88,825
Annual Report 2012
97
Statement of Comprehensive Income
In CZK million
Other comprehensive income
Available-for-sale financial assets revaluation in equity
Available-for-sale financial assets revaluation realised in income statement
Available-for-sale impairment losses
Other comprehensive income before tax effects
Tax on items of Other comprehensive income
Other comprehensive income/loss, net of tax
Total comprehensive income
xls
Note
2012
3,883
2011
3,553
F.8.
F.8.
F.8.
4,150
(771)
316
3,695
(702)
2,993
6,876
(2,271)
273
204
(1,794)
341
(1,453)
2,100
F.8.
Annual Report 2012
98
Statement of Changes in Equity
for the year ended 31 December
In CZK million
Balance as at 1 January 2011
Available-for-sale financial assets
revaluation in equity
Available-for-sale financial assets revaluation
realised in income statement
Tax on items of other comprehensive income
Total Comprehensive income
Dividends to shareholder
Balance as at 31 December 2011
revaluation in equity
Available-for-sale financial assets revaluation
realised in income statement
Tax on items of other comprehensive income
Total Comprehensive income
Dividends to shareholder
Changes in equalisation reserve fund
1
Note
F.8.
F.8.
Share
capital
RevaReva- Statutory
luation
luation
reserve
– financial
– Land
fund
assets
and
AFS buildings
4,000
868
4
800
–
–
–
–
EqualiOther
sation retained
reserve earnings
fund1
Total
577
–
18,506
3,553
24,755
3,553
–
(2,271)
–
–
–
–
(2,271)
–
–
–
–
–
4,000
273
204
341
(1,453)
–
(585)
–
–
–
–
–
4
–
–
–
–
–
800
–
–
–
–
–
577
–
–
–
3,553
(9,400)
12,659
273
204
341
2,100
(9,400)
17,455
–
–
–
–
–
3,883
3,883
–
4,150
–
–
–
–
4,150
–
–
–
–
–
–
4,000
(771)
316
(702)
2,993
–
–
2,408
–
–
–
–
–
–
4
–
–
–
–
–
–
800
–
–
–
–
(28)
549
–
–
–
3,883
(3,000)
28
13,570
(771)
316
(702)
6,876
(3,000)
–
21,331
Equalisation reserve 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. Change in equalisation reserve is realised as a transfer between distributable retained earnings and
non-distributable equalisation reserve fund in equity
xls
Annual Report 2012
99
Statement of Cash Flows
In CZK million
Cash flow from operating activities
Profit before tax
Adjustments for:
Depreciation and amortisation
Impairment and reversal of impairment of current and non-current assets
Profit/Loss on sale and revaluation of financial assets
Dividends received
Interest expense
Interest income
Income/expenses not involving movements of cash
Proceeds from financial assets at FVTPL held-for-trading
Change in loans and advances to banks
Change in loans and advances to non banks
Change in receivables
Change in reinsurance assets
Change in other assets, prepayments and accrued income
Change in payables
Change in liabilities for investment contracts with DPF
Change in financial liabilities at FVTPL held for trading
Change in liabilities to banks
Change in insurance liabilities
Change in other liabilities, accruals and deferred income
Change in other provisions
Income taxes paid
Net cash flow from operating activities
Cash flow from investing activities
Interest received
Dividends received
Purchase of tangible assets and intangible assets
Purchase of financial assets at FVTPL not held-for-trading
Purchase of financial assets available-for-sale
Acquisition of subsidiaries
Acquisition of Branch’s insurance portfolio
Provided loans
Proceeds from disposals of tangible and intangible assets
Proceeds from financial assets at FVTPL not held for trading
Proceeds from financial assets available-for-sale
Proceeds from disposal of subsidiaries and other proceeds from subsidiaries
Paid loans
Net cash flow from investing activities
Cash flow from financing activities
Proceeds from the issue of other liabilities evidenced by paper
Payment of other liabilities evidenced by paper
Interest paid
Dividends paid to shareholders
Net cash flow from financing activities
Net increase/decrease in cash and cash equivalents
Cash and cash equivalents as at 1 January
Cash and cash equivalents as at 31 December
xls
Note
F.24.
F.15., F.22., F.23.
F.15., F.17.
F.4.
F.7.
F.10.
F.29.1.
F.3.2.
F.8.2.
F.6.
F.6.
2012
2011
4,641
4,158
519
20
(2,864)
(232)
51
(2,742)
802
(135)
393
20
408
543
(30)
1,822
(761)
27
(2,932)
(1,203)
279
1,009
11
(168)
(228)
(10)
433
565
(499)
2,274
(2,052)
(20)
(240)
(115)
989
774
2
(148)
(36)
(73)
(1,289)
(3,475)
(12)
(431)
(998)
(2,931)
2,974
232
(457)
(3,420)
(36,081)
(66)
(321)
–
–
5,220
35,097
–
5
3,183
3,245
760
(596)
(6,758)
(56,822)
(325)
–
(10)
13
11,114
50,696
5,561
–
6,879
500
(500)
(24)
(3,000)
(3,024)
1,148
3,941
5,089
–
–
(26)
(9,400)
(9,426)
(5,478)
9,419
3,941
Annual Report 2012
100
Notes to the Separate Financial Statements
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 nonlife 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.
In 2012 the Company established a branch in Poland. The branch was registered into the Polish Commercial Register on
23 August 2012. Economic data of the branch are, in accordance with the legislation of the Czech Republic, an integral part of the
financial statements of the Company. Activities of the branch are identical to those of the founder and are subject to supervision of
the Czech National Bank.
Structure of Shareholders
The Company's sole shareholder is CZI Holdings N.V., registered office Amsterdam, Strawinskylaan 933, 1077 XX, the Netherlands;
registered on 6 December 2006, identification number 34245976.
From 2008, CZI Holdings is an integral part of Generali PPF Holding B.V. (GPH) a company owned by Assicurazioni Generali S.p.A.
(“Generali”) (51%) and PPF Group N.V (49%). 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 75/16
113 04 Prague 1
Czech Republic
ID number: 45 27 29 56
The Directors authorised the financial statements for issue on 14 March 2013.
A.2. Statutory bodies
Board of Directors as at the end of the reporting period:
Chairman:
Vice-Chairman:
Member:
Member:
Ladislav Bartoníček, Prague
Pavel Řehák, Prague
Pavel Fuchs, Prague
Milan Beneš, Starý Plzenec
During the year 2012 there were following changes in the Board of Directors.
Pavel Fuchs became a member of the Board of Directors on 1 October 2012 and replaced Vice-Chairman Marcel Dostal, who
resigned from his post on 30 September 2012.
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.
Annual Report 2012
101
Supervisory Board as at the end of the reporting period:
Chairman:
Member:
Member:
Milan Maděryč, Zlín
Lorenzo Kravina, Terst
Irena Špatenková, Praha
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 prepares 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 will present the consolidated financial statements on its web site www.ceskapojistovna.cz in April 2013.
Users of these financial statements should read these separate financial statements together with the CP Group's consolidated
financial statements as at and for the year ended 31 December 2012, 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 functional
currency of the branch in Poland is Polish Zloty (“PLN”).
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.
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.
Annual Report 2012
102
B. Subsidiaries
The following table provides details about the Company’s subsidiaries:
In CZK million, for the year ended 31 December 2012
Name
ČP DIRECT, a.s.
CP INVEST Realitní Uzavřený Investiční Fond a.s.
Nadace České pojišťovny
Pankrác Services s.r.o.
REFICOR s.r.o.
Univerzální správa majetku a.s.
CP Strategic Investments N.V.
Generali Foreign Insurance Company Inc.
JSC “Generali Life”
Generali SAF de Pensii Private S.A.
Finansovyj servis o.o.o.
Total
1
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Netherlands
Belarus
Kazakhstan
Romania
Russia
Cost of Accumuinvestlated
ment impairment
29
191
46
725
122
6
270
–
1
5
3,120
23
173
1,077
2
5,790
Net
cost of
investment
–
–
–
–
(120)
–
(262)
–
–
–
–
–
–
–
(2)
(384)
29
191
46
725
2
6
8
–
1
5
3,120
–
1,077
–
5,406
Proportion of
ownership
interest
(%)
100.0
100.0
100.0
67.57
80.0
100.0
100.0
100.0
100.0
51.0
100.0
35.0
100.0
99.9
100.0
Propor- Accountion of
ting
voting
treatpower
ment
(%)
100.0
100.0
100.0
67.57
80.0
100.0
100.0
100.0
100.0
51.0
100.0
67.51
100.0
99.9
100.0
Note
3
Cost less impairment
Country
1
2
4
The Company holds indirectly additional 32.5% share through its subsidiary Česká pojišťovna ZDRAVÍ a.s.
xls
Detailed information on transactions with subsidiaries of the Company is provided below.
1. Merger of Nadace České pojišťovny and Nadační fond Karlův most
1 January was the effective date of a merger of Nadace České pojišťovny and Nadační fond Karlův most. The merger was completed
on 29 February by registration in the Commercial Register. Nadační fond Karlův most was dissolute without liquidation and its assets
passed to Nadace České pojišťovny.
2. New subsidiary ČP ASISTENCE s.r.o.
On 14 February 2012, the Company purchased 51% share in ČP ASISTENCE s.r.o. The Company paid CZK 102,000 as a purchase price.
On 23 February 2012, The General Meeting of shareholders of ČP ASISTENCE s.r.o. subsequently decided on the contribution to share
capital to increase it to CZK 3 million. The Company paid a proportion corresponding to its share in the amount of CZK 1.43 million.
On 21 March 2012, The General Meeting of ČP ASISTENCE s.r.o. decided on the additional contribution outside the registered share
capital in amount of CZK 7 million. The Company paid a proportion corresponding to its share in the amount of CZK 3.57 million.
3. Increase of share capital of CPI RUIF
The general meeting of CP INVEST Realitní Uzavřený Investiční Fond a.s. (“CPI RUIF”) decided on 10 October 2012 to increase the
capital through issue of 20 new shares at a nominal amount of CZK 20 million with a share premium of CZK 270 million (share
premium per share is CZK 13.5 million). All shares were subscribed by GP Reinsurance EAD. As a result the interest of Česká
Pojišťovna in CPI RUIF has decreased to 67.57%.
Annual Report 2012
103
4. CP Strategic Investments N.V.
On 22 October 2012, the Company purchased 100% share in CP Strategic Investments B.V. from CZI Holdings N.V., Amsterdam. The
Company paid EUR 18,278 (CZK 457,316) as a purchase price. Subsequently, according to decision of the general meeting held on
17 December 2012 the company has converted its legal form into a limited liability company CP Strategic Investments N.V.
On 4 December 2012, the Company as a sole shareholder decided to increase the equity through a surplus contribution into the
equity as share premium on all shares in the aggregate amount of CZK 60 million without the issuance of any new shares.
In accordance with a resolution of a general meeting from 17 December 2012 Česká Pojišťovna contributed all issued and
outstanding shares in the share capital of Penzijní fond České pojišťovny a.s. to the share capital and share premium of the company.
1
Cost of
investment
Accumulated
impairment
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Belarus
Kazakhstan
Romania
Russia
29
191
46
725
122
5
1
270
3,059
–
1
23
173
1,077
2
5,724
–
–
–
–
(120)
–
–
(262)
–
–
–
–
–
–
(2)
(384)
Net
Proporcost of
tion of
invest- ownership
ment
interest
(%)
29
100.0
191
100.0
46
100.0
725
92.6
2
80.0
5
100.0
1
100.0
8
100.0
3,059
100.0
–
100.0
1
100.0
23
35.0
173
100.0
1,077
99.9
–
100.0
5,340
ProporAccountion of
ting
voting treatment
power
(%)
100.0
100.0
100.0
92.6
80.0
100.0
100.0
100.0
100.0
100.0
100.0
67.51
100.0
99.9
100.0
Cost less impairment
Name
ČP DIRECT, a.s.
CP INVEST Realitní Uzavřený Investiční Fond a.s.
Nadační fond Karlův most
REFICOR s.r.o.
Univerzální správa majetku a.s.
JSC “Generali Life” (CP Kazakhstan AO)
Finansovyj servis o.o.o.
Total
Country
The Company holds indirectly additional 32.5% share through its subsidiary Česká pojišťovna ZDRAVÍ a.s.
xls
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 additional investment is made to
an asset during the year, its useful life and residual value are reassessed at the time the cost of the investment is added to the
carrying amount of the asset.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds
and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.
Annual Report 2012
104
C.1.1.1. Goodwill
The excess of the consideration transferred, over the fair value of the identifiable net assets acquired is recorded as goodwill.
After initial recognition, goodwill is measured at cost less any impairment losses and it is not amortised. 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 presented
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
former is the higher of the fair value less costs to sell 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 quotations or commonly used valuation techniques (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 pre-tax discount rates reflect the free risk rate and are adjusted to
take specific risks into account. Should any previous impairment losses allocated to goodwill no longer exist, they cannot be reversed.
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 are current market prices. If unavailable, an alternative valuation 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.
Investment properties are derecognised either when they have been disposed of or when they are permanently withdrawn from use
and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying
amount of the asset is recognised in the income statement in the period of derecognition.
When an item of property 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 asset, otherwise they
are recognised as an expense.
C.1.3. Property and equipment
Property and equipment are measured 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
Buildings
Other tangible assets and equipment
xls
Depreciation rate (%)
1.98–10.00
5.88–33.33
Annual Report 2012
105
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 additional
investment is made to an asset during the year, its useful life and residual value are reassessed at the time the cost of the investment
is added to the carrying amount of the asset.
Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases.
Property 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 depreciation and impairment losses.
An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no
future economic benefits are expected from its use or disposal.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount. These are included in the
income statement in Other income.
C.1.4. Subsidiaries
Except as stated below, all subsidiaries are measured at cost less any impairment losses (see C.1.31.2.).
The Company controls company ČP INVEST Investiční společnost, a.s. which manages open-ended investment funds. In the separate
financial statements, interests in these funds are measured at fair value in accordance with IAS 39 and are reported as financial assets
at fair value through profit or loss or available-for-sale (Financial assets – see C.1.5.4.). The same approach is applied also for open
ended funds managed by Generali PPF Invest Plc. incorporated in Ireland.
Distributions of profits (dividends) are recognised as income in the income statement when the Company's right to receive the
payment is established.
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-tomaturity, 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 assess whether the market is active or not, 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.
Annual Report 2012
106
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), widely recognized models are applied and, again, the parameters of the valuation intend to reflect
the market conditions.
The Company discloses fair value measurements by level of the following fair value measurement hierarchy as defined by IFRS 7:
– 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 on the
market, the instrument is included in level 2. Specific valuation techniques used to value financial instruments include mainly quoted
market prices or over-the-counter offers 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 investments where market prices are unavailable and entity specific estimates are necessary.
Fair value hedge
The Company designates certain derivatives as hedges of the fair value of recognised assets. From 1 October 2008, 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.). From 1 July 2011 the hedge accounting has been applied also to
derivatives hedging an interest rate exposure of interest-bearing financial assets.
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, or a portion of 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 derivatives
Certain financial instruments include embedded derivatives, which economic characteristics and risks are not closely related to those
of the host contract. The Company designates these instruments 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 and are embedded in insurance contracts were identified.
C.1.5.1. Loans and receivables
Loans 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 rate method, less provision
for impairment.
Annual Report 2012
107
C.1.5.2. Financial assets held-to-maturity
Held-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 measured 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 may temporarily fall below its carrying value, but,
provided there is no risk resulting from significant financial difficulties of the debtor, the security is not considered to be impaired.
C.1.5.3. Financial assets available-for-sale
Available-for-sale financial assets are those non-derivative financial assets that are not classified as loans and receivables, held-tomaturity 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. 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 income from financial instruments and other investments – see
C.1.23. When available-for-sale assets are derecognised, the cumulative gain or loss previously recognised in other comprehensive
income is recognised in the income statement.
C.1.5.4. Financial assets at fair value through profit or loss
Financial 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 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 are measured at their fair values (Note C.1.5.).
Gains and losses arising from changes in the fair values are recognised in the income statement.
Annual Report 2012
108
Swaps
Swaps 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 forwards
Forward 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.
Options
Options 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 fair value and
subsequently at amortised cost reflecting their presumed recoverable amounts.
Annual Report 2012
109
C.1.8. Cash and cash equivalents
Cash consists of cash on hand, demand deposits with banks and other financial institutions and term deposit due within 15 days.
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 on a straight line basis over the lease term.
C.1.10. 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 re-measurement are
recognised in profit or loss. Gains are not recognised in excess of any cumulative impairment loss.
C.1.11. Equity
C.1.11.1. Share capital issued
The share capital is the nominal amount approved by a shareholders’ resolution. Ordinary shares are classified as equity.
C.1.11.2. Retained earnings and other reserves
This item comprises the following reserves:
Statutory reserve fund
The creation and use of the statutory reserve fund is limited by legislation. The statutory reserve fund is not available for distribution
to the shareholders, but can be used to cover losses.
Equalisation reserve fund
Equalisation reserve is required under local insurance legislation and is classified as separate part of equity within these accounts as it
does not meet the definition of a liability under IFRS. Equalisation reserve is not available for distribution.
Retained earnings
The item includes retained earnings or losses adjusted for the effect due to changes arising from the first application of IFRS.
Unrealised gains and losses on available-for-sale financial assets
The 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 presented net of the related deferred taxes and deferred
policyholders’ liabilities.
Reserve for other unrealised gains and losses through equity
This item includes revaluation of land and buildings reclassified to investment properties.
Annual Report 2012
110
Result of the period
This item refers to the Company’s result for the period.
C.1.11.3. Dividends
Dividends 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.1.12. Insurance classification
C.1.12.1. Insurance contracts
In 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.1.12.2. Insurance contracts and investment contracts with DPF
Premiums, payments and change in the insurance liabilities 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.1.12.3. Investment contracts
Investment contracts without DPF mainly include unit/index-linked policies and pure capitalisation contracts. The Company did not
classify any contracts as investment contracts without DPF in 2012 and 2011.
C.1.13. Insurance liabilities
C.1.13.1. Provision for unearned premiums
The 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.1.13.2 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 assurance liabilities.
Annual Report 2012
111
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.1.13.3. Other insurance liabilities
Other insurance liabilities contain other insurance technical provisions that are not mentioned above, such as the provision for
unexpired risks (also referred to as “premium deficiency”) in non-life insurance (see also C.2.3.3.), 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.1.13.4. Mathematical provision
The mathematical provision comprises the actuarially estimated value of the Company’s liabilities under life insurance contracts. The
amount of the mathematical 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 mathematical 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.1.13.5. Liabilities for investment contracts with DPF
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.1.31.3.). Liabilities arising from investment contracts with DPF are accounted for in the same way as insurance contracts.
C.1.13.6. DPF liability for insurance contracts
DPF 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.1.31.3.
C.1.14. 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.1.15. Bonds issued
Bonds issued are recognised initially at fair value, net of transaction costs incurred, and subsequently measured at amortised cost.
Amortisation of discounts or premiums and interest are recognised in interest expense and similar charges using the effective interest
rate method.
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C.1.16. Financial liabilities to banks and non-banks
Financial liabilities to banks and non-banks and deposits received from reinsurers are recognised initially at fair value, net of
transaction costs incurred, and subsequently measured at 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.1.17. 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. Related transaction costs are immediately expensed. 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.1.18. Payables
Accounts payable represent 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.1.19. 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.1.20. 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,
change in mathematical and unit-linked provisions and change in other technical provisions.
Bonuses comprise all amounts chargeable for the financial year representing an allocation of surplus or profit arising from business as
a whole or from a section of business, after the deduction of amounts provided in previous years. Rebates comprise such amounts to
the extent that they represent a partial refund of premiums resulting from the experience of individual contracts.
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C.1.21. Benefits from investment contracts with DPF (investment contract benefits)
Investment contract benefits represent changes in liabilities resulting from investment contracts with DPF (for definition of DPF
see C.1.13.6.).
The change in liabilities for investment contracts with DPF involves guaranteed benefits credited, change in DPF liabilities for
investment contracts with DPF and change in liability resulting from a liability adequacy test of investment contracts with DPF.
C.1.22. 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 at fair value through 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.1.23. Other income and expense from financial assets
Other income and expenses from financial assets comprise realised and unrealised gains/losses, dividends, net trading income and
net impairment loss or reversals of impairment (see C.1.31.2.).
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.1.24. 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.1.25. Other income and other expense
The main part of other income arises from gains and losses on foreign currency and administration services relating to the Employer’s
liability insurance 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.1.26. 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.
Portion of acquisition costs is being 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.
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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.1.27. Administration costs
Administrative costs include cost 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.1.28. 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.1.29. 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 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. Temporary differences from the initial
recognition of assets or liabilities outside of business combinations that affect neither accounting nor taxable profit are not provided
for. 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 that are expected to apply in the year when the asset is realised or the liability is settled, based
on 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.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current
income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
C.1.30. Employee benefits
C.1.30.1. Short-term employee benefits
Short-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, management remuneration and bonuses, remuneration for membership in Company boards and non-monetary
benefits. The Company makes contributions to the government pension at the statutory rates in force during the year, based on
gross salary payments. The benefits are recognised in an undiscounted amount as an expense and as a liability (accrued expense).
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C.1.30.2. Other long-term employee benefits
Other 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.
The benefits are measured at present value of the defined obligation at the balance sheet date using the projected unit credit method.
C.1.30.3. Post-employment benefits
Post-employment benefits are employee benefits (other than termination benefits) that are payable after the completion of
employment. The Company makes contributions to the government health, accident and guarantee insurance and unemployment
schemes at the statutory rates in force during the year, based on gross salary payments. Throughout the year, the Company made
contributions amounting to 21.5% (2011: 21.5%) of gross salaries up to a limit, which is defined by the relevant law, to such
schemes, together with contributions made by employees of a further 8% (2011: 8%). The cost of these Company made
contributions is charged to the income statement in the same period as the related salary cost as this is a defined contribution plan
since there are no further obligations of the Company in respect of employees’ post employment benefits.
C.1.30.4. Termination benefits
Termination 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.
The Company recognises termination benefits when it is demonstrably committed to either: terminating the employment of current
employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an
offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the balance sheet date are
discounted to present value.
C.1.31. Other accounting policies
C.1.31.1. Foreign currency translation
A 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.
Translation from functional to presentation currency
The items in the statement of financial position in functional currencies different from the presentation currency of the Company, the
branch in Poland, were translated into Czech koruna (CZK) based on the exchange rates as at the end of the year.
The income statement items were instead translated based on the actual exchange rates as at the dates of the transactions.
The exchange rate differences arising from the translation are accounted for in other comprehensive income in an appropriate
reserve and are recognised in the income statement only at the time of the disposal of the investments
At each end of the reporting period:
– Foreign currency monetary items are translated using the closing foreign exchange rate; and
– Available-for-sale equity financial assets 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 (C.1.25.). 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 fair value hedge
accounting is applied.
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C.1.31.2. Impairment
The carrying amounts of the Company’s assets, other than investment property (see note C.1.2.), deferred acquisition costs (C.1.26.),
inventories and deferred tax assets (C.1.29.), 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; net impairment losses are the main part of other expense for financial instruments and other
investments, net reversals of impairment are part of other income from financial instruments and other investment (C.1.23.).
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 assets
A 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.
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.
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. The Company considers prolonged decline to be 12 months. Significant decline is assessed to be
for unrealised loss higher than 30%. In prior year, the significant decline was defined with reference to industrial segment. The
impact of this change in estimate is immaterial. Estimating future impact of the change is impracticable. 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 reclassified to 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 assets
The 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.
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The carrying amount of subsidiaries is tested for impairment annually. The Company observes if events or changes in subsidiaries
business indicate that it might be impaired. The Company considers the decreasing equity of a subsidiary as a key indicator of
potential impairment.
C.1.31.3. 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 liability in the financial statements, i.e. within the life assurance liabilities in the case of insurance contracts
or within the Guaranteed liability for investment contracts with DPF in the case of investment contracts with DPF.
C.1.31.4. Segment reporting
A 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 chief operating decision maker 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.1.31.5. Repo transactions
The 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 as 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.1.31.6. Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position only when there is an
unconditional and 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 assurance liability is calculated by
a prospective net premium valuation (see C.1.13.4.) 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 6% according to the actual technical rate used in
determining the premium.
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As a part of the life assurance liability, 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 assurance liability. 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.
Annuities
In motor third party liability insurance (MTPL) 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).
Discounting
With the exception of annuities, non-life claims provisions are not discounted. For annuities discounting is used as described in the
table below.
Discount rate
Annuity inflation
Wages inflation
Pensions inflation
Till 2012
2% p.a.
2013–2021
2% p.a.
Since 2022
2% p.a.
4% p.a.
2% p.a.
6.5% p.a.
4% p.a.
4% p.a.
4% p.a.
xls
In addition, the Company takes mortality into account through the use of mortality tables recommended by the Czech Bureau of Insurers.
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C.2.3. Liability adequacy test
C.2.3.1. Life assurance
The life assurance liabilities are tested as at the end of each reporting period against a calculation of the minimum value of the
liabilities using explicit and consistent assumptions of all factors. Input assumptions are updated regularly based on recent
experience. The principle of LAT is a comparison of the minimum value of the liabilities (the risk adjusted value of the cash-flows
discounted by risk free-rate) arising from lines of business with the corresponding statutory provision.
Due to the levels of uncertainty in the future development of the insurance markets and the Company’s portfolio, the Company uses
margins for risk and uncertainty within liability adequacy tests. Margins are calibrated to be consistent with the result of risk
valuation in the internal Economic balance sheet model (EBS) and Market Consistent Embedded Valuation (MCEV).
The principal assumptions used (see note C.2.4.1.) are:
Segmentation
The LAT is performed on lines of business separately. There is no interaction between different lines of business in the model and no offset
of the LAT results between individual lines of business is allowed. Segmentation is currently based on the main risk drivers as follows:
– policies where the main risk driver is death
– policies where the main risk driver is survival and savings contracts
– policies where the main risk driver is disability/morbidity
– policies where policyholders bear the investment risk (unit-linked)
Mortality
For mortality assumptions, the analyses of Company’s portfolio past experience and population mortality is used. The experience
portfolio mortality rates are calculated separately for each portfolio group, age, and gender.
Persistency
Future contractual premiums are included without any allowance for premium indexation. Estimates for lapses and surrenders are
based on the Company’s past experience and Company’s future expectations.
Expense
The expenses assumptions are derived from the last year accounting expenses, following the internal guidance on unit costs. The
expenses are increased by the inflation rate since the year 2015.
Discount rate
Risk-free rates are derived from bond yield curve in Asset Liability Management Department consistently with recommendation of
a directive of Czech Society of Actuaries for LAT.
Interest rate guarantee
The interest rate guarantee is calculated using internal model calibrated to MCEV valuation of financial options and guarantees
(FO&G), which includes comprehensive view on assets and liabilities of the Company. The calibration is based on the last known time
value of FO&G arising from the stochastic model in MCEV and the expected development of volatilities. The model reflects the actual
yield curve.
Profit sharing
While, 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.
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Annuity option
The option to choose between a lump sum payment and an annuity is available to policyholders under annuity 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% (current
level based on internal analysis) to 5–10% (future expected market development) in the long-term horizon for all eligible policyholders.
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 insurance
Contrary 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. Products sold by Polish branch
are recognized as a separate group.
For annuities, the assumptions used to establish the provision include all future updated cash flows with changes being recognised
immediately in the income statement. As such, no separate liability adequacy test is required to be performed.
In case of negative result of the non-life liability adequacy test the deferred acquisition costs are decreased. If the result is still
negative the provision for unexpired risk is created.
C.2.4. Significant variables
Profit or loss recognized in insurance contracts 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
According to Liability Adequacy Test life statutory reserves are comfortably adequate in comparison to minimum value of the
liabilities and changes in variables other than discount rate and expense rate have no impact on profit for the year and equity.
A 100 bp decrease in the discount rate would lead to CZK 1,298 million increase in the liability. A 100 bp increase would not impact
the liability at all. A 10% increase in the expense rate would lead to CZK 86 million increase in the liability. A 10% decrease would
not impact the liability. Life assurance liabilities as at 31 December 2012 and 2011 according to the Liability Adequacy Test were not
sensitive to a change in any other variable.
Changes in variable represent reasonably possible changes in variable which represent neither expected changes in variable nor
worst-case scenarios. The analysis has been prepared for a change in variable with all other assumptions remaining constant and
ignores changes in the values of the related assets.
Annual Report 2012
121
In non-life insurance, variables that would have the greatest impact on insurance liabilities relate to annuities.
Variable
Discount rate
Pension growth rate
Change
in variable
(100) bp
100 bp
Change
in insurance
liabilities (gross)
607
587
Change
in insurance
liabilities (net)
368
356
Change
in insurance
liabilities (gross)
719
587
Change
in insurance
liabilities (net)
437
362
xls
Variable
Discount rate
Pension growth rate
Change
in variable
(100) bp
100 bp
xls
C.3. Terms and conditions of insurance and investment contracts with DPF that have a material impact
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 insurance
The 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.
Annual Report 2012
122
Property insurance
This 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 insurance
This 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”.
Accident insurance
Accident 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
Bonuses
Over 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.1.12.2.).
Premiums
Premiums 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 products
Traditional 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 products
These 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, dread diseases, waiver of premium in case of disability and accident rider.
Insurance benefits are usually paid as a lump-sum.
Annual Report 2012
123
Variable capital life insurance products
Variable 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 products
These 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 insurance
Unit-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 dread 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 all kinds of 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 principal
These 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.
Annual Report 2012
124
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.).
C.5. Changes in accounting policies
C.5.1. Standards, interpretations and amendments 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 2012:
Limited scope amendment to IAS 12, Income Taxes – Deferred Tax: Recovery of Underlying Assets (amendment issued in December
2010, effective for annual periods beginning on or after 1 January 2012)
IAS 12 requires an entity to measure the deferred tax relating to an asset depending on whether the entity expects to recover the
carrying amount of the asset through use or sale. It can be difficult and subjective to assess whether recovery will be through use or
through sale when the asset is measured using the fair value model in IAS 40 Investment Property. The amendment provides
a practical solution to the problem by introducing a presumption that recovery of the carrying amount will normally be through sale.
Amendments to IFRS 7, Financial Instruments: Disclosures (issued in October 2010, effective for annual periods beginning on or after
1 July 2011)
The amendments increase the disclosure requirements for transactions involving transfers of financial assets. These amendments are
intended to provide greater transparency around risk exposures of transactions where a financial assets is transferred but the
transferor retains some level of continuing exposure in the asset.
C.5.2. Standards, interpretations and amendments to existing standards that are not relevant for the Company’s
financial statements
Amendment to IFRS 1, First-Time Adoption of International Financial Reporting Standards – Severe Hyperinflation and Removal of
Fixed Date for First-Time Adopters (issued in December 2010).
C.5.3. Standards, interpretations and amendments to published standards that are not yet effective and are relevant for
the Company’s financial statements
Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1
January 2013 or later, and which the Company has not early adopted.:
IFRS 9, Financial Instruments (effective for annual periods beginning on or after 1 January 2015, with earlier application permitted,
not yet endorsed 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.
– financial liabilities are recognized similarly to currently applicable IAS 39
The Company is considering the implications of the standard, the impact on the Company and the timing of its adoption by the Company.
Annual Report 2012
125
IFRS 10, Consolidated Financial Statements (firstly published May 2011, effective for annual periods beginning on or after 1 January 2013)
IFRS 10 supersedes the previous version of IAS 27 (2008) Consolidated and Separate Financial Statements including the related
interpretation SIC 12 Consolidation – Special Purpose Entities.
New standard IFRS 10 requires a parent entity to present consolidated financial statements, defines the principle of control and
establishes control as the basis for consolidation and sets out how to apply the principle of control to identify whether an investor
controls an investee and therefore must consolidate the investee. IFRS 10 also sets out the accounting requirements for the
preparation of consolidated financial statements.
IFRS 10 is not expected to have any impact on the Company’s individual financial statements.
IFRS 12, Disclosure of Interests in Other Entities (firstly published May 2011, effective for annual periods beginning on or after
1 January 2013)
The objective of IFRS 12 is to require the disclosure of information that enables users of financial statements to evaluate the nature
of, and risks associated with, its interests in other entities (and risks associated with it) and the effect to those interests on its
financial position, financial performance and cash flows. IFRS 12 is required to be applied by an entity that has an interest in any of
following: subsidiaries, joint arrangements, associates and unconsolidated structured entities.
IFRS 12 is not expected to have a significant impact on the Company’s financial statements
IFRS 13, Fair Value Measurement (firstly published May 2011, effective for annual periods beginning on or after 1 January 2013)
This standard defines fair value, a framework for measuring fair value and requires disclosures about fair value measurement. IFRS 13
includes guidance on measurement and list of valuation techniques.
IFRS 13 is not expected to have a significant impact on the Company’s financial statements.
