Key Figures (consolidated in accordance with IFRS)

The Gothaer Group Annual Report 2012 Financial Highlights Key Figures (consolidated in accordance with IFRS) € million Five-year summary of key fi...
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The Gothaer Group Annual Report 2012

Financial Highlights

Key Figures (consolidated in accordance with IFRS) € million

Five-year summary of key figures Financial Year

2012

2011

2010

2009

2008

Gross premiums written Net premiums earned

4,180.8 3,483.9

4,050.3 3,306.5

4,002.9 3,250.7

4,248.6 3,362.1

4,039.4 3,043.2

Policyholder benefits (net)

3,667.5

3,124.1

3,350.3

3,375.5

2,436.2

Underwriting expenses (net)

695.0

682.0

673.9

648.3

690.8

Consolidated profit for the year

107.3

85.1

79.1

76.4

62.1

24,902.8

22,937.0

22,877.3

22,585.1

21,451.2

1,162.3

907.9

822.2

664.9

711.6

22,652.1

20,929.0

20,811.6

20,349.2

19,154.9

1,527.6

1,180.2

1,152.0

1,065.7

942.2

6,042

5,992

5,262

5,350

5,466

Investments Investment result Underwriting reserves (net) Group equity Employees (average number)

The Gothaer Group With over 3.5 million members and premium income of 4 billion Euro, the Gothaer Group ranks among Germany’s major insurance groups and is one of the country’s largest mutual insurance societies. By offering high-quality risk-management and financial concepts, we give our customers comprehensive solutions that go well beyond the usual scope of insurance and financial products. We attempt to make dealing with insurance and financial matters as pleasant and as simple as possible for our customers. Our staff make every effort to relieve them of chores and to act in their best interests in all respects. This, in combination with the quality of our service and support, distinguishes us from our competitors. The result is noticeable added value for our customers and marketing partners. Our clients and marketing partners receive significant added value. Gothaer’s customers are for the most part private individuals and mid-sized businesses. We offer a wide variety of insurance products, not only in the personal area, but also for small and medium-sized companies, the self-employed and freelancers.

Geschäftsergebnisse

The Business Units Gothaer Versicherungsbank VVaG, a mutual insurance association, is the Group parent. The Group’s financial activities are managed by Gothaer Finanzholding AG. Operational activities are handled mainly by the companies listed below: Gothaer Allgemeine Versicherung AG is the risk-bearing entity in property and casualty insurance within the Gothaer Group. This company has ranked among the largest German property insurance companies ever since its foundation in the year 1820. Its focus is primarily on combined insurance concepts and multiple-risk products. Custom solutions that take into account the specific requirements of different branches of business and industry make Gothaer a reliable partner not only for private clients, but also for commercial customers from mid-sized companies and industry. The very good product positioning in private-customer business is regularly confirmed by corresponding ratings. In hunting-liability insurance and in the insurance of wind farms, Gothaer Allgemeine has positioned itself as market leader with its product solutions and experience. Regional contacts and on-site specialists ensure the necessary professional competence for customized solutions. Gothaer Lebensversicherung AG can look back on 180 years as a partner offering insurance protection, financial planning strategies and investment advice. In the insurance cover area, the company provides family-friendly solutions like the Gothaer stand-alone occupational disability insurance with family bonus or Gothaer PflegeRent Invest, an innovative unit-linked long-term care annuity insurance. In private retirement planning, product flexibility is the central feature: the Gothaer ReFlex product line enables the product to be optimally adapted in every phase of life to the client’s personal circumstances. With over four decades of experience, company pension plans are an important field of competence. Besides future-geared themes like working time accounts, customized holistic solutions have been developed which, in addition to the appropriate products and comprehensive advice, also offer support in launching and communicating solutions for enterprises and their workforces. In the Assets segment, the life insurer offers exacting customers a variety of solutions like the Gothaer Comfort Fund with asset management. As the healthcare provider of the Gothaer Group, Gothaer Krankenversicherung AG provides policyholders not only with customized insurance coverage and reimbursement of medical expenses, but also with comprehensive support in the event of illness. As modern healthcare provider, we strengthen clients’ health awareness and personal responsibility in handling illnesses. Gothaer Krankenversicherung AG supports its customers with preventive measures, health guides as well as competent health advice. In addition to classic business in comprehensive health insurance, Gothaer is very well positioned in supplementary insurance as well. Other focuses in this area are on group insurance for company staff and corporate healthcare management. The Asstel Insurance Group complements the Gothaer Group’s portfolio with a direct insurer. Asstel has been offering standardized, economical products in the Life, Health and Property insurance segments to private clients throughout Germany since 1997. As customer totals grow, existing customer business, too, is playing an evergreater role. A further mainstay at Asstel is cooperation business. Here, Asstel offers especially attractive insurance conditions for whole workforces and customer groups of enterprises as well as members of associations. In recent years, the company has quickly worked its way to the top in many rankings of products, services and providers, and Asstel's web presence has been assessed in many studies as leading the market. Janitos Versicherung AG was established in 2005 as an independent brand in the Gothaer Group. The specialized broker insurer operates in the assets and health fields where it is performing well with its combination of highquality product solutions and efficient processes. In the Janitos Multi-Rente for adults and children, the Company has succeeded in creating a product with a novel scope of benefits that offers cover against financial burdens due to sickness or accidents. The focus of the Gothaer Group's business activity is on the German insurance market. However, thanks to the acquisition of the Polish property insurer Polskie Towarzystwo Ubezpiecze n´ S.A., which was renamed Gothaer Towarzystwo Ubezpieczen´ S. A. in 2012, and to the acquisition of Romanian insurer Platinum, which was renamed Gothaer Asigurari Reasigurari S. A. in 2013, the Group is also opening up to the Eastern European market.

The Gother Group Gothaer Versicherungsbank VVaG Cologne 100 %

Gothaer Finanzholding AG Cologne

100 %

10 0%

Janitos Versicherung AG Heidelberg

Gothaer Risk-Management GmbH Cologne

Gothaer Allgemeine Versicherung AG Cologne

100 %

50 %*

CG Car Garantie Versicherungs-AG Freiburg

Gothaer Systems GmbH Cologne

25,1 %

25,1 %*

ROLAND Rechtsschutz Versicherungs-AG Cologne

Gothaer Lebensversicherung AG Cologne

100 %

17,25 %*

Aachener Bausparkasse AG Aachen

Gothaer Pensionskasse AG Cologne

100 %

100 %

A.S.I. Wirtschaftsberatung AG Münster

Gothaer Krankenversicherung AG Cologne

100 %

100 %

Gothaer Asset Management AG Cologne

Asstel Lebensversicherung AG Cologne

100 %

100 %

Gothaer Invest- und FinanzService GmbH Cologne

Asstel Sachversicherung AG Cologne

100 %

100 %

Hamburg-KölnerVermögensverwaltungs GmbH Cologne

Asstel ProKunde Versicherungskonzepte GmbH Cologne

100 %

100 %

GKC Gothaer Kunden-Service-Center GmbH Cologne

Gothaer Towarzystwo Ubezpieczen´ S. A. Warsaw

99,86 %

100 %

GSC Gothaer Schaden-Service-Center GmbH Berlin

Gothaer Asigurari Reasigurari S. A. Bukarest

74,2 %

74,9 %

* Total Group interest Revised: For purposes of clarity, some Group companiesare not shown or are not shown in their entirety

February 2013

Gothaer Versicherungsbank VVaG Group Annual Report for 2012 in accordance with International Financial Reporting Standards (IFRS) Report for the Financial Year as of 1 January to 31 December 2012

Registered Office of the Company Arnoldiplatz 1 50969 Cologne/Germany

Table of Contents

Table of Contents Foreword Letter from the Chairman of the Supervisory Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Letter from the Chief Executive Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4 5

Management Report General Economic Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Situation in the Insurance Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Group Management Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Segmental Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-Financial Performance Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8 10 14 21 24 30 32 57

Consolidated Financial Statements Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Segmental Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

66 68 69 70 74

Notes to the Consolidated Financial Statements Group Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principles of Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Scope of Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes to the Consolidated Statement of Financial Position – Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes to the Consolidated Statement of Financial Position – Equity and Liabilities . . . . . . . . . . . . . . . . . . . . . . Notes to the Consolidated Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate Governing Bodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – Representatives of Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – Supervisory Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – Advisory Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – Directorships of Members of the Supervisory Board and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

81 83 84 93 114 130 149 161 161 164 165 166 168 170

Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

178

Report of the Supervisory Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

179

Addresses of Major Group Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

182

Gothaer Group Annual Report 2012

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Foreword

Gothaer brand goes European The year 2012 was marked by numerous legal and regulatory changes, first and foremost the launch of the unisex tariff, then the efforts surrounding the planned, though not yet executed, introduction of the SEPA Accompanying Act – for the Single European Payments Area – and preparations for Solvency II. Also, the euro crisis had not been finally overcome by the end of 2012, and the associated low-interest scenario was affecting, and goes on affecting, personal insurers in a very special fashion. The Gothaer Group has come to grips outstandingly with this low-interest environment and with the challenges it has entailed: the Company can look back on a successful 2012 financial year. This was also helped by the strong Gothaer brand with its high name recognition and dependability.

Dr. Roland Schulz, Chairman of the Supervisory Board of the Gothaer Group

A strong brand is a decisive success factor for any company: brands create customer relationships and customer loyalty and provide orientation. Brands impart lifestyle and a we-feeling; for customers, they are an anchor of trust in the jungle of media diversity and a glut of information. This is particularly true of the insurance sector: especially when it comes to the complex subject of insurance, a brand plays a crucial role for customers. After all, insurance cover is intangible. A customer’s buying decision is based, above all, on trust. This being so, a good name and high esteem form the calling card of any company addressing customers and the general public. The Gothaer Group has such a name and a strong brand, as is evidenced by surveys conducted by external market-research institutes. For instance, Gothaer has a supported brand awareness of over 86%, and nearly 40% of respondents like the Gothaer brand. Very good values that clearly reflect the Company’s successes. Gothaer’s high brand awareness, its positive associations and the confidence it enjoys were also the reason why the Group decided to rename its subsidiaries in Poland and Romania. Both foreign subsidiaries belong to the Gothaer Group, and that fact is now there for all to see. The Polish non-life insurer Polskie Towarzystwo Ubezpieczen´ S. A. became Gothaer Towarzystwo Ubezpieczen´ S. A., while the Romanian insurer Platinum Asigurari Reasigurari S. A. emerged as Gothaer Asigurari Reasigurari S. A. The renaming met with a very positive response among customers, sales partners and employees in both countries. In this way, the Gothaer brand is expanding into Central and Eastern Europe and, with the involvement of staff on the spot, Gothaer’s founding idea – a combination of tradition and innovation, long-term thinking and solidarity – is set to be further developed. The Supervisory Board wishes to thank Management and all employees for their committed and professional work.

Yours, Dr Roland Schulz 4

Gothaer Group Annual Report 2012

Foreword

Gothaer growth in 2012 again stronger than the market The Gothaer Group can look back on a gratifying 2012 financial year, for the targets set were reached in full: gross premiums written, for instance, were up 3.2% to €4.181 billion, while the market notched up a mere 1.5%. What is particularly positive is that all Company segments made a contribution to premium growth: Property/Casualty grew 2.9%, Life 2.9% and Health 4.3%. Group profit for the year, too, was up 54.5% to €224 million. Despite the ongoing trend of declining reinvestment returns and an incredibly difficult investment situation, the Company was able to earn on-schedule investment results and stable net returns across all risk carriers. In this way, the investment result for the Group as a whole rose by 28.0% to over €1 billion. The Group’s equity increased by 29.7% to €1.528 billion. Gothaer is the leading insurer of renewable energies and is investing in this business field as well: in the medium term, up to €500 million will be spent in European projects in this future-geared area.

Dr. Werner Görg, Chief Executive Officer of the Gothaer Group

In 2012, the rating agencies FitchRatings (Fitch) and Standard & Poor’s (S&P) again confirmed their positive assessment of the Group’s core companies and continue to rate the outlook as ‘stable’. The rating results reward the Group’s sound capital base, its progressive processes and systems in risk management and its well-diversified position. The positive assessments reflect the systematically and successfully pursued path of profitable growth. Hence, the Gothaer Group proved once more in 2012 – despite the debt crisis, high volatility and uncertainty on the financial markets – that we are successful even in turbulent times with outstanding advice and with solution-driven products for our customers. For 2013, Management is again reckoning with premium growth above the market. At the moment, activities focus on expanding our offerings for corporate customers and on continuing our strategy of internationalization in Central and Eastern Europe. The acquisition of the Polish insurer Polskie Towarzystwo Ubezpiecze´n S. A. in 2010 and the Romanian company Platinum Asigurari Reasigurari S. A. in 2012 got the implementation of our growth strategy in Central and Eastern Europe off to a successful start. The two companies were renamed in 2012 and now operate under the Gothaer brand. In this way, familiarity with, and confidence in, the Gothaer brand are also being exploited on Poland’s and Romania’s insurance markets. In the medium term, planning calls for expansion in other Central and Eastern European countries. Management thanks all employees for their very dedicated commitment. We also wish to express our gratitude to our sales partners, customers, governing bodies and friends for their trust and invaluable support.

Yours, Werner Görg Gothaer Group Annual Report 2012

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Management Report

6

Gothaer Group Annual Report 2012

Gothaer Group Annual Report 2012

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Management Report

General Economic Situation General economic developments in 2012 Economic figures from China, the USA and Germany in the early months of the period under review cast doubt on the modest growth forecasts for 2012. By the beginning of Q2 at the latest, it was apparent that global economic growth would be below average and the eurozone would again slide into recession. After growing by 3.1% in 2011, global economic activity is expected to increase by 2.5% in 2012. With foreign trade impetus curbed by moderate growth across the global economy and domestic demand less dynamic in the light of extensive budget consolidation programmes, even the German economy – which had remained robust throughout – eventually slowed down. After 3.0% growth in 2011, its projected performance in the year under review – at 0.4% – was well below the long-term average. Despite the still expansive monetary policy adopted by the world’s major central banks, inflationary pressure in the industrialized countries last year was lower than in 2011. Under-utilized production capacities, flagging economic dynamism and an oil price virtually unchanged in comparison with the prior year made for year-end inflation rates of around 2% in the United States and the eurozone.

Capital market developments in 2012 Capital market developments were also largely defined by the euro crisis in 2012. In view of mounting speculation about whether Greece would stay in the eurozone, the yield of German Federal Bonds (bunds) with a residual term of ten years fell to a new historical low of 1.2% in May – around 80 basis points lower than the high of nearly 2% at the beginning of 2012. At the same time, the spreads of other European government bonds were subject to major fluctuations against bunds. Spanish government bonds with a residual term of ten years briefly topped 7% in the middle of the year. Their Italian counterpart returned around 6%. From its low on 1 June, however, the yield of bunds with a residual term of ten years rose slowly over the rest of the year. This development occurred after an aid package was prepared to help Spain recapitalize its banks, after the EU summit on 28/29 June approved a raft of measures that most market observers saw as a further step towards greater fiscal integration within the eurozone and after the ECB announced that, under certain circumstances, it would purchase unlimited volumes of eurozone members’ government bonds.

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Gothaer Group Annual Report 2012

Management Report

As in the bond markets, developments in the stock markets were also largely shaped by the European debt crisis in 2012. The year started with market participants inclined to accept risk and with stock prices firmer but the renewed flare-up of the sovereign debt crisis in the eurozone during Q2 led to sharply falling prices. That trend was aggravated by disappointing economic figures, which were mostly below expectations and indicative of below-average global economic growth. The intervention of the central banks, the easing of the euro debt crisis and the fact that many investors were under intense pressure to invest then led to rising share prices in the second half of the year and thus resulted in a very good performance over the year as a whole. The German DAX 30 index proved one of the best-performing stock markets, registering 29% growth, while Japan’s Nikkei225 grew by 25% and the US S&P500 by 16%. Cyclical commodities tracked this development, losing initial price gains and reaching their annual lows in the summer. From the end of March to the end of June, copper lost nearly 9% of its value as measured by the DJ-UBS Copper Subindex Total Return but rallied again in the second half of the year. Similar movements were observed in the case of crude oil. After an initial price fall of more than 28% (as measured by the North Sea Brent spot price), crude oil ended 2012 almost at the price it had commanded at the beginning of the year.

Gothaer Group Annual Report 2012

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Management Report

Situation in the Insurance Industry Developments in the insurance industry The euro debt crisis and the enduringly low interest rates connected with it present a major challenge for the German insurance sector. However, the German economy is still growing – at a slower pace – against a backdrop of stable labour market developments. As a consequence, the economic position of private households in Germany, on which demand for insurance products largely depends, remained favourable and produced satisfactory results for the German insurance industry. According to information furnished by the German Insurance Association (Gesamtverband der deutschen Versicherungswirtschaft e. V. [GDV]) – on which the following statements are based – premium income from property/casualty insurance is expected to grow by 3.7%, which is the steepest rise since 1994. In private health insurance, the forecast increase is 3.4%. In life insurance, regular premiums are set for a moderate upturn of 0.6%, as in the prior year. With single premium business still normalizing as anticipated, however, total premium revenues are reckoned to have decreased by –0.7%. For the industry as a whole, premium revenues are thus expected to rise by 1.5%. This shows confidence in the insurance industry’s capacity to perform.

Property/casualty The business environment for property/casualty insurance continues to be characterized by intense price competition as well as high market saturation for many lines. However, property/casualty insurance plays a vital role in the coverage of private, commercial and industrial risks. The upward trend of recent years continued in the year under review. The German Insurance Association expects premium revenues to rise sharply by 3.7% to €58.7 billion in 2012. Even though no major natural events were registered in 2012, the rise in premium volume is set against increased claims expenses (+1.4% to €44.4 billion). Overall, premium growth tips the scales, so the market-wide combined ratio is forecast to improve by one percentage point to 97%. In motor insurance, premium revenues are expected to rise sharply, by 5.4% to €22.0 billion. In addition to portfolio growth, average premiums further increased in 2012 after years of intense price competition. Claims expenses will fall moderately, by 0.8% to €20.3 billion, with the result that the loss ratio for the financial year is forecast to improve from 98.1% to 92% and the combined ratio after run-off from 107.4% to 103%. Motor insurers thus face another negative underwriting result from this line of business, although the shortfall, at around €500–600 million, will be just over half that registered in the prior year.

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Management Report

In the property insurance lines, premium revenues are expected to grow by 3.9% to €16.1 billion. With claims expenses likely to rise by 4.3% to €11.7 billion, the combined ratio after run-off is set to move down to 98%. The explosion at a chemical plant in March 2012 was the biggest single loss incident ever recorded in Germany; claims ran to €360 million. Furthermore, the severe frost in February produced a substantially larger volume of claims in homeowners insurance. In general liability insurance, premium revenues rose by 2.5% to around €7.1 billion, partly as a result of rising payroll and turnover figures. Despite moderately recessive claims expenses, the combined ratio is expected to move up to 92% because of lower anticipated run-off gains. Nevertheless, general liability business will continue to produce a significant underwriting profit. In personal accident insurance, both premiums (+1.0% to €6.6 billion) and claims expenses (+1.0% to €3.1 billion) are expected to rise in the financial year 2012. Accordingly, the combined ratio will climb from 79.6% to 80%. In marine insurance, figures will continue to be shaped by the impacts of a stable economic environment. Premium revenues are expected to rise by 3.5% to €1.9 billion. At the same time, claims expenses for the financial year are forecast to increase by 5.0% to €1.3 billion. The combined ratio after run-off is thus likely to be 100% (PY: 98.6%). With the economic climate still good, premium revenues for credit, surety and fidelity insurers rose again in 2012, by 2.0% to €1.6 billion. Increased major losses such as the Schlecker and Neckermann insolvencies are likely to raise claims expenses significantly to €1.0 billion. The combined ratio after run-off is expected to move up from 67.3% to 80%.

Life For the life insurance industry, 2012 was a year marked by legislative activity. The beginning of the year saw the introduction of a new tariff generation with a lowered actuarial interest rate. Owing to the current guaranteed interest of 1.75%, endowment insurance has lost appeal in competition with other financial service providers such as banks and fund providers. So it is all the more important now to show clients that the projected interest return on a life policy is more than twice as high as the guaranteed interest. In the middle of the year, the Federal Court of Justice delivered a ruling with major implications for the life insurance industry. The judgement related to surrender values, surrender charges and the offsetting of acquisition costs and the actual impacts of the court’s decision remain to be seen.

Gothaer Group Annual Report 2012

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Management Report

At the end of the year, the European Court of Justice’s ruling on unisex pricing was implemented. Disallowing gender as a tariff criterion resulted in price shifts between men and women. Looking back, the introduction of unisex tariffs did not lead to the anticipated last-minute surge of business. Discussions took place between the German Insurance Association (GDV) and the legislator on measures to support the risk-bearing capacity of life insurers. Those measures would have held no disadvantages for policyholders. Because of the public debate, however, the proposals were not translated into legislative provisions, for which the majority of insurance companies had already made extensive preparations. After the prior-year upturn, new regular-premium business was again significantly recessive at –3.2%. Particularly marked falls were seen in classical and unit-linked endowment and annuity insurance. With the lapse rate steady at the prior-year level of 5.1% and scheduled maturities down, regular portfolio premiums were again moderately higher. An increase of 1.2% was also registered for new single premium business. The number of new individual endowment policies concluded fell by 7.1%, that of individual annuity and pension policies by 13.8%. New unit-linked insurance business decreased by 17.9%, with the number of new unit-linked endowment policies down by 27.5% and that of unit-linked annuity policies by 16.5%. Stand-alone occupational disability business increased by 6.7%, with nearly 490,000 new policies concluded. Despite a fall of 17.8% in number and 7.2% in premium volume, endowment policies were again among the main drivers of new single-premium business last year. Annuity policies continued to play a major role in new business for life insurers, accounting for 68.0% (PY: 68.0%) of premium income (annual premium equivalent) and 47.9% (PY: 50.0%) of policies. After a downturn of 4.6% in the prior year, gross premiums written increased by 1.1%. The percentage of gross premium income relating to regular premiums remained virtually unchanged at 73.5%. Single premiums and written premiums were thus at their secondhighest levels ever. The gross premiums written by the pension trusts affiliated with the Gesamtverband der Deutschen Versicherungswirtschaft e. V. (GDV) increased by 1.8% and those of the pension funds fell by 50.4%. It should be noted, however, that pension trusts and pension funds account for less than 4% of the premium volume registered in the life insurance industry as a whole. Overall, the premium income of life insurers, pension trusts and pension funds rose by 0.6% (PY: –3.9%). Not least because of the preparations for the Solvency II regime and the ongoing low interest rate environment, the industry again faces a challenging year. Together with company pension schemes, private retirement planning and coverage of biometric risks are still crucial drivers of growth.

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Health Private health insurers in Germany faced major challenges in 2012 and sustained a renewed downturn in premium revenues due to general economic and political developments. Their business results were additionally depressed by the impacts of the capital market environment, which is extremely difficult for insurance companies. The appreciable fall in reinvestment returns due to the low level of interest rates makes it particularly hard to achieve an adequately high net return on investments. One of the major events of last year was the media campaign launched in the first half of 2012. Between March and June 2012, private health insurers were confronted with a large number of media reports in rapid succession criticizing the private health insurance sector and seriously undermining its reputation. All of the media reports focused essentially on the following criticisms or charges: firstly, high premium adjustments and the question of affordable premiums in old age; secondly, insufficient benefit levels of many comprehensive private health insurance tariffs, especially in the so-called entry-level segment; and thirdly, the charge of isolated excessive commissions. New regulations have probably now settled the matter of the alleged excessive commissions. After the almost straightline increase in private health insurers’ acquisition costs in recent years, the legislature passed an act in 2012 amending the law governing investment and investment intermediaries. The new statute extends the period of liability on commissions to five years and confines the maximum permissible acquisition commission, including other remuneration, to 9.0 monthly premiums. This altered environment has made private health insurance less attractive to intermediaries and, in particular, has raised a question mark over the business model of major sales networks that specialize in private health insurance. All in all, even in the first year after their introduction, the amendments had a marked negative impact on new business. The entire insurance sector was extraordinarily challenged in 2012 by the switch to unisex tariffs in Q4. Despite being relevant to risk, gender ceased to be an admissible tariff criterion on 21 December 2012. Accordingly, all private health insurers had to revise their new business tariffs to bring them in line with the new statutory requirements. The private health insurance industry took advantage of this major switch to adjust tariffs to market requirements not previously included in insurance conditions and to integrate and improve client-oriented benefits. As far as the development of business is concerned, the private health insurance industry expects premium income (including premium adjustments) to rise to €35.85 billion in 2012, which is around 3.4% more than in the prior year. Around 73% of premium income is generated by comprehensive insurance and less than 19% by supplementary insurance; the rest related to long-term care cover. At the same time, benefit expenses are expected to rise by 4.8% to €23.9 billion.

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Group Management Report Business developments and position of the Group 2012 built seamlessly on the positive growth of the prior year. With an increase in premium income above the market average, we improved our Group result by more than 25% – doing so against the backdrop of an ongoing financial market crisis with low interest rates and attenuated economic growth in Germany. The satisfactory development of business for the Group was crucially due to higher investment income. This totalled €1.16 billion. Including the results of investments for the account and risk of policyholders, it rose to €1.26 billion. Upturns in premium income were registered in all segments. Overall, Group premium revenues increased by 3.2% to €4.18 billion. Policyholder benefits also rose sharply. This is a reflection of the good investment result, which generated, amongst other things, larger transfers to reserves for premium refunds. Owing to sustained and systematic cost discipline, administrative expenses were further reduced.

Premiums Premiums written by our insurance companies totalled €4.18 billion (PY: €4.05 billion) in the financial year 2012. Since discontinuing active reinsurance operations, we have been almost exclusively engaged in primary insurance business. Here, written premiums increased by €122.5 million to €4.10 billion. Reinsurance premiums assumed from insurers outside the Group totalled €85.7 million, which is €8.4 million more than in the prior year. All segments contributed to the upturn in premium income. Special mention should be made of the gratifying developments in life insurance, where we bucked the market trend and registered an increase in new regular-premium business of more than 7%. Total premium income in the Life segment rose by 2.9% or € 43.4 million. Premiums of €50.6 million for property/casualty insurance and €36.5 million for health insurance meant that these two segments also produced satisfying premium volumes. To determine the volume of net earned premiums, the reinsurance premiums ceded and the savings components of unit-linked life insurance are deducted from the gross premiums written. The change in net unearned premiums is also taken into account. At €3.48 billion, net earned premiums surpassed the prior-year figure of €3.31 billion.

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Gross premiums written

€million

Breakdown by line of insurance 2012

2011

Automotive Liability Comprehensive Homeowners Comprehensive Householders Fire General Liability Life Health Marine Other Automotive Other Lines of Insurance Other Lines of Property Insurance Personal Accident

268.7 126.5 95.8 72.8 343.4 1,499.9 893.1 42.8 160.5 189.9 227.4 174.6

273.3 122.6 92.9 70.2 329.8 1,456.5 854.1 42.9 155.5 180.2 223.5 171.5

Gross premiums written in primary business

4,095.4

3,973.0

85.4

77.4

4,180.8

4,050.3

Gross premiums written in assumed business Gross premiums written

Gross premiums written

Premiums by segment in the financial year 2012

35,9 % Life 21,4 % Health 42,7 % Property/Casualty

Premiums by segment in the financial year 2011

36,0 % Life 21,1 % Health 42,9 % Property/Casualty

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€million

Breakdown by region 2012

2011

Domestic Foreign

3,913.0 182.4

3,794.9 178.1

Gross premiums written in primary business

4,095.4

3,973.0

Our business has traditionally been concentrated in Germany. Over 95% of premium income from primary insurance business is generated in the domestic market. The Group’s foreign business is confined largely to countries in the European Economic Area.

Investments The primary goal of the Gothaer Group investment policy is to generate a robust and sustainable return in a competitive environment. This is ensured by the systematic use of risk-adjusted performance management aimed at optimizing the return/risk ratio of the investment portfolio while taking account of our risk-bearing capacity. Another significant investment strategy constraint is presented by the tougher capitalization rules taking shape under Solvency II. Investment strategy is embedded in an asset liability management system and takes account of the underwriting requirements that need to be met by investment income, liquidity and security. In 2012, the Gothaer Group remained systematically committed to a long-running stable investment policy based largely on current income. The two priorities of this strategy are to generate attractive returns in the current market environment and to ensure that risks are reduced overall by being spread as broadly as possible over the different types of investment. The development of the sovereign debt crisis in the eurozone had a major influence on the capital markets in 2012. Owing to uncertainty about Greece remaining in the eurozone, the yield of German Federal Bonds (bunds) with a residual term of ten years reached a new historical low of 1.2% in May, which was more than 60 basis points lower than at the end of 2011. From that mid-year low, however, the yield rose only slowly during the second half of the year, reaching around 1.3% at year-end. At the same time, the yields of eurozone periphery government bonds decreased. These developments occurred after an aid package was prepared to help Spain recapitalize its banks and after the ECB announced that, under certain circumstances, it would purchase unlimited volumes of eurozone members’ government bonds. The market value of all securities in the fixedinterest portfolio profited from the recessive development of interest rates. Because of sharply decreasing spreads, the rates of PIIGS government bonds (Portugal, Ireland, Italy, Greece and Spain) and subordinated bank bonds took a particularly positive turn. The stock markets also responded positively to these events. After initially coming under pressure as a result of the renewed flare-up of the eurozone debt crisis, prices rose steeply from the middle of the year onwards. The German DAX index proved particularly robust and ended the year with a performance of 29.0%.

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The investment volume of the Gothaer Group grew by €1.97 billion to €24.90 billion in the financial year 2012. Available-for-sale financial instruments, at €17.33 billion (PY: €15.15 billion) accounted for more than two-thirds of total investment. They also made up a large percentage of new investment, after allowance for maturities and sales of more than €1 billion. In addition, these investments profited from the development of spreads for PIIGS government bonds and subordinated bank bonds, so an increase of more than €1 billion was also seen in the fair value reserve. The carrying value of loans was recessive at €6.29 billion (PY: €6.74 billion). Because of the need to consolidate the newly acquired shareholding in OPCI French Wholesale Properties – FWP at equity, the carrying value of associated companies increased to €148.1 million (PY: €85.6 million). Other investments, which essentially comprise money at call, ended the year level with the prior year at €0.81 billion. Investments carried at fair value through profit or loss, which were again held to only a limited extent, included derivative financial instruments of €120.4 million (PY: €47.3 million) and structured securities of €129.6 million (PY: €18.6 million) that were mostly not separated into host contract and derivative. In line with our investment strategy, with its focus on stable current earnings, the investment result was only marginally affected by fluctuating markets. Despite the sustained low level of interest rates, we registered current income of €0.98 billion (PY: €1.03 billion). We also systematically adhered to our depreciation policy in the year under review, although the potential for depreciation was significantly lower as a result of the supportive actions of the ECB. Derivative financial instruments carried at fair value through profit or loss also made a greater contribution to the result. Overall, we increased our investment result by €254.4 million to €1.16 billion. The return on investment improved accordingly, from 4.0% to 4.9%.

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Composition of the investment portfolio

Financial year 2012

69,6 % Available for sale 25,2 % Loans 4,2 % Other Investments 1,0 % At fair value through profit or loss

Financial year 2011

66,0 % Available for sale 29,4 % Loans 4,3 % Other Investments 0,3 % At fair value through profit or loss

The carrying value of investments held to cover unit- or index-linked life insurance policies was €1.38 billion in the financial year 2012 (PY: €1.20 billion). The change in value of these investments – €96.9 million (PY: €–119.3 million) – needs to be recognized in the statement of income. Accordingly, the total investment result including the result from investments for the account and risk of life insurance policyholders improved from €0.79 billion to €1.26 billion.

Policyholder benefits Policyholder benefits include all expenses incurred for insureds and other claimants by the insurance companies of the Gothaer Group. In addition to claims paid, this includes changes in all underwriting reserves that the Group has formed to meet actual and potential customer claims. These changes involve, in particular, changes in the policy reserves and reserves for premium refunds of the life and health insurance carriers as well as changes in the loss reserves of the property and health insurers. Both gross and net benefits paid to customers by our insurance companies were significantly higher than in the prior year. Gross benefits increased from €3.37 billion to €3.94 billion, benefits net of reinsurance totalled €3.67 billion after €3.12 billon in the prior year. Developments differed widely in the individual value drivers and segments.

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Net claims paid fell sharply to €389.3 million. While the figures for property/casualty and health insurance showed a moderate rise to €15.1 million and €34.3 million respectively, outgoings in the Life segment decreased by €438.6 million. This was due to an extraordinary large volume of maturities and surrenders in the prior year. In the Life and Health segments, allocations to reserves for premium refunds totalled €478.2 million (PY: €202.3 million), which is over 130% more than in the prior year. This is due, in particular, to the deferred reserve for premium refunds produced by the good investment result and the increase in fair value reserves for available-for-sale financial instruments. In life insurance, the assumptions on which estimates in policyholder profit-sharing models are based were adjusted in 2012 to take account of the sustained change in interest terms and increased solvency requirements for insurers. This resulted in a €5.0 million reduction in the deferred reserve for premium refunds, which was recognized in income. In the Life segment, the sum of €80.4 million needed to be transferred to policy reserves in the year under review, following a withdrawal of €619.7 million in the prior year due to high maturities and other factors. The allocation in 2012 was thus the result of maturities returning to normal and positive price movements in unit-linked life insurance. Set against the expense of the transfer to policy reserves for unit-linked life insurance, however, was income due to a change in the value of investments for the account and risk of life insurance policyholders. Owing to stable portfolio development, the allocation to policy reserves in the Health segment amounted to €184.0 million (PY: €209.1 million).

Underwriting expenses Gross underwriting expenses include all HR and material expenses incurred for the acquisition and management of insurance policies. Acquisition expenses, which comprise not only payments but also the change in deferred acquisition costs, totalled €451.3 million (PY: €429.3 million) while administrative expenses – responding to our ongoing systematic cost-cutting measures – fell from €331.8 million to €326.7 million. Reinsurers’ share of underwriting expenses, at €83.0 million, was slightly higher than in the prior year (PY: €79.1 million). As a result, total net underwriting expenses rose to €695.0 million (PY: €682.0 million).

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Consolidated profit Building on the positive growth achieved in previous years, consolidated profit for the year increased again in 2012, surging by 25.8% to €107.3 million as a result of the very good investment result. The net profit for the year before taxes increased to €224.0 million (PY: €145.1 million), the tax expense after formation of the relevant reserves for tax risks rose to €116.8 million (PY: €59.9 million). The net profit for the year attributable to minority interests amounted to €–0.2 million (PY: €0.1 million). The return on equity, which is the ratio of consolidated profit for the year to average equity exclusive of minority interests, improved to 7.9% in the financial year (PY: €7.3%). This was due partly to the increased profit and partly to an increase in other reserves resulting from the unrealized gains of our investments. For Gothaer, 2012 was thus a very successful year despite a difficult general economic climate.