Amendments to IAS 27, Separate Financial Statements (effective for annual periods beginning on or after 1 January 2013)
This standard was reissued, this version supersedes previous version IAS 27, Consolidated and Separate Financial Statements.
The revised standard is not expected to have a significant impact on the Company’s financial statements
Amendments to IAS 1, Presentation of Financial Statements (amendments issued in June 2011, effective for annual periods
beginning on or after 1 July 2012)
The amendments revise the way other comprehensive income is presented, requiring: separate subtotals to be presented for those
elements which may be “recycled” and those elements that will not, profit or loss and OCI to be presented together, i.e. either as
a single statement of comprehensive income, or separate income statement and a statement of comprehensive income.
Amendments to IAS 1, Presentation of Financial Statements, resulting from Annual Improvements 2009 – 2011 Cycle (amendments
issued in May 2012, effective for annual periods beginning on or after 1 January 2013)
The purpose of these amendments is to clarify the requirements for comparative information. The revised standard is not expected to
have a significant impact on the Company’s financial statements
Amendments to IAS 16, Property, Plant and Equipment, resulting from Annual Improvements 2009 – 2011 Cycle (amendments
published in May 2012, effective for annual periods beginning on or after 1 January 2013)
The purpose of these amendments is classification of servicing equipment. The revised standards are not expected to have
a significant impact on the Company’s financial statements.
Amendments to IAS 32, Financial Instruments: Presentation, resulting from Annual Improvements 2009 – 2011 Cycle (amendments
The amendments clarify that tax effect of a distribution to holders of equity instruments should be accounted for in accordance with
IAS 12 Income Taxes. The revised standards are not expected to have a significant impact on the Company’s financial statements.
Amendments to IAS 32 and IFRS 7 Financial Instruments: Presentations, Offsetting financial assets and financial liabilities (amendments
published in December 2011, effective for annual periods beginning on or after 1 January 2014 and 1 January 2013 respectively)
The amendments clarify meanings and enhance disclosures on offsetting. The revised standards are not expected to have
a significant impact on the Company’s financial statements
C.5.4. Standards, interpretations and amendments to published standards that are not yet effective and are not relevant
for the Company’s financial statements
Amendments to IAS 19, Employee Benefits (effective for annual periods beginning on or after 1 January 2013)
Amendments to IAS 28, Investments in Associates and Joint Ventures (effective for annual periods beginning on or after 1 January 2013)
Annual Report 2012
126
IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine (effective for annual periods beginning on or after 1 January 2013)
Amendments to IFRS 1, First-time Adoption of International Financial Reporting Standards, for government loan with a below-market
rate of interest when transitioning to IFRS (amendments published in March 2012, effective for annual periods beginning on or after
1 January 2013)
Amendments to IFRS 1, First Adoption of International Financial Reporting Standards, resulting from Annual Improvements 2009 –
2011 Cycle (amendments issued in May 2012, effective for annual periods beginning on or after 1 January 2013)
IFRS 11, Joint Arrangements (firstly published in May 2011, effective for annual periods beginning on or after 1 January 2013)
Amendments to IAS 34, Interim Financial Reporting, resulting from Annual Improvements 2009 – 2011 Cycle (amendments
The amendments Clarify interim reporting of segment information for total assets in order to enhance consistency with the
requirements in IFRS 8 Interim Financial Reporting.
C.5.5. IFRS 4 – exposure draft on Insurance contracts
The IASB (“the board”) released an exposure draft on 30 July 2010 proposing a comprehensive standard to address recognition,
measurement and disclosure for insurance contracts. The board expects to issue the final standard in 2013 with proposed effective
date of 1 January 2015. Retrospective application will be required but with some practical expedients for transition.
The proposals retain the IFRS 4 definition of an insurance contract but amend the scope to exclude fixed fee service contracts but
some financial guarantee contracts may now be within the scope of the proposed standard.
The proposals would require an insurer to measure its insurance contracts using a current measurement model. The measurement
approach is based on the following building blocks: a current, unbiased and probability-weighted average of future cash flows
expected to arise as the insurer fulfils the contract; the effect of time value of money; an explicit risk adjustment and a residual
margin calibrated so that no profit is recognised on inception.
D. Segment Reporting
The Board of Directors as the Company’s chief operating decision maker makes decisions on how to allocate resources and assesses
performance of these 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 operating segments include:
Gross earned premiums revenue in CZK million, for the year ended 31 December
Life
Traditional life insurance
Unit linked insurance
Non-life
Motor
Personal
Hull (cargo, marine and aviation)
Commercial
Non-life accidents – individual
Total
xls
2012
12,462
10,518
1,944
19,678
9,164
3,947
209
5,739
619
32,140
2011
13,205
10,850
2,355
20,381
10,031
3,817
219
5,650
664
33,586
Annual Report 2012
127
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 are
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 year ended 31 December 2012 is as follows (in CZK million):
Gross
Insurance premiums
Insurance benefits and claims
Total costs
Commissions and other acquisition costs
Other technical items
Gross technical result
Reinsurance
Premiums ceded to reinsurers
Reinsurer’s share on claims
Total costs
Reinsurance technical result
Net
Insurance premiums
Total costs
Net technical result
Financial Income
Financial Investments Income
Realisation of financial investment
Change in financial investments value
Total financial investments income
Total other income and expenses
Income taxes
Impact of Polish branch
Life
Non-life
Total
Reconciling
item
Income
Statement
12,462
(7,240)
(2,832)
(2,080)
(752)
(127)
2,263
19,678
(10,994)
(5,092)
(3,847)
(1,245)
56
3,648
32,140
(18,234)
(7,924)
(5,927)
(1,997)
(71)
5,911
–
(2,422)
–
–
–
–
–
32,140
(20,656)
(1,293)
362
322
322
(609)
(9,027)
4,378
1,960
1,960
(2,689)
(10,320)
4,740
2,282
2,282
(3,298)
–
–
–
–
–
(10,320)
4,740
–
–
–
11,169
(6,878)
(2,510)
(1,758)
(752)
(127)
1,654
10,651
(6,616)
(3,132)
(1,887)
(1,245)
56
959
21,820
(13,494)
(5,642)
(3,645)
(1,997)
(71)
2,613
–
(2,422)
–
38
(38)
71
(2,351)
21,820
(15,916)
(5,642)
(3,608)
(2,034)
–
262
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,233
926
(1,907)
2,252
(216)
(758)
(8)
3,883
–
–
–
2,992
(641)
–
–
–
–
–
–
5,244
(857)
(758)
(8)
3,883
Note
–
–
–
–
xls
The main reconciling items between the Management Report and the Income Statement report are:
1. Changes in unit-linked provisions of CZK 2,422 million are reported in the Income Statement as insurance benefits and claims
while it is presented within financial income in the Management Report.
2. Different classification of acquisition costs and administration costs – mainly service costs in the amount of CZK 38 million.
3. 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 expenses.
4.The aggregate affect of Note 1, 3 and 5.
5. Significant part of total difference in the amount of CZK 641 million is represented by gains/losses on foreign currency of
CZK 587 million (mainly on AFS portfolio) which are reported in the Income Statement as total other income and expenses while
in the Management Report they are presented in the financial income section.
1
1
2
2
3
4
5
Annual Report 2012
128
The segment information provided to the Board of Directors for the year ended 31 December 2011 is as follows (in CZK million):
Gross
Insurance premiums
Technical benefits and claims
Total costs
Reinsurance
Reinsurer's share on claims
Total costs
Net
Insurance premiums
Technical benefits and claims
Total costs
Financial income
Financial investments income
Realisation of financial investment
Change in financial investments value
Income taxes
Life
Non-life
Total
Reconciling
item
Income
Statement
13,205
(7,755)
(3,245)
(2,383)
(862)
(62)
2,143
20,381
(10,843)
(5,279)
(3,882)
(1,397)
55
4,314
33,586
(18,598)
(8,524)
(6,265)
(2,259)
(7)
6,457
–
(1,582)
–
–
–
–
–
33,586
(20,180)
–
–
–
–
–
(1,221)
350
303
303
(568)
(9,192)
4,151
2,040
2,040
(3,001)
(10,413)
4,501
2,343
2,343
(3,569)
–
–
–
–
–
(10,413)
4,501
–
–
–
11,984
11,189
23,173
–
23,173
(7,405)
(2,942)
(2,080)
(862)
(62)
1,575
(6,692)
(3,239)
(1,842)
(1,397)
55
1,313
(14,097)
(6,181)
(3,922)
(2,259)
(7)
2,888
(1,582)
–
84
(84)
7
(1,575)
(15,679)
(6,181)
(3,838)
(2,343)
–
1,313
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,860
(1,035)
(560)
1,265
5
(605)
3,553
–
–
–
48
1,527
–
–
–
–
–
1,313
1,532
(605)
3,553
Note
1
1
2
2
3
4
5
xls
The main reconciling items between the Management Report and the Income Statement report are:
1. Changes in unit-linked provisions of CZK 1,582 million are reported in the Income Statement as technical benefits and claims
while it is presented within financial income in the Management Report.
2. Different classification of acquisition costs and administration costs – mainly service costs.
3. 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 expenses.
4. The aggregate affect of Note 1, 3 and 5.
5. Significant part of total difference in the amount of CZK 1,527 million is represented by gains/losses on foreign currency of
CZK 1,509 million (mainly on AFS portfolio) which are reported in the Income Statement as total other income and expenses while
in the Management Report they are presented in the financial income section.
Annual Report 2012
129
The following table shows key figures per operating segment:
Capital expenditure*
Impairment losses recognised
Reversal of impairment losses
Total segment assets
Non-life
(361)
(335)
(371)
611
40,431
Life
(135)
(183)
(303)
22
81,312
Total
(496)
(518)
(674)
633
121,743
Non-life
(478)
(353)
(663)
622
35,743
Life
(207)
(189)
(165)
236
80,772
Total
(685)
(542)
(828)
858
116,515
xls
Capital expenditure*
Total segment assets
* Additions to non-current assets other than financial instruments, deferred tax assets, post-employment benefit assets and rights arising under insurance contracts.
xls
Segment assets and liabilities are not regularly included in the reports provided to the Board of Directors.
Geographical information
The Company operated in 2012 mainly in the Czech Republic and in EU countries. More than 99% of the income from insurance
contracts came from clients in the Czech Republic. In 2012 the Company acquired and insurance portfolio and related assets and
liabilities in Poland and starting 2013 it will extend its foreign operations using recently founded branch.
Geographical information about non-current assets:
Intangible assets
Tangible assets
Total
Czech Republic
5,210
1,375
451
65
7,101
Poland
–
468
26
–
494
xls
Intangible assets
Tangible assets
Total
xls
Czech Republic
5,340
1,439
462
85
7,326
Annual Report 2012
130
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.
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, i.e. 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.
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 are in place as well as the investment risk reporting for management on
a 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) – defines strategies and objectives for every firm, taking into account the local features and
regulations, providing methodological support 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
Chief risk officer (CRO) of GPH, respecting the Generali Group policy framework. Generali and GPH Group 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. Company’s Risk Management reports
monthly on the investment exposure and on both market and credit risks.
Annual Report 2012
131
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 on 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 risk, 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 given confidence level.
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 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 on 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 investment portfolios’ financial assets and liabilities is monitored and measured on a continuing
basis, using a Value at Risk analysis and other methods (cash-flow matching, duration analysis, etc.).
Risks are monitored on a fair value basis so that some accounting categories with insignificant risks are omitted from further chapters.
Investment portfolios therefore include all Investments except for Investment property, Investments in subsidiaries, Unit-linked policies,
Receivables and some specific immaterial investments. It also includes Cash and cash equivalents and Financial liabilities.
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 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 repriced 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 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 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 at
their fair value as it was at the end of the year. The overall impact on the Company’s position is the result of sensitivity analysis on
both the asset and liability side that creates a mitigating effect.
Annual Report 2012
132
Fair value of portfolio, in CZK million, as at 31 December 2012
Current
Bonds
Money market instruments
Interest rate derivatives
Total
70,376
5,177
(1,574)
73,979
100bp parallel
increase
66,846
5,176
(746)
71,276
100bp parallel
decrease
74,188
5,178
(2,312)
77,054
100bp parallel
increase
65,679
4,838
(429)
70,088
100bp parallel
decrease
72,340
4,844
(2,476)
74,708
xls
Fair value of portfolio, in CZK million, as at 31 December 2011
Current
Bonds
Total
68,765
4,840
(1,421)
72,184
xls
Sensitivity of insurance liabilities is disclosed in note C.2.4.
Table below shows reconciliation of Investment portfolio bearing interest rate risk as detailed in relevant Notes:
In CZK million, as at 31 December
Loans and receivables – unquoted bonds – fair value
Available-for-sale
FVTPL
Term deposits classified as cash
Other term deposits
Reverse repurchase agreement ( Reverse REPO)
Repurchase agreement (REPO)
Derivatives – assets
2012
1,078
58,476
10,751
4,642
381
–
(28)
525
2011
986
55,266
12,448
3,678
1,303
393
(69)
315
Note
F.3.2.
F.3.3.
F.3.4.
F.6.
F.3.2.
F.3.2.
F.11.1.
F.3.4.
Derivatives – liabilities
Reconciliation to Investment portfolio
Total
(1,919)
73
73,979
(2,218)
82
72,184
F.11.
xls
The most significant reconciling items are due coupons on bonds reported as receivables (2012: CZK 71 million, 2011: CZK 62 million).
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 assetliability management.
GPH has an Asset and Liability Committee which is an advisory body of the Board of Directors of the Company 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, 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
and administration costs.
Annual Report 2012
133
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. 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. Investments in emerging long-term government bonds are 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 the methodology, see E.4.5). The MVaR is calculated for a one-year time horizon at a 99.5% confidence level.
The positive impact of diversification can be seen in the table below.
2012
9,501
4,098
2,679
Portfolio exposed to equity risk
Sum of MVaR for individual instrument (before diversification)
Portfolio MVaR after diversification
2011
8,997
6,735
4,353
xls
Table below shows reconciliation of Investment portfolio bearing equity price risk as detailed in relevant Notes:
Investment fund units
AFS equities at FV
FVTPL Investment fund units
Reconciliation to Investment portfolio
Total
2012
5,371
4,151
247
(268)
9,501
2011
5,392
2,752
444
409
8,997
Note
F.3.3.
F.3.3.
F.3.4.
xls
In 2012 the reconciliation in the amount of CZK 268 million is caused by fund certificate which is in the process of sale and therefore
equity risk is not considered.
The reconciliation amount in 2011 represents hybrid instruments reported as bonds fair valued through profit or loss.
Annual Report 2012
134
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 on
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. When 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 Polish Zloty (“PLN”), because the Company established a branch in Poland in 2012.
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 a currency risk.
Due to hedge accounting, the impact of potential increase or decrease of foreign exchange rates is limited and recognized through
the income statement:
In CZK million, as at 31 December 2012
FX investment portfolio exposure
After shock up (+10%)
After shock down (–10%)
EUR
732
806
659
USD
69
76
62
CZK*
83,017
83,017
83,017
Other
242
267
218
Total
84,060
84,165
83,956
EUR
221
243
199
USD
(131)
(144)
(118)
CZK*
81,212
81,212
81,212
Other
402
443
362
Total
81,704
81,754
81,655
xls
* functional currency
xls
The following table shows sensitivities of the insurance liabilities to change in currency risk.
FX insurance liabilities exposure
EUR
1,308
1,439
1,177
USD
42
46
38
CZK*
83,195
83,195
83,195
PLN**
894
983
805
Other
201
221
181
Total
85,640
85,884
85,396
EUR
1,342
1,476
1,208
USD
38
42
34
CZK*
84,676
84,676
84,676
PLN**
47
52
42
Other
181
199
163
Total
86,284
86,445
86,123
xls
FX insurance liabilities exposure
** functional currency of the branch in Poland – see Note A.4.
xls
Annual Report 2012
135
The following table shows the composition of financial assets and liabilities with respect to the main currencies:
Loans
Financial assets available-for-sale
Financial assets at fair value
through profit or loss
Other investments
Reinsurance assets
Receivables
Total assets
Payables
Other liabilities
Total liabilities
Net foreign currency position
EUR
–
15,044
USD
–
10,089
CZK
1,019
41,831
PLN
–
268
Other
–
816
Total
1,019
68,048
(13,003)
–
4
1,012
130
3,187
1,308
1,378
247
–
2,933
(7,429)
–
–
72
142
2,874
42
2,721
46
–
2,809
42,833
381
9,698
4,764
4,785
105,311
83,195
(797)
7,537
1,813
91,748
–
–
–
759
17
1,044
894
268
41
19
1,222
(319)
–
–
40
15
552
201
283
7
–
491
22,082
381
9,702
6,647
5,089
112,968
85,640
3,853
7,878
1,832
99,203
254
65
13,563
(178)
61
13,765
EUR
–
15,722
USD
–
8,969
CZK
1,394
38,010
PLN
–
–
Other
–
809
Total
1,394
63,510
(541)
–
9
1,910
133
17,233
1,342
15,031
203
–
16,576
657
(204)
–
–
123
65
8,953
38
8,950
73
–
9,061
(108)
22,619
1,303
9,465
4,478
3,724
80,993
84,676
(21,642)
6,432
1,831
71,297
9,696
255
–
–
28
1
284
47
–
1
–
48
236
(224)
–
–
123
18
726
181
450
25
–
656
70
21,905
1,303
9,474
6,662
3,941
108,189
86,284
2,789
6,734
1,831
97,638
10,551
xls
Loans
Financial assets at fair value
Other investments
Reinsurance assets
Receivables
Total assets
Payables
Other liabilities
Total liabilities
Net foreign currency position
xls
E.4.5. Risk limits and Market Value at Risk
The principal tools used to measure and control market risk exposure within the Company’s investments portfolios are a system of
risk limits and Market Value at Risk (MVaR).
The system includes single and total limits on foreign currency (FX), interest rate (IR) and equity (EQ) risks. The primarily aim of the
system of limits is to control exposure to single type of risks. Limits are monitored on daily basis and allow Risk Management to take
immediate action and actively manage the level of the undertaken risks.
Risk Management uses the combination of the system of limits and MVaR as an effective tool for entire RM system which allows
taking operative short-term measures and monitor risks on long-term basis as well.
Investment portfolios include all Investments except for Investment property, Investments in subsidiaries, Unit-linked policies,
Receivables 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 99.5% confidence level.
Annual Report 2012
136
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 0.5 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. The model is also sensitive on the length of the historical data used. The
Company uses historical data for the most recent year to cover enough of history and also to reflect the current market situation.
f) 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 MVaR 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:
Foreign currency risk
Interest rate risk
Equity risk
Diversification effect
Overall
As at 31 December
67
865
2,679
(628)
2,983
Average VaR*
134
1,710
3,105
(838)
4,111
Maximum*
75
2,281
4,529
(1,203)
5,683
Minimum*
67
865
2,679
(628)
2,983
As at 31 December
260
2,391
4,039
(1,944)
4,746
Average VaR*
135
2,280
4,734
(1,285)
5,864
Maximum*
117
2,164
9,133
(1,214)
10,200
Minimum*
121
1,741
3,101
(1,580)
3,383
xls
Interest rate risk
Equity risk
Overall
* Minimum, maximum and average VaR is determined based on overall VaR calculated during the year and it is not necessarily indicative for minimum, maximum and
average values on each single component of VaR.
Note: In the context of Solvency II internal model methodology alignment the Company has started to use historical data for the most recent year for regular MVaR
calculations, while in 2011 the data for the most recent quarter were used.
xls
Annual Report 2012
137
E.5. Credit risk
Bonds and Loans
Bonds available-for-sale
Bonds at fair value through profit or loss
Loans (fair value)
Trade and other receivables
Reinsurance assets
Total
2012
70,368
58,476
10,751
1,141
6,647
9,702
86,717
2011
69,161
55,266
12,448
1,447
6,662
9,474
85,297
Note
F.3.3.
F.3.4.
F.3.2.
F.5.
F.4.
xls
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.
For the rating assessment of an issue or issuer, ratings from rating agencies are used. Securities without an external rating are given
an internal one based on Company’s own credit analysis. In most cases internal ratings are based on external rating of parent
company or it’s adjusted external rating due to subordination of the instrument. All internal ratings are in accordance with GPH’s
assessment. In line with Generali Group principles, Company uses the second best external rating for each counterparty in all
calculations and the system of credit limits.
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 complex system of limits to manage credit risk and monitors compliance with these limits on a daily basis. The
system includes e.g. issuer/counterparty limits according to their credit quality, limits on rating categories and concentration limits.
The following tables show the Company’s credit quality of its financial assets at fair value.
Rating of bonds and loans
AAA
AA
A
BBB
BB
B
Non-rated
Total
xls
2012
3,209
33,393
12,407
8,409
2,195
43
10,712
70,368
2011
3,221
32,491
15,059
4,503
2,221
–
11,666
69,161
Annual Report 2012
138
Rating of reinsurance assets
2012
–
331
351
52
8,194
774
9,702
AAA
AA
A
BBB
Captive reinsurance
Non-rated
Total
2011
37
479
300
31
8,124
503
9,474
xls
There were no past due or impaired reinsurance assets either in 2012 or 2011.
The Company places term deposits with selected financial institutions which had as at 31 December 2012 rating from AA- to BBB+
(31 December 2011: AA to A-). Significant portion of term deposits evaluated via internal rating is placed with PPF banka, a.s.
a related party (see F.30.3.). There were no past due or impaired term deposits either in 2012 or 2011.
The following table shows the Company’s exposure to credit risk for loans and receivables:
Individually impaired – carrying amount
Gross amount
31 days to 90 days after maturity
181 days to 1 year after maturity
Over 1 year after maturity
Allowance for impairment
Past due but not impaired – carrying amount
Neither past due nor impaired – carrying amount
Total Amortised costs
Total Fair value
Loans and advances
2012
2011
57
57
7,445
7,613
–
–
–
–
–
–
7,445
7,613
(7,388)
(7,556)
–
962
1,019
1,141
–
1,337
1,394
1,447
2012
2011
1,360
1,925
2,795
3,847
1,554
1,849
417
512
166
431
658
1,055
(1,435)
(1,922)
270
5,017
6,647
6,647
268
4,469
6,662
6,662
xls
The Company held no past due or impaired bonds either in 2012 or in 2011.
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 loans and bonds not repaid (loans and advances
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.
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 most significant part of receivables past due but not impaired are 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.
Annual Report 2012
139
The following table shows the fair value of collateral held:
Loans and advances to banks and nonbanks
2012
2011
21
31
20
30
1
1
317
391
317
391
338
422
Against individually impaired
Property
Other
Against neither past due nor impaired
Debt securities
Total
xls
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 of bonds and loans:
2012
Economic concentration
Public sector
Financial
Energy
Utilities
Materials
Telecommunication services
Industrial
Consumer Discretionary
Asset-backed
Total
2011
CZK million
In%
CZK million
In%
41,492
22,592
3,492
1,951
341
314
185
1
–
70,368
58.97
32.11
4.96
2.77
0.48
0.45
0.26
0.00
0.00
100.00
38,418
23,066
3,452
2,748
–
577
424
1
475
69,161
55.56
33.35
4.99
3.97
0.00
0.83
0.61
0.00
0.69
100.00
CZK million
In%
CZK million
In%
48,341
6,942
4,271
3,000
2,778
1,471
1,428
987
809
274
67
–
70,368
68.69
9.87
6.07
4.26
3.95
2.09
2.03
1.40
1.15
0.39
0.10
0.00
100.00
46,105
6,464
6,649
2,915
1,057
1,983
1,003
880
1,034
686
332
53
69,161
66.66
9.35
9.61
4.21
1.53
2.87
1.45
1.27
1.50
0.99
0.48
0.08
100.00
xls
2012
Geographic concentration
Czech republic
Other central-eastern European countries
Russia
Rest of Europe
Netherlands
USA
Austria
United Kingdom
Germany
Rest of world
Spain
Italy
Total
2011
xls
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.
Annual Report 2012
140
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).
Credit 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 changes in credit quality. The CVaR is calculated for a one-year time horizon at
a 99.5% confidence level.
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 liabilities, 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.
Residual contractual maturities of financial assets:
Investments
Loans
Available-for-sale
Bonds
Equities
Bonds
Unit-linked investments
Derivatives
Other investments
Receivables
Total financial assets
xls
Less Between Between
than
1 and 3 months
1 month 3 months and 1 year
718
722
7,654
–
108
45
85
542
4,842
85
542
4,842
–
–
–
–
–
–
252
72
2,767
54
10
2,703
–
–
–
6
–
6
192
62
58
381
–
–
5,176
5,089
10,983
780
–
1,502
153
–
7,807
Between
1 and
5 years
43,990
185
37,562
37,562
–
–
6,243
6,019
–
11
213
–
149
–
44,139
More
Nonthan -specified
5 years
37,075
20,414
1,090
58
33,028
9,573
33,028
–
–
4,202
–
5,371
2,957
10,783
2,954
–
–
247
–
10,536
3
–
–
–
110,573
1,486
85,632
76,059
4,202
5,371
23,074
11,740
247
10,559
528
381
389
–
37,464
6,647
5,089
122,309
–
–
20,414
Total
Annual Report 2012
141
Investments
Loans
Available-for-sale
Bonds
Equities
Bonds
Derivatives
Other investments
Receivables
Less Between Between
than
1 and 3 months
1 month 3 months and 1 year
820
2,841
8,849
391
–
45
188
1,640
7,608
188
1,640
7,608
–
–
–
–
–
–
90
49
1,196
56
11
1,138
–
–
–
15
–
26
19
38
32
151
1,152
–
4,807
838
–
3,941
–
–
9,568
3,679
8,849
Between
1 and
5 years
41,989
299
31,931
31,931
–
–
9,759
9,501
–
5
253
–
193
–
42,182
More
Nonthan -specified
5 years
38,181
17,399
1,135
58
33,193
8,245
33,193
129
–
2,724
–
5,392
3,853
9,096
3,851
–
–
197
–
8,652
2
247
–
–
824
–
–
–
39,005
17,399
Total
110,079
1,928
82,805
74,689
2,724
5,392
24,043
14,557
197
8,698
591
1,303
6,662
3,941
120,682
xls
Residual contractual maturities of financial liabilities:
Other financial liabilities
Financial liabilities at fair value through profit or loss
Payables
Other liabilities
Total financial liabilities
Less
than
1 month
66
58
8
7,189
1,622
8,877
Between Between
1 and 3 3 months
months and 1 year
80
320
45
216
35
104
5
684
210
–
295
1,004
Between
1 and
5 years
1,708
1,400
308
–
–
1,708
More
than
5 years
322
253
69
–
–
322
Less
than
1 month
587
95
492
6,182
1,703
8,472
Between Between
1 and 3 3 months
months and 1 year
131
713
75
601
56
112
3
549
127
1
261
1,263
Between
1 and
5 years
1,137
715
422
–
–
1,137
More
than
5 years
277
197
80
–
–
277
Total
2,496
1,972
524
7,878
1,832
12,206
xls
Payables
Other liabilities
xls
Total
2,845
1,683
1,162
6,734
1,831
11,410
Annual Report 2012
142
Estimated cash flows of insurance liabilities and liabilities for investment contracts with DPF
Non-life insurance liabilities
RBNS & IBNR
Other insurance liabilities
Life assurance liabilities
Of which guaranteed liability for investment
contracts with DPF
Total
Less
than
1 year
7,263
6,970
293
6,369
Between
1 and
5 years
4,208
4,109
99
21,717
Between
5 and
10 years
1,835
1,835
–
11,304
Between
10 and
15 years
1,657
1,657
–
7,782
Between
15 and
20 years
1,403
1,403
–
4,577
More
than
20 years
1,142
1,142
–
11,534
Total
17,508
17,116
392
63,283
193
13,632
749
25,925
308
13,139
152
9,439
91
5,980
350
12,676
1,843
80,791
Less
than
1 year
6,859
6,627
232
5,094
Between
1 and
5 years
4,027
4,027
–
21,139
Between
5 and
10 years
1,845
1,845
–
11,400
Between
10 and
15 years
1,678
1,678
–
8,535
Between
15 and
20 years
1,426
1,426
–
4,820
More
than
20 years
1,174
1,174
–
13,840
Total
17,009
16,777
232
64,828
113
11,953
593
25,166
178
13,245
84
10,213
68
6,246
242
15,014
1,278
81,837
xls
RBNS & IBNR
Of which guaranteed liability for investment
contracts with DPF
Total
xls
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.
Annual Report 2012
143
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 concentrations
The risks underwritten by the Company are primarily located in the Czech Republic.
E.7.1.2. Low-frequency, high-severity risks
Significant 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 strategy
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 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 risk
In 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, dread 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 prudent 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.
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. Detailed analysis of risks concerning to dread disease and disability is also prepared annually.
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.
Annual Report 2012
144
The table below shows the insurance liabilities of the life gross direct business split by level of guaranteed interest rate.
Liabilities with guaranteed interest
Between 0% and 2.49%
Between 2.5% and 3.49%
More than 4.5% (incl.)
Provisions without guaranteed interest
Total
2012
2011
15,901
5,594
3,984
17,590
7,906
50,975
15,674
5,915
5,085
19,335
8,217
54,226
2012
9,163
3,947
209
5,740
619
19,678
2011
10,031
3,817
219
5,650
664
20,381
xls
E.7.1.4. Non-life underwriting risk
Gross earned premium per line of business is shown in the following table:
Motor
Personal
Hull ( cargo, marine and aviation)
Commercial
Non-life accidents – individual
Total
xls
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 or from liability of the insured person, and
claims payment limits are always included to cap the amount payable on occurrence of the insured event.
E.7.2. Reinsurance strategy
Annually the Company pursues a renewal of reinsurance treaties which reinsures some of the underwritten risks in order to control its
exposures to individual, frequent and catastrophic losses according to quantitative and qualitative points and protect its capital resources.
The Company concludes the proportionate and non-proportionate reinsurance treaties or a combination of these 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 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 GPH group
cover which is retro-ceded on the regular reinsurance market.
Ceded reinsurance containing 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 non-life
obligatory 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.
Annual Report 2012
145
The overview of obligatory reinsurance treaties for the main programme and underwriting year 2012:
Line of business / Treaty
Property
Property
Engineering
Civil Building
Household
SME Property
Liability
Commercial Liability
D&O
Marine
Cargo transport
CASCO
Medical Expenses
Agriculture
Livestock
Hail
Bonds
Bonds
Life, pensions
Individual life insurance
Group life insurance
Life & Disability
Personal Accident
Form of reinsurance
Leader
Quota Share + Risk X/L, CAT X/L, AGG X/L
Quota Share, CAT X/L, AGG X/L
GP Re
GP Re
GP Re
GP Re
GP Re
Quota Share + Risk X/L
Surplus
GP Re
GP Re
Lloyd’s Synd. 4711 Aspen
Quota Share + CAT X/L
Quota Share
GP Re
GP Re
GP Re
Risk + CAT X/L
Stop Loss
GP Re
GP Re
Quota Share
GP Re
Surplus
Quota Share
Surplus
Quota Share
Generali Trieste
Generali Trieste
Swiss Re
GP Re
xls
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 ongoing processes of Generali Group, the Company has set some common principles to manage 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
27001:2005 Information technology – Security techniques – Information security management systems – Requirements.
Annual Report 2012
146
E.9. Financial strength monitoring by third parties
The Company’s risks are also monitored by third parties such as the insurance regulator.
Also, 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.
As at 31 December 2012, the Company has been rated by agency Standard & Poor’s (S&P) with the long-term counterparty credit
and insurer financial strength ratings to be A- with a stable outlook. The rating has been confirmed on 28 February 2013
emphasizing strong operating performance, strong competitive position of the Company and strong capitalization and noticing
relatively low quality of capital and highly competitive environment.
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 prudential rules relating to the capital. The prudential 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 million, as at 31 December
Minimum Capital Requirement
Available Capital
Life insurance
Non-life insurance
Life insurance
Non-life insurance
2012
2,923
2,219
13,305
6,479
2011
3,057
2,219
13,966
5,909
xls
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. 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.
Annual Report 2012
147
F. Notes to the Statements of Financial Position, Income and Comprehensive Income
F.1. Intangible assets
Software
Other intangible assets
Goodwill
Total intangible assets
2012
1,379
24
440
1,843
2011
1,415
24
–
1,439
xls
On acquisition of insurance business in Poland on 31 December 2012 a goodwill in the amount of CZK 440 million has been generated.
Goodwill has been determined as follows:
2012
213
(939)
(726)
286
440
Fair value of assets acquired
Fair value of liabilities assumed
Net Liabilities Acquired
Net fair value of consideration received
Goodwill recognised on acquisition
xls
F.1.1. Software
In CZK million, for the year ended 31 December
Acquisition cost as at the beginning of the year
Amortisation as at the beginning of the year
Carrying amount as at the beginning of the year
Additions
Disposals
Amortisation for the period
Acquisition cost as at the end of the year
Amortisation as at the end of the year
Carrying amount as at the end of the year
2012
5,435
(4,020)
1,415
379
(12)
(403)
5,666
(4,287)
1,379
2011
5,046
(3,640)
1,406
402
(13)
(380)
5,435
(4,020)
1,415
2012
140
(116)
24
19
–
(18)
153
(128)
24
2011
162
(123)
39
43
(12)
(46)
140
(116)
24
xls
F.1.2. Other intangible assets
Amortisation and impairment as at the beginning of the year
Additions
Disposals
Amortisation for the period
Amortisation and impairment as at the end of the year
xls
Annual Report 2012
148
F.2. Tangible assets
Land and buildings (self used)
Other tangible assets
Other assets
Total tangible assets
2012
122
305
50
477
2011
119
292
51
462
2012
225
(106)
119
55
(36)
(16)
242
(120)
122
2011
216
(99)
117
24
(10)
(12)
225
(106)
119
2012
1,570
(1,278)
292
130
(2)
(115)
1,489
(1,184)
305
2011
1,738
(1,465)
273
216
(94)
(103)
1,570
(1,278)
292
xls
F.2.1. Land and buildings (self used)
Accumulated depreciation and impairment as at the beginning of the year
Additions
Disposals
Depreciation of the period
Accumulated depreciation and impairment as at the end of the year
xls
F.2.2. Other tangible assets
Amortisation and impairment as at the beginning of the year
Additions
Disposals
Amortisation and impairment as at the end of the year
xls
Other tangible assets comprise primarily IT equipment.
Annual Report 2012
149
F.3. Investments
Carrying values of investment:
Balance as at 1 January 2011
Purchases
Disposals
Fair value gains/losses recorded
in the income statements
in other comprehensive income
Movement in impairment allowance
Accrued interest
Foreign exchange adjustments
Other movements
Purchases
Disposals
in the income statements
in other comprehensive income
Accrued interest
Foreign exchange adjustments
Other movements
Investment
properties
85
–
–
Loans
Available- Fair value through
-for-sale
profit or loss
58,193
27,028
56,822
6,758
(53,180)
(12,511)
Other
investments
1
4,745
(3,467)
2,345
49,996
(51,059)
–
–
403
(153)
–
–
–
–
–
–
85
–
–
–
11
101
–
–
1,394
33,064
(33,535)
(1,990)
(279)
2,041
1,500
–
63,510
36,081
(37,498)
–
–
812
–
(29)
21,905
3,420
(5,266)
–
–
15
9
–
1,303
3,604
(4,536)
(20)
–
269
1,443
–
–
–
–
–
–
65
–
20
76
–
–
1,019
4,322
(172)
2,099
(563)
–
68,048
–
–
596
–
(16)
22,082
–
–
10
–
–
381
xls
F.3.1. Investment properties
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.
As at 31 December 2012 there is one building which has been based on the external valuation reviewed from CZK 83.4 million to
CZK 63.1 million. A loss from revaluation of CZK 20.3 million has been recognized in other expenses for financial instruments and
other investments.
F.3.2. Loans and other investments
Loans
Unquoted bonds
Loans to subsidiaries
Other loans
Total
Current portion
Non-current portion
2012
2011
956
5
58
1,019
107
912
933
10
451
1,394
393
1,001
xls
Loans to the subsidiaries represents the loan to ČP Direct a.s. in total amount of CZK 5 million (CZK 10 million 2011). During the year
2012 the part of this loan in the amount of CZK 5 million was repaid.
Annual Report 2012
150
Other investments
Deposits under reinsurance business accepted
Term deposits with credit institutions
Total
Current portion
2012
2011
2
379
381
381
1
1,302
1,303
1,303
2012
1,141
1,078
5
58
381
2
379
1,522
2011
1,447
986
10
451
1,303
1
1,302
2,750
2012
50
4,151
4,150
1
58,476
37,878
20,598
5,371
68,048
3,428
64,620
2011
100
2,752
2,751
1
55,266
33,365
21,901
5,392
63,510
7,369
56,141
Level 3
50
1
–
1
–
–
–
–
51
Total
50
4,151
4,150
1
58,476
37,878
20,598
5,371
68,048
xls
The fair value of loans and other investments:
Loans
Unquoted bonds
Loans to subsidiaries
Other loans
Other investments
Deposits under reinsurance business accepted
Term deposits with credit institutions
Total
xls
F.3.3. Available-for-sale financial assets
Unquoted equities at cost
Equities at fair value
Quoted
Unquoted
Bonds
Quoted
Unquoted
Total
Current portion
Non-current portion
xls
Fair value measurement as at the end of the reporting period:
Quoted
Unquoted
Bonds
Quoted
Unquoted
Total
xls
Level 1
–
4,150
4,150
–
37,878
37,878
–
5,371
47,399
Level 2
–
–
–
–
20,598
–
20,598
–
20,598
Annual Report 2012
151
There was a significant transfer in the amount of CZK 2,400 million from Level 2 to Level 1 represented by government bonds that
have been trading on stock exchange since the year 2012.
Quoted
Unquoted
Bonds
Quoted
Unquoted
Total
Level 1
–
2,751
2,751
–
33,365
33,365
–
5,392
41,508
Level 2
–
–
–
–
21,901
–
21,901
–
21,901
Level 3
100
1
–
1
–
–
–
–
101
Total
100
2,752
2,751
1
55,266
33,365
21,901
5,392
63,510
xls
There were no significant transfers between Level 1 and Level 2 fair value measurement categories in 2011.
The following table presents the changes in level 3 instruments for the year ended 31 December.
In CZK million as at 31 December
2012
101
50
51
Opening balance
Impairment
Closing balance
2011
101
–
101
xls
In 2012 an impairment on level 3 available-for-sale financial assets has been booked. The impairment reflects the changes of inputs
for fair value measurement of a specific impaired asset.
There were no changes of inputs for fair value measurement which would significantly change fair value of financial assets in 2011.
Maturity of available-for-sale financial assets – bonds in fair value:
Up to 1 year
Between 1 and 5 years
More than 10 years
Total
2012
3,428
31,973
6,714
16,361
58,476
2011
7,369
26,817
6,106
14,974
55,266
Realised
losses
(102)
(223)
(53)
(378)
Impairment
losses
(252)
–
(64)
(316)
xls
Realised gains and losses, and impairment losses on available-for-sale financial assets:
Equities
Bonds
Total
xls
Realised
gains
248
673
228
1,149
Annual Report 2012
152
Realised
gains
311
408
473
1,192
Equities
Bonds
Total
Realised
losses
(548)
(364)
(553)
(1,465)
Impairment
losses
(204)
–
–
(204)
xls
F.3.4. Financial assets at fair value through profit or loss
Financial assets
held-for-trading
Equities
Quoted
Bonds
Quoted
Unquoted
Derivatives
Allocated to policyholders
Not allocated to policyholders
Total
Current portion
Non-current portion
2012
–
–
–
–
–
–
525
–
–
–
525
–
–
2011
–
–
–
–
–
–
315
–
–
–
315
–
–
Financial assets
designated at fair value
2012
2011
–
–
–
–
10,751
12,448
3,416
4,466
7,335
7,982
247
444
–
–
10,559
8,698
10,212
8,453
347
245
21,557
21,590
–
–
–
–
at fair value through
profit or loss
2012
2011
–
–
–
–
10,751
12,448
3,416
4,466
7,335
7,982
247
444
525
315
10,559
8,698
10,212
8,453
347
245
22,082
21,905
2,914
972
19,168
20,933
xls
Certain portion of unit-linked investment is not as at year end allocated to policyholders and stay available for new unit linked
insurance contracts.
Bonds
Quoted
Unquoted
Derivatives
Total
Level 1
3,416
3,416
–
247
2
10,554
14,219
Level 2
7,335
–
7,335
–
523
5
7,863
Level 3
–
–
–
–
–
–
–
xls
Total
10,751
3,416
7,335
247
525
10,559
22,082
Annual Report 2012
153
Bonds
Quoted
Unquoted
Derivatives
Total
Level 1
4,056
4,056
–
444
5
8,683
13,188
Level 2
8,326
410
7,916
–
310
15
8,651
Level 3
66
–
66
–
–
–
66
Total
12,448
4,466
7,982
444
315
8,698
21,905
xls
The following table presents the changes in level 3 instruments for the year ended 31 December. The instruments in level 3 were
settled in the year 2012.
Balance as at 1 January
Total gains or losses
in profit or loss
Settlements
Pay-backs
Balance as at 31 December
Total gains/losses for the period included in profit or loss for assets held at the end of the reporting period
2012
66
–
–
(1)
(65)
–
(66)
2011
65
2
2
(1)
–
66
1
xls
F.3.5. 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) of CZK 14,135 million from the Fair value through profit and loss category to available-for-sale category. The reclassification
was done on 1 October 2008. By 31 December 2012 all reclassified financial assets have been sold. The carrying amount and fair
value of the reclassified financial assets outstanding as at 31 December 2011 was CZK 27 million.
Had these financial assets not been reclassified, the income statement line Net income from financial instruments at fair value
through profit or loss would not be different (2011: would have been lower by CZK 11 million). Out of this revaluation, no
impairment gain was recognized in the income statement and loss of CZK 1.6 million was reported in the income statement in 2011
as a gain on foreign currency revaluation under fair value hedge accounting. Had these financial assets not been reclassified, the
income statement would not show gains on realisation of CZK 8 million (2011: gain CZK 95 million).
Annual Report 2012
154
F.4. Reinsurance assets
Non-life reinsurance assets
Provisions for unearned premiums
Provisions for outstanding claims
IBNR
Life reinsurance assets
IBNR
Total
Current portion
Non-current portion
Direct insurance
2012
2011
8,827
8,634
1,801
1,857
5,015
4,738
1,970
2,009
41
30
735
764
69
67
298
371
368
326
9,562
9,398
4,927
4,847
4,635
4,551
Accepted reinsurance
2012
2011
139
76
37
37
63
28
39
11
–
–
1
–
–
–
1
–
–
–
140
76
79
52
61
24
Total
2012
8,966
1,838
5,078
2,009
41
736
69
299
368
9,702
5,006
4,696
2011
8,710
1,894
4,766
2,020
30
764
67
371
326
9,474
4,899
4,575
xls
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.5. Receivables
Receivables arising out of direct insurance operations
Amounts owed by policyholders
Amount owed by intermediaries
Receivables arising out of reinsurance operations
Receivables from derivatives collateral
Current income tax receivables
Total receivables
Current portion
Non-current portion
2012
3,112
3,026
86
1,461
1,152
890
32
6,647
6,109
538
2011
2,752
2,691
61
1,626
577
1,034
673
6,662
5,645
1,017
2012
6,662
(157)
480
(338)
6,647
2011
11,145
(4,646)
425
(262)
6,662
xls
At 1 January
Net change in gross value of receivables
Write offs
At 31 December
xls
Trade and other receivables include a receivable from Groupama S.A. of CZK 407 million which relates to the acquisition of the
insurance activities in Polish branch. The receivable has been collected subsequently to the year end.
Annual Report 2012
155
F.6. Cash and cash equivalents
Cash at bank
Short term deposits
Total
2012
2
445
4,642
5,089
2011
5
258
3,678
3,941
2012
738
232
2011
748
206
970
970
954
954
2012
748
(10)
738
2011
756
(8)
748
xls
F.7. Accruals and prepayments
Deferred acquisition costs
Accrued income and prepayments
Total
Current portion
xls
F.7.1. Deferred acquisition costs
Carrying amount as at 31 December previous year
Net change of deferred acquisition costs
Carrying amount as at 31 December current year
xls
As described in Note C.1.26., the Company defers only non-life insurance acquisition costs. As a result, all deferred acquisition costs
are usually released within one year.
F.8. Shareholder’s equity
Share capital
Reserve for unrealised gains and losses on investments available-for-sale
Revaluation – land and buildings
Retained earnings brought forward
Total
xls
2012
4,000
2,408
4
11,036
3,883
21,331
2011
4,000
(585)
4
10,483
3,553
17,455
Annual Report 2012
156
The following table provides details on reserves for unrealised gains and losses on investments available-for-sale.
Gross revaluation as at the beginning of the year
Tax on revaluation as at the beginning of the year
Revaluation gain/loss in equity – gross
Revaluation gain/loss on realisation in income statement – gross
Impairment losses – gross
Tax on revaluation
Gross revaluation as at the end of the year
Tax on revaluation as at the end of the year (Note F.25.2.)
2012
(585)
(728)
143
4,150
(771)
316
(702)
2,967
(559)
2,408
2011
868
1,066
(198)
(2,271)
273
204
341
(728)
143
(585)
2012
40,000
100,000
2011
40,000
100,000
xls
F.8.1. Share capital
The following table provides details of ordinary shares.
As at 31 December
Number of shares authorised, issued and fully paid
Par value per share (CZK)
xls
F.8.2. Dividends
At the Annual General Meeting on 27 April 2012, the sole shareholder approved the distribution of retained earnings in the form of
dividend of CZK 75,000 per each share in the nominal value of CZK 100,000 amounting to CZK 3,000 million. Distribution concerns
prior year profit of CZK 3,553 million reduced by the allocation to retained earnings of CZK 535 million.
At the Annual General Meeting on 31 May 2011, the sole shareholder approved distribution of dividend of CZK 235,000 per share
amounting to CZK 9,400 million. Distribution concerns prior year profit of CZK 11,200 million reduced by the allocation to retained
earnings of CZK 1,800 million.
F.9. Insurance liabilities
Provisions for unearned premium
Provisions for outstanding
claims (RBNS)
Claims incurred but not
reported (IBNR)
Provisions for unearned premium
Provisions for outstanding
claims (RBNS)
Claims incurred but not
reported (IBNR)
Mathematical provision
Unit-linked provision
Total
Current
Non-current
xls
Direct insurance
2012
2011
21,717
20,898
4,746
4,301
2012
2011
640
558
103
146
Total
2012
22,357
4,849
2011
21,456
4,447
11,741
11,574
385
316
12,126
11,890
4,876
354
63,282
304
4,815
208
64,828
322
115
37
1
–
72
24
–
–
4,991
391
63,283
304
4,887
232
64,828
322
775
972
1
–
776
972
1,016
50,975
10,212
84,999
18,139
66,860
855
54,226
8,453
85,726
16,077
69,649
–
–
–
641
342
299
–
–
–
558
323
235
1,016
50,975
10,212
85,640
18,481
67,159
855
54,226
8,453
86,284
16,400
69,884
Annual Report 2012
157
F.9.1. Non-life insurance liabilities
F.9.1.1. Provision for unearned premiums
Added during the year
Released to the income statement
Gross
4,447
19,726
(19,324)
4,849
Reinsurance
(1,894)
(1,935)
1,991
(1,838)
Net
2,553
17,791
(17,333)
3,011
xls
As at 31 December 2012 the Company acquired the insurance activities into its new branch in Poland. Amount of acquired
unearned premium reserves was CZK 535 million.
Added during the year
Gross
4,666
19,813
(20,032)
4,447
Reinsurance
(2,019)
(1,837)
1,962
(1,894)
Net
2,647
17,976
(18,070)
2,553
Gross
11,890
10,803
10,043
760
(9,918)
(620)
(29)
12,126
Reinsurance
(4,766)
(4,357)
(4,043)
(314)
4,022
23
–
(5,078)
Net
7,124
6,446
6,000
446
(5,896)
(597)
(29)
7,048
xls
F.9.1.2. Provisions for outstanding claims
Plus claims incurred
Current year
Transfer from IBNR
Less claims paid
Foreign currency translation
xls
As at 31 December 2012 the Company acquired the insurance activities into its new branch in Poland. Amount of acquired
provisions for outstanding claims was CZK 76 million.
Annual Report 2012
158
Gross
12,589
10,367
9,363
1,004
(10,812)
(302)
48
11,890
Reinsurance
(5,339)
(2,253)
(1,844)
(409)
2,129
697
–
(4,766)
Net
7,250
8,114
7,519
595
(8,683)
395
48
7,124
Plus additions recognised during the year
Gross
4,887
1,991
Reinsurance
(2,020)
(767)
Net
2,867
1,224
Less transfer to claims reported provision
(760)
(1,127)
4,991
314
464
(2,009)
(446)
(663)
2,982
Plus claims incurred
Current year
Transfer from IBNR
Less claims paid
Foreign currency translation
xls
F.9.1.3. Claims incurred but not reported
xls
As at 31 December 2012 the Company acquired the insurance activities into its new branch in Poland. Amount of acquired provision
for claims incurred but not reported was CZK 134 million.
Plus additions recognised during the year
Less transfer to claims reported provision
xls
Gross
5,058
1,930
(1,004)
(1,097)
4,887
Reinsurance
(2,063)
(786)
409
420
(2,020)
Net
2,995
1,144
(595)
(677)
2,867
Annual Report 2012
159
F.9.1.4. Development of policyholders claims (RBNS and IBNR)
Estimate of cumulative claims
at the end of accident year
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Cumulative payments
catastrophic events
accepted reinsurance
not included in accident year
Amount recognised in the Statement
of Financial Position
2003
2004
2005
2006
2007
2008
12,154
12,094
11,928
11,657
11,605
11,490
11,441
11,349
11,268
11,228
11,228
10,824
13,372
13,038
12,855
12,618
12,343
12,202
12,047
12,058
12,032
13,992
13,464
13,096
12,811
12,572
12,407
12,278
12,199
13,888
13,300
13,219
12,931
12,587
12,407
12,326
12,582
12,417
12,215
11,986
11,661
11,428
11,980
11,827
11,539
11,453
11,210
2009
2010
2011
2012
Total
12,175 11,879 11,260 11,162
11,992 11,643 10,660
11,878 11,570
11,704
12,032 12,199 12,326 11,428 11,210 11,704 11,570 10,660 11,162 115,519
11,462 11,750 11,512 10,604 10,265 10,371 9,638 8,422 6,487 101,335
738
500
1,695
404
570
449
814
824
945
1,333
1,932
2,238
4,675 17,117
xls
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 2003 of CZK 1,573 million and provisions related to minor nonlife insurance products.
2002
at the end of accident year
11,348
One year later
11,513
Two years later
11,442
Three years later
11,504
Four years later
11,354
Five years later
11,325
Six years later
11,183
Seven years later
11,124
Eight years later
11,051
Nine years later
10,999
10,999
Cumulative payments
10,624
catastrophic events
not included in accident year
Amount recognised in the Statement
of Financial Position
375
2003
2004
2005
2006
2007
12,154
12,094
11,928
11,657
11,605
11,490
11,441
11,349
11,268
13,372
13,038
12,855
12,618
12,343
12,202
12,047
12,058
13,992
13,464
13,096
12,811
12,572
12,407
12,278
13,888
13,300
13,219
12,931
12,587
12,407
12,582
12,417
12,215
11,986
11,661
2008
2009
2010
2011
Total
11,980 12,175 11,879 11,260
11,827 11,992 11,643
11,539 11,878
11,453
11,268 12,058 12,278 12,407 11,661 11,453 11,878 11,643 11,260 116,905
10,767 11,423 11,722 11,463 10,501 10,138 10,170 9,243 6,423 102,474
648
388
1,310
501
635
556
944
1,160
1,315
1,708
2,400
4,837 16,777
xls
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 2002 of CZK 1,161 million and provisions related to minor nonlife insurance products.
Annual Report 2012
160
F.9.1.5. Other insurance liabilities
Contractual non-discretionary bonuses:
Creation of provisions
Utilisation of provisions
Gross
232
549
(390)
391
Reinsurance
(30)
(54)
43
(41)
Net
202
495
(347)
350
xls
As at 31 December 2012 the Company acquired the insurance activities into its new branch in Poland. Amount of acquired other
insurance provisions was CZK 99 million.
Gross
222
372
(362)
232
Reinsurance
(27)
(21)
18
(30)
Net
195
351
(344)
202
Gross
64,828
12,093
(13,682)
(2,324)
1,595
826
(35)
(18)
63,283
Reinsurance
(764)
–
–
–
–
–
30
(2)
(736)
Net
64,064
12,093
(13,682)
(2,324)
1,595
826
(5)
(20)
62,547
Gross
67,259
13,160
(14,605)
(2,443)
1,753
(172)
(105)
(19)
64,828
Reinsurance
(800)
–
–
–
–
–
39
(3)
(764)
Net
66,459
13,160
(14,605)
(2,443)
1,753
(172)
(66)
(22)
64,064
xls
F.9.2. Life assurance liabilities
Premium allocation
Release of liabilities due to benefits paid, surrenders and other terminations
Fees deducted from account balances
Unwinding of discount / accretion of interest
Changes in unit-prices
Change in IBNR and RBNS
Change in UPR
xls
Premium allocation
Change in UPR
xls
Annual Report 2012
161
F.9.2.1. Insurance liabilities and investment contract liabilities related to policies of the life segment
2012
61,454
1,829
63,283
6,370
56,913
2011
63,564
1,264
64,828
5,095
59,733
Restructuring provision
Provisions for commitments
2012
100
1,109
2011
97
1,325
Total
Current portion
Non-current portion
1,209
131
1,078
1,422
89
1,333
2012
1,422
130
(67)
(276)
1,209
2011
1,852
186
(54)
(562)
1,422
Insurance contracts
Investments contracts with discretionary participation feature
Total
Current portion
Non-current portion
xls
F.10. Other provisions
xls
Carrying amount as at 1 January
Provisions created during the year
Provisions used during the year
Provisions released during the year
Carrying amount as at 31 December
xls
As at 31 December 2012 the Company acquired an insurance activities into its new branch in Poland. Amount of acquired other
provisions was CZK 28 million.
Provisions for commitments consist of provisions for the MTPL deficit of CZK 1,042 million (2011: CZK 1,276 million) and other provisions.
Provision for MTPL deficit
On 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.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 to 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.
Annual Report 2012
162
F.11. Financial liabilities
Derivatives
Total
2012
1,919
1,919
1,934
3,853
2011
2,218
2,218
571
2,789
Current portion
Non-current portion
183
3,670
657
2,132
xls
Level 1
–
Level 2
1,919
Level 3
–
Total
1,919
Level 1
34
Level 2
2,184
Level 3
–
Total
2,218
xls
xls
There were no significant transfers between Level 1 and Level 2 fair value measurement categories in 2012 and 2011.
F.11.1. Other financial liabilities
2012
Loans and bonds
Deposits received from reinsurers
Bonds
Other loans
Total
2011
Amortised cost
1,934
1,403
497
34
1,934
Fair value
1,938
1,403
501
34
1,938
Amortised cost
571
2
500
69
571
Fair value
569
2
501
66
569
37
1,897
37
1,901
71
500
68
501
Current portion
Non-current portion
xls
The increase of deposits of reinsurers is caused by introduction of new reinsurance deposits in the reinsurance contract with GP
Reinsurance EAD.
In December 2012, at maturity date, Česká pojišťovna a.s. paid up the 250 fixed-coupon bonds in the nominal value of CZK 500
million and issued a new emission in the same nominal value. The new emission of bonds bear an interest rate of 1.83% p.a.
Transaction costs related to the bond issue amounted to CZK 2.5 million. The bonds are quoted on secondary market of Prague
Stock Exchange and their maturity will be in the year 2017.
Other loans consist of repurchase agreements of CZK 28 million (2011: CZK 69 million).
Annual Report 2012
163
F.12. Payables
Payables arising out of direct insurance operations
Payables arising out of reinsurance operations
Payables relating to taxation
Payables to client and suppliers
Payables to employees
Social security
Other payables
Total
Current portion
2012
2,513
3,636
658
97
170
66
738
7,878
7,878
2011
2,077
3,709
–
145
128
62
613
6,734
6,734
xls
The most significant item of other payables is payable to the Ministry of Finance of the Czech Republic from employer’s liability
insurance of CZK 662 million (2011: CZK 529 million).
Payables relating to taxation represent expected payables relating to an income tax for the year 2012. There was significant income
tax prepayment as at year end of 2011.
F.13. Accruals and deferred income
Reinsurance deferrals
Accrued interest expense
Other accrued expense
Thereof: Non-invoiced supplies
Commissions
Accrued expenses for untaken holidays and bonuses
Deferred income from real estate
Total
Current portion
xls
2012
22
–
1,809
789
845
175
1
1,832
1,832
2011
21
1
1,808
736
820
252
1
1,831
1,831
Annual Report 2012
164
F.14. Net earned premiums
Non-life earned premiums
Premiums written
Change in the UPR
Life earned premiums
Premiums written
Total
Gross amount
2012
2011
19,678
20,381
19,545
20,162
133
219
12,462
13,205
12,462
13,205
32,140
33,586
Reinsurer’s share
2012
2011
(9,027)
(9,192)
(8,971)
(9,067)
(56)
(125)
(1,293)
(1,221)
(1,293)
(1,221)
(10,320)
(10,413)
Net amount
2012
2011
10,651
11,189
10,574
11,095
77
94
11,169
11,984
11,169
11,984
21,820
23,173
xls
F.15. Income from other financial instruments and investment properties
Interest income
Interest income from loans and receivables
Interest income from available-for-sale financial assets
Interest income from cash and cash equivalents
Interest from other investments
Other income
Income from land and buildings (investment properties)
Income from equities available-for-sale
Other income from available-for-sale financial assets
Interests and other investment income
Realised gains
Realised gains on loans and receivables
Realised gains on available-for-sale financial assets (note F.3.3.)
Reversal of impairment
Reversal of impairment of loans and receivables
Reversal of impairment on other receivables from reinsurers
Other income from financial instruments and other investments
Total
2012
2,211
76
2,101
24
10
138
2
104
32
2,349
1,149
–
1,149
300
265
35
1,449
3,798
2011
2,168
79
2,041
33
15
176
3
87
86
2,344
1,197
5
1,192
292
292
–
1,489
3,833
xls
F.16. Income from subsidiaries companies
In 2012 income from subsidiaries represents dividends received from subsidiaries in the amount of CZK 95 million (2011: CZK 610 million).
Annual Report 2012
165
F.17. Net income from financial assets at fair value through profit or loss
Financial
investments
held-for-trading
Financial assets
Interests and other income
Realised
– gains
– losses
Unrealised
– gains
– losses
Interest expenses
Realised
– gains
– losses
Unrealised
– gains
– losses
Other income
Total
Unit linked
investments
Financial
investments
designated as at
fair value through
profit or loss
2012
2011
Total financial
investments
at fair value
through
profit or loss
2012
2011
2012
2011
2012
2011
63
2,846
(781)
353
(33)
47
3,389
(1,562)
165
(200)
1
6
(1)
867
(13)
1
7
(17)
245
(379)
532
121
(18)
395
(102)
742
203
(236)
346
(38)
596
2,973
(800)
1,615
(148)
790
3,599
(1,815)
756
(617)
(93)
491
(2,001)
(155)
1,000
(3,540)
–
–
–
–
–
–
(223)
–
–
(101)
–
–
(316)
491
(2,001)
(256)
1,000
(3,540)
131
(114)
18
880
81
(997)
22
(1,750)
–
–
–
860
–
–
–
(143)
329
(538)
–
496
410
(674)
–
652
460
(652)
18
2,236
491
(1,671)
22
(1,241)
xls
F.18. Other income
Gains on foreign currency
Reversal of other provisions (Note F.10.)
Income from services and assistance activities and recovery of charges
Other technical income
Total
xls
2012
313
343
133
148
937
2011
1,955
616
187
167
2,925
Annual Report 2012
166
F.19. Net insurance benefits and claims
Non-life net insurance benefits and claims
Claims paid
Claims settlement expenses
Profit sharing and premium refunds paid
Change in the provision for outstanding claims
Change in the IBNR provision
Change in other insurance liabilities
Life net insurance benefits and claims
Claims paid
Claims settlement expenses
Profit sharing and premium refunds paid
Change in the provision for UPR
Change in the provision for outstanding claims
Gross amount
2012
2011
10,996
10,843
10,288
11,287
143
67
375
349
160
(699)
(30)
(171)
60
10
9,660
9,337
11,073
11,602
13
9
119
157
(18)
(19)
(196)
(187)
Reinsurer’s share
2012
2011
(4,378)
(4,151)
(4,023)
(4,746)
–
–
(43)
(18)
(312)
573
11
43
(11)
(3)
(362)
(350)
(390)
(386)
–
–
–
–
(2)
(3)
72
71
Net amount
2012
2011
6,618
6,692
6,265
6,541
143
67
332
331
(152)
(126)
(19)
(128)
49
7
9,298
8,987
10,683
11,216
13
9
119
157
(20)
(22)
(124)
(116)
Change in the IBNR provision
Change in the mathematical provision
Change in the unit-linked provision
Total
161
(3,251)
1,759
20,656
(42)
–
–
(4,740)
119
(3,251)
1,759
15,916
82
(3,776)
1,469
20,180
(32)
–
–
(4,501)
50
(3,776)
1,469
15,679
xls
Life insurance
The change in the mathematical provision is influenced primarily by decreased maturities/surrender payments in comparison to 2011.
The increase in the unit-linked provision is caused by continuing business product mix aimed at unit-linked products.
Non-life insurance
The year 2012 was another relatively favourable year to occurrence of calamities and big claims in almost all lines of business expect
crop insurance. This reason influenced significantly mainly the items Claims paid and Change in the provision for outstanding claims
in the Gross amount. The year 2011 was in items Change in the provision for outstanding claims and Change in the IBNR provision
influenced by release of provision from the year 2010 (large calamity claims (floods, hails) and large risks claims).
F.20. Interest expense
Interest expense on loans, bonds and other payables
Interest expense on deposits received from reinsurers
Interest expense
xls
2012
26
25
51
2011
27
–
27
Annual Report 2012
167
F.21. Other expenses for financial instruments and other investments
2012
136
23
113
378
378
320
316
–
4
834
Other expenses
Expenses from land and buildings (investment properties)
Other expenses on investments
Realised losses
Realised losses on available-for-sale financial assets (Note F.3.3.)
Impairment losses
Impairment of available-for-sale financial assets (Note F.3.3.)
Impairment on receivables from reinsurers
Impairment of other receivables
2011
135
5
130
1,465
1,465
243
204
26
13
1,843
xls
F.22. Expenses from subsidiaries
In 2012 there were no expenses from subsidiaries. In 2011 subsequent to dividend payment and as a result of a regular assessment
of the recoverable amount of the company the management of the Company has decided to record impairment in amount of 19
million CZK for Pankrác Services s.r.o.
F.23. Acquisition and administration costs
Gross acquisition costs
and other commissions
Change of deferred acquisition costs
Other administration costs
Total
Non-life segment
2012
2011
Life segment
2012
2011
2012
2011
1,887
(3)
1,256
3,140
1,724
–
786
2,510
3,611
(3)
2,042
5,650
3,811
27
2,343
6,181
1,807
27
1,406
3,240
2,004
–
937
2,941
Total
xls
Other administration costs include building rentals of CZK 433 million (in 2011: CZK 416 million).
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
Later than one year and not later than five years
Later than five years
Total
xls
2012
382
1288
170
1840
2011
382
1,327
404
2,113
Annual Report 2012
168
F.24. Other expenses
Amortisation of intangible assets
Depreciation of tangible assets
Losses on foreign currencies
Restructuring charges and allocation to other provisions (Note F.10.)
Expense from service and assistance activities and charges incurred on behalf of third parties
Expenses from non-current assets or disposal group classified as held-for-sale
Other technical expenses
Total
2012
409
110
910
102
39
6
218
1,794
2011
426
115
446
186
42
178
1,393
2012
726
32
758
2011
734
(129)
605
2012
19%
4,641
883
61
(203)
17
758
16.33%
2011
19%
4,158
789
140
(357)
33
605
14.55%
xls
F.25. Income taxes
Current income taxes
Deferred taxes
Total
xls
Reconciliation between expected and effective tax rates:
Expected income tax rate
Earnings before taxes
Expected income tax expense
Expenses not allowable for tax purposes
Income not subject to tax
Other reconciliations
Tax expense
Effective tax rate
xls
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.
Annual Report 2012
169
F.25.1. Deferred tax
Intangible assets
Tangible assets and Land and buildings (self used)
Land and buildings (investment properties)
Other investments
Loans and receivables
Financial liabilities and other liabilities
Other
Total
Net deferred tax receivable/liability
Deferred tax Asset
2012
2011
–
–
10
8
–
–
4
4
–
–
88
88
10
24
26
29
138
153
14
46
Current portion
Non-current portion
75
63
48
105
Deferred tax Liabilities
2012
2011
(88)
(72)
(24)
(22)
(3)
(6)
–
–
(8)
(6)
–
–
(1)
(1)
–
–
(124)
(107)
–
–
(16)
(108)
(10)
(97)
xls
The changes in deferred tax assets and liabilities were recognised through the income statement.
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 2013 and following years is 19% (2012 – 19%).
F.25.2. Current tax and deferred tax recognised directly in equity
Deferred tax – revaluation gain on property and equipment
Deferred tax – revaluation gain on financial assets at AFS
Current tax – unrealised gain/losses on financial assets at AFS
Total tax on revaluation on financial assets at AFS
Total
xls
Details on tax on revaluation on financial assets at AFS are included in note F.8.