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Capital Management For insurance groups, capitalization is a key variable or parameter for the assessment of risk-bearing capacity and thus an important performance indicator. Capital management enables us to ensure that adequate capital is always available to meet the operational needs of our companies and achieve optimal deployment and use of funds within the Group. This allows us to comply with legal provisions as well as with the requirements of regulatory authorities, rating agencies, analysts and clients, all of which have become significantly more exigent in recent years. Major constituents of capital management within the Gothaer Group are risk-oriented controls and asset liability management (ALM).

Capitalization The equity of the Gothaer Group totalled €1.53 billion (PY: €1.18 billion) at the end of the financial year 2012. As a mutual insurance association, the Gothaer Group has no subscribed capital. We generate equity exclusively by retention of earnings. In addition to the revenue reserves of the Group parent, Gothaer Versicherungsbank VVaG, the equity shown in the consolidated financial statements also includes the earnings of Group companies generated after initial consolidation. Also taken into account in the equity of the Gothaer Group are unrealized gains and losses on investments available for sale. Changes in equity are shown on page 69. As well as Group equity, Gothaer capital management also covers so-called equity surrogates. Equity surrogates include participation certificates issued by Gothaer as well as sub-ordinate liabilities. After the Gothaer premium bond was successfully launched in a €50 million issue as a Solvency II-compliant equity instrument in 2011, the carrying value of profit-sharing rights issues and subordinate capital together rose to €349.3 million at 31 December 2011 and thus exceeded the amount eligible for covering the Solvency Capital Requirement. The Gothaer Group therefore took advantage of the favourable environment in 2012 to buy back a €32.4 million tranche of the listed subordinated bond issued by Gothaer Allgemeine Versicherung AG. Furthermore, the €15 million profitsharing rights issue floated by Asstel Lebensversicherung AG in 2001 was repaid on schedule, so profit-sharing rights issues and subordinate liabilities decreased to €301.9 million. Management of debt financing in the form of bonds and loans also forms part of capital management. At €162.7 million, the carrying value of Gothaer Group bonds and loans in the financial year remained at the prior-year level. The debt ratio of the Group (defined as debt capital, i. e. bonds and loans including noneligible hybrid capital as a percentage of Group equity plus eligible hybrid capital) fell from 17.6% to a historical low of 11.3%.

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Kapitalausstattung

€million

Breakdown by type of capital 2012

2011*

Equity Equity surrogates Participation certificates Subordinate liabilities Bonds and loans

1,530.0

1,185.7

20.0 281.9 162.7

35.0 314.3 162.5

Total

1,994.6

1,697.5

* Comparatives after restatement

Solvency As the parent company of a German insurance group, Gothaer Versicherungsbank VVaG is required to demonstrate to the Federal Financial Supervisory Authority (BaFin) that its adjusted solvency is sufficient to meet the needs of the insurance activities of the Group. Adjusted solvency is calculated by comparing the own funds derived from the equity shown in the consolidated financial statements of the Gothaer Group (actual solvency) to the need for capital resulting from the volume of business (plan solvency). At €1.82 billion, the own funds of the Gothaer Group exceed the solvency margin required by €846.9 million. This made for a very good solvency ratio of 187.2%. As well as addressing the present requirements of the supervisory authority, we are closely studying the future solvency requirements that will need to be met for compliance with Solvency II. Risk models are computed and analyzed for this purpose and any necessary capital measures taken in the course of risk controlling.

Rating Rating agencies use insurer financial strength ratings to rate an insurer’s capacity to meet its obligations in connection with policies. The aim of our capital management is to ensure that we are judged at all times to be a financially strong insurer. That goal has so far been successfully achieved. The international rating agency Standard & Poor’s gives the Gothaer Group and its core companies Gothaer Allgemeine Versicherung AG, Gothaer Lebensversicherung AG and Gothaer Krankenversicherung AG an A– rating. The companies’ financial stability is rated “very good”. Gothaer Allgemeine Versicherung AG and Gothaer Lebensversicherung AG have also been given an A rating by FitchRatings, which is a “strong” rating for financial strength.

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Risk-oriented control The Gothaer Group takes a two-pronged approach to risk management. On the one hand, we set out to optimize our risk capital requirements through highly advanced and integrated risk management. On the other hand, we focus on continually improving our capital base in order to increase our risk-bearing capacity. Gothaer strives for profitable growth. The entire Gothaer Group is managed on the basis of value-oriented management principles. Value-oriented management is a methodical approach in which emphasis is placed on efficient use of available capital from a risk/return perspective. Risk/return management is performed on the basis of stipulations on rate of return, resource allocation and appropriation of profit within the Group. These stipulations are used, for example, to assess alternative investment strategies or define insurance priorities (business fields, products). Observance of the stipulations is regularly monitored via various risk variables.

Asset Liability Management Asset liability management (ALM) is another core constituent of capital management. At the heart of strategic asset allocation for all insurance companies of the Gothaer Group is the goal of keeping the share of net earnings accounted for by current income at a constant high level and taking maximum advantage of scope for diversifying investments. Strategic asset allocation in the Gothaer Group is supported by various ALM techniques (ALM analyses, Black-Litterman models, risk budgets) and vetted by the relevant bodies (Investment Committee, Management, Supervisory Board). Asset allocation involves not only taking account of ratios, sectors, currency and duration but also considering stablevalue concepts. Asset allocation is verified on the basis of both market values and book values, naturally taking account of all applicable restrictions on investments (section 54 of the German Insurance Supervision Act (VAG), Investment Ordinance (AnlV), BaFin circulars). The risk situation is reviewed regularly on a quarterly basis. This involves detailed presentation of risk budgets on the basis of value at risk and shortfall probabilities with regard to the attainment of net yield targets.

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Segmental Performance Gothaer Group activities are divided into segments reflecting Group and reporting structure: Property/Casualty, Life, Health and Other Activities. Developments in these segments are described below.

Property/Casualty segment The Property/Casualty segment includes the Group parent Gothaer Versicherungsbank VVaG, Gothaer Allgemeine Versicherung AG, Janitos Versicherung AG, Asstel Sachversicherung AG and CG Car-Garantie Versicherungs-AG. The Polish company Gothaer Towarzystwo Ubezpieczen´ S. A. and Romanian Gothaer Asigurari Reasigurari S. A. have also been added as part of our strategy for growth in Eastern Europe. As the largest property insurer in the Gothaer Group, Gothaer Allgemeine Versicherung AG is responsible for all significant lines and coverages in the area of property insurance, catering to the needs of both private and commercial clients. Janitos Versicherung AG specializes in broker business and addresses the core target group of high-end private clients in property insurance. Asstel Sachversicherung AG complements these operations with simple property insurance products for price-sensitive clients, mostly offered through direct marketing. CG Car-Garantie Versicherungs-AG is a provider of motor repair and warranty insurance. Performance in the Property/Casualty segment

Still marked by intense price competition as well as by high market saturation for many lines, the Property/Casualty segment registered a sharp increase in gross premium income to €1.79 billion (PY: €1.74 billion) in the financial year 2012. In line with the expansion of the insurance portfolio, premium volume upturns were achieved in both direct and indirect business. Growth was particularly marked in general liability, comprehensive homeowners and other motor business. With retention on a par with the prior year, net earned premiums in the segment increased by 4.5% to €1.50 billion. Investments for the Property/Casualty segment totalled €4.33 billion at year-end, sharply up on the €4.02 billion recorded in the prior year. Available-for-sale financial instruments, with a carrying value of €2.11 billion (PY; €1.72 billion) accounted for the lion’s share of investment. Against the backdrop of the ongoing euro and sovereign debt crisis, the investment result was moderately recessive but still satisfactory at €265.1 million (PY: €272.1 million) even though less money was transferred by Gothaer Finanzholding AG to Gothaer Versicherungsbank VVaG under the profit transfer agreement. Net policyholder benefits rose from €1.00 billion to €1.02 billion. This was largely due to higher claims expenses, generated particularly by a large number of major fire and fire consequential loss incidents. The net loss ratio for the segment improved significantly to 66.7% (PY: 68.7%). Net underwriting expenses in the Property/Casualty segment, at €448.2 million, surpassed the prior-year figure of €421.2 million. Acquisition expenses increased in line with production performance, while administrative expenses were lowered further by the sustained implementation of cost-cutting programmes. With net premiums increased, the net cost ratio was marginally higher than in the prior year at 29.8% (PY: 29.3%). The net combined ratio improved to a very good 96.5% (PY: 98.0%).

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The developments described above led to an increased net profit for the year of €218.1 million (PY: €211.6 million) before taxes in the Property/Casualty segment. After formation of the relevant reserves for tax risks, the tax expense amounted to €129.2 million (PY: €70.2 million) in the financial year. The 2012 statement of income thus shows a net profit for the year of €89.0million (PY: €141.4 million) before transfer of profit. The profit transfer agreements concluded with Gothaer Finanzholding AG by Asstel Sachversicherung AG and Gothaer Allgemeine Versicherung AG resulted in a profit transfer expense of €58.5 million (PY: €73.1 million) for the Property/Casualty segment in 2012. This left a net profit for the year of €30.5 million (PY: €68.3 million) after transfer of profit.

Life segment The Life segment includes the activities of Gothaer Lebensversicherung AG, Gothaer Pensionskasse AG and Asstel Lebensversicherung AG. At the core of the business activities of Gothaer Lebensversicherung AG is the direct and indirect provision of all forms of life and annuity insurance as well as related supplementary insurance. The latter also includes insurance investment products as well as occupational disability and invalidity insurance. Gothaer Pensionskasse AG is a pioneer in Germany in the field of intercompany pension schemes. It caters for companies that wish to operate a promissory pension scheme for their employees through a pension trust. Asstel Lebensversicherung AG is a direct marketer of high-performance, easily communicable life and annuity insurance products. Performance in the Life segment

In terms of new business – which is a major performance indicator – we grew significantly ahead of the market. While the market as a whole registered a downturn of 3.2%, the Life segment achieved an increase of more than 7% in new regular-premium business. Among the contributory factors here were innovative products such as Gothaer VarioRent-ReFlex as well as our new occupational disability product for the self-employed. Because new single-premium business also increased, surrenders and maturities were fully offset. However, the last-minute surge of business anticipated as a result of the introduction of unisex tariffs failed to materialise. Accordingly, gross premium income in the Life segment rose from €1.46 billion in the prior year to €1.50 billion in the year under review. After deduction of reinsurance premiums ceded and savings components, net earned premiums, at €1.1 billion, also ended higher than the prior-year figure of €1.02 billion. The carrying value of the Life segment investment portfolio sharply increased in the financial year 2012, growing by €1.03 billion to €16.14 billion. More than two-thirds of all investment continues to be in available-for-sale financial instruments. Despite difficult market conditions, investment income totalled €768.8 million, which was significantly more than in the prior year (PY: €610.9 million). We continued to generate stable current income in line with our investment strategy and at the same time adhered systematically to our existing depreciation policy. Because of the positive developments in capital markets, the investments held to cover unit- or index-linked life insurance policies produced a profit of €96.9 million in the financial year 2012 (PY: loss of €119.3 million).

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Net policyholder benefits, which include both benefits paid and changes in underwriting reserves, increased in the financial year, up from €1.23 billion in the prior year at €1.68 billion. On the one hand, lower maturities reduced net benefits paid to €1.27 billion (PY: €1.71 billion); on the other, a total of €242.5 million was transferred to the reserve for premium refunds (PY: €59.6 million). The major contributory factors here were the good investment result and the increase in fair value reserves for available-for-sale financial instruments, in which our clients participate through deferred reserves for premium refunds. The field of unit-linked life insurance was marked by positive developments in prices. Set against the expense of the transfer to policy reserves for unit-linked life policies, however, was income from the performance of investments for the account and risk of life insurance policyholders. One positive that should be stressed is that both gross acquisition expenses and gross administrative expenses decreased – the former to €143.3 million (PY: €146.0 million), the latter to €31.4 million (PY: €35.6 million). Acquisition expenses fell even despite an increase in new business. This was achieved through increased productivity as well as through cost reduction measures. Overall, net underwriting expenses thus amounted to €164.1 million (PY: €169.7 million). Owing to the developments described above, the Life segment registered a significantly increased net profit for the year of €80.5 million (PY: €71.2 million) before taxes. After allowance for a tax expense of €22.9 million (PY: €46.3 million), the statement of income showed a gratifying net profit for the year of €57.6 million (PY: €25.0 million) prior to transfer of profit. In 2012 – in preparation for Solvency II – the net profit for the year generated by Gothaer Lebensversicherung AG and Asstel Lebensversicherung AG was used to strengthen the companies’ equity base and not, as in previous years, paid as dividend to Gothaer Finanzholding AG.

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Health segment The Gothaer Group is represented in the Health segment exclusively by Gothaer Krankenversicherung AG. Gothaer Krankenversicherung AG markets its products primarily through the Gothaer field force. It also operates increasingly in the direct insurance market. Our focus in the Health segment is on the steady implementation of a strategy to offer highperformance, reasonably priced collective rates together with company healthcare management and numerous services to companies and their employees. Performance in the Health segment

In 2012, we successfully delivered our new world of unisex tariffs in the Health segment while also introducing a modern portfolio and benefit system with which we feel well equipped for the future. The Health segment again registered gratifying growth in the year under review. Gross premiums written increased by 4.3% to €888.7 million. In the field of supplementary insurance, new business again showed a marked increase, whereas the persistent debate about the future of private health insurance as well as press reporting on premium adjustments considerably curtailed new business growth in the comprehensive insurance sector. In line with our strategy, that growth was vigorously generated by collective business with corporate clients and by direct marketing online. With the percentage of premiums ceded to reinsurers still low, net earned premiums, at €883.9 million (PY: €847.9 million), were only marginally less than the gross premiums written. The carrying value of the investment portfolio of the Health segment increased sharply from the prior-year’s figure of €4.93 billion to €5.54 billion. This was due to positive capital market developments – especially the change in spreads for PIGGS government bonds and subordinated bank bonds – which prompted a surge in fair value reserves. We systematically adhered to our existing investment policy, which is geared to achieving a robust and sustainable yield in a competitive environment. The result of investment activity rose steeply to €219.5 million (PY: €175.1 million). Current income totalled €231.1 million (PY: €227.1 million). Depreciation policy was systematically maintained in the year under review. The need for write-downs was significantly lower than in the prior year. Net policyholder benefits increased sharply by €83.2 million to €969.3 million. While net claims expenses rose by €12 million as a result of increased business volume, expenses resulting from the transfer to premium refund reserves escalated significantly by €96.0 million. Major contributory factors here were the good investment result and the increase in fair value reserves for available-for-sale financial instruments, in which our clients participate through deferred reserves for premium refunds. Set against these effects in 2012 was a smaller withdrawal from policy reserves. Net underwriting expenses fell from €89.7 million to €81.3 million in the financial year. While administrative expenses remained more or less on a par with the prior year at €25.9 million, acquisition expenses decreased by €8.9 million to €55.4 million, partly as a result of an amendment to the law.

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Owing to the developments described above – especially the improved result from investment activity – the net profit for the year before taxes increased moderately by €2.3 million to €35.6 million. After a tax expense of €6.1 million (PY: €16.2 million), the net profit for the year in the Health segment was a satisfactory €29.5 million (PY: €17.1 million).

Other Activities segment Companies operating in the Other Activities segment include Gothaer Finanzholding AG and the Group’s service providers. Gothaer Finanzholding AG, as the holding company of the Gothaer Group, holds all the shares in the main insurance companies and many other Group companies. As of the financial year 2004, the portfolio run-off of the former Gothaer Rückversicherung AG is handled by Gothaer Finanzholding AG. Gothaer Finanzholding AG is included in the Other Activities segment and not the Property/Casualty segment because its primary function is as a holding company. Among the main service providers is Gothaer Asset Management AG, which invests and manages financial assets for Group companies and third parties. Gothaer Systems GmbH is the Gothaer Group’s data centre and network operator and a provider of other services in the area of information technology and software programming, including applications development. Other important services that are needed to maintain Group companies’ operations are provided by Hamburg-Kölner-Vermögensverwaltung GmbH. The company purchases office furnishings and supplies for Group companies, rents office space and performs other services in the areas of facility management, company catering services, printing and advertising Performance in the Other Activities segment

The operations of Gothaer Finanzholding AG in the Other Activities segment consist exclusively of handling the residual insurance run-off of the former Gothaer Rückversicherung AG. Insurance business is thus of secondary importance in this segment. Net earned premiums totalled €–0.2 million in the financial year (PY: €0.2 million). The premiums in question were pipeline premiums. To speed up run-off, loss reserve commutations were specifically and actively effected as planned at national and international level. Lowering loss reserves in this way (on a gross and net basis) resulted in income of €14.1 million (PY: €0.1 million) from net policyholder benefits. The underwriting result, at €12.4 million (PY: €–1.5 million) was also positive.