2012
(1)
4
(563)
(559)
(560)
2011
(1)
4
139
143
142
Annual Report 2012
170
F.26. Information on employees
Number of employees, as at 31 December
Top management
Other managers
Employees
Sales attendant
Others
Total
2012
40
326
2,968
708
167
4,209
2011
49
334
2,773
736
123
4,015
2012
1,877
634
395
70
21
2,581
2011
1,944
603
381
70
20
2,617
2012
975
405
1,201
2,581
2011
983
423
1,211
2,617
xls
Wages and salaries
Compulsory social security contributions
Thereof: state-defined contribution pension plan
Other expenses
Thereof: contribution to the private pension funds
Total staff costs
xls
The following table shows an allocation of staff costs in the income statement.
Acquisition costs
Insurance Benefits and Claims
Administrative costs
Total
xls
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).
F.27. Hedge accounting
F.27.1. Foreign currency risk hedging
Starting 1 October 2008, hedge accounting is applied by the Company on foreign currency risk (FX risk). The company uses fair
value hedging.
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.
Annual Report 2012
171
Hedged items
Hedge accounting is applied to financial assets – defined as all non-derivative financial assets denominated in or exposed to 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) 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 instruments
Hedging instruments are defined as all FX derivatives. 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 million
Equities, bonds, investment funds units
Term deposits and current bank accounts
Derivatives
Hedging effectiveness
Fair value
as at 31.12.2012
24,348
183
174
FX gain/(loss) for the period
from 1.1. to 31.12.2012
(904)
16
960
108%
Fair value
as at 31.12.2011
24,831
22
(672)
FX gain/(loss) for the period
from 1.1. to 31.12.2011
1,082
(36)
(1,174)
112%
xls
In CZK million
Derivatives
xls
F.27.2. Interest rate risk hedging
Starting 1 July 2011 the hedge accounting has been applied to derivatives hedging an interest rate risk exposure of interest-bearing
financial assets. The company uses fair value hedging.
The Company has implemented a risk management strategy for interest rate risk. The objective of the investment and hedging strategy
is to manage the overall interest rate risk position on a continuous basis. The Company achieves this objective by a dynamic strategy.
Change in the fair value of interest rated derivatives and FVTPL interest-bearing financial assets is reported in the profit or loss
account according to IFRS rules. Change in the fair value of AFS interest-bearing financial assets attributable to the interest rate risk is
within the hedge accounting reported in the profit or loss account either as other income from financial instruments and other
investments or other expenses for financial instruments and other investments.
Annual Report 2012
172
Hedged items
The Company designates as the hedged item a group of fixed income instruments. Hedged items include financial assets classified in
the available-for-sale category and fair value to profit or loss category. The hedged items do not include financial liabilities.
Hedging instruments
Hedging instruments are defined as a group of interest rate derivatives. The derivatives are designated as hedging instruments in
their entirety.
Assets and derivatives 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 million
Fair value
as at 31.12.2012
Fixed income instruments
Derivatives
17,309
(1,412)
Change in fair value attributable
to interest rate risk for the period
from 1.1. to 31.12.2012
451
(520)
115%
xls
In CZK million
Fair value
as at 31.12.2011
Derivatives
18,547
(1,064)
Change in fair value attributable
to interest rate risk for the period
from 1.7. to 31.12.2011
613
(650)
106%
xls
F.28. Earnings per share
The next table shows the earnings per share:
For the year ended 31 December
Weighted average number of ordinary shares outstanding
Earnings per share (in CZK; basic and diluted)
2012
3,883
40,000
97,066
xls
The earnings per share figure is calculated by dividing the result of the period by the weighted average number of ordinary
shares outstanding.
2011
3,553
40,000
88,825
Annual Report 2012
173
F.29. Off balance sheet items
F.29.1. Commitments
The Company, as a lender, has signed a loan agreement with ČP DIRECT, a.s., as a borrower, according to which it is obliged, subject
to the notice of borrowing issued by the borrower, to provide the interest free loan to the borrower. The borrower can get a loan up
to CZK 20 million. During the year 2011 a loan of CZK 10 million have been provided (in two equal parts). The first part of loan was
repaid in December 2012. The second part of loan has not been repaid yet. The loan agreement terminates on 29 June 2014.
The Company had no other significant contractual commitments as at 31 December 2012.
F.29.2. Other contingencies
F.29.2.1. Legal
As at the release date of the financial statements, there were four 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.29.2.2. Participation in nuclear pool
As 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.
Annual Report 2012
174
The subscribed net retention is as follows:
Liability
Fire, lightning, explosion, aircraft (“FLEXA”) and break down of operations
Transportation risk
Technical insurance and breakdown of operations
Total
2012
166
576
115
288
1,145
2011
166
576
115
288
1,145
xls
F.29.2.3. Membership in the Czech Insurance Bureau
As 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. Management does not believe the risk of this occurring to
be material to the financial position of the Company.
F.30. Related parties
This chapter contains information about all significant transactions with related parties excluding those which are described in other
parts of the notes.
F.30.1. Identity of related parties
The Company is related to ultimate controlling entity Assicurazioni Generali S.p.A. and to companies controlled by it. The Company
also has a related party relationship with its subsidiaries and associates as well as with its indirect 49% shareholder PPF Group N.V.
and companies controlled by it.
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 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.30.2. Transactions with key management personnel of the Company
Short-term employee benefits
State-defined contribution pension plan
xls
Board of Directors
Related
Related
to the board
to employment
membership
contract
1
62
–
1
Supervisory Board
Related
Related
to the board
to employment
membership
contract
2
2
–
–
Annual Report 2012
175
Short-term employee benefits
Board of Directors
Related
Related
to the board
to employment
membership
contract
5
28
–
1
Supervisory Board
Related
Related
to the board
to employment
membership
contract
1
–
–
–
xls
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 termination benefits paid to the key management personnel of the Company in 2012.
As at 31 December 2012 and 31 December 2011, the members of the statutory bodies held no shares of the Company.
F.30.3. Related party transactions
The related party transactions were carried out on terms equivalent to those that would apply in similar transactions with
unrelated parties.
The Company had no material transactions or outstanding balances with the ultimate parent company Generali in either in 2012 or
in 2011.
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 (primarily entities from PPF Group N.V., indirect 49% shareholder of the Company)
Assets
Receivables from insurance and reinsurance business
Reinsurance assets
Other financial assets
Other assets
Total assets
Liabilities
Payables from insurance and reinsurance business
Other liabilities
Total liabilities
Notes
Group 1
Group 2
Group 3
i.
ii.
iii.
iv.
9
–
2
307
318
1,120
8,266
–
34
9,420
1
–
2,990
1,844
4,835
v.
39
3
–
63
105
4,716
161
85
25
4,987
45
–
28
42
115
Notes:
i. The balances with companies in Group 2 comprise especially receivables from reinsurance from GP Reinsurance EAD, Bulgaria (GP RE) in the amount of CZK 1,067 million.
ii. The balances with companies in Group 2 comprise technical provisions ceded to GP RE in the amount of CZK 8,194 million.
iii. The balances with companies in Group 3 comprise bonds issued by Home Credit Group companies in the amount of CZK 2,398 million..
iv. The balances with companies in Group 3 comprise and bank deposits with PPF banka a.s. in the amount of CZK 1769 million.
v. The balances with companies in Group 2 comprise payables from reinsurance from GP RE in the amount of CZK 4,663 million.
xls
Annual Report 2012
176
Assets
Reinsurance assets
Other assets
Total assets
Liabilities
Other liabilities
Total liabilities
Notes
Group 1
Group 2
Group 3
i.
ii.
iii.
4
–
11
34
49
1,208
8,197
–
39
9,444
–
–
5,313
614
5,927
iv.
30
1
–
21
52
3,394
84
–
29
3,507
–
–
103
73
176
Notes:
i. The balances with companies in Group 2 comprise especially receivables from reinsurance from GP Reinsurance EAD, Bulgaria (GP RE) in the amount of CZK 1,147 million
ii. The balances with companies in Group 2 comprise reinsurance assets for GP RE in the amount of CZK 8,124 million.
iii. The balances with companies in Group 3 include bonds issued by Home Credit Group companies in the amount of CZK 3,211 million and bank deposits with
PPF banka a.s. in the amount of CZK 1,302 million and receivables from repurchase agreements CZK 393 million with PPF banka a.s.
iv. The balances with companies in Group 2 comprise payables from reinsurance towards GP RE in the amount of CZK 3,363 million
xls
Notes
Income
Income from insurance business
Income from reinsurance business
Income from financial activities
Other income
Total income
Expenses
Expenses from insurance business
Expenses from reinsurance business
Expenses from financial activities
Other expenses
Total expenses
i.
ii.
Group 1
Group 2
Group 3
5
(1)
95
–
99
174
6,202
18
–
6,394
8
–
222
214
444
(11)
–
–
(156)
(167)
(134)
(9,463)
(107)
(126)
(9,830)
–
–
(28)
(394)
(422)
Notes:
i. The balances in Group 2 include transactions from reinsurance with GP RE in the amount of CZK 6,200 million (reinsurance commission and claims paid)
ii. The balances in Group 2 include ceded earned premium with GP RE in the amount of CZK 9,341 million.
xls
Annual Report 2012
177
Notes
Income
Income from insurance business
Income from reinsurance business
Other income
Total income
Expenses
Expenses from insurance business
Expenses from reinsurance business
Other expenses
Total expenses
Group 1
Group 2
Group 3
5
(1)
684
–
688
207
6,517
49
28
6,801
11
–
365
409
785
(8)
–
(27)
(252)
(287)
(28)
(9,603)
(102)
(165)
(9,898)
(59)
–
(39)
(645)
(743)
i.
ii.
Notes:
i. The balances in Group 2 include transactions from reinsurance with GP RE in the amount of CZK 6,448 million (reinsurance commission and claims paid).
ii. The balances in Group 2 include earned premium ceded to GP RE in the amount of CZK 9,482 million.
xls
The Company has committed to provide loans to its related parties, see F.29.1.
G. Subsequent events
On 8 January 2013 Generali and PPF Group announced that they have agreed on the conditions for the resolution of the GPH joint
venture and transferring full ownership and management control to Generali. An integral part of the agreement is to sell to PPF
Group its insurance operations in Russia, Ukraine, Belarus and Kazakhstan. This involves three subsidiaries of Česká pojišťovna a.s.:
Generali Foreign Insurance Company Inc., JSC “Generali Life” and Finansovyj servis o.o.o.
178
to the shareholder of Česká pojišťovna a.s.
We have audited the accompanying consolidated financial statements of Česká pojišťovna a.s. and its subsidiaries (“the Group”)
which comprise the consolidated statement of financial position as at 31 December 2012, and the consolidated income statement,
consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash
flows for the year then ended, and a summary of significant accounting policies and other explanatory information. For details of the
Group see Note A.1. to the consolidated financial statements.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards as adopted by the European Union, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor's Responsibility
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 and International Standards on Auditing as amended by implementation 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 consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor's judgment, including an assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity's preparation and fair presentation of the consolidated 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 entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Annual Report 2012
19 – Independent Auditor’s Report
179
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at
31 December 2012, and 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.
Other Matter
The consolidated financial statements of the Group, as at 31 December 2011, were audited by another auditor who expressed an
unmodified opinion on those statements on 23 April 2012.
License No. 401
Represented by
Jan Niewold
Partner
Jakub Kolář
26 April 2013
Annual Report 2012
20 – Consolidated Financial Statements for the year ended 31 December 2012
180
Consolidated Financial Statements
Contents
Acronyms
A.
182
Consolidated Statement of Financial Position
183
Consolidated Income Statement
184
Consolidated Statement of Comprehensive Income
185
Consolidated Statement of Changes in Equity
186
Consolidated Statement of Cash Flows
188
Notes To The Consolidated Financial Statements
190
General Information
190
A.1.
Description of the Group
190
A.2.
Statutory bodies
190
A.3.
Statement of compliance
191
A.4.
Basis of preparation
191
B.
General Criteria for Drawing Up the Consolidated Financial Statements
191
B.1.
Group entities
191
B.2.
Consolidation methods
197
C.
Significant Accounting Policies and Assumptions
199
C.1.
Significant accounting policies
199
C.2.
Non uniform accouting policies of subsidiaries
215
C.3.
Principal assumptions
215
C.4.
Terms and conditions of insurance and investment contracts with DPF that have a material impact
218
C.5.
Critical accounting estimates and judgements
221
C.6.
Changes in accounting policies
221
D.
Segment Reporting
224
E.
Risk Report
228
E.1.
Risk Management System
228
E.2.
Roles and responsibility
228
E.3.
Risk measurement and control
229
E.4.
Market risk
229
E.5.
Credit risk
236
E.6.
Liquidity risk
239
E.7.
Insurance risks
241
E.8.
Operating risk and other risks
245
E.9.
Financial strength monitoring by third parties
E.10.
Capital management
24
246
Annual Report 2012
181
F.
Notes to the Consolidated Statement of Financial Position and Income Statement
247
F.1.
Intangible assets
247
F.2.
Tangible assets
250
F.3.
Investments
250
F.4.
Reinsurance assets
255
F.5.
Receivables
256
F.6.
Other assets
256
F.7.
256
F.8.
Non-current assets held-for-sale
257
F.9.
Shareholder’s equity
257
F.10.
Other provisions
258
F.11.
Insurance provisions
258
F.12.
262
F.13.
Payables
263
F.14.
Other liabilities
263
F.15.
Net earned premiums
263
F.16.
Net gains/(losses) from financial assets at fair value through profit or loss
264
F.17.
264
F.18.
Other income
265
F.19.
265
F.20.
Fee and commission expenses and expenses from financial services activities
265
F.21.
Expenses from other financial instruments and investment properties
266
F.22.
266
F.23.
Other expenses
267
F.24.
Income taxes
267
F.25.
Information on employees
269
F.26.
Hedge accounting
269
F.27.
Earnings per share
272
F.28.
Off-balance sheet items
273
F.29.
Related parties
274
F.30.
Audit fees
276
G.
Subsequent Events
276
Annual Report 2012
Acronyms
Acronym
IFRIC
FVPL
CDS
IRS
CCS
CDO
ABS
MTPL
X/L
DPF
AGG
CAT
PVFP
D&O
Interpretation of International Financial Reporting Interpretations Committee
Credit default swap
Interest rate swap
Cross currency swap
Credit default option
Asset backed securities
Excess of Loss reinsurance
Discretionary participation features
Property and CASCO aggregate X/L
Catastrophe excess of loss reinsurance contract
Present value of future profit
Directors and officers liability
182
Annual Report 2012
183
Consolidated Statement of Financial Position
Amounts as at 31 December
(CZK million)
Total assets
1
Intangible assets
1.1
Goodwill
1.2
2
Tangible Assets
2.1
Land and buildings (own use)
2.2
Other tangible assets
3
Investments
3.1
3.2
Investments in subsidiaries and associated companies
3.3
Loans and receivables
3.4
Available for sale financial assets
3.5
of which financial assets relating to unit-linked policies
Note
F.
F.1.
F.1.1.
F.1.2.
F.2.
F.2.1.
F.2.2.
F.3.
F.3.1.
F.3.2.
F.3.3.
F.3.4.
F.3.5.
F.3.5.
2012
196,084
3,269
1,688
1,581
480
122
358
163,866
2,409
11
3,181
128,234
30,031
10,559
2011
178,230
2,893
1,283
1,610
463
119
344
150,672
1,891
6
5,489
113,083
30,203
8,698
4
Reinsurance assets
5
Receivables
5.1
5.2
5.3
5.4
6
Other assets
6.1
6.2
Deferred tax assets
6.3
Other assets
7
Total shareholders’ equity and liabilities
1
Shareholders’ equity
1.1
Shareholders equity attributable to the Group
1.1.1 Share capital
1.1.2 Capital and revenue reserves
1.2
Shareholders equity attributable to non-controlling interest
2
Other provisions
3
4
4.1
Financial liabilities through profit or loss
4.2
5
Payables
5.1
Payables arising out of direct insurance operations
5.2
Payables arising out of reinsurance operations
5.3
Current income tax payables
5.4
Other payables
6
Other liabilities
6.1
Deferred tax liabilities
6.2
Other liabilities
F.4.
F.5.
F.5.
F.5.
F.5.
F.5.
F.6.
F.6.1.
F.6.
F.6.
F.7.
F.
F.9.
F.9.
F.9.
F.9.
F.9.
F.10.
F.11.
F.12.
F.12.
F.12.
F.13.
F.13.
F.13.
F.13.
F.13.
F.14.
F.14.
F.14.
9,735
7,431
3,163
1,459
2,741
68
1,656
1,315
47
294
9,647
196,084
25,320
24,906
4,000
20,906
414
1,256
87,267
71,132
2,371
68,761
8,671
2,594
3,658
733
1,686
2,438
303
2,135
9,508
7,407
2,798
1,629
2,275
705
1,565
1,113
171
281
5,722
178,230
17,109
17,019
4,000
13,019
90
1,446
87,357
62,947
2,762
60,185
7,296
2,104
3,739
71
1,382
2,075
164
1,911
xls
Annual Report 2012
184
Consolidated Income Statement
(CZK million)
1
Total income
1.1
Net earned premiums
1.1.1 Gross earned premiums
1.1.2 Earned premiums ceded
1.2
Fee and commission income and income from financial service activities
1.3
Net gains/(losses) from financial instruments at fair value through profit or loss
of which net gains/(losses) from financial investments relating to unit-linked policies
1.4
1.4.1 Interest income
1.4.2 Other income
1.4.3 Realized gains
1.4.4 Unrealized gains
1.4.5 Reversal of impairment losses
1.5
Other income
2
Total Expenses
2.1
2.1.1 Claims paid and change in insurance provisions
2.1.2 Reinsurers’ share
2.2
Fee and commission expenses and expenses from financial service activities
2.3
Expenses from other financial instruments and investment properties
2.3.1 Interest expense
2.3.2 Other expense
2.3.3 Realised losses
2.3.4 Unrealised losses
2.3.5 Impairment losses
2.4
2.4.1 Commissions and other acquisition costs
2.4.2 Investment management expenses
2.4.3 Other administration costs
2.5
Other expenses
Change in net assets attributable to unitholders
EARNINGS BEFORE TAXES
Income taxes
NET PROFIT OF THE YEAR
Result of the period attributable to the equityholders of the parent
Result of the period attributable to non-controlling interests
Note
F.15.
F.15.
F.15.
F.16.
F.16.
F.17.
F.17.
F.17.
F.17.
F.17.
F.17.
F.18.
F.19.
F.19.
F.19.
F.20.
F.21.
F.21.
F.21.
F.21.
F.21.
F.21.
F.22.
F.22.
F.22.
F.22.
F.23.
F.24.
2012
33,976
23,298
33,709
(10,411)
330
3,266
55
6,355
4,187
282
1,256
312
318
727
2011
31,200
23,911
34,406
(10,495)
290
(2,511)
(33)
6,648
4,090
328
1,527
408
295
2,862
(29,199)
(16,101)
(20,878)
4,777
(1,179)
(2,302)
(1,298)
(122)
(509)
(43)
(330)
(7,216)
(4,471)
(284)
(2,461)
(2,401)
(174)
4,603
(898)
3,705
3,693
12
(27,405)
(15,816)
(20,363)
4,547
(581)
(2,631)
(863)
(47)
(1,468)
(5)
(248)
(7,017)
(4,176)
(297)
(2,544)
(1,360)
61
3,856
(735)
3,121
3,110
11
2012
92
–
92
2011
78
–
78
xls
Earnings per share for net profit attributable to the equity holders of the parent during the year:
(CZK thousand)
– From continuing operations (basic, diluted)
– From discontinued operations (basic, diluted)
Total
xls
Annual Report 2012
185
Consolidated Statement of Comprehensive Income
(CZK million)
Net profit of the year
Other comprehensive income
Available-for-sale financial assets revaluation in equity
Available-for-sale financial asset realised revaluation in income statement
Currency translation differences
Changes in cash flow hedge reserve
Total gains and losses recognised directly in equity
Tax on items taken directly to or transferred into equity
Other Comprehensive income, net of tax
Total comprehensive income
Attributable to:
– equity holders of Parent Company
– non-conrolling interests
xls
Note
2012
3,705
2011
3,121
F.9.
F.17., F.21.
F.21.
F.9.
8,426
(747)
303
(26)
40
7,996
(920)
7,076
10,781
(1,915)
(53)
203
4
(56)
(1,817)
372
(1,445)
1,676
10,749
32
1,676
–
Annual Report 2012
186
(CZK million) Note
Balance as at
1 January 2011
Net profit for
the year
Available-for-sale
financial assets
revaluation in
equity
F.9.
Available-for-sale
financial asset
realised
revaluation in
income
statement
F.9.
Available-for-sale
impairment
losses
F.9.
Currency
translation
differences
Changes in
cash flow
hedge reserve
Tax on items
of other
compehensive
income
F.9.
Total
comprehensive
income
Changes in
ownership
interests in
subsidiaries
that do not
result in a loss
of control
Transfers to
and use of funds
Dividends to
shareholders F.9.1.
Balance as at
31 December
2011
1
Share
capital
Other Revalu- Revalu- StatuTransCash EqualiOther
AttriAttri
capital ation – ation –
tory
lation
flow sation retained butable butable
reserv- financial
Land reserve reserve hedge reserve
earn- to equity to Nones assets
and
fund
reserve
fund1
ings holders -control
AFS
buildof Parent
ling
ings
Comintepany
rests
Total
4,000
–
1,415
4
1,081
(152)
18
577
17,818
24,761
67
24,828
–
–
–
–
–
–
–
–
3,110
3,110
11
3,121
–
–
(1,915)
–
–
–
–
–
–
(1,915)
–
(1,915)
–
–
(53)
–
–
–
–
–
–
(53)
–
(53)
–
–
203
–
–
–
–
–
–
203
–
203
–
–
–
–
–
11
–
–
–
11
(7)
4
–
–
–
–
–
–
(52)
–
–
(52)
(4)
(56)
–
–
366
–
–
–
6
–
–
372
–
372
–
–
(1,399)
–
–
11
(46)
–
3,110
1,676
–
1,676
–
–
–
–
–
–
–
–
(18)
(18)
23
5
–
–
–
–
58
–
–
–
(58)
–
–
–
–
–
–
–
–
–
–
–
(9,400)
(9,400)
–
(9,400)
4,000
–
16
4
1,139
(141)
(28)
577
11,452
17,019
90
17,109
of a liability under IFRS. It is not available for distribution. Change in equalisation reserve is captured as a transfer between distributable retained earnings and
non-distributable equalisation reserve fund in equity.
xls
Annual Report 2012
187
(CZK million) Note
Balance as at
1 January 2012
Net profit for
the year
Available-for-sale
financial assets
revaluation in
equity
F.9.
Available-for-sale
financial asset
realised
revaluation
in income
statement
F.9.
Available-for-sale
impairment
losses
F.9.
Currency
translation
differences
Changes in cash
flow hedge
reserve
Tax on items
of other
compehensive
income
F.9.
Total
comprehensive
income
Changes in
ownership
interests in
subsidiaries
that do not
result in a loss
of control
Acquisition
of a subsidiary
from a party
under common
control
B.1.
Changes in
equalisation
reserve fund1
Transfers to
and use of funds
Dividends to
shareholders F.9.1.
Balance as at
31 December
2012
1
Share
capital
Other Revalu- Revalu- StatuTransCash EqualiOther
AttriAttri
capital ation – ation –
tory
lation
flow sation retained butable butable
reserv- financial
Land reserve reserve hedge reserve
earn- to equity to Nones assets
and
fund
reserve
fund1
ings holders -control
AFS
buildof Parent
ling
ings
Comintepany
rests
Total
4,000
–
16
4
1,139
(141)
(28)
577
11,452
17,019
90
17,109
–
–
–
–
–
–
–
–
3,693
3,693
12
3,705
–
–
8,426
–
–
–
–
–
–
8,426
–
8,426
–
–
(747)
–
–
–
–
–
–
(747)
–
(747)
–
–
303
–
–
–
–
–
–
303
–
303
–
–
–
–
–
(25)
–
–
–
(25)
(1)
(26)
–
–
–
–
–
–
17
–
–
17
23
40
–
–
(915)
–
–
–
(3)
–
–
(918)
(2)
(920)
–
–
7,067
–
–
(25)
14
–
3,693
10,749
32
10,781
–
–
–
–
–
–
–
–
(68)
(68)
292
224
–
206
–
–
–
–
–
–
–
206
–
206
–
–
–
–
–
–
–
(28)
28
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(3,000)
(3,000)
–
(3,000)
4,000
206
7,083
4
1,139
(166)
(14)
549
12,105
24,906
414
25,320
of a liability under IFRS. It is not available for distribution. Change in equalisation reserve is captured as a transfer between distributable retained earnings and
non-distributable equalisation reserve fund in equity.
xls
Annual Report 2012
188
Consolidated Statement of Cash Flows (Indirect Method)
(CZK million)
Adjustments for:
Amortisation of PVFP and impairment losses on goodwill and PVFP
Impairment and reversal of impairment of current and non-current assets
Profit/Loss on disposal of PPE, intangible assets and investment property
Gain / loss from revaluation of financial securities and investment property
Interest expense
Interest income
Dividend income
Interest income from financial instruments at FVPL
Income/expenses not involving movements of cash
Purchase of financial assets at FVPL held for trading
Proceeds from financial assets at FVPL held for trading
Change in loans and receivables
Change in receivables
Change in reinsurance assets
Change in other assets, prepayments and accrued income
Change in payables
Change in financial liabilities for investment contract with DPF
Change in financial liabilities at FVPL held for trading
Change in assets and liabilities to banks
Change deposits received from reinsurer
Change in insurance liabilities
Change in other liabilities, accruals and deferred income
Change in other provisions
Cash flows arising from taxes on income
Net cash flow from operating activities
xls
Note
2012
4,603
2011
3,856
F.23.
F.23.
F.17., F.21.
575
13
160
4
(3,467)
1,298
(4,187)
(136)
(740)
743
(129)
1,141
588
12
(47)
–
3,186
863
(4,090)
(172)
(1,143)
(1,246)
(1,392)
3,950
2,308
134
(226)
(206)
654
3,070
(797)
219
1,401
(930)
166
(218)
(267)
5,187
(341)
(467)
768
(272)
11
4,260
1,000
257
–
(3,057)
(19)
(429)
(1,493)
4,583
F.21.
F.17.
F.17.
F.16.
Annual Report 2012
(CZK million)
Cash flow from investing activities
Interest received
Dividends received
Purchase of tangible assets and intangible assets
Purchase of financial assets at FVPL not held for trading
Purchase of financial assets available for sale
Purchase of investment property
Net cashflow from acquisition of subsidiaries, associates and joint ventures,
net of cash acquired
Provided loans
Proceeds from disposals of tangible and intangible assets
Proceeds from financial assets at FVPL not held for trading
Proceeds from financial assets available for sale
Proceeds from disposal and other proceeds from subsidiaries,
associates and joint ventures, net of cash disposed
Net cash flow from investing activities
Cash flow from financing activities
Drawing of loans
Repayment of loans
Interest paid
Dividends paid to shareholders
Payment of other liabilities from bonds issued
Proceeds from other liabilities from bonds issued
Proceeds from issuance of ordinary shares
Net cash flow from financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents as at 1 January
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents as at 31 December
xls
Note
189
2012
2011
4,541
136
(558)
(3,175)
(48,430)
(9)
4,629
172
(730)
(8,148)
(70,515)
–
(391)
–
59
4,778
44,816
–
(1,086)
16
11,964
59,191
–
1,767
5,561
1,054
F.7.
–
–
(29)
(3,000)
(500)
500
–
(3,029)
3,925
5,722
1,024
(1,344)
(89)
(9,400)
–
–
32
(9,777)
(4,140)
9,862
F.7.
–
9,647
–
5,722
B.1.
Annual Report 2012
190
Notes to the Consolidated Financial Statements
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 2012 (“the financial statements”)
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 2011 and 2012.
Structure of Shareholders
CZI Holdings N.V., domiciled in the Netherlands, is the sole shareholder of the Company in 2011. From 2008, CZI Holdings is
an integral part of Generali PPF Holding B.V. (GPH), a company owned by Assicurazioni Generali S.p.A. (“Generali”, 51%) and
PPF Group N.V. (49%). PPF Group N.V. was the ultimate parent of the Company until 17 January 2008.
Generali is the Company’s ultimate parent company. Generali’s financial statements are publicly available on www.generali.com.
Registered Office of Česká pojišťovna
Spálená 75/16
113 04 Prague 1
Czech Republic
ID number: 45 27 29 56
The Board of Directors authorised the financial statements for issue on 26 April 2013.
A.2. Statutory bodies
Board of Directors as at the end of the reporting period:
Chairman:
Vice-Chairman:
Member:
Member:
Ladislav Bartoníček, Prague
Pavel Řehák, Prague
Pavel Fuchs, Prague
Milan Beneš, Starý Plzenec
During the year 2012 there were following changes in the Board of Directors.
Pavel Fuchs became a member of the Board of Directors on 1 October 2012 and replaced Vice-Chairman Marcel Dostal, who
resigned from his post on 30 September 2012.
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.
Annual Report 2012
191
Supervisory Board as at the end of the reporting period:
Chairman:
Member:
Member:
Milan Maděryč, Zlín
Lorenzo Kravina, Terst
Irena Špatenková, Praha
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 (EU).
The management has reviewed those standards and interpretations adopted by the EU as at the date of issuance 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.6.2.
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). 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 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.
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 those of the Parent Company and of its directly or indirectly controlled
subsidiaries. All companies satisfying the requisites of effective control are included in the consolidation. Based on the IAS 27
definition, the control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
The Group consolidates all material subsidiaries, immaterial subsidiaries are summarised in table F.3.2.
Annual Report 2012
192
The Group structure and the changes as compared to the previous year are presented below.
For the year ended 31 December 2012
Country
Company
1. Fond kvalifikovaných investorů GPH
1. Zajištěný fond kvalifikovaných investorů
4. Zajištěný otevřený podílový fond ČPI
City Empiria, a.s.
ČP Asistence s.r.o.*
ČP DIRECT, a.s.
ČP INVEST Realitní Uzavřený Investiční Fond, a.s.
Dynamický fond fondů otevřený podílový fond
Generali Penzijní Fond a.s.*
Generali PPF Services, a.s.
II. Zajištěný otevřený podílový fond ČPI
III. Zajištěný otevřený podílový fond ČPI
Komoditní zajištěný otevřený podílový fond ČPI
PFO ČPI – Fond globálních značek
PFO ČPI – Fond nemovitostních akcií
REFICOR s.r.o.
Solitaire Real Estate a.s.*
Univerzální správa majetku, a.s.
Vyvážený fond fondů otevřený podílový fond
Generali PPF Cash & Bond Fund
Generali PPF Commodity Fund
Generali PPF Emerging Europe Fund
JSC “Generali Life”
CP Strategic Investments N.V.*
Finanční servis o.o.o.
* Entity acquired in 2012
xls
Belarus
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Ireland
Ireland
Ireland
Kazakhstan
Netherlands
Romania
Russia
Proportion of
ownership interest
67.5
97.5
100.0
84.8
89.5
92.4
78.6
91.0
79.5
95.1
67.6
100.0
51.0
100.0
100.0
67.6
96.0
100.0
80.0
87.6
92.9
84.2
100.0
100.0
100.0
67.9
66.8
100.0
67.6
100.0
94.6
55.2
65.4
60.5
100.0
100.0
99.9
100.0
Proportion of
voting rights
67.5
97.5
100.0
84.8
89.5
92.4
78.6
91.0
79.5
95.1
67.6
100.0
51.0
100.0
100.0
67.6
96.0
100.0
80.0
87.6
92.9
84.2
100.0
100.0
100.0
67.9
66.8
100.0
67.6
100.0
94.6
55.2
65.4
60.5
100.0
100.0
99.9
100.0
Annual Report 2012
193
Country
Company
1. Fond kvalifikovaných investorů GPH*
7. Zajištěný otevřený podílový fond ČPI*
10. Zajištěný fond kvalifikovaných investorů*
11. Zajištěný fond kvalifikovaných investorů*
City Empiria, a.s.
ČP DIRECT, a.s.
ČP INVEST Realitní Uzavřený Investiční Fond, a.s.
Dynamický fond fondů otevřený podílový fond
Generali PPF Services, a.s.
II. Zajištěný otevřený podílový fond ČPI
III. Zajištěný otevřený podílový fond ČPI
Komoditní zajištěný otevřený podílový fond ČPI
Nadační fond Karlův most
PFO ČPI – 1. Zajištěný OPF
PFO ČPI – Fond nemovitostních akcií
PFO ČPI – Fond globálních značek
REFICOR s.r.o.
Univerzální správa majetku, a.s.