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The carrying value of investments in the Other Activities segment totalled €2.44 billion (PY: €2.56 billion). This included, in particular, the shares held by Gothaer Finanzholding AG in all the insurance companies in the Group as well as other participations. In line with the structure of the investment portfolio, the investment result was shaped by income from these holdings – either under profit transfer agreements or in the form of dividend payouts. Income received under profit transfer agreements totalled €115.0 million (PY: €155.4 million). This development was due to the fact that Gothaer Lebensversicherung AG and Asstel Lebensversicherung AG, with the consent of Gothaer Finanzholding AG, appropriated their profits to strengthen their equity base instead of making dividend payouts. The overall investment result decreased from €246.9 million to €162.3 million. In 2012 – in preparation for Solvency II – the net profit for the year generated by Gothaer Lebensversicherung AG and Asstel Lebensversicherung AG was used to strengthen the companies’ equity base and not, as in previous years, paid as dividend to Gothaer Finanzholding AG. The result from Other Activities – which is the balance of other income and other expenses of the service providers in the Gothaer Group – was €–31.8 million in the financial year (PY: €–21.8 million). The downturn was due to the fact that the positive effect of prior-year tax refund interest for Gothaer Finanzholding AG did not continue on the same scale in 2012. With financing expenses unchanged at €16.7 million, the net profit for the year was €126.1 million (PY: €206.9 million) before taxes. Tax income in the year under review amounted to €–3.1 million (PY: €–20.2 million). The profit transferred by Gothaer Finanzholding AG to Group parent Gothaer Versicherungsbank VVaG totalled €113.1 million in the financial year (PY: €159.6 million). The net profit for the year after transfer of profit amounted to €67.6 million (PY: €16.1 million)..

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Non-Financial Performance Indicators Employees Qualified, motivated employees are crucially important for corporate success at Gothaer. That success is ensured by employees with high competence, intense motivation and exceptional commitment. Hence the absolute priority assigned to personnel recruitment, promotion and retention in our HR operations. As well as commercially viable financial performance incentives, we rely here on targeted development and further training programmes. Demographic management, company health management and affirmative action for the advancement of women are also naturally elements of our multi-award winning human resource management. The resulting investment in human resources ensures that Gothaer has a pool of adequately skilled personnel for the medium and long term. Our present efforts are particularly geared to preparing Gothaer for demographic change, maintaining staff performance and heightening job satisfaction These key priorities are doubly underlined in the Gothaer HR strategy. Aimed at streamlining the HR requirements for the implementation of corporate strategy and attainment of Gothaer corporate objectives, HR strategy sets out the guidelines for short, medium and long-term personnel work at Gothaer. It thus has a direct influence on the present and future working environment of our employees. The goals of HR strategy are grouped into the following four sets of objectives: • Securing key positions • Promoting performance • Optimizing HR structure • Optimizing HR efficiency In the coming years, our employees will play an increasingly important role in helping Gothaer steadily strengthen its competitive capacity and become a more solutionoriented enterprise. Hence the gearing of Gothaer corporate strategy to a set of objectives that includes providing employees with sustainable, attractive jobs and further enhancing employee satisfaction.

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Brand A strong brand is a crucial success factor, especially for an insurance company. The client’s decision to purchase an intangible commodity such as insurance is based on trust, which is connected with a brand. So brands forge the bonds of customer relations and customer loyalty. Gothaer launched campaigns at an early stage to support the market positioning of its brand. Our core message is that we offer flexible products and services beyond mere insurance and operate with the special attention to service needed to provide relief for our clients. Gothaer thus addresses the market with a clearly formulated brand promise. In 2012, we put that message across very successfully in a new highprofile advertising campaign.

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Risk Report Risk management principles Risk-oriented management concept

The core business of our companies involves assuming risk and making contractual commitments to pay claims or benefits. To be able to perform these tasks reliably on a sustainable basis, Group governance is geared to the “safety first” principle and the principles of value-oriented management. The framework of acceptable risks that can be consciously assumed is delineated in our risk strategy. Risk tolerance, i.e. our maximum permissible risk exposure, is defined by taking account of two requirements: • From a regulatory perspective, minimum standards have been defined stipulating that solvency capital requirements – including a security buffer against unplanned, additional risks – are fulfilled at all times and that quarterly evidence is presented to show that policy conditions can be met even in the event of adverse capital market developments such as those simulated in Federal Financial Supervisory Authority (BaFin) stress scenarios. • From a rating perspective (insurer financial strength rating), we seek to maintain a capital adequacy ratio that, in conjunction with the other rating factors, is sufficient for at least an A-category rating.

Risk management organization

Risk management at the individual companies is part of the risk management system of the parent group (Gothaer Group). Its functionality and efficacy is the responsibility of the entire Management. The tasks of risk identification, analysis, management and monitoring are for the most part performed close to risks in the operative units. Care is taken to ensure that conflicts of interest in the performance of these tasks are avoided. Outsourced functions are predominantly fulfilled by Group companies integrated in the Group-wide risk management system. Responsibility for independent risk controlling is assumed by the central risk controlling unit at Gothaer Finanzholding AG, which is supported in its work by the actuarial departments of the companies and the Middle/Back Office of Gothaer Asset Management AG. The individual companies and Gothaer Asset Management AG are also represented in the risk committee established at Group level. Its responsibilities include monitoring risks from a Group perspective by means of an indicator-based early warning system as well as further developing uniform cross-Group risk assessment and management methods and processes. Risk management principles, methods, processes and responsibilities are documented in a risk manual and an Intranet risk management application. Attention in the risk management process is focused on investment risks, underwriting risks, loss of receivables risks in insurance operations, strategic and operational risks and reputation and concentration risks.

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The risk management process implemented operates an annual systematic inventory of risks with half-yearly measures controlling, a qualitative and quantitative risk assessment, various risk management measures, risk monitoring by the operative units and risk controlling. The risk management system also includes an internal monitoring system (IMS). Its purpose is to prevent or reveal damage to assets and to ensure proper, reliable business activity and financial reporting. The IMS comprises both organizational security measures such as access authorizations, use of the four-eyes principle or proxy arrangements and process-integrated and cross-company controls. The year under review saw the creation of a central compliance function, which is performed by the head of the legal department. Regular risk reporting and ad hoc reports on specific developments make for a transparent risk situation and provide pointers for targeted risk management. The efficacy of the risk management system, the checks and balances and the management and monitoring processes is regularly assessed by the Group internal auditing unit. A review of the risk early-warning system incorporated in the risk management system is also part of the audit of the financial statements performed by our auditors. The Gothaer Group continued to monitor the development of the new Solvency II supervisory regime during the year under review. The Pillar 1–3 requirements are being analyzed as part of a Group-wide project. Implementation status reports are prepared on a regular basis.

Underwriting risks As a general rule, the Gothaer Group companies counter underwriting risks with rates and reserves based on actuarial principles and with underwriting guidelines commensurate with risk. Compliance is systematically monitored through the use of controlling instruments and early-warning systems that identify trends and negative developments in good time. The adequacy of underwriting reserves is also subject to annual actuarial verification. In addition, appropriate reinsurance treaties are in place to limit the risks arising from major and accumulation losses. For the individual Group segments, this means:

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Property/Casualty segment General risk situation

The Gothaer Group writes insurance for both private and corporate clients and thus has a diversified risk portfolio. Within the two segments, major risks are rated on the basis of scale of loss and probability of occurrence. Major risks are defined as risks that could have an existential or sustained negative impact on the Company’s net assets, financial position and earnings. They are analysed in detail, continuously monitored and actively managed by proactive portfolio management. Limit systems, underwriting guidelines and the exclusion of specific risks are used as risk-controlling and risk-minimizing tools. Quarterly risk reports are prepared by Risk Management, providing executives with assessments of the current risk situation, changes in its makeup and any new or newly detected major risks.

Underwriting risks

We manage underwriting risks by regularly reviewing risk experience in the individual lines of insurance, monitoring the individual and overall contribution margins of relationships and verifying the adequacy of underwriting provisions. Tariffs and provisions are calculated on the basis of actuarial models and both the adequacy of loss reserves and reserve run-off are reviewed on a yearly basis. We are thus able to guarantee the long-term fulfilment of our obligations. Our clearly structured, profit-oriented underwriting policy is documented in detail in our underwriting guidelines, so all underwriting is confined within the framework of those guidelines. Compliance with their stipulations is systematically monitored through the use of special controlling instruments. A comprehensive controlling system that identifies negative developments and deviations from projected figures enables us to counteract undesirable developments promptly. To guard against major and accumulation losses as well as fluctuations in earnings, we pursue an active reinsurance policy. A good credit or company rating is an essential requirement for any reinsurer selected. In the private client segment, competition on prices and conditions has intensified. High attrition rates and mounting pressure on underwriting margins are characteristic features of the market. We respond to these market requirements with a profit-oriented policy on prices and conditions. We model the impacts of different loss scenarios (e.g. accumulation losses from windstorm events) on our private client portfolio within the framework of our internal risk model. The corporate client market continues to be characterized by tough competition on prices and conditions. We face this competition with a profit-geared cyclical management system, responsible underwriting and premiums calculated to be commensurate with risks. Because of the competitive dynamics of this segment, professional supervision is provided to keep a regular check on the relevance and strict observance of underwriting guidelines.

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Our corporate client portfolio is less homogeneous and thus appreciably more volatile than the private client portfolio. Here, too, we limit potential risks by setting out binding underwriting guidelines as well as authorization and competency rules for each line of insurance. In the case of special and particularly large risks, we reduce exposure by involving other insurers as risk partners or concluding risk-specific facultative reinsurance treaties. As in previous years, natural events resulting from climate change will play a significant role in shaping underwriting risk in the future. We counter the risk of natural hazards by making systematic use of ZÜRS, the zoning classification system developed by the GDV to identify exposure to natural hazards, as well as by arranging for each individual underwriting risk to be separately assessed by Gothaer Risk-Management GmbH. One of the principal factors of our success in the corporate client segment is profitoriented portfolio management, which also means that we consciously terminate unprofitable risks or insurance portfolios. Reinsurance

As in the preceding year, a Dynamic Financial Analysis-based optimization analysis was conducted to assess the structure of our reinsurance operation and review our exposure to natural catastrophes in 2012. This led, on 1 October 2012, to the purchase of protective cover for aggregated natural catastrophe losses, which afforded risk capital relief throughout 2012 and which was renewed on 1 January 2013. Apart for minor capacity adjustments, there were no other structural modifications. Hurricane Sandy in October 2012 – the second-worst windstorm in US history causing around US$50 billion of economic damage and US$25 billion of insured damage – had little impact on International reinsurance prices. Reinsurance renewals were influenced by a frequency of medium and large-scale fire claims in 2012, although the resulting deterioration of conditions was kept low as measured by the development of the contracts affected. Otherwise, all contracts were again duly placed in full. Diversification was again optimal for security requirements. Once again, an external stochastic tool was used to monitor default risk. Overall, we see a possible but very unlikely risk of a temporal mismatch between primary insurance and reinsurance protection. This stems from the fact that negotiation of a reinsurance treaty does not normally begin until the primary insurer has already confirmed cover to policyholders. In the historically unprecedented event of a total collapse of reinsurance capacities, e.g. in the case of a global financial crisis coinciding with the occurrence of an extreme incidence of natural catastrophes, our risk exposure would significantly increase.

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As regards the concentration of insurance risks, a distinction is made between different risks. • Low frequency loss events involving major losses This loss category reports major losses in the area of motor liability insurance because a percentage of the policies in force were written on the basis of unlimited coverage or, in the case of policies written after April 2005, with a limited but very high cover sum of €100 million. This potential liability is taken into account in our reinsurance treaties. Major losses could also conceivably result from a terrorist attack. In the case of highcoverage policies (insured sums in excess of €25 million), terrorism is originally excluded and the risk assumed by EXTREMUS Versicherungs-AG if the customer requires insurance against terrorism. For risks where coverage is below the critical limit, our reinsurance treaties provide limited but adequate reinsurance protection. • Cross-segment loss events This loss category primarily relates to natural hazard events that would cut across Gothaer segments. These include, in descending order, flood, storm, earthquake and – of significantly less importance (mostly motor own damage) – hail risks. Decisions on the scope of reinsurance protection acquired are based on extensive analyses of our entire portfolio. Those analyses are conducted by leading international reinsurance brokers and carriers and are performed on the basis of renowned methods of modelling exposure to natural catastrophes. The models in question include estimates of probability of occurrence and assessments of recurrence intervals. The combined use of RMS, EQECAT and AIR tools as well as reinsurers’ internal models provides us with a secure basis for findings. • Geographic or line-based concentration risks Owing to the good geographic distribution of the Gothaer portfolio, geographic concentration risk is negligible. Line-based concentration is perceptible only in engineering insurance for wind power facilities. Here too, precautions have been taken against both accumulation and major losses through a combination of proportional and non-proportional reinsurance protection. • Risk dependency Major loss events, in particular those which have a massive financial impact on the reinsurance market, can lead to insolvencies on the part of reinsurers and thus result in default.

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We seek to minimize the possible impacts on the Gothaer net account by selecting our reinsurers with care (see loss of receivables risks) and spreading our placements. In the case of natural hazard events in particular, it has been observed that high losses translate into high claim payments fairly rapidly and therefore result in an outflow of funds. By keeping the cash loss limits for our proportional treaties relatively low and agreeing adequate reinstatements for non-proportional cessions, we have made sure that Gothaer is not affected in such events by liquidity or reinsurance capacity shortages. Claims

The following table shows the changes in Gothaer Allgemeine Versicherung AG loss ratios and run-off results over the past 10 years across all fields of business and net of reinsurance on the basis of IFRS.

Developments

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

as % Loss ratio after run-off

Run-off results of initial reserves

63.8 59.3 64.3 59.8 66.9 59.5 65.6 66.8 68.4 66.7

2.5 5.4 – 2.3 4.5 0.9 10.0 3.3 6.4 1.8 4.1

A detailed year-by-year review of the run-off of our gross primary business by year of occurrence, without allowance for annuity reserves, is provided in the notes to the consolidated financial statements. Risks arising from reinsurance assumed

Gothaer Allgemeine Versicherung AG acts as a reinsurer for a number of cooperation partners. This activity predominantly involves small business and private client lines. Terms are negotiated annually and are in line with current market conditions.

Risk management methods in the Property/Casualty segment

• Forecast and change risk in the estimation of reserves Wherever a model is used, there is a risk that actual results will deviate from projections. In the case of reserves, however, underestimation needs to be avoided. To enable the appropriateness of the IFRS reserve to be assessed, the variability of the estimate is established by bootstrapping. This provides a basis for quantifying the certainty of the IFRS reserve being enough to cover possible losses, expenses and annuity payments.

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Factors that cannot be adequately assessed by the models used to calculate reserves are taken into account separately as follows: • individual major loss analysis: where necessary, individual major loss reserves are included in the reserve calculation results • detailed analysis of accumulation loss events, taking account of time of occurrence and previous run-off and comparing them with such events in the past • detailed analysis of sublines in areas where portfolio shifts have occurred. • Natural catastrophe, accumulation loss and major loss risk The effects of natural disasters, accumulation losses and major losses are largely mitigated by the structure of Gothaer reinsurance. Apart from this, other measures are taken to keep the impacts on the gross side as low as possible. Rates are thus set as far as possible on the basis of actuarial methods. In addition, underwriting policy provides for targeted use of instruments such as self-insurance, sublimit and coverage limitation agreements. • Reinsurance risk Even a balanced reinsurance structure designed to mitigate the effects of extreme events entails risk – the risk of possible default by reinsurers. At Gothaer, this risk is taken into account in the selection of reinsurers (A rating) and is quantified by DFA modelling. The risk is thus covered by risk management. • Discounted reserve risk If reserves are discounted, the choice of discount rate and the underlying payment schedule are critical parameters. As loss reserves are not currently discounted – with the exception of annuity reserves, which are of minor importance – this risk is irrelevant in the Property/casualty segment. Against this backdrop, reserving policy can be described as adequate and appropriate.

Life segment General risk situation

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The general risk situation for life insurers in 2012 was characterized by sustained low levels of interest rates and the effects of the sovereign debt crisis. The interest rates of German government bonds reached historical lows in 2012. At the start of the second half of the year, interest rates edged up after an aid package was prepared to help Spain recapitalize its banks and after the ECB announced that it would purchase unlimited volumes of eurozone members’ government bonds. At the same time, reductions were seen in the previously high interest rate spreads of other European countries.

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One major issue for German insurers is the European Court of Justice ruling that prohibits gender-based differentiation on the grounds that it is incompatible with antidiscrimination law. In line with that prohibition, all tariffs marketed since 21 December 2012 (with only a few exceptions in the area of company pension schemes) are calculated on a unisex basis. There is a risk that the gender breakdown of new business anticipated by insurers will differ from the actual breakdown. If that were the case, additional reserves would need to be formed. Policies where pricing is still gender-based are not affected by this risk. At international level, work on the architecture of the new supervisory regime Solvency II continues. Headway is also being made in the debate on the revision of international financial reporting standards for insurance contracts (IFRS) Both developments will result in a more market-based view of liabilities and risks. We are monitoring these developments closely and implementing appropriate projects to prepare for the future changes in environmental conditions. Legal risks could arise in future as a result of changes in case law as well as more stringent regulation. Preparations for Solvency II in Germany are likely to have implications for the Policy Reserve Ordinance (DeckRV). The resulting changes in reserving are likely to affect product design, e.g. in terms of the guarantees offered. The anticipated possibility to create valuation units will bring another change that impacts on the design of life insurers’ products. Further uncertainty exists with regard to the anticipated revision of policyholder participation in valuation reserves, which insurers hope will provide support for the industry during low-interest phases like the one that exists at present. Although the Gothaer Group is not directly affected by the rulings on the validity of surrender value and surrender charge clauses, such rulings could have indirect implications in certain areas. Reserves were thus formed in 2012 to cover this risk. Mortality tables (biometric risks)

Policy reserves are calculated on the basis of decrement tables deemed adequate by the supervisory authority and the German Association of Actuaries (DAV). Particular importance here is attached to assessing longevity risk. In the estimation of the Responsible Actuary, the current policy reserves provide sufficient safety margins for the companies. With regard to the (supplementary) invalidity policy portfolio, reviews focus particularly on verifying that policy reserves are at least equal to the reference reserve mandated by the Federal Financial Supervisory Authority (BaFin). They show that the bases for calculation currently applied provide an adequate margin for safety. Because of the higher subjective risk, the (supplementary) invalidity policy portfolio is analyzed on a regular basis. In response to the new pre-contractual duty of disclosure rules introduced with the VVG reform, questions in application forms were rephrased for greater precision and risk assessment for invalidity policies modified accordingly.