Vyvážený fond fondů otevřený podílový fond
JSC “Generali Life"
Generali PPF Cash & Bond Fund
Generali PPF Commodity Fund
Generali PPF Corporate Bonds Fund
Generali PPF Emerging Europe Fund*
Finanční servis o.o.o.
* Investment funds launched during 2011
xls
Belarus
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Proportion of
ownership interest
67.5
100.0
100.0
84.2
89.5
92.3
78.3
91.0
79.5
88.7
92.6
100.0
100.0
100.0
92.6
93.3
Proportion of
voting rights
67.5
100.0
100.0
84.2
89.5
92.3
78.3
91.0
79.5
88.7
92.6
100.0
100.0
100.0
92.6
93.3
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Kazakhstan
Ireland
Ireland
Ireland
Ireland
Romania
Russia
80.0
86.2
92.4
84.0
100.0
100.0
100.0
100.0
78.7
63.3
74.4
100.0
100.0
93.1
100.0
54.5
65.7
53.0
70.3
99.9
100.0
80.0
86.2
92.4
84.0
100.0
100.0
100.0
100.0
78.7
63.3
74.4
100.0
100.0
93.1
100.0
54.5
65.7
53.0
70.3
99.9
100.0
Annual Report 2012
194
The tables below present the list of unit-linked investment funds that are considered associates and are reported within financial
investments at fair value through profit or loss (see note B.2.2.).
Company
Fond farmacie a biotechnologií
Fond korporátních dluhopisů
Fond nových ekonomik
Fond peněžního trhu
Fond ropy a energetiky
Fond smíšený
Fond zlatý
PFO ČPI – Fond živé planety
Generali PPF Global Brands Fund
Generali PPF New Economies Fund
Generali PPF Oil & Energy Industry Fund
Country
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Ireland
Ireland
Ireland
Company
Fond farmacie a biotechnologií
Fond korporátních dluhopisů
Fond nových ekonomik
Fond peněžního trhu
Fond ropy a energetiky
Fond smíšený
Fond zlatý
PFO ČPI – Fond živé planety
Generali PPF Global Brands Fund
Generali PPF New Economies Fund
Generali PPF Oil & Energy Industry Fund
Country
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Czech Republic
Ireland
Ireland
Ireland
Detailed information about significant transactions with subsidiaries of the Group is provided below.
1. Merger of Nadace České pojišťovny and Nadační fond Karlův most
1 January was the effective date of a merger of Nadace České pojišťovny and Nadační fond Karlův most. The merger was completed
on 29 February by registration in the Commercial Register. Nadační fond Karlův most was dissolute without liquidation and its assets
passed to Nadace České pojišťovny.
2. New subsidiary ČP Asistence s.r.o.
ČP Asistence, s.r.o. (ČP Asistence), an assistance company set up jointly by Group’s subsidiary Česká pojišťovna and Europe
Assistance s.r.o., started operations on 1 March 2012. The Group’s participation in ČP Asistence is 51%. The company provides complex
assistance services to clients of Česká pojišťovna, utilizing a wide network of partners and innovative telecommunication solutions.
3. Acquisition of Proama business
On 23 July 2012, the Group and French insurer Groupama signed an agreement to acquire Groupama’s Polish insurance portfolio,
operating under its branch Proama, into Group’s structures.
The transaction was finalised on 31 December 2012, when the approvals by all regulatory authorities were granted.
Annual Report 2012
195
In line with the definitions set out in IFRS 3, the transaction is regarded and was accounted for as a business acquisition. The assets
and liabilities arising from the acquisition are as follows:
(in CZK million)
Assets
Receivables out of insurance operations
Other assets
Liabilities
Payables out of insurance operations
Other liabilities
Net liabilities acquired
Consideration transferred
Goodwill
Amounts acquired
205
123
59
23
923
838
35
36
14
(718)
(278)
440
xls
The Group took over the insurance portfolio and other assets and liabilitites of Proama in total net value of CZK (718) million.
As a compensation for the negative net asset value, the Group received consideration in cash amounting to CZK 278 million. The
residual amount was allocated to goodwill, which reflects Proama's capabilities and the growth potential of Polish insurance market.
The transaction will enable the Group to expand its activities, benefiting from Proama’s strong entry into the Polish market in 2012.
Proama is active mainly in retail segment, starting with car insurance distributed through three channels: phone, internet and
multi-agents. The Group is operating the acquired business as a branch of Česká pojišťovna.
4. Increase of share capital of CPI RUIF
The general meeting of ČP INVEST Realitní Uzavřený Investiční Fond a.s. (“CPI RUIF”) decided on 10 October 2012 to increase the
capital through issue of 20 new shares at a nominal amount of CZK 20 million with a share premium of CZK 270 million (share
premium per share is CZK 13.5 million). All shares were subscribed by GP Reinsurance EAD, a related party from Generali PPF
Holding Group. As a result, the interest of the Group in CPI RUIF has decreased to 67.57%.
5. CP Strategic Investments N.V.
On 22 October 2012, the Group purchased 100% share in CP Strategic Investments B.V. from its parent CZI Holdings N.V.,
Amsterdam. The Group paid EUR 18,278 (CZK 457,316) as a purchase price. Subsequently, according to decision of the general
meeting held on 17 December 2012 the company has converted its legal form into a limited liability company CP Strategic
Investments N.V.
No goodwill arose as a result of the acquisition, since the transaction was accounted for as a business combination under common
control. Purchase price paid for CP Strategic Investments B.V. was equal to net assets value of the company as at the date of its
acquisition and no consolidation differences were recognised.
On 4 December 2012, the Group as a sole shareholder decided to increase the equity through a surplus contribution into the equity
as share premium on all shares in the aggregate amount of CZK 60 million without the issuance of any new shares.
In accordance with a resolution of a general meeting from 17 December 2012 Česká Pojišťovna contributed all issued and
outstanding shares in the share capital of Penzijní fond České pojišťovny a.s. to the share capital and share premium of the company.
Annual Report 2012
196
6. Acquisition of Solitaire Real Estate a.s.
Effective 10 December 2012, the Group acquired 100% shares of Solitaire Real Estate a.s. (Solitaire), a real estate SPV owning
properties in prime location in Prague city centre, for total consideration of CZK 180 million. The acquisition was aimed at increasing
the proportion of real estate in Group’s investment portfolio.
The transaction is regarded as an acquisition of a group of assets, as the transferred set of activities and assets does not meet the
definition of IFRS 3 for a business.
The acquisition of Solitaire had following effect on the Group’s assets and liabilities:
(in CZK million)
Assets
Other assets
Liabilities
Other liabilities
Net assets acquired
Amounts acquired
631
585
8
38
451
435
16
180
xls
7. Acquisition of Generali Penzijní Fond a.s.
On 31 December 2012 the Group acquired all of the outstanding shares of Generali Penzijní fond a.s. (GPF), a pension fund based in
Czech republic, from Generali pojišťovna a.s. – insurance company belonging to Generali Group – in exchange for a cash
consideration of CZK 57 million. The following are net book values of assets acquired and liabilities assumed as of the acquisition date:
(in CZK million)
Assets
Investments
Other assets
Liabilities
Other liabilities
Net assets acquired
Amounts acquired
3,923
3,774
40
109
3,660
6
38
3,616
263
xls
The transaction was accounted for as a business combination under common control, therefore no goodwill was recognised. The
Group applies the predecessor amounts method to business combinations under common control. The consolidation differences of
CZK 206 million, representing the difference between the cash consideration paid in the amount of CZK 57 million and the net
assets acquired in the amount of CZK 263 million, were include in equity in other capital reserve.
Annual Report 2012
197
B.2. Consolidation methods
Investments in subsidiaries are consolidated line by line.
Translation from functional to presentation currency
The items in the statement of financial position in functional currencies different from the presentation currency of the Group were
translated into Czech koruna (CZK) based on the exchange rates as at the end of the year.
The income statement 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 are 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 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.
If the Group loses control over a subsidiary, it:
– derecognises the assets (including goodwill) and liabilities of the subsidiary;
– derecognises the carrying amount of any non-controlling interest;
– derecognises the cumulative translation differences recorded in equity;
– recognises the fair value of the consideration received;
– recognises the fair value of any investment retained;
– recognises any surplus or deficit in profit or loss;
– reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss or retained
earnings, as appropriate.
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;
– non-controlling shareholder’s interests are shown as separate items of equity; and
– intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full.
The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the
acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the
group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration
arrangement. Acquisition-related costs are recognised as expenses in the period in which they are incurred. Identifiable assets
acquired and liabilities assumed in a business combination are measured initially at their fair values as at the acquisition date. On an
acquisition-by-acquisition basis, the group recognises any non-controlling interest in the acquiree either at fair value or at the noncontrolling interest’s proportionate share of the acquiree’s net assets.
Annual Report 2012
198
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair
value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill.
If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is
recognised directly in the income statement.
Changes to contingent consideration classified as a liability as at the acquisition date are recognised in the income statement.
Accounting for business combinations under IFRS 3 only applies if it is considered that a business has been acquired. Under IFRS 3,
‘Business combinations’, a business is defined as an integrated set of activities and assets conducted and managed for the purpose
of providing a return to investors or lower costs or other economic benefits directly and proportionately to policyholders or
participants. A business generally consists of inputs, processes applied to those inputs, and resulting outputs that are, or will be, used
to generate revenues. In the absence of such criteria, a group of assets is deemed to have been acquired. If goodwill is present in
a transferred set of activities and assets, the transferred set is presumed to be a business. For acquisitions meeting the definition of
a business, the purchase method of accounting is used.
For acquisitions not meeting the definition of a business, the Group allocates the cost between the individual identifiable assets and liabilities
in the Group based on their relative fair values as at the date of acquisition. Such transactions or events do not give rise to goodwill.
Transactions with non-controlling interests
The Group is treating the transactions with non-controlling interests as equity transactions not affecting profit or loss. For purchases
from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of
net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
Non-controlling interests are shown in the consolidated balance sheet as a separate component of equity, which is distinct from the
Group’s shareholders’ equity. The net income attributable to non-controlling interests is separately disclosed on the face of the
consolidated income statement and statement of comprehensive income.
Reorganisations and mergers involving companies under common control are accounted for using consolidated net book values,
consequently no adjustments are made to carrying amounts in the consolidated accounts and no goodwill arises on such transactions.
B.2.2. Consolidation of unit-linked investment funds
The Group manages open-ended investment funds through the management companies ČP Invest and Generali PPF 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 non-controlling interests in
investment funds are reported within financial liabilities, because of their puttable nature. 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.
Annual Report 2012
199
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 controlled by the Group, 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.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds
and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.
C.1.1.1. Goodwill
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair
value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill.
After initial recognition, goodwill is measured at cost less any impairment losses and it is not amortised. Realised gains and losses on
disposal of 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
presented 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
former is the higher of the fair value less costs to sell 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 quotations or commonly used valuation techniques (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 pre-tax discount rates reflect the free risk rate and are adjusted to take specific
risks into account. Should any previous impairment losses allocated to goodwill no longer exist, they cannot be reversed.
C.1.1.2. Present value of future profits
On 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 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 investment returns.
The PVFP 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.
For the life portfolio, the recoverable amount of the in-force business acquired is determined annually through the liability adequacy
test (LAT) of the insurance provisions – mentioned in note C.3.3.1. – taking into account, if any, the deferred acquisition costs
recognised in the statement of financial position. If any, the impairment losses are recognised in the income statement.
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C.1.1.3. Other intangible assets
Intangible 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 additional investment is made to
an asset during the year, its useful life and residual value are reassessed at the time the cost of the investment is added to the
carrying amount of the asset.
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 market prices in an active market. If unavailable, an alternative valuation 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. Investment properties are derecognised either when they have been disposed of or when
they are permanently withdrawn from use and no future economic benefit is expected from their disposal. The difference between
the net disposal proceeds and the carrying amount of the asset is recognised in the income statement in the period of derecognition.
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 and equipment
Property and equipment are measured 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
Buildings
Other tangible assets and equipment
Depreciation rate (%)
1.98–10.00
5.88–33.33
xls
Component parts of an asset that 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 additional
investment is made to an asset during the year, its useful life and residual value are reassessed at the time the cost of the investment
is recognised. Land is not depreciated.
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Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases.
Property 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.
An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no
future economic benefits are expected from its use or disposal.
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 income.
C.1.4. Financial assets
Financial assets include financial assets at fair value through profit or loss, financial assets available-for-sale, financial assets held-tomaturity, loans and receivables, cash and cash equivalents.
Financial assets are recognised on the statement of 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 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.1.4.1. to C.1.4.4.
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 assess whether the market is active or not, 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.), widely recognised valuation models are applied and, again, the parameters of the valuation intend
to reflect the market conditions.
The Group discloses fair value measurements by level of the following fair value measurement hierarchy as defined by IFRS 7:
– 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).
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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 on the
market, the instrument is included in level 2. Specific valuation techniques used to value financial instruments include mainly quoted
market prices or over-the-counter offers 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 hedge
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.). As of 1 July 2011 the hedge accounting has been applied also to derivatives hedging an interest rate
exposure of interest-bearing financial assets.
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, or a portion of 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
Cash flow hedge
The Group designates certain derivatives as hedges of the cash flow of future interest payments.
as its risk management objective and strategy for undertaking hedging transactions.
The hedging instrument is remeasured at fair value attributable to the hedged interest rate risk as at the balance sheet date. The
appropriate part of this revaluation attributable to the effective hedging is recognized through other comprehensive income in the
revaluation reserve within the Group’s equity.
The Group also documents its assessment of the hedging effectiveness, both at hedge inception and on an on-going basis, of
If the change in fair value of the hedging instrument is larger than the change in fair value of the hedged item, then the equity
accounts reflect only the change in fair value of the derivative in the amount of change in fair value of the hedged item. Identified
hedge ineffectiveness is recognized in the income statement.
Embedded derivatives
Certain financial instruments include embedded derivatives, which economic characteristics and risks are not closely related to those
of the host contract. The Group designates these instruments 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 and are embedded in insurance contracts were identified.
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C.1.4.1. Loans and receivables
Loans 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 rate method, less provision
for impairment.
C.1.4.2. Financial assets held-to-maturity
Held-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 measured 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 may temporarily fall below its carrying value, but,
provided there is no risk resulting from significant financial difficulties of the debtor, the security is not considered to be impaired.
C.1.4.3. Financial assets available-for-sale
Available-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 note C.1.23.
C.1.4.4. Financial assets at fair value through profit or loss
Financial 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 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.
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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 are measured at their fair values
(see note C.1.4.). Gains and losses arising from changes in the fair values are recognised in the income statement.
Swaps
Swaps 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 floatingrate 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 forwards
Forward 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.
Options
Options 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.
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C.1.5. 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 irrecoverable reinsurance assets, if any.
C.1.6. Insurance 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.
C.1.7. Other receivables
Other receivables include 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.
Cash flow hedge
As of 1. June 2010 for some of the receivables, the cash flow hedge is being applied in the Group to minimise its exposure to
changes in the cash flows denominated in foreign currencies.
The effective portion of the gains and losses on hedging instrument is recognised in other comprehensive income and is recognised
in the income statement only when the hedged forecast transaction affects profit or loss. The gain or loss relating to the ineffective
portion is recognised immediately in the income statement and reported within lines “Other income” or “Other expenses”.
as its risk management objective and strategy for undertaking hedging transactions. The Group also documents its assessment, both
at hedge inception and on an ongoing basis of the hedging effectiveness.
C.1.8. Cash and cash equivalents
Cash consists of cash on hand, demand deposits with banks and other financial institutions and term deposit due within 15 days.
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 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 on a straight-line basis over the lease term.
C.1.10. Non-current assets held-for-sale and discontinued operations
The Group presents discontinued operations in a separate line in the consolidated income statement 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 or loss before tax from operations, including net
gain or loss on sale before tax or remeasurement 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 to present the component
comparative in the same way.
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Non-current assets classified as held-for-sale are measured at the lower of carrying amount and fair value less costs to sell. These
measurement provisions do not apply to deferred tax assets and liabilities (IAS 12), financial assets in the scope of IAS 39 and
investment properties measured at fair value. 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.1.11. Equity
C.1.11.1. Share capital issued
Ordinary shares are classified as equity. The share capital is the nominal amount approved by a shareholder’s resolution.
C.1.11.2. Other reserves
This item comprises the following reserves:
Statutory reserve fund
The creation and use of the statutory reserve fund is limited by legislation. The statutory reserve fund is not available for distribution
to the shareholders, but can be used to cover losses. The reserve comprises amounts of statutory reserve funds of all entities in the Group.
Equalisation reserve fund
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 earnings
The item includes retained earnings or losses.
Reserve for unrealised gains and losses on available-for-sale financial assets
The 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 presented net of the related deferred taxes and deferred policy
holders’ liabilities.
This item includes revaluation gains or losses of land and buildings reclassified to investment properties.
Cumulative currency translation differences
The item comprises the exchange differences recognised in other comprehensive income in accordance with IAS 21, which arise from
translating the balances and transactions from functional to presentation currency.
Reserve for cash-flow hedges
This item includes the effective portion of gains or losses arising from changes in exchange rates on the instruments used for cashflow hedges. The amounts are presented net of the related deferred taxes.
This item refers to the Group’s result for the period.
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C.1.11.3. Dividends
Dividends 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.1.12. Insurance classification
C.1.12.1. Insurance contracts
In 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 Group 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.
Premiums, 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) are recognised in the income statement.
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 note C.4.
C.1.12.2. Investment contracts with Discretionary participation feature (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 insurance provision in the case of
insurance contracts or within the Guaranteed liability for investment contracts with DPF in the case of investment contracts.
Premiums, payments and change in the Guaranteed liability of investment contracts with discretionary participation feature (e.g.
policies linked to segregated funds, contracts with additional benefits that are contractually based on the result of the company) are
recognised in the income statement with the exception of investment contracts with DPF issued by Czech pension funds subsidiaries
(see note C.1.12.3.).
C.1.12.3. Investment contracts with DPF issued by Czech pension funds
Investment contracts with DPF issued by the Group relate primarily to pension insurance policies written by its Czech subsidiaries
Penzijní fond České pojišťovny and Generali Penzijní Fond. Under these investment contracts, the policyholders are entitled to receive
85% of Czech GAAP profits reported by these subsidiaries. The DPF for these contracts is represented by the 10% portion of Czech
GAAP profit to be distributed to the policyholders subject to the decision of the Annual Meeting. If the DPF portion is not
subsequently allocated by the Annual meeting to the policyholders, it is transferred to retained earnings.
These pension insurance contracts are classified as investment contracts with DPF but – in contrast to the general rule described in
note C.1.12.2. – no premiums, payments and change in liabilities are recognized in the income statement. Such products are
accounted for under the deposit accounting, which foresee that the financial liabilities are credited in the equal amount of the
clients’ cash received.
Such exemption is given since IFRS 4.35 gives the option – but not the obligation – to treat Investment contracts with DPF as
insurance contracts, and also since the Group has taken the advantage of exemption available under IFRS 4.25(c) to continue using
non-uniform accounting policies for insurance contracts (and investment contracts with DPF) of subsidiaries (see note C.2.).
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C.1.12.4. Investment contracts without DPF
Investment contracts without DPF mainly include unit/index-linked policies and pure capitalisation contracts.
C.1.13. Insurance liabilities
C.1.13.1. Provision for unearned premiums
The 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.1.13.2. Mathematical provision
The mathematical provision comprises the actuarially estimated value of the Group’s liabilities under life insurance contracts. The
amount of the mathematical 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 mathematical 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 Group’s actuaries using current estimates of future cash flows under its insurance contracts (see note C.3.3). 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 provision for liability adequacy test.
C.1.13.3. 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 by 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 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.1.13.4. Other insurance provisions
Other insurance provisions contain all other insurance technical provisions that are not mentioned above, such as the provision for
unexpired risks (also referred to as “premium deficiency” see also note C.3.3.3.) 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 in 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
bonuses 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.
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C.1.13.5. Financial liabilities for investment contracts with DPF
Financial 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 note C.1.12.2.).
Financial liabilities arising from investment contracts with DPF are accounted for in the same way as insurance contracts, with the
exeption of investment contracts with DPF issued Czech pension funds, are accounted for under the deposit accounting, which
foresee that the financial liabilities are credited in the equal amount of the clients’ cash received (see note C.1.12.3.).
C.1.14. 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.1.15. Bonds issued
Bonds issued are recognised initially at fair value, net of transaction costs incurred, and subsequently measured at amortised cost.
Amortisation of discounts or premiums and interest are recognised in interest expense and similar charges using the effective interest
rate method.
C.1.16. 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
measured at 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.1.17. 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, and designated as fair value through profit or loss. Related transaction costs are immediately expensed. 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.1.18. 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.1.19. 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, which are arising on insurance contracts and investment contracts with discretionary
participation feature (DPF).
The above amounts do not include the amounts of taxes or charges levied with premiums.
Written premiums are recognized by each subsidiary of the Group following the treatment prescribed by their respective local
accounting standards, since under IFRS 4 it is possible to continue using local existing accounting standards for insurance contracts
and investment contracts with DPF.
Premiums are recognised as earned on a pro-rata basis over the term of the related policy coverage via the provision for unearned premiums.
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For investment contracts without DPF and investment contracts with DPF issued Czech pension funds subsidiaries no premiums are
recorded, and amounts collected from policyholders under these contracts are recorded as deposits balance of the provision for
unearned premium as at the beginning of the year and the balance as at the year end.
C.1.20. 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,
change in mathematical and unit-linked provisions and change in other technical provisions.
Bonuses comprise all amounts chargeable for the financial year representing an allocation of surplus or profit arising from 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.1.21. 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
note C.1.13.5.).
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.1.22. 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 at fair value through 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.1.23. Other income and expense from financial assets
Other income and expenses from financial assets comprise realised and unrealised gains/losses, dividends, net trading income and
impairment loss or reversals of impairment (see note C.1.31.2.).
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.
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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.1.24. 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.1.25. Other income and other expense
The main part of other income arises from gains and losses on foreign currency and administration services relating to the Employer’s
liability insurance provided by the Group 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.
Operating lease payments 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.1.26. 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.
Portion of acquisition costs is being 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.1.27. 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.1.28. 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.
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C.1.29. 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 in equity, in which case it is also 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 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. Temporary differences from the initial
recognition of assets or liabilities outside of business combinations that affect neither accounting nor taxable profit are not provided
for. 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 that are expected to apply in the year when the asset is realised or the liability is settled, based
on 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. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets
against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
C.1.30. Employee benefits
C.1.30.1. Short-term employee benefits
Short-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, management remuneration and bonuses, remuneration for membership in Group boards and non-monetary
benefits. The Group makes contributions to the government pension scheme at the statutory rates in force during the year, based on
gross salary payments. The benefits are recognised in an undiscounted amount as an expense and as a liability (accrued expense).
C.1.30.2. Other long-term employee benefits
Other 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. The
benefits are measured at present value of the defined obligation as at the balance sheet date using the projected unit credit method.
C.1.30.3. Post-employment benefits
Post-employment benefits are employee benefits (other than termination benefits) that are payable after the completion of
employment. The Group makes contributions to the government health, accident and guarantee insurance and unemployment
schemes at the statutory rates in force during the year, based on gross salary payments. Throughout the year, the Group made
contributions defined by relevant laws to such schemes. The cost of these Group-made contributions is charged to the income
statement in the same period as the related salary cost as this is a defined contribution plan. There are no further obligations of the
Group in respect of employees’ post employment benefits.
C.1.30.4. Termination benefits
Termination 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 employer’s decision to provide benefits upon termination of employment as
an offer made to employees in order to accept voluntary redundancy.
The Group recognises termination benefits when it is demonstrably committed to either: terminating the employment of current
employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an
offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the balance sheet date are
discounted to present value.
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C.1.31. Other accounting policies
C.1.31.1. Foreign currency translation
A foreign currency transaction is a transaction that 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; and
– Available-for-sale equity financial assets 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 (see note C.1.23.). 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 nonmonetary items, such as equities classified as available-for-sale financial assets, are included in the fair value reserve in equity unless
fair value hedge accounting is applied.
Translation of balances and transactions from fuctional currencies to presentation currency is described in note B.2.
C.1.31.2. Impairment
The carrying amounts of the Group’s assets, other than investment property (see note C.1.2.), deferred acquisition costs (C.1.26.),
inventories, goodwill (C.1.1.1.) and deferred tax assets (C.1.29.), 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 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 assets
A 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.
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.
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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. The Group considers prolonged decline to be 12 months. Significant decline is assessed to be for
unrealised loss higher than 30%. In prior year, the significant decline was defined with reference to industrial segment. The impact of
this change in estimate is immaterial. Estimating future impact of the change is impracticable. 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 reclassified to 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 assets
The 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.
Goodwill impairment testing is disclosed in notes C.1.1.1. and F.1.1.
C.1.31.3. Segment reporting
A 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 chief operations decision maker 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.1.31.4. Repo transactions
The 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 as 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.
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C.1.31.5. Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position only when there is an
unconditional and 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. Non uniform accouting policies of subsidiaries
The Group has taken the advantage of the exemption available under IFRS 4.25(c) to continue using non-uniform accounting policies
for insurance contracts (and investment contracts with DPF) of its subsidiaries.
As a result, the amounts received from policyholders under investment contracts with DPF issued by Czech pension funds subsidiaries
continue to be recognised as deposits, in contrast to the Group’s accounting policy of recognising premium income under such contracts.
C.3. Principal assumptions
C.3.1. Life assurance liabilities
Actuarial assumptions and their sensitivities underlie the insurance calculation. The life insurance provision (mathematical provision) is
calculated by a prospective net premium valuation (see note C.1.13.2.) 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 note C.3.3.).
The guaranteed technical rate of interest included in policies varies from 2% to 6% 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.3.2. Non-life insurance liabilities
As at the end of the reporting period, a provision is made for the expected ultimate cost of settling 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.
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216
The assumptions which have the greatest effect on the measurement of non-life insurance liabilities 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.
Annuities
In motor third party liability insurance (MTPL) 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).
Discounting
With the exception of annuities, non-life claims provisions are not discounted. For annuities, discounting is used as described in the
table below.
Discount rate
Annuity inflation
Wages inflation
Pensions inflation
till 2012
2% p.a.
2013–2021
2% p.a.
from 2022
2% p.a.
4% p.a.
2% p.a.
6.5% p.a.
4% p.a.
4% p.a.
4% p.a.
xls
In addition, the Group takes mortality into account through the use of mortality tables recommended by national insurance bureaus.
C.3.3. Liability adequacy test (LAT)
C.3.3.1. Life assurance
The life assurance liabilities are tested as at the end of each reporting period against a calculation of the minimum value of the
liabilities using explicit and consistent assumptions of all factors. Input assumptions are updated regularly based on recent
experience. The principle of LAT is a comparison of the minimum value of the liabilities (the risk adjusted value of the cash-flows
discounted by risk free-rate) arising from lines of business with the corresponding statutory provision.
Due to the levels of uncertainty in the future development of the insurance markets and the Group’s portfolio, the Group uses
margins for risk and uncertainty within liability adequacy tests. Margins are calibrated to be consistent with the result of risk
valuation in the internal Economic balance sheet model (EBS) and Market Consistent Embedded Valuation (MCEV).
The principal assumptions used (see notes C.3.4.1. and C.5.1.) are:
Segmentation
The LAT is performed on lines of business separately. There is no interaction between different lines of business in the model and no offset
of the LAT results between individual lines of business is allowed. Segmentation is currently based on the main risk drivers as follows:
– policies where the main risk driver is death
– policies where the main risk driver is survival and savings contracts
– policies where the main risk driver is disability/morbidity
– policies where policyholders bear the investment risk (unit-linked)
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217
Mortality
For mortality assumptions, the analyses of Group’s portfolio past experience and population mortality is used. The experience
portfolio mortality rates are calculated separately for each portfolio group, age, and gender.
Persistency
Future contractual premiums are included without any allowance for premium indexation. Estimates for lapses and surrenders are
based on the Group’s past experience and future expectations.
Expense
The expenses assumptions are derived from the last year accounting expenses, following the internal guidance on unit costs. The
expenses are increased by the inflation rate since the year 2015.
Discount rate
Risk-free rates are derived from bond yield curve in Asset Liability Management Department consistently with recommendation of
a directive of Czech Society of Actuaries for LAT.
Interest rate guarantee
The interest rate guarantee is calculated using internal model calibrated to MCEV valuation of financial options and guarantees (FO&G),
which includes comprehensive view on assets and liabilities of the Group. The calibration is based on the last known time value of
FO&G arising from the stochastic model in MCEV and the expected development of volatilities. The model reflects the actual yield curve.
Profit sharing
While, 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 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 Group’s
current business practices and expectations for bonus allocation.
Annuity option
The option to choose between a lump sum payment and an annuity is available to policyholders under annuity 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% (current
level based on internal analysis) to 5%–10% (future expected market development) in the long-term horizon for all eligible policyholders.
C.3.3.2. Investment contracts with Discretionary Participation Features (DPF)
Investments contracts with DPF are included within the liability adequacy test for life insurance as described above.
Contrary 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 updated cash flows with changes being recognised
immediately in the income statement. As such, no separate liability adequacy test is required to be performed.
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218
C.3.4. Significant variables
Profit or loss recognised in insurance contracts 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 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.3.4.1. Life insurance
According to Liability Adequacy Test, life statutory reserves are comfortably adequate in comparison to minimum value of the
liabilities and the changes in variables other than discount rate has no impact on profit for the year and equity.
A 100bp decrease in the discount rate would lead to CZK 1,298 million increase in the liability. A 100 bp increase would not impact
the liability at all. Life assurance liabilities as at 31 December 2012 according to the amended Liability Adequacy Test were not
sensitive to a change in any other variable.
Changes in variable represent reasonably possible changes in variable which represent neither expected changes in variable nor
worst-case scenarios. The analysis has been prepared for a change in variable with all other assumptions remaining constant and
ignores changes in the values of the related assets.
In non-life insurance, variables that would have the greatest impact on insurance liabilities relate to annuities.
Variable
Change in variable
Discount rate
Pension growth rate
(100) bp
100 bp
Change in insurance
liabilities (gross)
607
587
Change in insurance
liabilities (net)
368
356
Change in insurance
liabilities (gross)
719
587
Change in insurance
liabilities (net)
437
362
xls
Variable
Change in variable
Discount rate
Pension growth rate
(100) bp
100 bp
xls
C.4. Terms and conditions of insurance and investment contracts with DPF that have a material impact
C.4.1. 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 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.
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219
Motor insurance
The 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.
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 insurance
This 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 insurance
This 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”.
Accident insurance
Accident insurance is traditionally sold as rider to the life products offered by the Group and belongs to the life insurance segment.
Only a small part of accident insurance is sold without life insurance.
C.4.2. Life insurance contracts
Bonuses
Over 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 note C.1.12.2.).
Premiums
Premiums 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 which may be exercised at the discretion of the policyholder annually.
Where the option is not exercised, premiums are not increased with inflation.
Annual Report 2012
220
Term life insurance products
Traditional 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 products
These 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, dread diseases, waiver of premium in case of disability and accident rider.
Insurance benefits are usually paid as a lump-sum.
Variable capital life insurance products
Variable 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 products
These 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 insurance
Unit-linked are those products where the policyholders carry the investment risk.
The Group earns management, administration fees and mortality results on these products.
Unit-linked life insurance combines traditional term life insurance, with risks of death or dread 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 all kinds of 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.4.3. Investment contracts with DPF
Adult deposit life or accident insurance with returnable lump-sum principal
These 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.
Annual Report 2012
221
C.5. 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.5.1. 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 note C.3.4.
C.5.2. 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 (see also note C.1.4.).
C.6. Changes in accounting policies
C.6.1. New standards, interpretations and amendments 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 2012:
Limited scope amendment to IAS 12, Income Taxes – Deferred Tax: Recovery of Underlying Assets (amendment issued in December 2010,
effective for annual periods beginning on or after 1 January 2012)
IAS 12 requires an entity to measure the deferred tax relating to an asset depending on whether the entity expects to recover the
carrying amount of the asset through use or sale. It can be difficult and subjective to assess whether recovery will be through use or
through sale when the asset is measured using the fair value model in IAS 40 Investment Property. The amendment provides a practical
solution to the problem by introducing a presumption that recovery of the carrying amount will, normally be, be through sale.
Amendments to IFRS 7, Financial Instruments: Disclosures (issued in May 2010, effective for annual periods beginning on or after
1 January 2011).
The amendment requires disclosure of financial effect of collateral or other credit enhancement which mitigates credit risk in respect
of the amount that best represents the maximum exposure to credit risk.
The amendment does not have significant impact on the Groups's financial statements.
There are no other IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning on or after
1 January 2011 that would be expected to have an impact on the Group.
Annual Report 2012
222
C.6.2. Standards, interpretations and amendments to published standards that are not yet effective and are relevant for
the Group’s financial statements
Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after
1 January 2013 or later, and which the Group has not early adopted.
Amendments to IFRS 7 – Disclosures – Offsetting Financial Assets and Financial Liabilities (issued in December 2011 and effective for
annual periods beginning on or after 1 January 2013, not yet endorsed by the EU).
The amendment requires disclosures that will enable users of an entity’s financial statements to evaluate the effect or potential effect
of netting arrangements, including rights of set-off. The amendment will have an impact on disclosures but will have no effect on
measurement and recognition of financial instruments.
IFRS 9, Financial Instruments (effective for annual periods beginning on or after 1 January 2015, with earlier application permitted,
not yet endorsed 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.
– financial liabilities are recognized similarly to currently applicable IAS 39
The Group is considering the implications of the standard, the impact on the Group and the timing of its adoption by the Group.
IFRS 10, Consolidated Financial Statements (firstly published May 2011, effective for annual periods beginning on or after 1 January 2013)
IFRS 10 supersedes the previous version of IAS 27 (2008) Consolidated and Separate Financial Statements including the related
interpretation SIC 12 Consolidation – Special Purpose Entities.
New standard IFRS 10 requires a parent entity to present consolidated financial statements, defines the principle of control and
establishes control as the basis for consolidation and sets out how to apply the principle of control to identify whether an investor
controls an investee and therefore must consolidate the investee. IFRS 10 also sets out the accounting requirements for the
preparation of consolidated financial statements.
The Group is yet to assess IFRS 10’s full impact and intends to adopt IFRS 10 no later than the accounting period beginning on or
after 1 January 2013.
IFRS 12, Disclosure of Interests in Other Entities (firstly published May 2011, effective for annual periods beginning on or after
1 January 2013)
The objective of IFRS 12 is to require the disclosure of information that enables users of financial statements to evaluate the nature
of, and risks associated with, its interests in other entities (and risks associated with it) and the effect to those interests on its
financial position, financial performance and cash flows. IFRS 12 is required to be applied by an entity that has an interest in any of
following: subsidiaries, joint arrangements, associates and unconsolidated structured entities.
The Group is yet to assess IFRS 12’s full impact and intends to adopt IFRS 12 no later than the accounting period beginning on or
after 1 January 2013.
Annual Report 2012
223
IFRS 13, Fair Value Measurement (firstly published May 2011, effective for annual periods beginning on or after 1 January 2013)
This standard defines fair value, a framework for measuring fair value and requires disclosures about fair value measurement. IFRS 13
includes guidance on measurement and list of valuation techniques.
IFRS 13 is not expected to have a significant impact on the Group’s financial statements.
Amendments to IAS 1, Presentation of Financial Statements (amendments issued in June 2011, effective for annual periods
beginning on or after 1 July 2012)
The amendments revise the way other comprehensive income is presented, requiring: separate subtotals to be presented for those
elements which may be “recycled” and those elements that will not, profit or loss and OCI to be presented together, i.e. either as
a single statement of comprehensive income, or separate income statement and a statement of comprehensive income.
The amendment is not expected to have significant impact on the Goup’s Financial statements.
Amendments to IAS 1, Presentation of Financial Statements, resulting from Annual Improvements 2009–2011 Cycle (amendments
issued in May 2012, effective for annual periods beginning on or after 1 January 2013)
The purpose of these amendments is to clarify the requirements for comparative information. The revised standard is not expected to
have a significant impact on the Group’s financial statements.
Amendments to IAS 16, Property, Plant and Equipment, resulting from Annual Improvements 2009–2011 Cycle (amendments
The purpose of these amendments is classification of servicing equipment. The revised standards are not expected to have
a significant impact on the Group’s financial statements.
Amendments to IAS 32, Financial Instruments: Presentation, resulting from Annual Improvements 2009–2011 Cycle (amendments
The amendments clarify that tax effect of a distribution to holders of equity instruments should be accounted for in accordance with
IAS 12 Income Taxes. The revised standards are not expected to have a significant impact on the Group’s financial statements.
Amendments to IAS 32 and IFRS 7 Financial Instruments: Presentations, Offsetting financial assets and financial liabilities (amendments
published in December 2011, effective for annual periods beginning on or after 1 January 2014 and 1 January 2013 respectively)
The amendments clarify meanings and enhance disclosures on offsetting. The revised standards are not expected to have
a significant impact on the Group’s financial statements
C.6.3. IFRS 4 – exposure draft on Insurance contracts
The IASB (“the board”) released an exposure draft on 30 July 2010 proposing a comprehensive standard to address recognition,
measurement and disclosure for insurance contracts. The board expects to issue the final standard in 2013 with proposed effective
date of 1 January 2015. Retrospective application will be required but with some practical expedients for transition.
The proposals retain the IFRS 4 definition of an insurance contract but amend the scope to exclude fixed fee service contracts but
some financial guarantee contracts may now be within the scope of the proposed standard.
The proposals would require an insurer to measure its insurance contracts using a current measurement model. The measurement
approach is based on the following building blocks: a current, unbiased and probability-weighted average of future cash flows
expected to arise as the insurer fulfils the contract; the effect of time value of money; an explicit risk adjustment and a residual
margin calibrated so that no profit is recognised on inception.
Annual Report 2012
224
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. 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.4. of the financial
statements provides further information about significant terms and conditions of insurance products.
Products offered by reported business segments brought following insurance premium revenues:
Gross earned premiums revenue for the year ended 31 December
(CZK million)
ČP Life
Traditional life insurance premium revenue
Unit link insurance premium revenue
ČP Non-life
Motor insurance premium revenue
Personal insurance premium revenue
Hull (cargo, marine and aviation) insurance premium revenue
Commercial insurance premium revenue
Non-life accidents – individual insurance premium revenue
Pension funds
Investment income
Total
2012
12,462
10,518
1,944
19,678
9,164
3,947
209
5,739
619
1,842
1,842
33,982
2011
13,205
10,850
2,355
20,381
10,031
3,817
219
5,650
664
1,820
1,820
35,406
xls
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 also measured based on net technical results.
Annual Report 2012
225
The segment information provided to the Board of Directors for the reportable segments for the year ended 31 December 2012
is as follows:
(CZK million)
Gross
Insurance premiums
Total costs
Reinsurance
Total costs
Net
Insurance premiums
Total costs
Acquisition expenses relating to investment contracts
Income taxes
Profit after taxes
Contribution of other segments
Elimination of dividends
Other intercompany eliminations
Other consolidation adjustments
Reconciliation to the income statement
xls
ČP Life
ČP Non-life
Pension funds
Total
12,462
(7,240)
(2,832)
(2,080)
(752)
(127)
2,263
19,678
(10,994)
(5,092)
(3,847)
(1,245)
56
3,648
–
–
–
–
–
–
–
32,140
(18,234)
(7,924)
(5,927)
(1,997)
(71)
5,911
(1,293)
362
322
322
–
(609)
(9,027)
4,378
1,960
1,960
–
(2,689)
–
–
–
–
–
–
(10,320)
4,740
2,282
2,282
–
(3,298)
11,169
(6,878)
(2,510)
(1,758)
(752)
(127)
1,654
10,651
(6,616)
(3,132)
(1,887)
(1,245)
56
959
–
–
–
–
–
–
–
991
(1,332)
(75)
–
(416)
–
–
–
–
–
–
21,820
(13,494)
(5,642)
(3,645)
(1,997)
(71)
2,613
3,243
(1,332)
(291)
(758)
3,475
1,289
(96)
38
(1,001)
(1,059)
3,705
2,252
–
(216)
(758)
–
–
–
3,891
–
–
–
–
–
–
–
–
–
–
–
–
Annual Report 2012
226
The segment information provided to the Board of Directors for the reportable segments for the year ended 31 December 2011
is as follows:
(CZK million)
Gross
Insurance premiums
Total costs
Reinsurance
Total costs
Net
Insurance premiums
Total costs
Acquisition expenses relating to investment contracts
Income taxes
Profit after taxes
Contribution of other segments
Elimination of dividends
Other intercompany eliminations
Other consolidation adjustments
Reconciliation to the income statement
ČP Life
ČP Non-life
Pension funds
Total
13,205
(7,755)
(3,245)
(2,383)
(862)
(62)
2,143
20,381
(10,843)
(5,279)
(3,882)
(1,397)
55
4,314
–
–
–
–
–
–
–
33,586
(18,598)
(8,524)
(6,265)
(2,259)
(7)
6,457
(1,221)
350
303
303
(568)
(9,192)
4,151
2,040
2,040
(3,001)
–
–
–
–
–
(10,413)
4,501
2,343
2,343
(3,569)
11,984
(7,405)
(2,942)
(2,080)
(862)
(62)
1,575
11,189
(6,692)
(3,239)
(1,842)
(1,397)
55
1,313
–
–
–
–
–
–
–
636
(627)
(68)
–
(59)
–
–
–
–
–
–
23,173
(14,097)
(6,181)
(3,922)
(2,259)
(7)
2,888
1,901
(627)
(63)
(605)
3,494
20
(588)
166
29
(393)
3,121
1,265
–
5
(605)
–
–
–
3,553
–
–
–
–
–
–
–
–
–
–
–
–
xls
Nearly all segment revenues in 2012 and 2011 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.
The following table represents the reconciliation of gross insurance premiums reported in the segment report and the income statement:
(CZK million)
ČP Life
ČP Non-life
Other
Elimination of intragroup transactions
Insurance premiums in the income statement
xls
2012
12,462
19,678
1,571
(2)
33,709
2011
13,205
20,381
822
(2)
34,406
Annual Report 2012
227
The following table shows key figures per business segment:
2012
(CZK million)
Segment revenue
Capital expenditure
Interest income
Interest expense
ČP Life
12,462
(215)
2,104
(13)
(183)
(201)
4
ČP Non-life
19,678
(282)
638
(38)
(336)
(74)
314
Pension funds
1,842
(57)
812
–
(49)
–
–
Others
2,122
(89)
410
(31)
(20)
(5)
–
ČP Life
13,205
(207)
2,208
(14)
(189)
(139)
210
ČP Non-life
20,381
(478)
702
(13)
(353)
(106)
84
Pension funds
1,820
(38)
1,316
–
(37)
–
–
Others
1,359
(12)
443
(62)
(20)
(3)
–
xls
2011
(CZK million)
Segment revenue
Capital expenditure
Interest income
Interest expense
xls
Segment assets and liabilities are not regularly included in the reports provided to the Board of Directors.
Geographical information
Total assets are allocated as follows:
(CZK million)
Czech Republic
Other
Total
2012
192,364
3,720
196,084
2011
176,367
1,863
178,230
xls
The Group operates mainly in the Czech Republic and in other CEE countries (see note 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.
Gross earned premiums from insurance business (including both life and non-life) are set out below by country:
(CZK million)
Czech Republic
Other
Total
xls
2012
32,605
1,104
33,709
2011
34,015
391
34,406
Annual Report 2012
228
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.
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 2012, 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.
The 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 Generali Group.
− Generali PPF Holding (GPH) – 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. Generali and GPH 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 entities 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.
Annual Report 2012
229
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 detailed later in this report: market risk, credit risk,
liquidity risk, 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 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 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, measured and managed on a continuing
basis, using a Value at Risk analysis and other methods (cash-flow matching, duration analysis, etc.).
Risks are monitored on a fair value basis so that some accounting categories with insignificant risks are omitted from further
chapters. Investment portfolios therefore include all investments except for investment property, Unit-linked policies and some
specific immaterial investments. It also includes cash and cash equivalents and financial liabilities.
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 insignificant.
At year-end 2012, those investments whose market risk affects the Group were of CZK 148 billion at market value1.
Market risk exposure
(CZK million)
Equities
Bonds
Derivatives
Total
1
31.12.2012
Total fair value
Weight (%)
9,619
6.5%
138,593
93.6%
(208)
(0.1)%
148,004
100.0%
31.12.2011
Total fair value
Weight (%)
9,286
7.0%
125,952
94.8%
(2,368)
(1.8)%
132,870
100.0%
Investice, které ovlivňují tržní riziko, jemuž je Skupina vystavena, jsou všechny investice mimo investic, kde nositelem investičního rizika je pojistník, hypoték,
pohledávek za bankami a klienty a ostatních finančních investic jiných než akcie a dluhopisy.
xls
For the sensitivity analysis on market risk, please refer to section E.4.5. Risk limits and Market Value at Risk. The sensitivity of
insurance liabilities is disclosed in note C.3.4. Significant variables.
Annual Report 2012
230
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 interest-earning assets to floating or fixed rates to reduce the risk of losses in fair 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.
Interest rate risk exposure
(CZK million)
Penzijni Fond CP
Other companies
Total
31.12.2012
Total carrying
Weight (%)
amount
70,183
62,711
5,577
138,471
31.12.2011
Total carrying
Weight (%)
amount
50.7%
45.3%
4.0%
100.0%
68,646
55,552
1,701
125,899
54.5%
44.1%
1.4%
100.0%
xls
Sensitivity analysis of interest rate movements is presented for the two biggest companies (Česká pojišťovna and Penzijní Fond ČP),
since the Group exposure to interest rate movements is highly concentrated in these two companies.
Česká pojišťovna portfolio
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 the 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)
2012
Bonds
Total
2011
Bonds
Total
Fair value
100bp parallel
increase
100bp parallel
decrease
70,376
5,177
(1,574)
73,979
66,846
5,176
(746)
71,276
74,188
5,178
(2,312)
77,054
68,765
4,840
(1,421)
72,184
65,679
4,838
(429)
70,088
72,340
4,844
(2,476)
74,708
xls
For the sensitivity analysis please refer to note E.4.5. Risk limits and Market Value at Risk.
Annual Report 2012
231
Penzijní Fond ČP portfolio
Concerning Penzijní Fond ČP, 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 bond portfolios as at 31 December 2012 and 31 December 2011.
The impact is detailed in the table below.
31.12.2012
(CZK million)
100 bp parallel increase
Impact on interest income
Impact on fair value
Total impact
100 bp parallel decrease Impact on interest income
Impact on fair value
Total impact
Income statement
30
(252)
(222)
(28)
273
245
31.12.2011
Equity Income statement
–
232
(2,425)
(266)
(2,425)
(34)
–
(243)
2,644
290
2,644
47
Equity
–
(2,367)
(2,367)
–
2,583
2,583
xls
E.4.2. Asset liability matching
A substantial part of insurance liabilities may imply 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).
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.
Investments in emerging long-term government bonds also contribute 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.
Annual Report 2012
232
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 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 the methodology, see note E.4.5.). The MVaR is calculated for a one-year time horizon at a 99.5% confidence level.
The table below summarises the breakdown of the carrying amount of equities and investment fund unit portfolios by company.
Equity risk exposure
(CZK million)
Total carrying
amount
8,044
279
1,148
148
9,619
Penzijni Fond CP
CPI Funds
Other companies
Total
31.12.2012
Weight (%)
83.6%
2.9%
12,0%
1.5%
100.0%
Total carrying
amount
6,969
1,317
961
39
9,286
31.12.2011
Weight (%)
75.1%
14.2%
10.3%
0.4%
100.0%
xls
Sensitivity analysis of equity prices is only presented for the two biggest companies (Česká pojišťovna portfolio including CPI funds
and Penzijní fond ČP), since they represent the vast majority of the Group overall equity portfolio.
The 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 note E.4.5.).
The positive impact of diversification can be seen in the table below.
(CZK million)
Portfolio exposed to equity risk*
Sum of MVaR for individual instrument
Portfolio MVaR after diversification
31.12.2012
9,501
4,098
2,679
31.12.2011
8,997
6,735
4,353
* The comparison of the carrying amount of equities and investment fund units with the portfolio exposed to equity risk requires further reconciliation: the difference is
due to financial instruments classified as bonds, which nonetheless bear equity risk and are thusly comprised within the MVaR analysis.
xls
Penzijní fond ČP portfolio
Concerning Penzijní fond ČP, 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 2012 and 31 December 2011.
The impact is detailed in the table below.
(CZK million)
Equity price +10%
Equity price -10%
Gross impact on P&L
Gross impact on P&L
31.12.2012
28
(28)
31.12.2011
132
(132)
xls
Since all Penzijní fond ČP 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.
Annual Report 2012
233
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 have different functional currencies.
The currency risk is almost entirely concentrated in Česká pojišťovna.
The only exception is represented by the bond portfolio held by Penzijní fond ČP for an overall amount of CZK 8,255 million at
31 December 2012 (out of which CZK 5,569 million is denominated in EUR and CZK 2,686 million is denominated in USD) and of
CZK 9,706 million at 31 December 2011 (out of which CZK 5,646 million is denominated in EUR and CZK 3,125 million is
denominated in USD).
This exposure is however matched by the use of FX hedging derivatives, and therefore the net exposure of Penzijní fond ČP is not material.
In light of the above-mentioned concentration, the information provided in the remaining part of this section concerns only the
Česká pojišťovna portfolio.
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 European countries and the United States of America. Its exposures are measured mainly
in Euros (“EUR”) and U.S. Dollars (“USD”) and Polish Zloty (“PLN”), because the Company established a branch in Poland in 2012.
The following table shows sensitivities of the portfolio to changes in foreign exchange rates. 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 a currency risk.
Due to hedge accounting, the impact of potential increase or decrease of foreign exchange rates is limited and recognised through
the income statement:
31.12.2012
(CZK million)
Shock up (+ 10%)
Shock down (- 10%)
EUR
732
806
659
USD
69
76
62
CZK*
83,017
83,017
83,017
PLN**
–
–
–
Other
242
267
218
Total
84,060
84,166
83,956
EUR
221
243
199
USD
(131)
(144)
(118)
CZK*
81,212
81,212
81,212
PLN**
–
–
–
Other
402
443
362
Total
81,704
81,754
81,655
xls
31.12.2011
(CZK million)
Shock up (+ 10%)
Shock down (- 10%)
** functional currency of the branch in Poland
xls
Annual Report 2012
234
The following table shows sensitivities of the insurance provisions to change in foreign exchange rates.
31.12.2012
(CZK million)
FX insurance provisions exposure
Shock up (+ 10%)
Shock down (- 10%)
EUR
1,308
1,439
1,177
USD
42
46
38
CZK*
83,195
83,195
83,195
PLN**
894
983
805
Other
201
221
181
Total
85,640
85,884
85,396
EUR
1,342
1,476
1,208
USD
38
42
34
CZK*
84,676
84,676
84,676
PLN**
47
52
42
Other
181
199
163
Total
86,284
86,445
86,123
xls
31.12.2011
(CZK million)
FX insurance provisions exposure
Shock up (+ 10%)
Shock down (- 10%)
** functional currency of the branch in Poland
The following table shows the composition of financial assets and liabilities with respect to the main currencies of Česká pojišťovna a.s.:
xls
31.12.2012
(CZK million)
EUR
Loans
–
15,044
Financial assets at fair value through profit or loss (13,003)
Other investments
–
Reinsurance assets
4
Receivables
1,012
130
Total
3,187
USD
–
10,089
(7,429)
–
–
72
142
2,874
CZK
1,019
41,831
42,833
381
9,698
4,764
4,785
105,311
PLN
–
268
–
–
–
759
17
1,044
Other
–
816
(319)
–
–
40
15
552
Total
1,019
68,048
22,082
381
9,702
6,647
5,089
112,968
EUR
1,308
1,378
–
247
–
2,933
254
USD
42
2,721
–
46
–
2,809
65
CZK
83,195
(2,200)
1,403
7,537
1,813
91,748
13,563
PLN
894
268
–
41
19
1,222
(178)
Other
201
283
–
7
–
491
61
Total
85,640
2,450
1,403
7,878
1,832
99,203
13,765
(CZK million)
EUR
Loans
–
15,722
Financial assets at fair value through profit or loss (541)
Other investments
–
Reinsurance assets
9
Receivables
1,910
133
Total
17,233
USD
–
8,969
(204)
–
–
123
65
8,953
CZK
1,394
38,010
22,619
1,303
9,465
4,478
3,724
80,993
PLN
–
–
255
–
–
28
1
284
Other
–
809
(224)
–
–
123
18
726
Total
1,394
63,510
21,905
1,303
9,474
6,662
3,941
108,189
xls
31.12.2012
(CZK million)
Payables
Other liabilities
Total
Net foreign currency position – 2012
xls
31.12.2011
xls
Annual Report 2012
235
31.12.2011
(CZK million)
Payables
Other liabilities
Total
Net foreign currency position – 2011
EUR
1,342
15,029
2
203
–
16,576
657
USD
38
8,950
–
73
–
9,061
(108)
CZK
84,676
(21,642)
–
6,432
1,831
71,297
9,696
PLN
47
–
–
1
–
48
236
Other
181
450
–
25
–
656
70
Total
86,284
2,787
2
6,734
1,831
97,638
10,551
xls
The negative balances above are attributable to foreign currency swaps, which include receivable in one currency and payable in
different currency.
E.4.5. Risk limits and Market Value at Risk
The principal tools used to measure and control market risk exposure within the investment portfolios of the Parent Company Česká
pojišťovna are a system of risk limits and Market Value at Risk (MVaR).
The system includes single and total limits on foreign currency (FX), interest rate (IR) and equity (EQ) risks. The primarily aim of the
system of limits is to control exposure to single type of risks. Limits are monitored on daily basis and allow Risk Management to take
immediate action and actively manage the level of the undertaken risks.
Risk Management uses the combination of the system of limits and MVaR as an effective tool for entire RM system which allows
taking operative short-term measures and monitor risks on long-term basis as well.
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 99.5% confidence level.
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 of 99.5% for a one-year time horizon does not reflect losses that may occur beyond this level. Even within the
model used, there is 0.5 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. 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.
f) 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.
Annual Report 2012
236
The MVaR 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:
(CZK million)
2012
Interest rate risk
Other price risk
Overall
2011
Interest rate risk
Other price risk
Overall
As at 31 December
Average VaR*
Maximum*
Minimum*
67
865
2,679
(628)
2,983
134
1,710
3,105
(838)
4,111
75
2,281
4,529
(1,203)
5,682
67
865
2,679
(628)
2,983
260
2,391
4,039
(1,944)
4,746
135
2,280
4,734
(1,285)
5,864
117
2,164
9,133
(1,214)
10,200
121
1,741
3,101
(1,580)
3,383
* Minimum, maximum and average VaR is determined based on overall VaR calculated during the year and it is not necessarily indicative for minimum, maximum and
average values on each single component of VaR.
xls
E.5. Credit risk
Credit risk refers to the economic impact from downgrades and defaults of fixed income securities or counterparty on the Group’s
financial strength. 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 an external rating are given
an internal one based on the Group’s own credit analysis. In most cases internal ratings are based on external rating of parent
company or its adjusted external rating due to subordination of the instrument. All internal ratings are in accordance with GPH’s
assessment. In line with Generali Group principles, the Group uses the second best external rating for each counterparty in all
calculations and in the system of credit limits.
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)
Loans and advances
Bonds
Reinsurance assets
Receivables
Total
xls
31.12.2012
3,181
137,515
9,735
7,431
9,647
167,509
31.12.2011
5,489
124,964
9,508
7,407
5,722
153,090
Annual Report 2012
237
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.
(CZK million)
Individually impaired – carrying amount
Gross amount
181 days to 1 year after maturity
More than 1 year after maturity
Allowance for impairment
Neither past due nor impaired – carrying amount
Amounts not included in analysis
Total
Loans and advances
31.12.2012
31.12.2011
57
57
7,445
7,613
–
–
–
–
–
–
7,445
7,613
(7,388)
(7,556)
3,124
5,432
–
–
3,181
5,489
Receivables
31.12.2012
31.12.2011
2,877
2,649
4,312
4,571
2,996
2,532
417
512
181
442
718
1,085
(1,435)
(1,922)
5,017
4,470
(463)
288
7,431
7,407
xls
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 placed bank accounts and term deposits with institutions having a rating from A to BB- (31 December 2011: A- to AA).
Significant portion of term deposits is placed with a related party, PPF banka a.s. (see note F.29.3.) There were no past due or
impaired term deposits either in 2012 or 2011.
Amounts not included in the analysis consist of receivables related to taxation, which are not relevant for credit risk exposure.
The following tables show the Group’s exposure to credit risk for bonds and reinsurance assets:
Rating of bonds
(CZK million)
AAA
AA
A
BBB
Non-investment grade
Not Rated
Total
31.12.2012
Fair value
Weight (%)
3,821
2.8%
88,323
63.7%
18,287
13.2%
11,256
8.1%
3,940
2.8%
12,966
9.4%
138,593
100.0%
31.12.2011
Fair value
Weight (%)
3,541
2.8%
75,969
60.3%
20,806
16.5%
7,945
6.3%
4,456
3.6%
13,235
10.5%
125,952
100.0%
xls
The bond rating shown above corresponds to the second best rating available from external rating agencies. Such a rating is then
converged to S&P scale.
Rating of reinsurance assets
(CZK million)
AAA
AA
A
BBB
Captive reinsurance
Not Rated
Total
31.12.2012
Amount
Weight (%)
–
0.0%
332
3.4%
352
3.6%
52
0.5%
8,222
84.5%
777
8.0%
9,735
100.0%
31.12.2011
Amount
Weight (%)
37
0.4%
481
5.1%
301
3.2%
31
0.3%
8,153
85.7%
505
5.3%
9,508
100.0%
xls
The rating of reinsurance assets shown above corresponds to the second best rating available from external rating agencies. Such
a rating is then converged to S&P scale.
Annual Report 2012
238
There were no past due or impaired reinsurance assets in either 2012 or 2011.
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)
Against individually impaired
Property
Other
Against neither past due nor impaired
Debt securities
Total
31.12.2012
21
20
1
317
317
338
31.12.2011
31
30
1
391
391
422
xls
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 of bonds:
Geographic concentration
(CZK million)
Czech Republic
Russia
Other CEE countries
Netherlands
Other EU countries
USA
Other world countries
Total
31.12.2012
Total amount
Weight (%)
104,697
75.5
6,265
4.5
9,016
6.5
5,966
4.3
8,845
6.4
3,379
2.4
425
0.4
138,593
100.0
31.12.2011
Total amount
Weight (%)
90,559
71.9
9,298
7.4
8,068
6.4
3,524
2.8
9,119
7.2
4,082
3.2
1,302
1.1
125,952
100.0
31.12.2012
Total fair value
Weight (%)
99,007
71.4
31,391
22.7
3,773
2.7
3,402
2.5
328
0.2
302
0.2
390
0.3
–
0.0
138,593
100.0
31.12.2011
Total fair value
Weight (%)
82,761
65.7
33,072
26.3
4,419
3.5
3,910
3.1
–
0.0
603
0.5
543
0.4
644
0.5
125,952
100.0
xls
Economic concentration
(CZK million)
Public sector
Financial
Energy
Utilities
Materials
Telecommunication services
Industrial
Asset-backed
Total
xls
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.
Annual Report 2012
239
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. Further, 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 assets and liabilities broken down into their relevant maturity bands
based on the residual contractual maturities.
Residual contractual maturities of financial assets
31.12.2012
(CZKmillion)
Investments
Loans
Available for sale
Bonds
Equities
Bonds
Equities
Derivatives
Receivables
xls
Less than
1 year
15,595
985
Between 1 and
5 years
71,531
1,290
More than
5 years
60,132
906
Unspecified
Total
21,316
–
168,574
3,181
12,006
–
–
56,468
–
–
53,385
–
–
–
4,202
2,173
121,859
4,202
2,173
1,796
–
–
75
733
6,510
9,647
31,752
8,539
–
–
144
5,090
141
–
71,672
5,321
–
–
–
520
703
–
60,835
–
1,128
3,473
10,340
–
–
–
21,316
15,656
1,128
3,473
10,559
6,343
7,354
9,647
185,575
Annual Report 2012
240
Residual contractual maturities of financial assets
31.12.2011
(CZK million)
Less than
1 year
30,452
3,413
Between 1
and 5 years
64,869
1,186
More than
5 years
55,154
890
Unspecified
Total
17,608
–
168,083
5,489
13,232
–
–
47,405
–
–
47,132
–
–
–
2,853
2,461
107,769
2,853
2,461
616
–
–
315
12,876
5,687
10,499
–
–
61
5,718
193
6,080
–
–
–
1,052
820
–
981
2,991
8,322
–
–
17,195
981
2,991
8,698
19,646
6,700
5,722
41,861
–
65,062
–
55,974
–
17,608
5,722
180,505
Less than
1 month
Between 1
and 3 months
Between 1
and 5 years
More than
5 years
Total
1,779
155
Between 3
months
and 1 year
658
7,700
953
11,245
9
1,770
7,940
2,123
11,842
66
89
5
315
475
233
425
726
–
1,384
5,318
2,382
–
–
7,700
700
253
–
–
953
6,326
4,919
8,671
2,438
22,354
Less than
1 month
Between 1
and 3 months
Between 1
and 5 years
More than
5 years
Total
1,938
882
Between 3
months
and 1 year
1,267
8,052
1,418
13,557
497
1,441
6,698
1,930
10,566
807
75
3
144
1,029
666
601
595
1
1,863
6,313
1,739
–
–
8,052
1,221
197
–
–
1,418
9,504
4,053
7,296
2,075
22,928
Investments
Loans
Available for sale
Bonds
Equities
Bonds
Equities
Derivatives
Receivables
xls
Residual contractual maturities of financial liabilities
31.12.2012
(CZK million)
Financial liabilities at fair value
Payables
Other liabilities
xls
Residual contractual maturities of financial liabilities
31.12.2011
(CZK million)
Financial liabilities at fair value
Payables
Other liabilities
xls
The following table shows the amount of insurance liabilities and financial liabilities for investment contracts broken down by
contractual maturity.
Annual Report 2012
241
31.12.2012
(CZK million)
Less than
1 year
Non Life insurance liabilities
7,191
RBNS & IBNR
6,970
Other insurance provisions
221
Life inurance liabilities
6,521
Financial liabilities for
investment contracts
7,096
Total
20,808
Between 1
Between 5
and 5 years and 10 years
4,183
1,835
4,109
1,835
74
–
22,129
11,561
20,040
46,352
Between 10 Between 15 and
and 15 years
20 years
1,657
1,403
1,657
1,403
–
–
8,067
4,715
More than
20 years
1,142
1,142
–
11,886
17,411
17,116
295
64,879
4,704
10,822
9,854
22,882
63,886
146,176
Between 10 Between 15 and
and 15 years
20 years
1,678
1,426
1,678
1,426
–
–
8,672
4,920
More than
20 years
1,174
1,174
–
14,111
Total
17,011
16,778
233
65,879
6,898
22,183
57,243
140,133
13,058
26,454
9,134
18,858
Total
xls
31.12.2011
(CZK million)
Less than
1 year
Non Life insurance liabilities
6,861
RBNS & IBNR
6,628
233
5,195
Financial liabilities for
investment contracts
7,035
Total
19,091
Between 1
Between 5
and 5 years and 10 years
4,027
1,845
4,027
1,845
–
–
21,376
11,605
20,041
45,444
11,672
25,122
7,619
17,969
3,978
10,324
xls
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 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.3.3.
The Group manages 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 were implemented throughout the Group and are continuously being
improved. These methods will be used, along with others, to measure the economic capital of insurance risks.
Annual Report 2012
242
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 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 concentrations
The 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 business.
Life gross direct premiums written by line of business and by geographical area
2012
(CZK million)
Czech Republic
Other countries
Total
Saving & Pension
7,203
87
7,290
Protection
3,590
32
3,622
Unit Linked
1,944
–
1,944
Total
12,737
119
12,856
Protection
3,353
25
3,378
Unit Linked
2,355
–
2,355
Total
13,457
83
13,540
Accident /
Health
800
1,466
2,2667
Total
xls
Life gross direct premiums written by line of business and by geographical area
2011
(CZK million)
Czech Republic
Other countries
Total
Saving & Pension
7,749
58
7,807
xls
Non Life gross direct premiums written by line of business and by geographical area
2012
(CZK million)
Czech Republic
Other countries
Total
Motor
Personal
9,104
–
9,104
3,939
–
3,939
Non motor
Commercial /
Industrial
5,110
–
5,110
18,953
1,467
20,419
xls
Non Life gross direct premiums written by line of business and by geographical area
2011
(CZK million)
Czech Republic
Other countries
Total
xls
Motor
Personal
9,873
–
9,873
3,817
–
3,817
Non motor
Commercial /
Industrial
5,120
0
5,120
Accident /
Health
836
655
1,491
Total
19,646
655
20,301
Annual Report 2012
243
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 risks
Significant 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 Group is participating on
insurance of nuclear risks through Czech nuclear pool, for more information see note F.28.2.2.
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 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 risk
In 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 an 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 insurance provisions of life gross direct business by level of guaranteed interest rate. Financial liabilities
related to investment contracts with DPF are included as well.
Annual Report 2012
244
Insurance provisions of life gross direct business: level of financial guarantee
(CZK million)
Liabilities with guaranteed interest
Between 0% and 2.49%
More than 4.5% (incl.)
Provisions without guaranteed interest
Total
31.12.2012
103,726
76,309
5,627
4,095
17,695
7,984
111,710
31.12.2011
103,591
73,010
5,950
5,181
19,450
8,298
111,889
xls
E.7.1.4. Non-life underwriting risk
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 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.