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New bases for the calculation of reserves for (supplementary) long-term care annuity policies were published by the DAV at the end of 2008. We have analyzed our portfolios accordingly and see no risks at present. However, we will monitor the portfolios continuously. If necessary, the policy reserves will be increased In the case of policy reserves for unisex policies, regular checks are conducted to establish whether actual gender breakdown is in line with the breakdown anticipated. In the estimation of the Responsible Actuary, the individual rates calculated provide sufficient safety margins for the company. Assumptions of cancellation probability (cancellation risk)

As a matter of principle, cancellation probability is not taken into account in the calculation of premiums or underwriting reserves. In recent years, cancellation behaviour has tended to be unremarkable. The moderate increase in cancellations noted in 2009 was brought to a halt in 2010. The measures taken to prevent cancellations are being maintained and cancellation figures critically monitored. There is also a risk of increased liquidity being required for the cancellation of major contracts, which could force us to realize hidden liabilities in the current capital market situation. We counter this risk with selective key account management for major clients.

Interest rate guarantee risk

Because of the phase of low interest rates and the volatility of bond and stock markets, the German life insurance industry – and thus also the Gothaer Group – may be exposed to risks inherent in high interest rate guarantees, which generally extend over several decades in the case of life insurance products. The maximum actuarial interest rate since 1 January 2012 has been 1.75%. Despite this lowered ceiling, the unchangeable nature of figures guaranteed in policies in force results in inertia in the reduction of this risk. In 2012, the yield of ten-year bunds fell from 1.83% at the beginning of the year to a historical low of 1.2% at the end of May and ended the year at approximately 1.32%. Both the average portfolio coupon at the end of 2012 and the yield achieved by diversified investment in new fixed-interest securities in 2012 were higher than average actuarial interest. We make a point of ensuring that investments are aligned with liability deadlines and thus tailored to the risk-bearing capacity of the Company. Top priority is assigned here to generating a stable long-term flow of income.

Risk management methods in the Life segment

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Risks associated with life insurance policies stem mainly from the guarantee of the basic data used to calculate premiums (for interest, biometrics and costs) and the surrender values over the whole term of the policy. Since it is generally not possible to adjust life insurance premiums at a later date, these risks are lessened by appropriate safety margins in the bases for calculations.

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Gothaer employs a variety of instruments to establish the nature and extent of risks arising from life insurance policies. The main risk connected with a life insurance policy is interest rate guarantee risk, which increases in low interest rate phases in particular. The acceptability and financeability of Gothaer’s interest rate guarantees are verified by application of the two DAV models “Verification of Actuarial Interest for Life Insurance Portfolios” and “Risk Assessment of Long-term Guarantees”, the GDV model used to determine the viability of future actuarial interest rates, our own model for determining the maximum actuarial interest rate that can be financed as well as ALM analyses, the models of the Solvency II preliminary impact studies and our internal capital requirement model. It should be noted that the interest rate guarantee risk is normally lower for unit-linked life policies. Other risks associated with life insurance policies result from adverse changes in mortality, longevity, invalidity and expenses as well as from a change in cancellation behaviour. These risks are reduced, amongst other things, by appropriate reinsurance treaties and maximized reserving at the level of guaranteed surrender values. The extent of Gothaer’s exposure to these risks is established using traditional embedded value sensitivity analyses and Solvency II preliminary impact study stress scenarios. As far as underwriting risks are concerned, changes in cancellation and changes in expenses have the greatest impact here. The adequacy of cost and biometric assumptions is also regularly verified in the course of profit source analysis. Gothaer life insurance policies are mostly long-term contracts with discretionary surplus bonuses. Owing to the conservative selection of the bases of calculation, surpluses are generated which are shared with members. Surplus bonuses can be adjusted, subject to the minimum bonus for members required under supervisory regulations. Because of this adjustment option, the impact of a change in the risk, cost or interest situation on life insurers’ income is reduced. All the analyses cited confirm the financeability and acceptability of the risks identified here for Gothaer.

Health segment General risk situation

The market and prospects of development for private health insurance are defined to a large extent by the political and legal regulatory environment. The Act to Enhance Competition in Statutory Health Insurance (GKV-WSG), in particular, made an incision in the private comprehensive insurance business model. Since 2009, for example, it has been easier for new customers in comprehensive health insurance to change insurers and have part of the ageing reserve formed for them transferred to the new insurer. This results, on the one hand, in greater portfolio volatility – also in terms of risks – and, on the other, in higher premiums for financing the facility to change insurers. The social safeguard mechanisms of the basic tariff, the generous rules for persons formerly not insured and emergency treatment even for non-payers has to be borne by everyone with a comprehensive private health insurance policy. This increasingly pushes up premiums, in both portfolio and new business.

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However, the growth prospects for supplementary insurance remain good. The challenge for companies is to adjust appropriately in terms of sales channels, cooperations and administrative processes. Owing to sustained low interest rates for safe investments, the situation in the capital markets remains difficult. Because a large portion of the recessive profits from investment drive down the allocation to reserves for premium refunds and thus ultimately affect insureds, significantly higher insurance premiums need to be paid in some instances. The increased premium adjustments seen both at Gothaer and in parts of the market are increasingly resulting in acceptance problems among customers and distributors. This is compounded by the increase in premiums as a result of the introduction of unisex tariffs. Underwriting risks

Underwriting risks include risks that arise from the composition of portfolios and from premiums that are not commensurate with risks. The risks mentioned have a major bearing on the ability to allocate adequate reserves for premium refunds and thus have the funds available to lessen the impact of the development of premiums for those we insure. A particularly important role is played here by the recurrent financing of annually granted premium limits. We continue to counter these risks with rates based on actuarial principles, selective underwriting and professional benefit and health management as well as by the use of controlling tools and early-warning systems. The adequacy of loss reserves remains subject to regular actuarial verification. In view of the composition of our portfolios, attention continues to be focused on the basic tariff and the anticipated increase in switches from one private insurer to another as a result of the prorata portability of ageing reserves. Portfolio composition is very important for tariffs where premiums are not gender-based, so special controlling instruments are being developed for those tariffs. To keep the reserve for premium refunds at an acceptable level despite adverse conditions, the reduction of premium refunds for claim-free clients was retained because of the lower financial requirement. In addition, the tariff bonus – a premium limit reset each year for parts of our comprehensive insurance portfolio – was reduced more sharply to ease the pressure on the reserve for premium refunds. This will continue to be done in subsequent years. Premiums from new business are based on mortality rates that are in line with the latest private health insurance mortality tables. The cancellation probability factors applied are based on our own duration-dependent hospitalization studies as well as association experience. The actuarial interest rate, one of the most important bases for calculation in private health insurance, is dependent upon developments in the capital markets. This fact is taken into account through the use of professional tools for analyzing investments and harnessing the findings for a more focused investment strategy as well as by the regular performance of stress tests and extrapolations. In view of developments in the capital markets, however, the chance that the net target yield will not be achieved is still elevated. Investment strategy is therefore focused on a reasonable risk-return ratio coupled with a high probability of guaranteed actuarial interest being achieved.

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Financial risks in the area of health insurance can result from the occurrence of major and accumulation losses. These risks are taken into account by a comprehensive reinsurance policy. In line with European law, Gothaer introduced unisex tariffs within the prescribed time limits. The premium adjustment clause in our policy conditions states that if actual benefits vary by more than 10% from calculated benefits, a review of the bases for calculation needs to be performed and if the variance is between 5% and 10%, a review is optional. Although this rule is widely applied in the industry, there are legal reservations about the “optional” provision because the insurer could be presumed to be acting in an arbitrary manner. To reduce the risks, a new rule has been introduced for unisex tariffs. It makes it mandatory for bases for calculation to be reviewed as soon as variance reaches 5%. From an underwriting viewpoint, the step taken in April 2012 to cap commissions and lengthen periods of liability provides mathematical relief. Risk management methods in the Health segment

• Portfolio composition, premiums not commensurate with risks, allocations to reserves for premium refunds, recurrent financing of premium limits granted annually We address this area of risk with professional underwriting, professional benefit and health-care management and other controlling instruments that make trends and negative developments visible in good time. Incongruities can be promptly evened out by annual comparison of the insurance benefits calculated and actually required, which triggers an adjustment of premiums in the event of significant variance (premium adjustment clause). With regard to portfolio composition, special consideration is also given to the basic tariff. Extensive sensitivity analyses are carried out in connection with annual financial projections in order to examine the impact on the reserve for premium refunds and the financing of premium limits granted annually. Apart from the basic scenario reflecting the Company’s expectations, a variety of alternative scenarios are also examined. The alternative scenarios include, among other things, modified assumptions about benefit claims and new business. Attention here focuses not only on changes in individual assumptions but also on combinations of modified assumptions. The scenarios reviewed in this connection include worst case scenarios.

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In order to test the sensitivity of the main indicators against the individual parameters, the results of the alternative scenarios are compared with those of the basic scenario. In addition, sensitivity analyses make it possible to portray the entire range of possible ramifications for the Company and take early action to counter undesirable developments. In the Health segment, reserving also needs to conform to the principle of prospective unlocking. Where premium adjustments are triggered as a result of changes in the bases of calculation, the assumptions made calculating underwriting reserves also need to be adjusted. Against this backdrop and given the controlling instruments described, reserving policy is adequate and appropriate. • Cancellation probability The aforementioned sensitivity analyses are also used to evaluate exposure to cancellation probability risk. They can be used to examine the impact of a reduction in cancellations, for example, or to study the prorata portability of ageing reserves anticipated on termination. In the event of identifiable endangerment of key financial ratios, countermeasures are taken, such as lowering the cancellation probability used in the calculations. • Mortality rates Sensitivity analyses based on various mortality tables as well as on the Company’s latest actual mortality figures are performed to evaluate the mortality rate risk. The mortality figures used to calculate premiums are chosen so that a sufficient safety margin is ensured even after allowance for mortality trends. As in the case of insurance benefits, a change in the law in 2008 allowed changes in mortality to trigger premium adjustments and thus promptly eliminate any imbalance between actual and calculated figures.

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• Actuarial interest Actuarial interest rate risk is addressed at the investment level with professional analytical tools and the results obtained are systematically harnessed to optimize investment strategy. The focus of investment activities is on achieving a secure current average yield. This also applies to the “actuarial company yield” (Aktuarieller Unternehmenszins, AUZ), an actuarial interest verification procedure developed by the DAV that is carried out annually by Gothaer. The yield of investments is also regularly subjected to stress tests and extrapolations as well as stochastic sensitivity analyses. • Major and accumulation losses Exposure to major and accumulation loss risk in the area of health insurance is managed by a comprehensive reinsurance strategy tailored to the specific requirements of the Company. The adequacy of insurance protection is reviewed quarterly on the basis of detailed reinsurance accounts, after which appropriate adjustments are made as required.

Loss of receivables risks For Gothaer Krankenversicherung AG, loss of receivables risk acquired a new significance in 2009 because of the issue of non-payers, which affects the entire private health insurance sector. Whereas under the old law non-payment of premium constituted grounds for contract termination by the insurer, the GKV-WSG no longer allows that sanction option in comprehensive insurance. Instead, the insurer can suspend benefit, i. e. pay benefit only for emergency healthcare as defined in the Act. To cover the anticipated loss of receivables, an extensive programme of measures has been drafted and adequate provision has been made by significantly increasing the reserve for bad debt. Accounts receivable from policyholders and insurance agents in connection with direct written insurance business at Gothaer Allgemeine Versicherung AG, Gothaer Lebensversicherung AG, Gothaer Krankenversicherung AG and Asstel Lebensversicherung AG totalled €175.2 million at balance sheet date. This figure includes valuation allowances that take adequate account of the risk of possible loss of receivables. The following table shows the age structure of the receivables handled by our central collection systems. Outstanding receivables Outstanding for more than 90 days 180 days 360 days

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€million 111.3 82.4 47.2

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The average collection loss (unsuccessful court orders) in the last three years was €5.9 million, which represented an average of 1.6‰ of gross premiums written. We cede reinsurance only to high-class reinsurers. 50% of our reinsurance premiums are ceded to reinsurers with a rating of AA– or better. Accounts receivable in connection with incoming and ceded reinsurance business totalled €37.8 million at balance sheet date. Accounts receivable in connection with reinsurance ceded amounted to €32.9 million. The structure of receivables from reinsurance partners by rating class was as follows: Receivables on assumed reinsurance business

Breakdown by rating category AA A BBB

€million 18.7 13.0 0.7

As a result of our security policy, loss of receivables in past years has been insignificant.

Investment risks The investment portfolio is designed to meet all of the Gothaer Group’s current and future payment obligations. The risks associated with it are limited by systematic compliance with regulatory requirements (e. g. BaFin stress tests), which are seen only as minimum risk management requirements, and with the use of modern controlling systems. All major investment risks are identified, measured, monitored, reported and managed within the context of risk management. To improve its risk/earnings ratio, the Gothaer Group attaches a great deal of importance to diversification of investment in terms of mix and spread. The prime focus of this investment management is risk-bearing capacity, which is established on the basis of internal models and asset liability management (ALM). The wide range of ALM concepts employed at Gothaer includes stochastic risk models such as ALM projections, asset-only analyses as a module of the early-warning system within the Group as well as stochastic support for net target yield and surplus statement planning. These analyses from different perspectives form the basis for the regular verification and adjustment of strategic asset allocation.

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In addition, key business ratios are analyzed with the help of empirical distributions and shortfall probabilities. These ratios show, among other things, net and market value yield, hidden asset-side net reserves, uncommitted reserves for premium refunds and the own funds ratio. Regularly defined individual scenarios are also examined. The basis is formed by a scenario that is deemed highly likely to occur. Furthermore, analysis is extended to critical scenarios that are identified in the course of the stochastic evaluation of results. Stochastic indicator-based risk measurements are also used to establish probabilities of failure to achieve investment result targets at the end of the year. The probabilities are the result of a simulation of market value development and earnings generated by the major investment classes based on the Group’s own performance expectations for the year ahead. Other models such as our own capital requirement model or the QIS study models for Solvency II are also used. Systematic further development of the risk models used also promotes a sustainable increase in risk-bearing capacity. In addition to risk restrictions required by the supervisory authority, special investment guidelines (compliance) are applied to monitor internal risk limits. The following three types of risk are monitored and managed within the investment management system described. Market change risks

Market change risk is the risk of financial loss due to changes in market prices. Market change risk can be influenced, for example, by changes in prices, spreads, volatilities, correlations or even illiquidity in the market. Market change risk management is supported by regular computations based on the use of stochastic and deterministic models. Sensitivity analyses are developed to measure risk potential. The investment portfolio, which is particularly susceptible to market change risk, is also subjected to stress scenarios. The results of the individual sensitivity analyses are shown in the Stress Scenario Impacts on Equity table. • Interest change risk Interest change risk is the risk of a change in the risk-free interest rate and any consequent negative impacts on the market value of interest-bearing instruments. As a result of systematic gearing to Asset Liability Management, market value is ensured by the fact that interest change risks for the Gothaer Group are primarily viewed against the backdrop of the life of liability-side obligations. The resulting asset-side curb on the interest change limit is reflected in the internal (target) limits for duration. Another tool used is tactical duration management, which allows portfolio management – within a defined context – to exploit short-term opportunities arising from changes in interest rates. Interest change risk is measured, reported and managed by Risk Controlling in the form of modified duration calculations performed on portfolios and individual securities within the framework of internal duration reporting.

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• Reinvestment risk When interest rates fall, there is a risk that funds can only be reinvested at a lower rate of interest. Gothaer limits this reinvestment risk by the use of ALM and duration analyses. In ALM analyses, reinvestment risk is taken into account in the stochastic models. Possible impacts can be identified in the attainment probabilities of the target variables (e. g. net yield, solvency). Gothaer counters reinvestment risk by active portfolio management. The primary focus here is on careful selection of the maturity structure of the bond portfolio, which is managed by taking into account derivatives, interest structures and quantitative approaches (e.g. trend-following models). • Price risk Price risk is the risk of market value being lost as a result of adverse changes in share, stake, hedge fund and property prices. Price risk management involves, amongst other things, continuous intensive observation of concentrations at industry, regional and issuer level. It also involves limiting and monitoring exposure in the individual asset classes on the basis of internal (target) limits which reflect the results of the annual ALM analyses and which, when observed, guarantee the risk-bearing capacity of the Company. Asset classes exposed to a heightened price risk are not only subjected to sensitivity analysis; they are also monitored in stress tests. For unexpected developments, individual company hedging concepts (e. g. share options) can be implemented to ensure a risk-adequate response to short-term fluctuations and, in extreme cases, limitation of the losses that occur. These hedging concepts are constantly reviewed in the light of market developments and adjusted as required. Because of the minimal volume of the share portfolio, share price risk was negligible in the Gothaer Group at balance sheet date. In the property sector, market values continued to recover moderately in the period under review. Accordingly, net asset values were seen to move increasingly in line with the model values produced by discounted cash flow analysis in relation to the portfolio as a whole. This scenario is expected to be repeated during the next reporting period. Given the generally positive prospects for market development, however, individual value adjustments are possible. Especially in view of long terms, relatively low marketability and capital calls on existing commitments, our engagement in this asset class is longterm. • Exchange rate risk Exchange rate risk is the risk presented by adverse changes in currency exchange rates. The existing exchange rate risk is almost entirely hedged at company level by foreign exchange forward contracts. Hedging is performed in a rolling programme for each currency. The following chart shows exposure per currency in euros and the relevant market value in foreign currency at the end of the year. Set against the latter but not shown in the table are more or less equal volumes of foreign exchange forward contracts concluded as hedges.

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€million

Breakdown by foreign currency Market values in €

US dollar Pound sterling Danish kroner Polish zloty Swiss franc Other currencies

Market values in nominal currency

2012

2011

2012

2011

1,290.2 308.0 219.4 89.9 9.3 18.2

1,469.5 281.8 209.0 77.9 15.1 12.1

1,702.6 250.1 1,638.1 367.2 11.2 various

1,904.7 235.5 1,553.7 347.7 18.4 various

Considering the hedges in place, a change of 1% in the individual exchange rates would thus result in only insignificant changes in the market values of the aggregate foreign currency positions. Counterparty default risk

Counterparty default risk is the risk that arises as a result of default or as a result of a change in the credit rating or assessment of creditworthiness (credit spread) of security issuers, counterparties and other debtors with accounts payable. In addition to regulatory monitoring, counterparty default risk is limited and monitored by reference to internal investment ceilings. For risk management purposes, the acquisition of any investment vehicle is permissible only if a qualified assessment of creditworthiness by an external agency such as Standard & Poor’s or Moody’s or a qualified internal rating is available. Internal ratings are used only where no rating has been issued by an external agency. Credit risks are broadly spread to avoid concentration risks. All investments are constantly monitored in this regard on the basis of regulatory requirements. The interest-bearing financial instruments held by the insurance carriers in the Gothaer Group are divided into three categories for risk management purposes: “interest rate instruments”, “credit instruments” and “cash/cash equivalents”. The distinction here is whether an instrument presents only an interest risk or whether an additional credit risk exists because of the solvency of the issuer. So where a financial instrument entails no or only a minimal default risk, it is assigned to the “interest rate instrument” category. This is the case, for example, with German government bonds (bunds) and senior secured covered bonds (pfandbriefe). The balance sheet book values of our interest-bearing financial instruments can be regarded as an equivalent for the maximum default risk of the Gothaer Group. The table below shows the market value of interest-bearing financial instruments assigned to the interest rate instrument, credit instrument and cash/cash equivalent categories by rating class, as managed and monitored in the Gothaer Group. Retail funds are not included.

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Interest-bearing financial instruments

€million

Breakdown by rating category

AAA AA+ AA AA– A+ A A– BBB+ BBB BBB– Speculative Grade (BB+ to D) Non-rated

2012

2011

26.5 9.7 3.2 5.9 5.5 7.1 9.4 8.7 9.1 6.6 7.6 0.7

41.2 6.7 2.3 8.9 3.8 6.6 7.4 8.7 4.4 3.8 5.3 0.9

The diagram below shows the market value of the financial instruments assigned to the interest rate instrument, credit instrument and cash/cash equivalent categories. Breakdown of interest-bearing financial instruments

Financial year 2012

61,8 % Interest-instruments 34,0 % Credit-instruments 4,2 % Cash/Cashequivalents

Financial year 2011

59,7 % Interest-instruments 36,7 % Credit-instruments 3,6 % Cash/Cashequivalents

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Fixed-interest securities accounted for 70.6% of the market value of the investment portfolio at the end of the year. In the area of bearer bonds, without taking account of retail funds, financials (unsecured/subordinated bonds issued by banks, insurers or financial service providers) accounted for around 9.2% of total investment and corporates (unsecured/subordinated bonds issued by companies) for around 9.9%. Because of recessive interest rates and spreads, unrealized gains and losses in the fixedinterest portfolio presented a much better picture in comparison to the prior year. PIIGS government bonds, in particular, as well as subordinated bank bonds – some of which are also invested in PIIGS countries – profited disproportionately from this development. Nevertheless, substantive credit risks still exist in those assets – a fact reflected in the unrealized losses registered for certain bonds in the portfolios. The aggregate market value of subordinated bank bonds totalled around €1.2 billion (PY: €1.2 billion), while that of PIGGS government bonds amounted to around €1.8 billion (PY: €1.6 billion). The breakdown of PIIGS government bond investment by country was as follows: Portugal 6.4% (PY: 6.3%), Spain 18.0% (PY: 22.4%), Ireland 20.6% (PY: 28.1%), Greece 0.4% (PY: 1.4%) and Italy 54.6% (PY: 41.8%). Other credit risks existed for externally managed highyield and emerging market mandates. In the course of the credit process, all critical names are monitored in both the Front and Middle Office of Gothaer Asset Management AG. Regular credit analyses are also performed by Front Office to verify the value of investments that come under pressure during the course of the year in the wake of downgrades or market evaluations. Where these analyses show permanent impairment, depreciation is applied at individual bond level. In the year under review, this needed to be done in the case of ABB and Bancaja. In view of the still smouldering financial crisis, it is expected that interest will remain unpaid on certain subordinated bank bonds in the coming financial year. The unpaid amounts are anticipated in the model price calculations and were recognized in income in the financial year under review. • Risk concentrations The Gothaer Group manages concentration risks in line with BaFin Circular 4/2011 by ensuring a broad mix and spread of investment. It also monitors concentrations of risk in accordance with Sec. 104i of the German Insurance Supervision Act (VAG). Alongside supervisory regulation, concentration risk is additionally limited by our internal limit system, which ensures that concentrations at issuer level cannot occur on a significant scale. The tables below show the financial risk concentrations in the form in which they are monitored and managed in the Gothaer Group. Distinctions are made between rating class (see table under Counterparty default risk), sector, country and issuer concentrations. In aggregating risk concentrations, we adopt the same segmentation practices as independent data providers such as iBoxx.

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Shares Breakdown by sector

Banks Commodities Financial services Healthcare Household goods Industrial goods & services Insurance Oil & gas Plant and mechanical engineering Technology Telecommunications Travel and leisure Utilities Motor industry Other No sectoral assignment

Shares in % 2012

2011

0.0 0.9 0.0 0.0 1.4 0.5 13.0 0.8 0.0 0.5 0.2 0.0 0.0 0.9 0.0 81.8

0.3 0.5 0.6 0.8 0.0 0.0 6.0 0.3 0.8 0.0 0.7 0.2 0.6 0.6 3.9 84.7

Breakdown by country

Belgium Denmark France Germany Ireland Italy Luxembourg Netherlands Portugal Switzerland UK Other

Liquidity risk

52

Shares in % 2012

2011

0.8 0.8 2.0 55.3 3.0 0.9 26.7 0.0 0.9 1.9 7.7 0.0

0.0 0.0 1.3 94.3 0.9 0.0 0.0 0.3 0.0 0.3 0.6 2.3

Liquidity risk is the risk of a company being unable to fulfil its financial obligations entirely or on time because of a lack of adequate funds. Comprehensive liquidity management at risk carrier level ensures that the necessary liquidity is always available, even when liquidity requirements peak, and that timely adjustments can be made during the year through the disposal of marketable securities. The high percentage of government bonds with the highest liquidity as well as the broad spread of investments in our portfolio ensures adequate long-term liquidity. This means we can meet our liability-side obligations at any time with asset-side liquid and liquefiable funds. No liquidity bottlenecks occurred during 2012.

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No substantive liquidity risks are presented by payment obligations for real estate commitments in the financial year 2013 because the capital calls and repayments planned are roughly equal. In line with prior-year developments, a liquidity surplus is anticipated over the year as a whole. The residual terms of liabilities are shown at number 23 in the Notes to the Consolidated Financial Statements. Scenario analysis and stress scenarios

• Stress scenarios The Gothaer Group companies satisfy all four variants of the stress test prescribed by the Federal Financial Supervisory Authority (BaFin). Based on data from financial statements, these stress tests simulate very negative capital market changes – sometimes for both shares and fixed-income securities or investment property – and examine the impact on the insurer’s financial statements. The target horizon is the next reporting date. Surplus cover – even in this exaggerated stress scenario – confirms the risk-bearing capacity and stability of the Gothaer Group insurance companies. • Scenario analysis In scenario analysis, the risks defined above are quantified and aggregated on the basis of the year-end value of the portfolio. Sensitivity analysis pursuant to the German accounting standard DRS 5-20 produced the following figures for the Gothaer Group. An increase of 100 basis points in the interest curve and a modified duration of 5.8 reduced the market value of fixed-income securities by €1,301.7 million in comparison to the year-end value of the portfolio. An isolated parallel 100-basis-point rise in the spread curve reduced the market value of the bond portfolio susceptible to credit risk by €276.6 million. Taking into account hedging measures, a decrease of 20% in trading prices resulted in a fall in market value of €298.8 million in the case of shares and other non-fixed-income financial instruments. A decrease of 10% in the market value of the property investments of the Gothaer Group represents €222.0 million. The following table shows the possible change in equity assuming the above sensitivities. It is also assumed that the appropriated reserve for premium refunds is the minimum required. For an assessment of the impact on equity, please refer to the section on accounting policies, especially the rules on impairment testing.

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Szenarioanalyse

€million

Impact on equity Decrease in market value

Change in equity not recognized in statement of income

Change in equity recognized in statement of income

2012

2011

2012

2011

2012

2011

1,301.7

1,000.4

139.1

129.0

0.0

0.0

Fixed-income securities susceptible to credit risk (counterparty default risk)

276.6

235.6

34.9

27.9

0.0

0.0

Shares and other non-fixed-income financial instruments (price risk)

298.8

347.0

0.0

0.0

159.0

160.6

Property (price risk)

222.0

210.3

37.4

33.6

0.0

0.0

2,099.1

1,793.2

211.5

190.5

159.0

160.6

Fixed-income securities (interest change risk)

Total

Operational and other risks Information and communication technology (ICT) is an indispensable tool for an insurance company and, due to the increasing importance of process support and automation, plays a central role in Gothaer Group risk management. Owing to growing dependence on ICT, security mechanisms have been systematically improved and stabilized in recent years. We also guarantee compliance with the provisions of the German Federal Data Protection Act (Bundesdatenschutzgesetz) and protect business-critical applications by using a business continuity management process that not only ensures technological integrity but also safe-guards critical business processes. Targeted checks in Data Loss Prevention systems are used to counter the risk of unintentional data loss. Accounting controls have been set up and other organizational arrangements made to guarantee the regulatory compliance of financial statements. Among the organizational arrangements, special mention should be made of our accounting policies. Uniform recognition, valuation and reporting rules for all items in the Consolidated Statement of Financial Position and the Consolidated Statement of Comprehensive Income are documented in an IFRS accounting manual. This is regularly updated and circularized within the Group. Any changes in the guidelines are made in accordance with a clearly defined procedure. The organizational arrangements also include clear assignment of responsibilities for accounting systems and data interfaces. Moreover, closing dates are planned and monitored in detail. Financial statements are compiled at the Group’s headquarters in Cologne using a centralized system. IFRS revaluations of underwriting and nonunderwriting transactions are recorded as a matter of principle at the companies included in the consolidated financial statements. Most of the companies use a standard ledger with harmonized master files and uniform processes for this task.

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The data from the individual company are forwarded to the Group Accounts Department via an automated interface. The Group databases – like all other databases – are regularly backed up. General observance of the “four-eyes” principle is one of the key elements of the internal monitoring system. In addition, system checks and content scans are performed during the preparation of the consolidated financial statements, e.g. when data are transmitted by reporting units, where intra-group transactions are eliminated and at other stages. Errors identified here are analyzed and eliminated. Other elements of the internal monitoring system are clear regulation and verification of authority as well as clear assignment of responsibility for bookkeeping systems. Accounting system access is regulated by authorization rules. Consolidated financial accounting processes are also documented and made available to the auditor during the audit. The units involved in the reporting process continue to be integrated in the Gothaer Group risk management system. Verification of the various elements is performed by the Internal Auditing unit. The challenges presented by changes in accounting rules are also met by constant further development and training of employees. By keeping abreast of legislative activity and current case law, we are able to respond promptly to developments and implement change immediately according to the specific circumstances of the Company. Foreseeable changes in population demographics and the consequences of the financial market crisis present significant human resource risks. HR activity is already influenced by the “war for talent” and the resultant risks in terms of scarcity, departure, motivation, adaptation and loyalty as well as market developments due to the financial market crisis that are not yet predictable. Coordinated HR information and management systems guarantee that quantitative and qualitative hazard potentials are promptly identified and countered with appropriate measures. Prospects for personal development in combination with competitive performance-based incentive instruments help us ensure that employees remain motivated even in times of constant change and that high performers and individuals with high potential are retained. In addition, the latest staff and management surveys flagged up deficits in cross-functional cooperation that need to be rectified as a matter of urgency for corporate success. The internationalization process initiated with Gothaer Towarzystwo Ubezpieczen´ S. A. and Gothaer Asigurari Reasigurari S. A. continues to require professional post-merger management so as not to jeopardize the relevant investments. Internal guidelines and checks are in place to prevent life insurance or refund-of-premium accident insurance being used to launder money or finance terrorism.

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Summary of the risk situation The own funds of €1.82 billion derived from the group equity of the Gothaer Group exceed the amount needed to meet solvency requirements by €846.9 million. In 2012, Standard and Poor’s confirmed its A– (very good) financial strength ratings for Gothaer Allgemeine Versicherung AG, Gothaer Krankenversicherung AG and Gothaer Lebensversicherung AG and FitchRatings again gave A ratings (very good) for Gothaer Allgemeine Versicherung AG and Gothaer Lebensversicherung AG. The control mechanisms, instruments and analytical processes described above ensure effective risk management. At the present time, we see nothing in the risk situation of the individual Group companies that might jeopardize the fulfilment of commitments assumed under insurance contracts.

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Outlook General economic outlook for 2013 The economic outlook for 2013 is fairly subdued. Like last year, the performance of the global economy as a whole is likely to be below the long-term average. Although there are growing signs that China will be spared a continuation of its economic slowdown, the currently unresolved federal fiscal challenges in the United States could have substantial negative impacts on domestic demand and thus supersede China’s economic performance as a further major risk for the global economy alongside the euro debt crisis. A question mark thus remains over the prospect of an export-driven upswing across the eurozone. Furthermore, in view of the ongoing budgetary difficulties of many eurozone members, domestic stimulus is not anticipated. Nevertheless, Germany will probably not slide into recession in 2013 and the eurozone should gradually start to recover in the second half of the year. The below-average economic growth is likely to make for only moderate improvements in labour markets and thus offer little scope for rising pay rates. As a result, any rise in prices is expected to be modest. Against this backdrop, 2013 is unlikely to bring either a change in the monetary policy of the central banks or increases in key interest rates. In the bond markets, yields are not expected to rise significantly. Generally speaking, interest rates in the core eurozone countries and in the U.S. are likely to be lower than normal for the anticipated economic environment. However, if the capital market players see the euro debt crisis receding, interest rates will return to normal and rise. However, the yield of German federal government bonds with a residual term of ten years is hardly likely to exceed 2.5%. With prices generally high and supply continuing to diminish, low-risk transactions remain dominant in the property investment markets; at the same time, transaction volume is still low. Because speculative construction has virtually ceased, vacancy rates are falling in many submarkets, while rents remain stable. The banks’ limited willingness to provide loans beyond the pfandbrief-eligible credit limit as well as to finance higher risk real estate is bringing about a reorganization of the financing market currently dominated by banks and opening up new investment opportunities for the insurance industry.

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Developments in the insurance industry Even in the fifth year of the financial market crisis, business was stable for the German insurance industry. German insurers registered a 1.5% increase in premium revenues across all lines of insurance in 2012. In 2013, there is cautious optimism in the insurance sector that the prior-year growth can be matched. As far as business prospects are concerned, the vast majority of companies believe that business will remain constant and in some areas more favourable. Only a small minority of companies expect business to deteriorate. However, expectations differ considerably from one line of insurance to another. (NB: Market statements are based on the appraisal published by the Gesamtverband der Deutschen Versicherungswirtschaft e.V. in “GDV Volkswirtschaft, Geschäftsaussichten der Versicherungswirtschaft 12/2012”, the insurance industry press release of 14 November 2012, “ifo Geschäftsklima Versicherungswirtschaft 11/2012” and “Versicherungswirtschaft Nr. 2” published in 15 January 2013)

Outlook for the Gothaer Group The future development of the Gothaer Group will be largely defined by its core fields of business, i.e. the Property/Casualty, Life and Health segments. Because these segments have both shared and separate environments, the prognosis in terms of opportunities for future development is made on the basis of these segments.

Property/Casualty segment Environment

58

The development of premium revenues from property and casualty insurance business is shaped by the general economic environment, demand and prices. Modest economic growth and a stable labour market provide a sound economic environment for private households. Private client business will profit from this. For corporate client business, 2013 is expected to bring slacker growth than 2012. With market penetration high and upturns in claims only sporadic, there are no major demand-side stimuli for boosting premium volumes. In motor insurance, the premium growth achieved in the wake of significant price adjustments in new and portfolio business is expected to continue in 2013, albeit in attenuated form. The growth forecast for 2013 is thus around 4%. In private property insurance, premium income is expected to rise by 2.5% as a result of inflationrelated adjustments to insured sums. Despite the economic slowdown, non-private property business is expected to produce a 3% increase in premium revenues. In general liability insurance, expectations of premium growth are buoyed by the fact that a premium adjustment clause will make adjustments possible as of 1 July 2013. Hence the forecast of another 2% rise in premium income from this line of insurance in 2013. For property and casualty insurance as a whole, the forecast for the individual insurance lines shows 2.5% more premium growth in 2013 than in the prior year.