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 the proportionate and non-proportionate reinsurance treaties or a combination of these 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 retroceded 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 non-life obligatory 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.
Annual Report 2012
245
The overview of parameters of obligatory reinsurance treaties for the main programme and underwriting year 2012:
Line of business / Treaty
Property
Property
Engineering
Civil Building
Household
SME Property
Liability
Commercial Liability
D&O
Marine
Cargo transport
CASCO
Medical Expenses
Agriculture
Livestock
Hail
Bonds
Bonds
Life, pensions
Individual life insurance
Group life insurance
Life & Disability
Personal Accident
Form of reinsurance
Leader
GP Re
GP Re
GP Re
GP Re
GP Re
Surplus
GP Re
GP Re
Lloyd’s Synd. 4711 Aspen
Quota Share + CAT X/L
Quota Share
GP Re
GP Re
GP Re
Risk + CAT X/L
Stop Loss
GP Re
GP Re
Quota Share
GP Re
Surplus
Quota Share
Surplus
Quota Share
Generali Trieste
Generali Trieste
Swiss Re
GP Re
xls
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.
Annual Report 2012
246
E.9. Financial strength monitoring by third parties
The Group’s risks are also monitored by third parties such as the insurance regulators.
Also, 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.
As at 31 December 2012, Česká pojišťovna has been rated by agency Standard & Poor’s (S&P) with the long-term counterparty credit
and insurer financial strength ratings to be A- with a stable outlook. The rating has been confirmed on 28 February 2013
emphasizing strong operating performance, strong competitive position of the Company and strong capitalization and noticing
relatively low quality of capital and highly competitive environment.
E.10. Capital management
The objectives of Generali Group’s as well as the individual business units’ capital management policy are:
– To guarantee meeting the solvency requirements as defined by the specific laws of each sector where the participated companies
operate (insurance, pension funds 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 which is 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.
(in CZK million)
Česká pojišťovna, a.s.
Česká pojišťovna Zdraví, a.s.
JSC “Generali Life“, Kazachstan
Generali PPF Life Insurance LLC, Russia
Generali foreign insurance Co, Belarus
Total
2012
2011
5,142
5,276
59
56
93
10
–
294
12
8
5,306
5,644
2012
2011
19,784
19,875
262
223
833
185
–
1,020
110
72
20,989
21,375
xls
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.
Annual Report 2012
247
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 the 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)
Goodwill
Of which is goodwill on Penzijní fond České pojišťovny, a.s.,
Of which is goodwill on Generali SAF de Pensii Private S.A.
Of which is goodwill on acquisition of business in Poland
Software
Present value of future profits from portfolios acquired
Total
31.12.2012
1,688
584
668
440
1,581
1,447
98
36
3,269
31.12.2011
1,283
584
703
0
1,610
1,473
111
26
2,893
xls
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 goodwill related to Generali SAF de Pensii Private S.A. is connected with the acquisition of the
company in 2008. The goodwill related to Poland is connected with the acquisition of business in Poland in 2012.
The cash-generating units (CGU) to which goodwill has been allocated are tested for impairment annually by comparing the carrying
amount of the CGU, including the goodwill, with the recoverable amount of the unit. Annual impairment review resulted in no
impairment charge neither for 2012 nor 2011.
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.
Annual Report 2012
248
Generali SAF de Pensii Private S.A and Polish branch
The recoverable amount of Generali SAF de Pensii Private S.A. in Romania and insurance branch in Poland is calculated on the basis
of fair value less cost to sell. The Group employs a valuation model based on discounted post-tax cash flows. The model calculates
the present value of the estimated future cash inflows and outflows, considering projections on budgets/forecasts approved by
management. The cash flows are projected for 20 years in case of Generali SAF de Pensii Private S.A. in order to take into account
the long-term nature of the pension fund investments and 15 year for Polish operations respectively. Key assumptions used for fair
value less cost to sell calculations to test the recoverability of goodwill are as follows:
Polish branch
Long-term growth rate
2.0%
4.0%
Post-tax discount rate
14.0%
11.5%
xls
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 fair value less cost to sell 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. 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 pojišťovny (PFČP)
The Dividend Discount Model has been used for the determination of the fair value less cost to sell of PFČP.
The Dividend Discount Model is based on the hypothesis that the value of a cash-generating unit is equal to the present value of the
post-tax cash flows available for its shareholders. These cash flows are supposed to be equal to the flows derived from the
distributable dividends, while maintaining an adequate capital structure as required by the laws in force and the entity’s economic
nature and to maintain its expected future development.
According to this method, the value of the cash-generating unit is equal to the sum of the discounted value of future dividends plus
the terminal value of the cash-generating unit itself.
The application of this criterion has generally entailed the following phases:
– For forecasting the future cash flows of PFČP, the detailed information included in the last available Rolling Plan 2013–2015 has
been considered. The main economic-financial data (i.e. net profit) has been calculated for two additional years (2016 and 2017)
on the basis of the growth rate in the last year of the Rolling Plan (2015) to extend the forecast period.
– Explicit forecasting of the future cash flows to be distributed to shareholders in the planned time frame, taking into account limits
requiring the maintenance of an adequate capital level.
– Calculating the cash-generating unit’s terminal value, that is the expected value of the cash-generating unit at the end of the latest
year planned.
– The discount rate of the future cash flows has been defined on the basis of the Capital Asset Pricing Model (CAPM) formula. This
model considers the return rate of risk-free investments and the consequent premium return requested by the capital market of
reference regarding risk-free investments.
Key assumptions used for fair value less cost to sell calculation are as follows:
Long-term growth rate
Post-tax discount rate
2.0%
7.1%
xls
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.
Annual Report 2012
249
F.1.2. Other intangible assets
Tables below show the development of individual classes of other intangible assets.
2012
Software
(CZK million)
Balance as at 1 January – Gross amount
Additions
Disposals
Business combinations
Foreign currency translation effects
Other changes
Balance as at 31 December – Gross amount
Accumulated amortisation and impairment losses
Amortisation of the period
Amortization – Foreign currency translation effects
Disposals of accumulated amortization
Other changes
Total – Net amount
5,604
373
(27)
45
(2)
(137)
5,856
(4,131)
(422)
1
(16)
26
133
(4,409)
1,447
Present Value
Other
of Future Profits intangible assets
153
156
–
29
–
(5)
–
–
–
–
–
(7)
153
173
(42)
(13)
–
–
–
–
(55)
98
Total
5,913
402
(32)
45
(2)
(144)
6,182
(130)
(20)
–
–
6
7
(137)
36
(4,303)
(455)
1
(16)
32
140
(4,601)
1,581
Present Value
Other
of Future Profits intangible assets
153
178
–
44
–
–
–
–
–
(66)
153
156
Total
xls
2011
Software
(CZK million)
Balance as at 1 January – Gross amount
Additions
Other changes
Balance as at 31 December – Gross amount
Accumulated amortisation and impairment losses
Amortisation of the period
Amortization – Foreign currency translation effects
Other changes
Total Net amount
5,177
432
5
(1)
(9)
5,604
(3,729)
(403)
1
–
(4,131)
1,473
(30)
(12)
–
–
(42)
111
(136)
(48)
–
54
(130)
26
5,508
476
5
(1)
(75)
5,913
(3,895)
(463)
1
54
(4,303)
1,610
xls
Present value of future profits
The Group performs a valuation of present value of future profits related to ABN AMRO portfolio, within the annual embedded value
calculations. This valuation showed the present value of the respective portfolio to be in the amount of CZK 589 million, which
significantly exceeds its carrying amount (CZK 98 million).
Embedded value calculation follows the Market Consistent European Embedded Value (MCEEV) Principles. The reference rates used
to derive risk-neutral economic scenarios are calibrated to CZK government bonds and both investment rates and implied volatilities
are as at the end of year 2012.
Annual Report 2012
250
F.2. Tangible assets
F.2.1. Land and buildings (own use)
(CZK million)
Gross book value as at 1 January
Accumulated depreciation and impairment as at 1 January
Increases
Decreases
Other changes
Accumulated depreciation and impairment as at 31 December
Gross book value as at 31 December
2012
226
(107)
119
55
(39)
(15)
2
122
(120)
242
2011
217
(100)
117
24
(15)
(12)
5
119
(107)
226
(CZK million)
Gross book value as at 1 January
Accumulated depreciation and impairment as at 1 January
Increases
Reclassifications
Decreases
2012
1,712
(1,368)
344
(1)
101
48
–
(224)
2011
1,868
(1,553)
315
(2)
230
1
–
(395)
Other changes
Depreciation and impairment
Depreciation – Foreign currency translation effects
Depreciation – business combinations
Decreases of accumulated depreciation
Accumulated depreciation and impairment as at 31 December
Gross book value as at 31 December
2
88
(117)
1
(23)
227
358
(1,280)
1,638
10
185
(124)
1
–
308
344
(1,368)
1,712
2012
1,891
9
585
(76)
–
2,409
2,454
2011
1,889
–
–
2
–
1,891
1,889
xls
F.2.2. Other tangible assets
Other tangible assets consist mainly of furniture, office and IT equipment.
xls
F.3. Investments
F.3.1. Investment properties
(CZK million)
Increases
Revaluation and other changes
Depreciation and impairment
Fair value
xls
Annual Report 2012
251
Additions into the Group in 2012 of CZK 585 million represent property acquired by purchase of Solitaire a.s. The transaction is
considered to be a purchase of group assets.
The fair value of investment properties 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.
For investment income see note F.17., for investment expense see note F.21.
F.3.2. Investments in subsidiaries
(CZK million)
Investments in non-consolidated subsidiaries
Nadační fond Karlův most*
31.12.2012
11
6
–
5
31.12.2011
6
1
5
–
* Nadace České pojišťovny and Nadační fond Karlův most were merged in January 2012.
xls
F.3.3. Loans and receivables
(CZK million)
Unquoted bonds
Deposit under reinsurance business accepted
Other loans and receivables
Term deposit with credit institutions
Buy-sell transactions
Other loans
Loans and receivables total
Current portion
Non-current portion
31.12.2012
Book value
Fair value
956
1,078
1
1
2,224
2,224
877
877
–
–
1,347
1,347
3,181
3,303
2,274
907
31.12.2011
Book value
Fair value
935
988
–
–
4,554
4,554
2,517
2,517
893
893
1,144
1,144
5,489
5,542
4,488
1,001
xls
F.3.4. Available-for-sale financial assets
(CZK million)
Quoted
Unquoted
Bonds
Quoted
Unquoted
Investments in fund units and other AFS assets
Total
Current portion
Non-current portion
xls
31.12.2012
50
4,152
4,151
1
121,859
101,132
20,727
2,173
128,234
11,089
117,145
31.12.2011
100
2,753
2,752
1
107,769
85,767
22,002
2,461
113,083
13,232
99,851
Annual Report 2012
252
31.12.2012
(CZK million)
Quoted
Unquoted
Bonds
Quoted
Unquoted
Other available-for-sale financial assets
Total
Level 1
–
4,151
4,151
–
95,228
95,228
–
2,173
2,043
130
101,552
Level 2
–
–
–
–
26,631
5,904
20,727
–
–
–
26,631
Level3
50
1
–
1
–
–
–
–
–
–
51
Total
50
4,152
4,151
1
121,859
101,132
20,727
2,173
2,043
130
128,234
xls
There was one significant transfer from Level 2 to Level 1 fair value measurement categories in 2012. The transfer represents
government bonds in the amount of CZK 2.4 billion, that started to be traded in a public market.
31.12.2011
(CZK million)
Quoted
Unquoted
Bonds
Quoted
Unquoted
Investments in fund units
Level 1
–
2,752
2,752
–
79,563
79,563
–
2,461
2,220
Level 2
–
–
–
–
28,206
6,204
22,002
–
–
Level3
100
1
–
1
–
–
–
–
–
Total
100
2,753
2,752
1
107,769
85,767
22,002
2,461
2,220
Other available-for-sale financial assets
Total
241
84,776
–
28,206
–
101
241
113,083
2012
101
50
51
2011
101
–
101
xls
The following table presents the changes in level 3 instruments for the year ended 31 December.
(CZK million)
Opening balance
Impairment
Closing balance
xls
In 2012 an impairment on level 3 available-for-sale financial assets has been booked. The impairment reflects the changes of inputs
for fair value measurement of a specific impaired asset.
There were no changes of inputs for fair value measurement which would significantly change fair value of financial assets in 2011.
Annual Report 2012
253
Maturity of available-for-sale financial assets – bonds (fair value)
(CZK million)
Up to 1 year
More than 10 years
Total
Fair Value 2012
12,006
56,468
27,832
25,553
121,859
Fair Value 2011
13,232
47,405
22,580
24,552
107,769
xls
Realised gains and losses, and impairment losses on available-for-sale financial assets
31.12.2012
(CZK million)
Equities
Bonds
Total
Realised
gains
248
827
181
1,256
Realised
losses
(102)
(354)
(53)
(509)
Impairment
losses
(252)
–
(51)
(303)
Realised
gains
311
636
574
1,521
Realised
losses
(544)
(371)
(553)
(1,468)
Impairment
losses
(203)
–
–
(203)
xls
31.12.2011
(CZK million)
Equities
Bonds
Total
xls
F.3.5. Financial assets at fair value through profit or loss
Financial assets
held-for-trading
(CZK million)
Equities
Quoted
Unquoted
Bonds
Quoted
Unquoted
Derivatives
Total
Current portion
Non-current portion
xls
31.12.2012
–
–
–
223
223
–
–
529
–
752
–
–
31.12.2011
–
–
–
–
–
–
–
315
–
315
–
–
Financial assets
designated at fair value
31.12.2012
31.12.2011
1,128
981
1,128
981
–
–
15,433
17,195
8,098
9,213
7,335
7,982
2,116
2,991
43
23
10,559
8,698
29,279
29,888
–
–
–
–
at fair value through
profit or loss
31.12.2012
31.12.2011
1,128
981
1,128
981
–
–
15,656
17,195
8,321
9,213
7,335
7,982
2,116
2,991
572
338
10,559
8,698
30,031
30,203
2,741
839
27,290
29,364
Annual Report 2012
254
31.12.2012
(CZK million)
Equities
Quoted
Unquoted
Bonds
Quoted
Unquoted
Derivates
Total
Level 1
1,128
1,128
–
6,310
6,310
–
2,116
4
10,554
20,112
Level 2
–
–
–
9,346
2,011
7,335
–
568
5
9,919
Level3
–
–
–
–
–
–
–
–
–
–
Total
1,128
1,128
–
15,656
8,321
7,335
2,116
572
10,559
30,031
xls
31.12.2011
(CZK million)
Equities
Quoted
Unquoted
Bonds
Quoted
Unquoted
Derivates
Level 1
981
981
–
3,586
3,586
–
2,816
–
8,683
Level 2
–
–
–
13,541
5,627
7,914
175
338
15
Level3
–
–
–
68
–
68
–
–
–
Total
981
981
–
17,195
9,213
7,982
2,991
338
8,698
Total
16,066
14,069
68
30,203
xls
The following table presents the changes in level 3 instruments for the year-ended 31 December. The instruments in level 3 were
settled and transferred out of level 3 in the year 2012.
(CZK million)
Opening balance
Transfers into Level 3
Total gains or losses
In income statement
Settlements
Transfers out of Level 3
Closing balance
Total gains/losses for the period included in income
statement for assets held at the end of the reporting period
xls
2012
68
–
–
–
(66)
(2)
–
2011
65
2
2
2
(1)
(66)
2
68
Annual Report 2012
255
F.3.6. Reclassifications between categories of financial assets
High price volatility and low liquidity of markets and instruments were the main features of the financial market 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 Group to change its investment strategy and reclassify financial assets
(equities) in the amount of CZK 14,135 million from the Fair value through profit and loss category to Available-for-sale category.
The reclassification was done on 1 October 2008. By 31 December 2012 all reclassified financial assets have been sold. The carrying
amount and fair value of the reclassified financial assets outstanding as at 31 December 2011 was CZK 27 million.
Had these financial assets not been reclassified, the income statement line Net income from financial instruments at fair value
through profit or loss would not be different (2011: would have been lower by CZK 11 million). Out of this revaluation, no
impairment gain was recognized in the income statement and loss of CZK 1.6 million was reported in the income statement in 2011
as a gain on foreign currency revaluation under fair value hedge accounting. Had these financial assets not been reclassified, the
income statement would not show gains on realisation of CZK 8 million (2011: gain CZK 95 million).
F.4. Reinsurance assets
Direct insurance
(CZK million)
31.12.2012
31.12.2011
Non-life
8,826
8,635
Provisions for unearned premiums 1,800
1,857
6,985
6,748
41
30
Life
766
797
684
716
82
81
Total
9,592
9,432
Current portion
4,940
4,865
Non-current portion
4,652
4,567
31.12.2012
31.12.2011
140
75
37
36
102
39
1
–
3
1
2
–
1
1
143
76
81
52
62
24
Total
31.12.2012
8,966
1,837
7,087
42
769
686
83
9,735
5,021
4,714
31.12.2011
8,710
1,893
6,787
30
798
716
82
9,508
4,917
4,591
xls
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.
Annual Report 2012
256
F.5. Receivables
(CZK million)
Amounts owed by policyholders
Amount owed by intermediaries and others
Of which receivables from derivatives collateral
Total receivables
Current portion
Non-current portion
31.12.2012
3,163
2,960
203
1,459
2,741
890
68
7,431
6,536
895
31.12.2011
2,798
2,601
197
1,629
2,275
1,034
705
7,407
6,386
1,021
2012
7,407
795
(1,048)
277
7,431
2011
11,903
26
(4,777)
255
7,407
xls
(CZK million)
Change of receivables
Impairment
xls
Trade and other receivables include a receivable from Groupama S.a. of CZK 407 million which relates to the acquisition of the
insurance activities in Polish branch. Ther receivable has been collected subsequently to the year end.
F.6. Other assets
(CZK million)
Deferred tax assets
Other assets
Other assets total
Current portion
Non-current portion
31.12.2012
1,315
47
294
1,656
1,426
230
31.12.2011
1,113
171
281
1,565
1,081
484
xls
F.6.1. Deferred acquisition costs
(CZK million)
Change of DAC
Impairment
2012
1,113
350
(148)
1,315
2011
801
312
–
1,113
xls
The Group defers only non-life insurance acquisition costs. All deferred acquisition costs are usually to be released within one year.
F.7. Cash and cash equivalents
(CZK million)
Cash at bank
Total
xls
31.12.2012
4
9,643
9,647
31.12.2011
7
5,715
5,722
Annual Report 2012
257
F.8. Non-current assets held-for-sale
As at 31 December 2012 and 2011, there were no non-current assets classified as held-for-sale.
F.9. Shareholder’s equity
(CZK million)
Shareholder’s equity attributable to the Group
Share capital
Other capital reserves
Revenue reserves and other reserves
Reserve for currency translation differences
Reserve for unrealised gains and losses on available for sale financial assets
Cash flow hedge reserve
Shareholder’s equity attributable to non-controlling interests
Total
31.12.2012
24,906
4,000
206
10,100
(166)
7,083
4
(14)
3,693
414
25,320
31.12.2011
17,019
4,000
–
10,058
(141)
16
4
(28)
3,110
90
17,109
xls
The following table provides details on reserves for unrealised gains and losses on investments available-for-sale.
(CZK million)
Gross revaluation as at the beginning of the year
Tax on revaluation as at the beginning of the year
Beginning of the year
Revaluation gain/loss in equity – gross
Revaluation gain/loss on realisation in income statement – gross
Impairment losses
Tax on revaluation
Gross revaluation as at the end of the year
Tax on revaluation as at the end of the year
End of the year
2012
179
(163)
16
8,426
(747)
303
(915)
8,161
(1,078)
7,083
2011
1,944
(529)
1,415
(1,915)
(53)
203
366
179
(163)
16
31.12.2012
40,000
100,000
31.12.2011
40,000
100,000
xls
The following table provides details of authorised and issued shares.
Number of shares authorised, issued and fully paid
Par value per share (CZK)
xls
All ordinary shares have the same rights.
F.9.1. Dividends
At the Annual General Meeting on 27 April 2012, the sole shareholder approved the distribution of retained earnings in the form of
dividend of CZK 75,000 per each share in the nominal value of CZK 100,000 amounting to CZK 3,000 million. Distribution concerns
prior year profit of CZK 3,553 million reduced by the allocation to retained earnings of CZK 535 million.
At the Annual General Meeting on 31 May 2011, the sole shareholder approved distribution of dividend of CZK 235,000 per share
amounting to CZK 9,400 million. Distribution concerns prior year profit of CZK 11,200 million reduced by the allocation to retained
earnings of CZK 1,800 million.
Annual Report 2012
258
F.10. Other provisions
(CZK million)
Provisions for taxation
Provisions for commitments
Provision for restructuring charges
Other provisions
Total
Current portion
Non-current portion
31.12.2012
40
1,110
100
6
1,256
175
1,081
31.12.2011
18
1,325
97
6
1,446
111
1,335
2012
1,446
28
(218)
1,256
2011
1,875
–
(429)
1,446
xls
(CZK million)
Variations
xls
Provisions for commitments consist of provisions for the MTPL deficit of CZK 1,042 million (2011: CZK 1,276 million) and other provisions.
Provision for MTPL deficit:
On 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 note 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 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.11. Insurance provisions
(CZK million)
Non-life insurance provisions
Life insurance provisions
Mathematical provisions
Provisions for unit-linked policies
and provisions for pension funds
Provisions for liability adequacy test
Ageing provisions
Total
Current portion
Non-current portion
xls
Direct insurance
31.12.2012
31.12.2011
21,749
20,921
4,874
4,322
16,617
16,390
258
209
64,879
65,878
1,266
853
1,994
1,975
51,021
54,253
10,301
297
33
264
86,628
18,487
68,141
8,526
271
20
251
86,799
16,279
70,520
31.12.2012
31.12.2011
639
558
103
146
499
388
37
24
–
–
–
–
–
–
–
–
–
–
–
–
639
341
298
–
–
–
–
558
323
235
31.12.2012
22,388
4,977
17,116
295
64,879
1,266
1,994
51,021
Total
31.12.2011
21,479
4,468
16,778
233
65,878
853
1,975
54,253
10,301
297
33
264
87,267
18,828
68,439
8,526
271
20
251
87,357
16,602
70,755
Annual Report 2012
259
F.11.1. Life insurance provisions
2012
Gross
(CZK million)
Premium allocation
Change in liability arising from liability adequacy test
Change in UPR
65,878
12,182
(13,682)
(2,324)
1,595
826
13
19
413
(41)
64,879
Reinsurers’
share
(798)
–
–
–
–
–
–
31
(2)
–
(769)
Net
65,080
12,182
(13,682)
(2,324)
1,595
826
13
50
411
(41)
64,110
xls
2011
Gross
(CZK million)
Premium allocation
Change in UPR
67,837
13,141
(14,605)
(2,443)
1,753
(172)
(68)
383
52
65,878
Reinsurers’
share
(829)
–
–
–
–
–
39
(8)
–
(798)
Net
67,008
13,141
(14,605)
(2,443)
1,753
(172)
(29)
375
52
65,080
xls
Provisions for unit-linked policies
(CZK million)
Premiums and payments
Interests and bonuses credited to policyholders
xls
(CZK million)
Insurance contracts
Insurance contracts without discretionary participation feature
Insurance contracts with discretionary participation feature
Investment contracts with discretionary participation feature
Total insurance provisions
Investment contracts fair valued
Investment contracts at amortised cost
Total investment contracts
xls
Gross direct amount
2012
2011
8,526
7,047
5
944
1,651
826
(172)
10,301
8,526
Net position
31.12.2012
31.12.2011
60,037
62,063
14,311
13,275
45,726
48,788
1,843
1,277
61,880
63,340
137
57
63,885
57,243
64,022
57,300
Annual Report 2012
260
F.11.2. Non-Life insurance provisions
F.11.2.1. Provision for unearned premiums
The table below shows the roll-forward of the non-life provision for unearned premiums:
Gross
(CZK million)
Change of the period
2012
4,468
(118)
(2)
629
4,977
2011
4,705
(209)
(28)
–
4,468
Reinsurance
2012
(1,893)
55
–
–
(1,838)
2011
(2,018)
125
–
–
(1,893)
Net
2012
2,575
(63)
(2)
629
3,139
2011
2,687
(84)
(28)
–
2,575
xls
F.11.2.2. Provisions for outstanding claims (RBNS and IBNR)
Gross direct insurance
31.12.2012
31.12.2011
11,278
11,373
5,339
5,017
4,905
4,565
703
726
4,202
3,839
434
452
16,617
16,390
(CZK million)
Motor
Non Motor
Personal and commercial lines
Personal
Commercial/industrial
Accident/Health
Total
xls
The following table shows the roll-forward of provisions for outstanding claims (RBNS and IBNR):
Gross
(CZK million)
2012
Carrying amount as at 1 January 16,778
Change related to claims
incurred in current year
4,911
Change related to claims
incurred in previous years
(4,782)
209
–
17,116
xls
2011
17,648
2012
(6,787)
Reinsurance
2011
(7,402)
2012
9,991
Net
2011
10,246
5,024
(2,458)
(2,172)
2,453
2,852
(5,892)
–
(2)
16,778
2,158
–
–
(7,087)
2,787
–
–
(6,787)
(2,624)
209
–
10,029
(3,105)
–
(2)
9,991
Annual Report 2012
261
F.11.2.3. Development of policyholders claims (RBNS and IBNR)
The following table shows the cumulative claim payments and the ultimate cost of claims by underwriting year and the development
thereof from 2003 to 2012. 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)
2003
Cumulative claim payments
at the end of underwriting year
6,680
one year later
9,956
two years later
10,359
threes years later
10,525
four years later
10,608
five years later
10,659
six years later
10,703
seven years later
10,724
eight years later
10,767
nine years later
10,824
Estimate of ultimate cumulative
claims costs:
at the end of underwriting year
12,154
one year later
12,094
two years later
11,928
threes years later
11,657
four years later
11,605
five years later
11,490
six years later
11,441
seven years later
11,349
eight years later
11,268
nine years later
11,228
Estimate of ultimate cumulative
claims costs at the end of the
reporting period
11,228
Cumulative payments to date
(10,824)
Provision recognised in
the Statement of financial position
404
Provision not included in
the claims development table
catastrophic events
not included in underwrting years
Total provision as at 31 December 2012
2004
2005
2006
7,700
10,573
11,004
11,178
11,261
11,338
11,379
11,423
11,462
8,088
11,077
11,427
11,579
11,632
11,679
11,722
11,750
13,372
13,038
12,855
12,618
12,343
12,202
12,047
12,058
12,032
13,992
13,464
13,096
12,811
12,572
12,407
12,278
12,199
2007
2008
2009
2010
2011
2012
8,180
10,712
11,129
11,261
11,365
11,463
11,512
7,150 7,103 7,502
9,622 9,453 9,761
10,105 9,886 10,170
10,344 10,138 10,371
10,501 10,265
10,604
6,792
9,243
9,638
6,423
8,422
6,487
13,888
13,300
13,219
12,931
12,587
12,407
12,326
12,582
12,417
12,215
11,986
11,661
11,428
11,980
11,827
11,539
11,453
11,210
Total
12,175 11,879 11,260 11,162 124,444
11,992 11,643 10,660
11,878 11,570
11,704
12,032 12,199 12,326 11,428 11,210 11,704 11,570 10,660 11,162 115,519
(11,462) (11,750) (11,512) (10,604) (10,265) (10,371) (9,638) (8,422) (6,487) (101,335)
570
449
814
824
945
1,333
1,932
2,238
4,675 14,184
2,932
738
499
1,695
17,116
xls
Provisions for outstanding claims which were not included in underwriting years include provisions for claims which occurred before
2002 of CZK 1,161 million and provisions related to individually minor non-life insurance products.
Annual Report 2012
262
F.11.2.4. Other insurance provisions
Gross
(CZK million)
2012
233
(375)
–
437
295
2011
224
(349)
(1)
359
233
2012
(30)
43
–
(54)
(41)
Reinsurance
2011
(27)
18
–
(21)
(30)
Net
2012
203
(332)
–
383
254
2011
197
(331)
(1)
338
203
Book value
31.12.2012
2,371
Book value
31.12.2011
2,762
Financial liabilities at fair value through profit or related to investment contracts
Financial derivatives
Financial liabilities at amortised cost
Financial liabilities at amortised cost related to investment contracts
Bonds and Loans
Net asset value attributable to unit holders
Other
Total
137
2,234
68,761
63,886
504
1,656
2,715
71,132
56
2,706
60,185
57,243
500
1,346
1,096
62,947
Current portion
Non-current portion
7,488
63,644
8,187
54,760
xls
Creation and utilisation of provisions relates mainly to provision for non-discretionary bonuses.
F.12. Financial liabilities
(CZK million)
xls
In December 2012, at maturity date, the Group paid up the 250 fixed-coupon bonds in the nominal value of CZK 500 million and
issued a new emission in the same nominal value. The new emission of bonds bear an interest rate of 1.83% p.a. Transaction costs
related to the bond issue amounted to CZK 2.5 million. The bond is quoted on secondary market of Prague Stock Exchange and their
maturity will be in the year 2017.
Other liabilities consist Deposits received from reinsurers of CZK 1,403 milion (2011: 2 milion) and a bank loan to CITY EMPIRIA a.s.
of CZK 977 million (2011: 1,024 million). As collateral to the loan, the Group pledged the CITY EMPIRIA a.s. investment property and
also other receivables, fixed assets, shares, receivables from bank accounts, service charge account and claims arising from lease
agreements, existing and future claims arising from the insurance agreement of the CITY EMPIRIA a.s.
There is also a bank loan to Solitaire a.s. of CZK 307 million (2011: 0). As collateral to the loan, the Group pledged the Solitaire a.s.
investment property.
Fair value measurement of Financial liabilities at fair value through profit or loss as at the end of the reporting period:
31.12.2012
(CZK million)
Level 1
–
Level 2
2,371
Level3
–
Total
2,371
Level3
–
Total
2,762
xls
31.12.2011
(CZK million)
Level 1
88
Level 2
2,674
xls
Annual Report 2012
263
F.13. Payables
(CZK million)
Payable arising out of direct insurance operations
Payable arising out of reinsurance operations
Current income tax payables
Other payables
Payables to employees
Payables to clients and suppliers
Social security
Dividend
Other payables
Total
Current portion
31.12.2012
2,594
3,658
733
1,686
196
265
80
3
1,142
8,671
8,671
31.12.2011
2,104
3,739
71
1,382
143
341
72
3
823
7,296
7,296
xls
The most significant item of other payables is payable to the Ministry of Finance of the Czech Republic from employer’s liability
insurance of CZK 662 million (2011: CZK 529 million).
F.14. Other liabilities
(CZK million)
Other liabilities
Accrued interest expense
Other accrued expenses
Deferred expenses
Other liabilities
Total
Current portion
Non-current portion
31.12.2012
303
2,135
52
2,048
13
22
2,438
31.12.2011
164
1,911
56
1,828
6
21
2,075
2,156
282
1,938
137
xls
Other accrued expences consist of accruals for commissions, bunuses, salaries, investments and other accruals.
F.15. Net earned premiums
(CZK million)
Non-life earned premium
Premiums written
Change in the provision for unearned premium
Life premium
Total
xls
Gross amount
2012
2011
19,735
20,444
19,617
20,235
118
209
13,974
13,962
33,709
34,406
Reinsurers’ share
2012
2011
(9,027)
(9,192)
(8,972)
(9,066)
(55)
(126)
(1,384)
(1,303)
(10,411)
(10,495)
Net amount
2012
2011
10,708
11,252
10,645
11,169
63
83
12,590
12,659
23,298
23,911
Annual Report 2012
264
F.16. Net gains/(losses) from financial assets at fair value through profit or loss
Financial
investments
held-for-trading
(CZK million)
Financial assets
Interest income and other income
Realized gains
Realized losses
Unrealized gains
Unrealized losses
Interest expenses
Other income
Realized gains
Realized losses
Unrealized gains
Unrealized losses
Total
Unit-linked financial Financial investments
investments
designated
and financial
as at fair
investments related
value through
to pension funds
profit or loss
2012
2011
2012
2011
Total financial
investments at
fair value
through profit
or loss
2012
2011
2012
2011
329
2,877
(792)
809
(44)
348
3,416
(2,295)
212
(201)
1
4
–
50
–
1
–
(9)
8
(33)
793
994
(436)
1,399
(296)
1,119
726
(643)
506
(731)
1,123
3,875
(1,228)
2,258
(340)
1,468
4,142
(2,947)
726
(965)
(328)
19
494
(2,016)
174
(598)
924
(257)
22
1,004
(3,567)
83
(1,668)
(2,903)
–
–
–
–
–
–
55
–
–
–
–
–
–
(33)
(107)
33
–
–
–
(93)
2,287
(131)
41
–
–
–
(462)
425
(435)
52
494
(2,016)
174
(691)
3,266
(388)
63
1,004
(3,567)
83
(2,130)
(2,511)
2012
4,187
138
3,961
63
25
282
148
135
1,256
–
1,256
312
318
314
4
6,355
2011
4,090
165
3,874
15
36
328
156
172
1,527
6
1,521
408
295
292
3
6,648
xls
F.17. Income from other financial instruments and investment properties
(CZK million)
Interest income
Interest income from loans and receivables
Interest income from available-for-sale financial assets
Interest income from other receivables
Interest income from cash and cash equivalents
Other income
Income from investment properties
Other income from available-for-sale financial assets
Realized gains
Realized gains on loans and receivables
Realized gains on available-for-sale financial assets
Unrealised gains on hedging instruments available-for-sale
Reversal of impairment
Reversal of impairment of loans and receivables
Reversal of impairment of other receivables
Total
xls
The following table shows the total of future minimum lease income under non-cancellable operating leases for each of the
following periods.