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Outlook

Over the coming planning period, we will remain on our growth path within the Property/Casualty segment. Setting ambitious targets, we will strive for at least marketlevel premium growth in the next few years. Profit-gearing and cost discipline will continue to be fundamental growth factors. With our two foreign Group subsidiaries expanding our regional activities, we will also step up the presence of the Gothaer brand in the Eastern European market in the future In private client business, we will continue to pursue our strategy of earnings-based growth. To this end, we will keep up work on the restructuring of private client products. The main dynamos of growth in the coming years will include accident insurance and homeowners insurance. At the same time, we will participate significantly in the motor insurance market, which now shows signs of rallying after years of stagnation. In corporate client business, we will consolidate and improve our good market positioning. The strongest growth stimuli in this segment are expected to be produced by liability insurance, which continues to be our biggest line of insurance. Moreover, driven by developments in the renewable energy market, significant premium increases are projected for engineering insurance. As in the private client market, we will also generate marked growth in motor business. Apart from implementing a restructuring programme to strengthen the international units as well as establishing a financial lines unit of our own, we will continue to work through the coming year on upgrading our multi-risk products. Last year, we had to contend with an exceptional burden of claims due to major property losses. We expect loss experience to return to normal in the coming years but note no significant improvement in the claims situation. Our focus in the years ahead will also be to identify and leverage further cost-cutting potential. Owing to the systematic and sustained implementation of cost reduction measures, we will continue to lower our cost ratio over the planning period. Against this backdrop, we anticipate an adequate underwriting result and thus a net combined ratio below 100%. We are also planning for stable investment results in the coming years. The measures initiated to improve productivity and processes will be stepped up even further to ensure and increase client and employee satisfaction and thus guarantee the success of our planning above and beyond basic projections. The above statements need to take account of the special effect of IFRS 11 in 2014. When IFRS 11 is applied for the first time, underwriting parameters such as premium income, policyholder benefits or costs of the joint venture CG Car-Garantie Versicherungs-AG may no longer be considered pro rata on the basis of holdings. For the purpose of comparability, the statements above have been adjusted for this effect.

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Management Report

Life segment Environment

Business in the Life segment in 2013 is essentially defined by the macroeconomic environment, the prospects for funded provision for old age and its ability to compete with other forms of investment. The economic situation of private households remains moderately favourable but the macroeconomic future is still fraught with risk. Business could also continue to be driven by demand for funded pension products, where life insurance has a unique selling point in its guarantee of life-long benefits. Although a further fall in surplus sharing and overall yield on investments is expected in life insurance in 2013, the overall yield on investments will be attractive compared to the market as a whole. Because of the extraordinary development of single-premium business in recent years, it is hard to predict what will happen in that area in future. After a moderate downturn in 2012, income from single-premium business in expected to remain constant in 2013. Given the prevailing market conditions, it is thus also anticipated that there will be a further shift towards unit-linked policies. The introduction of unisex tariffs will encourage greater differentiation on the basis of new criteria, especially for biometric products. Overall, premium income is forecast to be stable in 2013. At the same time, the ongoing low-interest phase continues to present a serious challenge for German life insurers. In some cases, market interest rates are lower than the return on investment guaranteed for existing policies.

Outlook

The development of life insurance business will be shaped not only by the environment described above but, in particular, by changes in the law that will tie up considerable capacities with no direct benefit. Despite generally low expectations, Gothaer’s systematic gearing to its strategic business fields – company pension schemes, biometric products and unit-linked annuity business – will provide sustained growth stimuli in 2013. We are confident that the successful launch of our hybrid product Gothaer VarioRentReFlex in 2010 and the introduction of our innovative stand-alone occupational disability insurance in spring 2012 will enable us move to a higher targeted growth path. As well as pursuing a stringent underwriting policy, we will continue to implement the measures initiated in earlier years to optimize processes and structures. Improving risk-bearing capacity while simultaneously increasing the competitive strength of our products thus remains one of our primary strategic objectives in the Life segment. Owing to the successful implementation of systematic risk-return management as well as the bundles of measures that have been initiated, we expect new business to grow through 2013 and 2014.

60

Gothaer Group Annual Report 2012

Management Report

According to our projections, acquisition and administrative cost ratios will remain at a constant good level through to 2014. Because of the current low level of reinvestment interest, we anticipate a moderate downturn in the net yield on investments in 2013 followed by gradual increases in the years thereafter. The mainstay of the projected net result will again be stable current income from a well-selected bond portfolio. Recent years have seen the intrinsic value and earning power of the Life segment strengthen on the liabilities side. In the coming years, that vigour will continue to help ensure a positive development of the segmental result.

Health segment Environment

The development of private health insurance business is essentially dependent on the environment provided by healthcare policy. In election year 2013, many private health insurers start out in pessimistic mood. Around 70% of companies are convinced that new business volumes will diminish in the next three years – a perception due to developments such as the introduction of unisex tariffs. Potential male clients, in particular, will be deterred from switching to private health insurance by the consequent increases in premiums. This negative appraisal of the situation is additionally fuelled by media reporting and the public debate on the abolition of private health insurance. The demographic environment continues to have a dampening effect. The pool of potential new clients for private health insurers is restricted by the contraction of the younger age groups. On the other hand, the change in the macroeconomic environment is not likely to impact negatively on the development of private health insurance business. The impacts of the introduction of subsidized private long-term care insurance will probably be limited in 2013. Owing to increased market saturation in 2013, the dynamic development of supplementary insurance in recent years will continue at a slower pace. As in previous years, the portfolio of health policies calculated along the lines of non-life insurance will increase in importance. Apart from the upturn in premium income resulting from portfolio growth, private health insurance premiums will also be influenced in 2013 by premium adjustments in the portfolio due to higher benefit expenses. The total volume of private health insurance premiums is expected to rise by 3.0% in 2013.

Gothaer Group Annual Report 2012

61

Management Report

Outlook

One major focus in the Health segment in 2013 will be maintaining the growth momentum that has only been registered since 2009. Accordingly, we plan to increase premium revenues steadily in the years thereafter and continuously expand the policyholder base of our supplementary insurance portfolio. To achieve this, we will adhere systematically to our marketing strategy addressing four defined submarkets (market segments) with different substrategies. The first market segment encompasses the classical comprehensive and supplementary private health insurance market, where it is becoming increasingly difficult to realize further growth in comprehensive insurance. Supplementary insurance business will be further upscaled in the second (collective business with corporate clients) and fourth (direct/retail cooperation) market segments. The good sales results achieved in recent years show there is still considerable potential available in the area of low-price supplementary insurance products. The third market segment is the private/statutory cooperation market. Our strategy for cooperation with statutory health insurance schemes will continue for the time being on the basis of the cooperation model practised at present. Depending on future healthcare policy decisions, there is also the option of raising cooperation to strategic partnership level. On the earnings side, the focus in the Health segment is still on achieving a moderate but steady increase in profitability. Despite steadily rising benefit expenses, we anticipate a relatively constant loss ratio. With underwriting expenses slightly recessive, we expect projected premium growth to make for lower cost ratios. Earnings depend not only on the underwriting result but also to a large extent on investment income. Here, despite the ongoing difficult environment in financial markets, we anticipate a moderate upturn.

62

Gothaer Group Annual Report 2012

Management Report

General No events of special significance occurred after the conclusion of the financial year 2012. The forecasts and assessments of future business development contained in this Annual Report are provided on the basis of what is known at the present time. Economic developments, capital market developments, unanticipated major and accumulation losses, changes in the legal, tax and demographic environment as well as changes in the competitive situation may cause the parameters underlying the forecasts to develop differently.

Gothaer Group Annual Report 2012

63

Consolidated Financial Statements

64

Gothaer Group Annual Report 2012

Gothaer Group Annual Report 2012

65

Consolidated Financial Statements

Consolidated Statement of Financial Position Assets

€million Notes

2012

2011

Opening balance sheet 2011

A. Intangible assets I. Goodwill II. Other intangible assets Total A.

[1] [2]

66.7 192.0 258.7

58.8 187.4 246.2

25.1 153.9 179.0

B. Self-occupied property and tangible assets

[3]

177.6

180.7

186.1

[4]

77.8 0.0 148.1 0.0 6,287.0 17,331.9

83.4 3.7 85.6 0.0 6,741.2 15,151.5

84.0 0.0 115.0 2,173.1 6,692.5 12,799.7

120.4 129.6 250.1 807.9 24,902.8

47.3 18.6 65.8 809.5 22,937.0

70.1 11.8 81.9 931.1 22,877.3

1,376.4

1,198.5

1,401.1

146.6 86.6 233.2 719.1 952.3

118.0 97.1 215.1 741.5 956.5

91.0 117.8 208.8 687.0 895.8

268.0

182.0

305.4

75.6 1,204.2 454.5 – 3.5 1,730.9

66.0 1,238.4 439.2 – 5.1 1,738.5

88.9 1,285.4 425.0 – 4.1 1,795.2

0.0

0.0

0.0

1,028.9 41.4 987.5

1,038.5 58.3 980.3

C. Investments I. Investment property of which: in disposal groups II. Shares in associated companies – Carried at equitiy III. Investments held to maturity IV. Loans V. Investments available for sale VI. Investments measured at fair value through profit or loss 1. Held for trading 2. By designation Total VI. VII.Other investments Total C.

[5] [6] [7] [8]

[9]

D. Investments held for unit-linked life insurance policies E. Receivables I. Receivables from primary insurance business 1. from policyholders 2. from intermediaries Total I. II. Other receivables Total E.

[10]

F. Cash and cash equivalents G. Reinsurers’ share of underwriting reserves I. Unearned premiums II. Policy reserves III. Reserves for unpaid claims IV. Other underwriting reserves Total G. H. Reinsurers’ share of underwriting reserves for unit-linked life insurance policies I. Deferred acquisition costs I. Gross II. Reinsurers’ share Total I.

[11]

1,013.1 31.6 981.5

J. Tax assets I. from current taxation II. from deferred taxes Total J.

[12]

94.4 391.3 485.7

140.0 439.2 579.2

84.3 443.0 527.3

K. Other assets

[13]

7.2

8.2

9.1

31,141.2

29,014.4

29,156.5

Total assets

66

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Equity and liabilities

€million

A. Equity I. Revenue reserves II. Other reserves III. Currency translation reserve IV. Consolidated net profit for the year attributable to shareholders of the parent company Total I.–IV. (Group equity) V. Minority interests Total A. B. Gross underwriting reserves I. Unearned premiums II. Policy reserves III. Reserves for unpaid claims IV. Other underwriting reserves of witch: deferred reserves for premium refunds in disposal groups Total B.

Notes

2012

2011

Opening balance sheet 2011

[14]

1,210.2 211.2 – 1.2

1,126.1 –22.9 – 8.1

1,046.7 24.4 0.0

107.3 1,527.6 2.4 1,530.0

85.1 1,180.2 5.5 1,185.7

80.8 1,152.0 72.7 1,224.7

472.8 18,648.5 2,429.7 2,832.0

452.9 18,260.4 2,360.8 1,593.4

491.5 18,158.1 2,221.6 1,735.6

0.0 24,383.0

0.5 22,667.5

0.0 22,606.7

1,376.4

1,198.5

1,401.1

331.5 137.9 469.4

319.6 143.6 463.3

312.5 119.8 432.3

20.0 281.9 162.7

35.0 314.3 162.5

35.0 264.7 187.6

[23]

662.7 37.2 699.9 1,511.7 2,676.2

706.7 37.4 744.1 1,621.3 2,877.2

737.9 29.1 767.0 1,694.7 2,949.0

[24]

179.8 526.3 0.0 706.1

179.2 443.0 0.1 622.2

100.4 442.3 0.0 542.7

31,141.2

29,014.4

29,156.5

[15] [16] [17] [18] [19] [20]

C. Gross underwriting reserves for unit-linked life insurance policies D. Other accruals I. Provisions for pension benefits and similar obligations II. Other accruals Total D. E. Liabilities I. Participation certificates II. Subordinate liabilities III. Bonds and loans IV. Liabilities from primary insurance business 1. towards policyholders 2. towards intermediaries Total IV. V. Other liabilities Total E. F. Tax debts I. for current taxation II. for deferred taxes of witch: deferred taxes in disposal groups Total F. Total equity and liabilities

Gothaer Group Annual Report 2012

[21] [22]

67

Consolidated Financial Statements

Consolidated Statement of Comprehensive Income

€million Notes

2012

2011

[25]

4,180.8 357.4 3,823.4

4,050.3 362.2 3,688.1

[25]

– 10.0 – 6.7 –3.3

–13.3 3.9 –17.2

[25]

336.3 0.1 336.2

364.4 0.0 364.4

4. Net premiums earned (1+2–3)

[25]

3,483.9

3,306.5

5. Investment result of which: income from associated companies

[26]

1,162.3 50.2

907.9 34.6

I. Statement of income (recognized through profit or loss) 1. Premiums written a) Gross b) Reinsurers’ share 2. Change in unearned premiums a) Gross b) Reinsurers’ share 3. Savings components a) Gross b) Reinsurers’ share

6. Income from investments held for unit-linked life insurance policies

[26]

96.9

–119.3

7. Other income

[27]

142.3

160.8

4,885.4

4,255.9

[28]

3,941.1 273.6 3,667.5

3,369.0 244.8 3,124.1

[29]

777.9 83.0 695.0

761.1 79.1 682.0

Total income 8. Policyholder benefits a) Gross b) Reinsurers’ share 9. Underwriting expenses a) Gross b) Reinsurers’ share 10. Other expenses

[30]

Total expenses 11. Operating result 12. Financing expenses 13. Profit for the year before taxes

281.9 4,088.1

247.3

167.9

23.4

22.8

224.0

145.1

116.8

59.9

107.1 107.3 – 0.2

85.2 85.1 0.1

II. Other comprehensive income (recognized directly in equity) 16. Unrealized gains and losses on investments [32] 17. Change in valuation at equity 18. Currency translation 19. Other comprehensive income (total) of which attributable to shareholders of the parent company of which attributable to minority interests

234.2 0.0 6.9 241.1 241.1 0.0

–48.6 –0.4 –8.1 –57.1 –55.8 – 1.3

III. Comprehensive income of which attributable to shareholders of the parent company of which attributable to minority interests

348.3 348.4 – 0.2

28.0 29.2 – 1.2

14. Taxes on income

[31]

15. Net profit for the year of which attributable to shareholders of the parent company of which attributable to minority interests

68

275.6 4,638.1

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Statement of Changes in Equity

€million Group equity

Revenue reserves

Minority interests

Total

Net profit for the year

Other reserves*

Unrealized gains and losses

Currency translation reserve

1,046.7

24.4

0.0

80.8

72.7

1,224.6

Changes in the scope of consolidation

–0.2

0.0

0.0

0.0

–65.3

– 65.5

Allocation to revenue reserves

80.8

0.0

0.0

– 80.8

0.0

0.0

– 0.4

– 47.3

– 8.1

85.1

– 1.2

28.1

0.0

0.0

0.0

85.1

0.1

85.2

– 0.4

– 47.3

– 8.1

0.0

– 1.3

–57.1

0.0

0.0

0.0

0.0

– 0.8

– 0.8

– 0.8

0.0

0.0

0.0

0.1

– 0.7

1,126.1

–22.9

–8.1

85.1

5.5

1,185.7

Changes in the scope of consolidation

–0.7

0.0

0.0

0.0

–0.7

– 1.4

Allocation to revenue reserves

85.1

0.0

0.0

– 85.1

0.0

0.0

Balance as of 1 January 2011

Comprehensive income of which net profit for the year of which other comprehensive income Dividend Other Balance as of 31 December 2011

Comprehensive income of which net profit for the year of which other comprehensive income

0.0

234.2

6.9

107.3

– 0.2

348.2

0.0

0.0

0.0

107.3

– 0.2

107.1

0.0

234.2

6.9

0.0

0.0

241.1

Dividend

0.0

0.0

0.0

0.0

– 0.1

– 0.1

– 0.3

0.0

0.0

0.0

– 2.1

– 2.4

1,210.2

211.3

–1.2

107.3

2.4

1,530.0

Other Balance as of 31 December 2012 * See also table 14 Other reserves

As a mutual insurance association, the Group parent, Gothaer Versicherungsbank VVaG, has no subscribed capital. Equity is generated exclusively through retention of earnings. The decrease in minority interests is due to the repayment of the capital reserve of capiton Gießereitechnik GmbH.