(CZK million)
Total
xls
2012
154
388
26
568
2011
95
77
2
174
Annual Report 2012
265
F.18. Other income
(CZK million)
Gains on foreign currencies
Income from tangible assets
Income from service and assistance activities and recovery of charges
Changes in provision for commitments
Other technical income
Other income
Total
2012
–
1
196
243
148
139
727
2011
1,890
1
271
435
167
98
2,862
xls
F.19. Net insurance benefits and claims
(CZK million)
Non-life net insurance benefits and claims
Claims paid
Change in technical provisions
Of which: Change in the provisions for outstanding claims
Of which: Change in other insurance provisions
Life net insurance benefits and claims
Claims paid
Change in technical provisions
Of which: Change in the provisions for outstanding claims
Of which: Change in the mathematical provisions
Of which: Change in the provisions for unit-linked policies
and provisions for pension funds
Of which: Change in other insurance provisions
Total
Gross amount
2012
2011
10,994
10,840
Reinsurers’ share
2012
2011
(4,377)
(4,152)
Net amount
2012
2011
6,617
6,688
10,803
191
129
62
9,884
11,319
(1,435)
21
(3,245)
11,697
(857)
(868)
11
9,523
11,879
(2,356)
(70)
(3,767)
(4,066)
(311)
(300)
(11)
(400)
(422)
22
30
(1)
(4,764)
612
615
(3)
(395)
(426)
31
38
(7)
6,737
(120)
(171)
51
9,484
10,897
(1,413)
51
(3,246)
6,933
(245)
(253)
8
9,128
11,453
(2,325)
(32)
(3,774)
1,763
26
20,878
1,472
9
20,363
–
(7)
(4,777)
–
–
(4,547)
1,763
19
16,101
1,472
9
15,816
xls
Life insurance
The change in the mathematical provision is influenced primarily by decreased maturities/surrender payments in comparison to 2011.
The increase in the unit-linked provision is caused by continuing business product mix aimed at unit-linked products.
Non-life insurance
The year 2012 was another relatively favourable year to occurrence of calamities and big claims in almost all lines of business except
crop insurance. This reason influenced significantly mainly the items Claims paid and Change in the provision for outstanding claims
in the Gross amount. The year 2011 was in items Change in the provision for outstanding claims and Change in the IBNR provision
influenced by release of provision from the year 2010 (large calamity claims (floods, hails) and large risks claims).
F.20. Fee and commission expenses and expenses from financial services activities
(CZK million)
Fee and commission expenses from asset management activity
Fee and commission expenses related to investment contracts
Total
xls
2012
318
861
1,179
2011
268
313
581
Annual Report 2012
266
F.21. Expenses from other financial instruments and investment properties
(CZK million)
Interest expense
Interest expense on loans, bonds and other payables
of which Interest expenses on financial liabilities at amortised cost related to investment contracts
Interest expense on deposits received from reinsurers
Other expenses
Expenses from investment properties
Realized losses
Realized losses on available-for-sale financial assets
Unrealized losses
Unrealized losses on hedged instruments
Impairment losses
Impairment of loans and receivables
Impairment of available-for-sale financial assets
Impairment of other receivables
Total
2012
1,298
1,273
1,216
25
122
122
509
509
43
43
330
18
303
9
2,302
2011
863
863
774
–
47
47
1,468
1,468
5
5
248
26
203
19
2,631
xls
Expenses arising from investment property that generated rental income amounted to CZK 44 million (2011 CZK 42 million) consists
mainly of energy, repairs and other services.
F.22. Acquisition and administration costs
Non – life segment
(CZK million)
2012
2011
Net acquisition costs and other commissions1,788
1,764
Gross acquisition costs and other commissions 4,125
4,079
Change of deferred acquisition costs
(377)
(275)
Received reinsurance commissions
(1,960)
(2,040)
Investment management expenses
35
43
Other administration costs
1,149
1,218
Total
2,972
3,025
Life – segment
2012
2011
2,683
2,412
3,012
2,721
–
–
(329)
(309)
242
247
1,216
1,242
4,141
3,901
Financial segment
2012
2011
–
–
–
–
–
–
–
–
6
7
97
84
103
91
Total
2012
4,471
7,137
(377)
(2,289)
283
2,462
7,216
2011
4,176
6,800
(275)
(2,349)
297
2,544
7,017
xls
Other administration costs consist mainly of wages and salaries, building and offices rentals, and IT expenses.
The following table shows the total of future minimum lease payments under non-cancellable operating leases for each of the
following periods.
(CZK million)
Total
xls
2012
382
1,288
170
1,840
2011
382
1,329
404
2,115
Annual Report 2012
267
F.23. Other expenses
(CZK million)
Amortisation of intangible assets
Impairment of DAC
Depreciation of tangible assets
Expenses from tangible assets
Losses on foreign currencies
Restructuring charges and allocation to other provisions
Expenses from service and assistance activities and charges incurred on behalf of third parties
Other technical expenses
Other charges
Total
2012
455
148
132
7
931
3
373
220
132
2,401
2011
463
–
137
2
–
6
329
175
248
1,360
2012
1,556
1,497
59
15
15
–
(673)
(673)
–
898
2011
851
801
50
17
17
–
(133)
(133)
–
735
xls
F.24. Income taxes
(CZK million)
Current income taxes
Czech Republic
Other countries
Income taxes related to previous period
Czech Republic
Other countries
Deferred income taxes
Czech Republic
Other countries
Total
xls
The table below shows the reconciliation between an expected and effective tax rate, which is based on 19% tax rate applicable in
the Czech Republic.
(CZK million)
Expected income tax rate
Expected income tax expense (benefit)
Effect of foreign tax rate differential
Effect of special (lower) tax rate
Tax exempt income and other tax decreasing items
Tax non-deductible expenses and other tax increasing items
Effect of tax losses
Other (local) income taxes
Foreign WHT not recoverable
Income taxes for prior years
Tax relief
Other
Tax expense
Effective tax rate
xls
2012
19,0%
4,603
875
(4)
(71)
(268)
318
3
–
4
15
(1)
28
898
19.5%
2011
19.0%
3,856
733
–
13
(468)
340
68
–
10
16
–
23
735
19.1%
Annual Report 2012
268
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.24.1. Deferred tax
(CZK million)
Intangible assets
Land and buildings
Loans
Financial assets held-to-maturity
Financial assets at fair value through profit and loss
Deferred tax asset / liability with impact on equity
Other
Total deferred tax asset/liability before set off
Set off of tax
Net deferred tax asset/liability
Deferred tax assets
31.12.2012
31.12.2011
–
–
10
8
87
87
–
–
564
1
–
–
9
7
10
9
13
7
36
52
729
171
(682)
–
47
171
31.12.2012
31.12.2011
(121)
(88)
(3)
(5)
–
–
(1)
(1)
–
(1)
(7)
(5)
–
–
–
–
(828)
(41)
(25)
(23)
(985)
(164)
682
–
(303)
(164)
xls
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 2013 and the following years, is 19% (2012: 19%).
(CZK million)
Deferred income tax for the period
Deferred tax recognised directly in equity
Total deffered tax income for the period
Business combination
Net deferred tax asset/liability
2012
2011
7
(82)
673
133
(936)
(44)
(263)
89
0
0
1
7
(256)
7
xls
The Group did not recognise a deferred tax asset of CZK 238 million (2011: CZK 306 million) from deductible temporary differences
(unused tax losses) since their realisation is not considered probable.
Tax losses and tax credits, for which no deferred tax was recognised, are presented in the following table:
(CZK million)
Expire in 1 year
Expire between 1 and 3 years
Expire between 3 and 5 years
Total
xls
Not recognized temporary differences
31.12.2012
31.12.2011
142
145
2,675
3,434
1,772
2,525
4,589
6,104
Annual Report 2012
269
F.25. Information on employees
Managers
Employees
Sales attendants
Others
Total
31.12.2012
440
3,433
722
1
4,596
31.12.2011
455
3,170
747
3
4,375
31.12.2012
2,088
645
443
35
24
2,768
31.12.2011
2,095
687
425
38
22
2,820
xls
(CZK million)
Wages and salaries
Compulsory social security contributions
Of which State-defined contribution pension plan
Others
Of which Contribution to private pension funds
Total
xls
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 checkup for employees and social benefits).
F.26. Hedge accounting
F.26.1. Fair value hedge
F.26.1.1. Foreign currency risk hedging
Starting 1 October 2008, hedge accounting is applied by the Group to foreign currency risks (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 Group’s 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
profit or loss according to IFRS rules. FX revaluation on AFS equities is within the hedge accounting reported in profit or loss either as
other income – gains on foreign currency or other expenses – losses on foreign currency.
Hedged items
Hedge 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) 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 do not include financial liabilities.
Annual Report 2012
270
Hedging instruments
Hedging instruments are defined as all FX derivatives, except for cross-currency swaps.
Assets according to this definition can be clearly identified at any time. As at 31 December, hedged items and hedging instruments
were as follows:
(CZK million)
Derivatives
xls
(CZK million)
Derivatives
Fair value as
at 31.12.2012
24,348
183
174
FX gain/loss for the period
from 1.1. to 31.12.2012
(916)
16
976
108%
Fair value as
at 31.12.2011
25,596
22
(707)
from 1.1. to 31.12.2011
1,084
(36)
(1,169)
112%
xls
F.26.1.2. Interest rate risk hedging
Starting 1 July 2011 the hedge accounting has been applied to derivatives hedging an interest rate exposure of interest-bearing
financial assets. The Group uses fair value hedging.
The Group has implemented a risk management strategy for interest rate risk. The objective of the investment and hedging strategy
is to manage the overall interest rate risk position on a continuous basis. The Group achieves this objective by a dynamic strategy.
Change in the fair value of interest rated derivatives and FVTPL interest-bearing financial assets is reported in the profit or loss
account according to IFRS rules. Change in the fair value of AFS interest-bearing financial assets attributable to the interest rate risk is
within the hedge accounting reported in the profit or loss account either as other income from financial instruments and other
investments or other expenses for financial instruments and other investments.
Hedged items
The Group designates as the hedged item a group of fixed income instruments. Hedged items include financial assets classified in the
available-for-sale category and fair value to profit or loss category. The hedged items do not include financial liabilities.
Hedging instruments
Hedging instruments are defined as a group of interest rate derivatives. The derivatives are designated as hedging instruments
in its entirety.
Assets and derivatives according to this definition can be clearly identified at any time. As at 31 December hedged items and
hedging instruments were as follows:
(CZK million)
Derivatives
xls
(CZK million)
Derivatives
xls
Fair value as
at 31.12.2012
17,309
(1,412)
from 1.1. to 31.12.2012
451
(520)
115%
Fair value as
at 31.12.2011
18,547
(1,064)
from 1.1. to 31.12.2011
613
(650)
106%
Annual Report 2012
271
F.26.2. Cash flow hedge
F.26.2.1. Foreign currency risk hedging
Starting 1 June 2010, a cash-flow hedge has been applied by the Group to foreign currency risks (FX risk). The hedge accounting is
applied selectively for individual subsidiaries; as at 31 December 2012 the cash-flow hedge has only been applied by City Empiria.
As a result of its real estate rent operations, most of the City Empiria’s transactions are denominated in foreign currencies. In terms of
the Group’s overall currency risk management strategy, this company minimises its exposure to changes in the cash flows from the
rental contracts by entering into loans denominated in foreign currencies.
Hedged items
The hedged items are expected payments (cash inflows) in EUR from lease contracts concluded in EUR. During the validity period of
current existing rental contracts the cash inflows are constituted by payments related to these contracts. As the Company intends to
continue entering into lease contracts denominated in EUR, the expected future lease contracts that will be entered into after the
existing contracts have expired are also presented as a hedged item. The future lease payments are modelled over the depreciation
period of the building.
Hedging instrument
The Company hedges the receivables by foreign currency loans received and used for construction and operation of the real estate
owned by the company. The loan is being prolonged. In the case that the loan is not prolonged, the company expects to get a new
loan in the same currency that will be used to repay the current loan. This assumption is based on the fact that rental contracts
denominated in EUR will be a sufficient guarantee for receiving a new loan in EUR.
Prospective effectiveness test
(CZK million)
Loan balance – actual
Loan balance – theoretical
The amount of the loan used as hedging instrument
PV of lease payments
PV od hedged lease payments
Change in value of the hedging item
Change in value of the hedged item
Ratio of rent payments to hedging item
Is the hedging prospectively effective?
31.12.2011
1,024
1,060
1,024
1,070
1,024
(61)
61
100%
Yes
30.6.2012
1,007
1,030
1,007
1,040
1,007
(11)
11
100%
Yes
31.12.2012
977
987
977
997
977
(10)
10
100%
Yes
xls
The retrospective effectiveness is measured as the ratio of payments that are expected by the model to be obtained and rent
income that is actually obtained. The company has to obtain at least the expected amount of rent payments in order for the hedging
to be effective.
(CZK million)
Cumulative values
Value of modelled CF from rent
Received rent volume
Received rent volume – cumulative
Is the hedging retrospectively effective?
xls
31.12.2011
30.6.2012
31.12.2012
171
75
257
Yes
225
66
312
Yes
273
65
370
Yes
Annual Report 2012
272
F.26.2.2. Interest rate risk hedging
Starting 17 October 2011, cash-flow hedge has been applied by the Group to the interest rate risk (IR risk). The hedge accounting is
applied only by Group subsidiary CITY EMPIRIA (further referred as to “the Company” in this section).
The Company hedges itself against the interest rate risk by entering into interest rate swap, to pay interest at a fixed interest rate and
to receive interest at a variable interest rate. The Company hedges interest payments from the loan (commencing interest period
starting 17 October 2011 until 30 September 2015) with interest rate of 3M EURIBOR. The Company does not hedge the margin
over this interest rate, because it is not the subject to interest rate risk.
Hedging instrument
The Company entered into the interest rate swap, which the company designates as hedging instrument as at 17 October 2011.
Hedged items
The hedged items are interest payments resulting from the loan drawn.
The measurement of the retrospective hedge effectiveness is based on comparison of the cumulative changes in the fair value of the
hedging instrument and cumulative changes in the fair value of the hypothetical derivative instrument that represents the hedged item.
(CZK million)
Hedging item – IR swap
Hedged item – hypothetic derivative (loan)
Effectiveness test
Fair value at inception
at 17.10.2011
(4)
4
Fair value as
at 31.12.2012
(39)
39
Gain/loss for the period
from 1.1. to 31.12.2012
(35)
35
100%
Fair Value at inception
at 17.10.2011
(4)
4
Fair value
as at 31.12.2011
(15)
15
Gain/loss for the period
from 1.1. to 31.12.2011
(12)
12
100%
2012
3,693
3,693
40,000
2011
3,110
3,110
40,000
92
92
78
78
xls
(CZK million)
Hedging item – IR swap
Hedged item – hypothetic derivative (loan)
Effectiveness test
xls
F.27. Earnings per share
The next table shows the earnings per share:
Profit from continuing operations (CZK million)
Weighted average number of ordinary shares outstanding (pcs)
Earnings per share
From continuing operations (CZK thousands)
Total
xls
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 the number of shares or any instruments issued which could cause the
dilution of shares in 2012 and 2011.
Annual Report 2012
273
F.28. Off-balance sheet items
F.28.1. Commitments
As at 31 December 2012 the Group had no significant contractual commitments other than contractual leasing payments showed in
Note F.22.
F.28.2. Other contingencies
F.28.2.1. Legal
As at the release date of the financial statements, there were 4 cases pending concerning the decision of the general meeting of the
Group in 2005 approving a squeeze-out of minority shareholders. 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.28.2.2. Participation in nuclear pool
As 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.
The potential liability of the Group 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:
(CZK million)
Liability
Fire, lightning, explosion, aircraft (“FLEXA”) and break down of operations
Transportation risk
Technical insurance and breakdown of operations
Total
31.12.2012
166
576
115
288
1,145
31.12.2011
166
576
115
288
1,145
xls
F.28.2.3. Membership in the Czech Insurance Bureau
As 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.10.).
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.
Annual Report 2012
274
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 2012, CZI Holdings N.V. is the sole shareholder of the Company. The ultimate parent company is Assicurazioni
Generali S.p.A.
The Group is related to its parent companies 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 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.29.2. Transactions with key management personnel of the Group
(CZK million)
Short-term benefits provided by the Group
Board of Directors
Related to the
Related to
board membership
employment
contract
1
62
–
1
Supervisory Board
Related to the
Related to
board
employment
membership
contract
2
2
–
–
Board of Directors
Related to the
Related to
board membership
employment
contract
5
28
–
1
Supervisory Board
Related to the
Related to
board
employment
membership
contract
1
–
–
–
xls
(CZK million)
Short-term benefits provided by the Group
xls
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 other post-employment benefits, other long-term benefits or termination benefits paid to the key management
personnel of the Group in 2012 and 2011.
As at 31 December 2012 and 31 December 2011, the members of the statutory bodies held no shares of the Group.
F.29.3. Related party transactions
The Group had no material transactions or outstanding balances with the ultimate parent company Generali in either in 2012 or in 2011.
The dividend declared and paid to the sole shareholder is disclosed in the note F.9.1.
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 (primarily entities from PPF Group N.V., indirect 49% shareholder of the Company)
Annual Report 2012
275
31.12.2012
(CZK million)
Reinsurance assets
Other assets
Total assets
Technical provisions
Other liabilities
Total liabilities
Notes
i.
ii.
iii.
iv.
Group 1
–
–
–
–
–
–
–
–
–
–
Group 2
1,126
8,298
–
38
9,462
4,731
161
85
50
5,027
Group 3
–
–
6,068
43
6,111
4
–
28
44
76
Notes: i. The balances with companies in Group 2 comprise especially receivables from reinsurance from GP Reinsurance EAD, Bulgaria (GP RE) in the amount of CZK
1,068 million.
PPF banka a.s. in the amount of CZK 1,981 million, bonds issued by Energetický a prumyslový holding, a.s. for CZK 203 million, bonds issued by EP Energy
a.s. for CZK 234 million.
iv. The balances with companies in the Group 2 comprise liabilities from reinsurance to GP RE in the amount of CZK 4,678 million.
xls
31.12.2011
(CZK million)
Reinsurance assets
Other assets
Total assets
Technical provisions
Notes
i.
ii.
iii.
iv.
Other liabilities
Total liabilities
Group 1
–
–
–
–
–
–
–
–
Group 2
1,215
8,231
–
36
9,482
3,427
84
–
Group 3
–
–
8,716
65
8,781
3
–
106
–
–
41
3,552
62
171
Notes: i. The balances with companies in Group 2 comprise especially receivables from reinsurance from GP Reinsurance EAD, Bulgaria (GP RE) in the amount of CZK
1,155 million.
PPF banka a.s. in the amount of CZK 1,302 million and receivables from repurchase agreements CZK 893 million with PPF banka a.s.
iv. The balances with companies in the Group 2 comprise liabilities from reinsurance to GP RE in the amount of CZK 3,378 million.
xls
2012
(CZK million)
Income from insurance and reinsurance business
Other income
Total income
Expenses from insurance and reinsurance business
Other expenses
Total expenses
Notes
i.
ii.
iii.
Group 1
–
–
–
–
–
–
–
–
Group 2
6,410
18
42
6,470
(9,691)
(236)
(144)
(10,071)
Group 3
47
406
37
490
(0)
(95)
(149)
(244)
Notes: i. The balances in Group 2 include transactions from reinsurance with GP RE in the amount of CZK 6,234 million (commissions and claims paid by GP RE).
ii. Group 3 includes the income related to interest of the bonds issued by Home Credit Group companies and Nomos Bank in the amount of CZK 303 million.
iii. The balances in Group 2 include ceded earned premium to GP RE in the amount of CZK 9,402 million.
xls
Annual Report 2012
276
2011
(CZK million)
Income from insurance and reinsurance business
Other income
Total income
Expenses from insurance and reinsurance business
Other expenses
Total expenses
Notes
i.
ii.
iii.
Group 1
–
25
–
25
–
–
–
–
Group 2
6,775
2
52
6,829
(9,719)
(245)
(199)
(10,163)
Group 3
125
611
42
778
(1)
(208)
(402)
(611)
Notes: i. The balances in Group 2 include transactions from reinsurance with GP RE in the amount of CZK 6,485 million (commissions and claims paid by GP RE).
ii. Group 3 includes the income related to interest of the bonds issued by Home Credit Group companies and Nomos Bank in the amount of CZK 409 million.
iii. The balances in Group 2 include ceded earned premium to GP RE in the amount of CZK 9,719 million.
xls
F.30. Audit fees
The audit fees for 2012 were CZK 24 million (2011: CZK 23 million). No other services were provided.
G. Subsequent Events
On 8 January 2013 Generali and PPF Group announced that they have agreed on the conditions for transferring full ownership and
management control of GPH to Generali. An integral part of the agreement is to sell to PPF Group its insurance operations in Russia,
Ukraine, Belarus and Kazakhstan. This involves three subsidiaries of the Group: Generali Foreign Insurance Company Inc., JSC
“Generali Life” and Finansovyj servis o.o.o.
Annual Report 2012
21 – Report on Relations among Related Parties in the Accounting Period 2012
277
Report on Relations among Related Parties
in the Accounting Period 2012
Company Česká pojišťovna a.s., incorporated in the Commercial Register maintained by the Municipal Court in Prague, Part B, insert
1464 on May 1, 1992 as a joint-stock company (ID number 45272956) with registered office at Prague 1, Spálená 75/16, postcode
11304 (the “Company”), is obligated to compile, for the accounting period 2012, 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, 2012 the Company’s sole shareholder was CZI Holdings N.V. with its registered office 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 2012, the Company entered into the following contracts with related parties:
• With Assicurazioni Generali S.p.A. registered office: Piazza Duca degli Abruzzi 2, I -34132 Trieste, entered into reinsurance contracts.
• With CZI Holdings N.V. registered office: Amsterdam, Tower B, Stravinskylaan 933, 1077 XX, Netherlands, entered into a sale of
shares of CP Strategic Investments B.V agreement.
• With Česká pojišťovna ZDRAVÍ a.s. registered office: Na Pankráci 1720/123, Praha 4, the following:
– rent agreement,
– frame agreements on cost sharing,
– insurance contracts,
– amendment to the agreement on cost sharing of financial assets administration,
– amendment to the agreement to obligations arising from the participation in the Group,
– amendments to the business cooperation agreement.
• With ČP ASISTENCE s.r.o. registered office: Praha 4, Na Pankráci 1658/121, PSČ 140 21, the following:
– agreement to provide services of provider of telephone calls,
– agreement on sale of computer equipment,
– rent agreements,
– agreement on cooperation in the provision assistance services,
– agreement on cooperation in insurance of medical expenses,
– implementation agreement on cost sharing of IT and non-IT technologies and relating operational expenditures.
Annual Report 2012
• With ČP DIRECT, a.s. registered office: Praha 4, Na Pankráci 1658/121, PSČ 140 21, the following:
– contract to provide rights to use the software,
– frame agreement on cost sharing.
• With ČP INVEST investiční společnost, a.s. registered office: Praha 4, Na Pankráci 1658/121, PSČ 140 21, the following:
– agreement for the loyalty bonus,
– amendment to implementation agreement on cost sharing of IT technologies,
– frame agreement on cost sharing,
– insurance contracts.
• With Generali Development s.r.o. registered office: Praha 1, Ovocný trh 580/2, PSČ 111 00, entered into amendments to
implementation agreement on cost sharing of IT technologies.
• With Generali Insurance AD registered office: Nikola Gabrovski Blvd. 79, city of Sofia, entered into reinsurance contracts.
• With Generali Penzijní fond a.s. registered office: Praha 2, Bělehradská 132, PSČ 120 84, entered into an amendment to the
agreement to obligations arising from the participation in the Group.
• With Generali Pojišťovna a.s. registered office: Praha 2, Bělehradská 132, PSČ 120 84, the following:
– rent agreements and amendments to the rent agreement,
– reinsurance contracts,
– coinsurance contract,
– implementation agreement on cost sharing of IT and non-IT technologies,
– contract to provide rights to use the software,
– amendment to the agreement on cost sharing of financial assets administration.
• With Generali PPF Asset Management a.s. registered office: Evropská 2690/17, entered into insurance contracts.
278
Annual Report 2012
279
• With Generali PPF Services a.s. registered office: Praha 4, Na Pankráci 1720/123, PSČ 140 00, the following:
– agreements on sale of computer equipment,
– rent agreements and amendments to the rent agreement,
– amendments to the frame agreement on rules on outsourcing,
– agreement on marketing cooperation,
– agreement on non-exclusive sales representation.
• With Generali Slovensko poisťovňa a.s. registered office: Lamacská cesta 3/A, 824 79 Bratislava, entered into reinsurance contracts.
• With Generali Towarzystwo Ubezpieczeń S.A. registered office: ul. Postępu 15B, 02-676 Warszawa, Poland, entered into
reinsurance contracts.
• With Generali-Providencia Biztosító Zrt. registered office: 1066 Budapest, Teréz krt. 42-44., entered into a reinsurance contract.
• With GP Reinsurance EAD registered office: 68 Knyaz Al. Dondukov Blvd., city of Sofia, entered into reinsurance contracts.
• With Generali PPF General Insurance LLC registered office: 4, 4th Lesnoy Lane, entered into reinsurance contracts.
• With Nadace České pojišťovny registered office: Praha 4, Na Pankráci 1658/121, PSČ 140 21, entered into a frame agreement on
cost sharing.
• With Penzijní fond České pojišťovny, a.s. registered office: Praha 1, Truhlářská 1106/9, PSČ 110 00, the following:
– rent agreements and amendment to rent agreement,
– mandate agreement on mutual support pension savings,
– implementation agreement on cost sharing of IT and non-IT technologies,
– agreements on the assignment of rights and assumption of liabilities from rent agreement,
– agreement on sales representation,
– agreement on further cooperation between the company, Česká pojišťovna and exclusive insurance agents,
– amendment to the frame agreement on mediation, use of business network and other cooperation,
– advertising marketing campaign agreement.
Annual Report 2012
280
• With REFICOR s.r.o. registered office: Praha 4, Na Pankráci 1658/121, PSČ 140 21, the following:
– agreement on providing services.
• With Generali PPF Holding B.V. registered office: Praha 6, Evropská 2690/17, the following:
– amendment to the agreement to provide services,
– agreement to provide paid leave and compensation wages of granted leave.
• With SC Generali Romania Asigurare Reasigurare SA registered office: B-dul Primaverii nr. 29, Sector 1, entered into an assistance
of Motor Vehicle Third Party Liability claims, according to Internal Regulations.
All of the above contracts were entered into under arm’s length terms. Provision of an interest free loan to a subsidiary is in this case
also considered to be an arm’s length transaction. Arm’s length terms apply to all performance and consideration provided and
received under the above disclosed contracts and contracts signed in previous periods, reported in previous Reports on Relations and
still valid in the current accounting period, and none of the contracts caused any harm to the Company.
No measures or other legal acts were taken by the Company in the current accounting period 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, 29 March 2013
Pavel Řehák, MBA
Milan Beneš
General director
Member of the Board of Directors
Registered office: Spálená 75/16, 113 04 Praha 1
Head office: Na Pankráci 123, 140 21 Praha 4
Telephone: +420 224 051 111
Fax: +420 224 052 200
E-mail: klient@cpoj.cz
Internet: www.ceskapojistovna.cz
Bank: Komerční banka, a.s., account number: 17433-021/0100
The texts used on the pages of illustrations in the Česká pojišťovna a.s. annual report for 2012
were taken from the following sources:
MARVAN, Miroslav. ČESKÁ STÁTNÍ POJIŠŤOVNA. Dějiny pojišťovnictví v Československu: 1. díl – Dějiny pojišťovnictví
v Československu do roku 1918 [Title in translation: ČESKÁ STÁTNÍ POJIŠŤOVNA. The History of Insurance in Czechoslovakia:
Part 1 – The History of Insurance in Czechoslovakia up to 1918]. First edition. Prague: Novinář, 1989.
MARVAN, Miroslav and CHALUPECKÝ, Josef. ČESKÁ POJIŠŤOVNA A.S. Dějiny pojišťovnictví v Československu: 2. díl – Dějiny
pojišťovnictví v Československu (1918–1945) [Title in translation: ČESKÁ POJIŠŤOVNA A.S. The History of Insurance in
Czechoslovakia: Part 2 – The History of Insurance in Czechoslovakia (1918–1945)]. First edition. Bratislava: ALFA KONTI, 1993.
ISBN 80-887739-01-2.
MARVAN, Miroslav and CHALUPECKÝ, Josef. ČESKÁ POJIŠŤOVNA A.S. Dějiny pojišťovnictví v Československu: 3. díl – Dějiny
pojišťovnictví v Československu (1945-1992) [Title in translation: ČESKÁ POJIŠŤOVNA A.S. The History of Insurance in
Czechoslovakia: Part 3 – The History of Insurance in Czechoslovakia (1945–1992)]. First edition. Prague: GSW, 1997.
ISBN 80-238-8592-8.
MARVAN, Miroslav and CHALUPECKÝ, Josef. ČESKÁ POJIŠŤOVNA A.S. Historie pojišťovnictví v dokumentech [Title in translation:
ČESKÁ POJIŠŤOVNA A.S. The History of Insurance in Documents]. First edition. Prague: Hermes, 1995. ISBN 80-901867-1-8.
MARVAN, Miroslav and CHALUPECKÝ, Josef. ČESKÁ POJIŠŤOVNA A.S. Pojišťovna sedmi pokolení [Title in translation:
ČESKÁ POJIŠŤOVNA A.S. Seven Generations of an Insurance Company]. First edition. Prague: GSW, 1997.
MŽYKOVÁ, Marie. ČESKÁ POJIŠŤOVNA A.S. Zapomenutá díla [Title in translation: ČESKÁ POJIŠŤOVNA A.S. Forgotten Works].
First edition. Prague: REAG, 1992. ISBN 80-900714-0-6.
MARVAN, Miroslav and CHALUPECKÝ, Josef. ČESKÁ POJIŠŤOVNA A.S. 170 let českého pojišťovnictví [Title in translation:
ČESKÁ POJIŠŤOVNA A.S. 170 Years of Czech Insurance]. First edition. Prague: GSW, 1997.
Period photographs, documents, illustrations, etc., are from the archives of Česká Pojišťovna and Národní filmový archiv.
Consulting, design and production: © B.I.G. Prague, 2013
1864
1827
1920
Approval of the articles of association of
“Císařsko královský privilegovaný český společný
náhradu škody ohněm svedené pojišťující ústav”
(“Imperial-Royal Privileged Bohemian Joint Fire
Damage Insurance Institute”), subsequently
renamed První česká vzájemná pojišťovna
(First Czech Mutual Insurance Company).
Automobile traffic expanded rapidly
in the 1920s. První česká vzájemná
pojišťovna had the foresight to include
this type of insurance in its portfolio in
the very early days of motoring in the
Czech Republic, offering coverage of
self-propelled machines as of 1909.
1881
1941
The company introduces fire coverage
for movable property.
The company is faced with the largest insured event
in the 19th century following a fire at the National
Theatre. První česká vzájemná pojišťovna pays indemnity
of 297,869 Guldens (for the sake of perspective,
a men’s suit cost about 14 Guldens and a mason’s
weekly wage was around 35 Guldens).
Despite the unfavourable war
period, První česká vzájemná
pojišťovna boasts 16 valid
insurance contracts passed
down the generations of the
same families for a hundred
or more years.
1991
Private insurance companies enter the
Czechoslovak insurance market and
a competitive environment is formed.
1977
At a show of promotional films, the
absolute winner chosen by the jury
and the audience is Česká státní
pojišťovna’s “The Driver and the
Pedestrian”.
1953
1999
Československá pojišťovna
is renamed Státní
pojišťovna, subsequently
an insurance and
reinsurance company.
The Česká pojišťovna
general meeting
approves a strategic
plan to create
a holding structure
for the Česká
pojišťovna a.s. Group.

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