Gothaer Group Annual Report 2012

69

Consolidated Financial Statements

Statement of Cash Flows

€million

Net profit for the year*

2012

2011

107.1

85.2

Change in underwriting reserves

749.4

283.7

Change in underwriting reserves for unit-linked life insurance policies

177.7

– 202.7

6.0

–11.4

– 4.2

– 55.8

Change in deferred acquisition costs Change in deposits retained on assumed business/received from reinsurers and receivables/liabilities in connection with reinsurance business Change in investments measured at fair value through profit or loss

–151.1

– 97.5

Change in other receivables and other liabilities

24.5

– 60.5

Change in deferred tax assets and deferred tax liabilities

29.3

25.9

–10.5

59.8

– 258.2

– 151.5

–95.8

274.2

67.8

64.0

Cash flow from operating activities

641.9

213.4

Cash outflows for the acquisition of consolidated companies

–75.7

– 19.5

1.3

40.3

–9,065.6

–8,283.6

8,694.3

7,812.4

10.9

173.1

Change in other balance sheet items Realized gains and losses on tangible assets and investments Correction for investment result and expenses without cash inflows/outflows Correction for other income and expenses without cash inflows/outflows and other correction of net profit of the year

Cash inflows from the disposal of consolidated companies Cash outflows for the acquisition of other investments Cash inflows from the disposal of other investments Change in investments for unit-linked life insurance policies Other cash inflows

5.0

1.8

– 50.4

–48.8

–480.2

–324.3

Cash inflows from increase of capital

– 0.6

– 8.8

Cash outflows from decrease of capital

– 4.0

0.0

Other cash outflows Cash flow from investing activities

Dividend

– 0.3

– 0.8

Change in participation certificates and subordinate liabilities

– 47.4

49.7

Change from other financing activities

– 23.2

– 47.9

Cash flow from financing activities

– 75.5

– 7.8

86.2

–118.7

Change in cash and cash equivalents with cash inflows/ outflows Cash and cash equivalents at the beginning of financial year

182.0

305.4

Change in cash and cash equivalents due to change of currency exchange rates

0.1

– 0.4

Change in cash and cash equivalents due to change in scope of consolidation

– 0.3

– 4.4

Cash and cash equivalents at the end of financial year

268.0

182.0

* Including minority interests

70

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Other information on statement of cash flows €million

Operating activities Taxes on income paid (net) Interest paid Interest received Dividend received Financing activities Interest paid

Acquisitions of subsidiaries

2012

2011

–143.8 – 41.0 787.3 94.1

– 42.7 –47.8 770.4 167.1

– 23.4

–22.8

A 74.2% shareholding was acquired in the Romanian insurance company Gothaer Asigurari Reasigurari S. A. in the financial year. For further details, please refer to the information about the scope of consolidation on page 84. For the impacts of the acquisition of this company on cash flows, please see the tables below.

€million

Effects on the cash flow statement 2012

2011

Cash outflow for the acquisition of companies Cash inflow from the disposal of companies

– 5.6 0.0

– 16.3 39.5

Total acquisition price of which paid in cash and cash equivalents Total disposal price of which received in cash and cash equivalents

–5.7 – 5.7 0.0 0.0

– 19.5 –19.5 40.3 40.3

0.1 0.0

3.2 – 0.9

Cash and cash equivalents acquired through acquisition Cash and cash equivalents transferred through disposal

Gothaer Group Annual Report 2012

71

Consolidated Financial Statements

Acquisitions and disposals of subsidiaries

72

Effects on the balance sheet 2012

€million Acquired companies

Investments

3.1

Receivables

2.5

Cash and cash equivalents

0.1

Tax assets from deferred taxes

0.3

Other assets

0.5

Total assets

6.5

Equity

1.6

Gross underwriting reserves

3.1

Liabilities

1.7

Other equity and liabilities

0.1

Total equity and liabilities

6.5

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Gothaer Group Annual Report 2012

73

Consolidated Financial Statements

Segmental Report The Segmental Report is part of the Notes to the Consolidated Financial Statements and is prepared in line with IFRS 8 “Operating Segments”. Segment assets

Property/Casualty

Life

2012

2011

2012

2011

A. Other intangible assets

90.7

98.2

17.0

19.0

B. Self-occupied property and tangible assets

14.8

13.7

1.3

1.5

0.0 0.0

0.0 0.0

0.0 0.0

0.0 0.0

1,020.3 0.0 977.8 2,107.4

1,056.8 0.0 1,011.9 1,719.2

359.1 0.0 4,259.1 10,987.7

410.0 0.0 4,566.4 9,763.0

13.1 21.6

5.8 7.4

83.9 72.2

33.7 0.0

34.8

13.3

156.1

33.7

189.0

220.5

380.3

336.5

4,329.1

4,021.7

16,142.3

15,109.6

0.0

0.0

1,376.4

1,198.5

E. Reinsurers’ share of underwriting reserves

558.6

522.6

1,204.9

1,239.7

F. Reinsurers’ share of underwriting reserves for unit-linked life insurance policies

0.0

0.0

0.0

0.0

65.3

58.8

742.6

756.3

677.3

779.2

758.1

714.3

5,735.9

5,494.2

20,242.7

19,038.9

C. Investments I. Investment property of which: in disposal groups II. Shares in associated companies – Carried at equitiy* III. Investments held to maturity IV. Loans V. Investments available for sale VI. Investments measured at fair value through profit or loss 1. Held for trading 2. By designation Total VI. VII.Other investments Total C. D. Investments held for unit-linked life insurance policies

G. Deferred acquisition costs H. Other segment assets Total segment assets * This includes all consolidated companies.

74

Gothaer Group Annual Report 2012

Consolidated Financial Statements

€million Health

Other Activities

Consolidation

Total

2012

2011

2012

2011

2012

2011

2012

2011

61.7

55.6

22.5

14.7

0.0

0.0

192.0

187.4

1.0

1.2

181.1

185.3

–20.6

–21.0

177.6

180.7

0.0 0.0

0.0 0.0

108.3 0.0

114.0 3.7

– 30.5 0.0

– 30.7 0.0

77.8 0.0

83.4 3.7

164.8 0.0 1,717.6 3,559.1

132.1 0.0 1,835.4 2,888.9

1,314.0 0.0 148.1 677.7

1,299.7 0.0 166.4 780.3

– 2,710.0 0.0 – 815.6 0.0

–2,813.0 0.0 – 838.9 0.0

148.1 0.0 6,287.0 17,331.9

85.6 0.0 6,741.2 15,151.5

20.4 28.2

6.5 11.1

3.0 7.7

1.2 0.0

0.0 0.0

0.0 0.0

120.4 129.6

47.3 18.6

48.5

17.6

10.7

1.2

0.0

0.0

250.1

65.8

58.6

55.9

181.3

196.6

–1.3

0.0

807.9

809.5

5,548.6

4,929.9

2,440.1

2,558.3

–3,557.3

–3,682.5

24,902.8

22,937.0

0.0

0.0

0.0

0.0

0.0

0.0

1,376.4

1,198.5

0.6

1.2

27.2

32.9

–60.5

–57.9

1,730.9

1,738.5

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

173.5

172.4

0.0

0.0

0.0

0.0

981.5

987.5

265.2

228.8

350.7

369.5

–338.0

–365.8

1,713.3

1,726.0

6,050.6

5,389.1

3,021.6

3,160.6

–3,976.4

–4,127.2

31,074.5

28,955.5

Gothaer Group Annual Report 2012

75

Consolidated Financial Statements

Segment liabilities

Property/Casualty 2012

2011

2012

2011

472.8 49.8 1,969.6 18.6

452.9 50.2 1,883.1 18.1

0.0 14,438.7 57.3 1,771.3

0.0 14,231.7 53.7 945.4

0.0

0.0

0.0

0.0

2,510.8

2,404.4

16,267.3

15,230.8

0.0

0.0

1,376.4

1,198.5

C. Other accruals

245.0

240.0

75.3

77.9

D. Other segment liabilities of witch: deferred taxes in disposal groups

964.8 0.0

975.7 0.0

2,106.3 0.0

2,247.3 0.0

3,720.5

3,620.0

19,825.4

18,754.6

A. Gross underwriting reserves I. Unearned premiums II. Policy reserves III. Reserves for unpaid claims IV. Other gross underwriting reserves of witch: deferred reserves for premium refunds in disposal groups Total A. B. Gross underwriting reserves for unit-linked life insurance policies

Total segment liabilities

76

Life

Gothaer Group Annual Report 2012

Consolidated Financial Statements

€million Health

Other Activities

Consolidation

Total

2012

2011

2012

2011

2012

2011

2012

2011

0.0 4,179.5 181.3 1,256.1

0.0 3,995.5 178.9 864.7

0.0 0.0 282.0 0.1

0.0 0.0 303.0 0.1

0.0 – 19.5 – 60.5 – 214.0

0.0 – 17.0 – 57.9 – 235.0

472.8 18,648.5 2,429.7 2,832.0

452.9 18,260.4 2,360.8 1,593.4

0.0

0.0

0.0

0.0

0.0

0.5

0.0

0.5

5,616.9

5,039.1

282.1

303.1

–294.1

–310.0

24,383.0

22,667.5

0.0

0.0

0.0

0.0

0.0

0.0

1,376.4

1,198.5

35.9

32.7

113.2

112.7

0.0

0.0

469.4

463.3

170.4 0.0

150.3 0.0

833.7 0.0

857.9 0.0

–692.9 0.0

–731.7 0.1

3,382.3 0.0

3,499.5 0.1

5,823.2

5,222.1

1,229.0

1,273.7

–987.0

–1,041.7

29,611.2

27,828.7

Gothaer Group Annual Report 2012

77

Consolidated Financial Statements

Segment statement of income Property/Casualty

Life

2012

2011

2012

2011

0.0 1,792.4 1,792.4

0.0 1,741.4 1,741.4

0.0 1,499.9 1,499.9

0.0 1,456.5 1,456.5

1,504.7

1,439.6

1,095.6

1,018.9

3. Investment result of which: income from associated companies

265.1 2.1

272.1 1.9

768.8 3.1

610.9 2.8

4. Income from investments held for unit-linked life insurance policies

0.0

0.0

96.9

–119.3

114.9

117.2

29.9

28.8

Total income

1,884.7

1,828.9

1,991.2

1,539.4

6. Policyholder benefits (net)

1,019.7

995.0

1,681.9

1,229.6

7. Underwriting expenses (net)

448.2

421.2

164.1

169.7

8. Other expenses

181.4

184.9

61.0

64.8

1,649.2

1,601.1

1,907.0

1,464.1

235.4

227.8

84.2

75.4

17.3

16.2

3.7

4.1

11. Profit for the year before taxes

218.1

211.6

80.5

71.2

12. Taxes on income

129.2

70.2

22.9

46.3

13. Net profit for the year prior to transfer of profit

89.0

141.4

57.6

25.0

14. Expense from transfer of profit

58.5

73.1

0.0

22.0

15. Net profit for the year after transfer of profit

30.5

68.3

57.6

3.0

1. Gross premiums written from insurance business with other segments from insurance business with non-related third parties 2. Net premiums earned

5. Other income

Total expenses 9. Operating result 10. Financing expenses

16. Minority interests 17. Consolidated profit for the year attributable to shareholders of the parent company* * The consolidated profit for the year is shown only for the Group as a whole. Segmentation would result in an inaccurate presentation due to interlocking intersegmental arrangements.

78

Gothaer Group Annual Report 2012

Consolidated Financial Statements

€million Health

Other Activities

Consolidation

Total

2012

2011

2012

2011

2012

2011

2012

2011

0.0 888.7 888.7

0.0 852.2 852.2

0.0 – 0.2 –0.2

0.0 0.2 0.2

0.0 0.0 0.0

0.0 0.0 0.0

0.0 4,180.8 4,180.8

0.0 4,050.3 4,050.3

883.9

847.9

–0.2

0.1

0.0

0.0

3,483.9

3,306.5

219.5 0.3

175.1 0.3

162.3 12.5

246.9 28.4

–253.4 24.2

–397.1 1.2

1,162.3 42.2

907.9 34.6

0.0

0.0

0.0

0.0

0.0

0.0

96.9

–119.3

6.8

9.0

308.9

330.2

–318.2

–324.5

142.3

160.8

1,110.2

1,032.1

470.9

577.3

–571.6

–721.6

4,885.4

4,255.9

969.3

886.1

–14.1

–0.1

10.6

13.6

3,667.5

3,124.1

81.3

89.7

1.4

1.7

0.0

–0.3

695.0

682.0

24.0

23.0

340.7

352.1

–331.5

–342.9

275.6

281.9

1,074.6

998.8

328.1

353.7

–320.9

–329.6

4,638.1

4,088.1

35.6

33.3

142.8

223.5

–250.7

–392.1

247.3

167.9

0.0

0.0

16.7

16.7

–14.3

–14.2

23.4

22.8

35.6

33.3

126.1

206.9

–236.4

–377.9

224.0

145.1

6.1

16.2

–3.1

–20.2

–38.3

–52.6

116.8

59.9

29.5

17.1

129.2

227.1

–198.1

–325.3

107.1

85.2

0.0

0.0

113.1

159.5

–171.6

–254.6

0.0

0.0

29.5

17.1

16.1

67.6

–26.5

–70.7

107.1

85.2

–0.2

0.1

107.3

85.1

Gothaer Group Annual Report 2012

79

Consolidated Financial Statements

Other information on the segmental reports €million Property/ Casualty

Life

Health

Other Activities

2012

2011

2012

2011

2012

2011

2012

2011

Interest income

105.1

102.0

531.1

550.2

198.2

196.7

18.4

53.3

Interest expense

31.4

32.2

50.1

51.0

2.2

2.4

56.0

67.0

Scheduled depreciation and amortization

18.3

19.2

4.1

4.1

5.1

1.8

18.1

18.3

Substantive income (+) and expenses (–) without cash inflows/outflows* – 103.9

49.1

– 390.5

– 130.5

– 337.8

– 329.8

40.2

–74.2

* Excluding scheduled depreciation and amortization

In the Property/Casualty, Life and Health segments, the figures stated for scheduled depreciation and amortization as well as substantive income and expenses without cash inflows/outflows do not include depreciation or write-ups on intangible assets or fixed assets. In the case of insurance companies, these expenses and income are spread over investment expenses, policyholder benefits and underwriting expenses within the framework of cost unit accounting.

80

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Notes to the Consolidated Financial Statements Group Accounting Policies Gothaer Versicherungsbank VVaG is the parent of the Gothaer Group. Gothaer Versicherungsbank VVaG must therefore prepare consolidated financial statements and a Group management report pursuant to sections 341i, 341j and 290 et seq. of the German Commercial Code (HGB). Gothaer Versicherungsbank VVaG exercises the option pursuant to section 315a(3) HGB in conjunction with Article 5 of the Regulation (EC) No.1606/2002 of the European Parliament and the Council of 19 July 2002 that permits preparation of the consolidated financial statements and Group management report in compliance with International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS). All the International Financial Reporting Standards adopted by the European Union as well as all the relevant regulations in the HGB are observed in the preparation of the financial statements and report. The IFRS consolidated financial statements are thus as informative as HGB consolidated financial statements. Since 2003, the accounting standards developed by the International Accounting Standards Board (IASB) have been called International Financial Reporting Standards; the earlier standards continue to be known as International Accounting Standards (IAS). In addition, the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), formerly the Standing Interpretations Committee (SIC), were also observed. The IASB had not completed its regulations governing the recognition and valuation of insurance transactions in the financial year. Consistent with the framework of IFRS and IAS 1/IFRS 4, US Generally Accepted Accounting Principles (US GAAP) were therefore applied, in particular Topic 944 Financial Services – Insurance (formerly SFAS 60 and SFAS 97). The consolidated financial statements are denominated in euros and amounts are shown in millions of euros. The consolidated financial statements consist of the consolidated statement of financial position and consolidated statement of comprehensive income, the statement of changes in equity, the statement of cash flows, and the notes to the consolidated financial statements including the segmental report. The consolidated financial statements are supplemented by a Group management report. In addition to business developments in the various segments, the latter contains statements on capital management as well as a risk report and outlook. In line with Gothaer Group internal management, segmental reports are prepared on the basis of the IFRS rules on valuation. A distinction is made between the segments Property/Casualty, Life, Health and Other Activities. At the same time, the segments reflect the core areas of business of the Group. The Property/Casualty segment includes the insurance companies of the Group that engage in all major lines and types of property/casualty insurance. The Life segment encompasses the insurance companies that offer all forms of life and pension insurance as well as related supplementary insurance products. The Health segment relates to the insurer through which the Group engages in private health insurance in the form of comprehensive and supplementary insurance. All other companies are grouped in the Other Activities segment.

Gothaer Group Annual Report 2012

81

Consolidated Financial Statements

The presentation of the segments includes consolidation of intrasegmental transactions, but not, however, intersegmental transactions. Intersegmental consolidation is shown separately. Transactions between Group companies are effected on market terms as a matter of principle. The statement of cash flows shows the change in cash and cash equivalents for the financial year. Cash and cash equivalents include current credit balances with financial institutions, cheques and cash on hand. A distinction is made here between cash flows from current operating activities, investing activities and financing activities. The indirect method is used to report cash flows from current operating activities. In this case, net profit for the year is adjusted to eliminate the effects of transactions of a non-cash nature (in particular write-ups/write-downs, changes in reserves, receivables and liabilities). Net income or loss for the period is also adjusted for items of income or expense associated with investing or financing cash flows. The direct method is used to report cash flows from investing activities. Inflows and outflows of funds from the accounts of the various companies are reported here. Essentially, inflows and outflows of funds in connection with acquisitions/disposals are reported. Cash flows are adjusted to eliminate the effects of changes in the scope of consolidation. The direct method is used to report cash flows from financing activities

82

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Principles of Consolidation All companies whose accounts are included in the consolidated financial statements compiled financial statements as of 31 December 2012 consistently applying Group accounting policies. As a general rule, the financial year is the calendar year. Interim financial statements as of 31 December 2012 were prepared for special purpose entities with a 31 January 2013 and 30 September 2012 closing date excluding two special funds. In addition, pursuant to IAS 27.27 financial statements of eight associated companies and 17 property holding companies with cut-off date 30 September 2012 were included. Material transactions between 30 September 2012 and 31 December 2012 are taken into account separately. For reasons of materiality, the financial statements of the associated companies were not adapted to the uniform accounting policies of the Gothaer Group. Subsidiaries and special funds are consolidated if they are controlled directly or indirectly by the Group. The day on which the Gothaer Group assumes control of a company is taken as the date of first-time consolidation. The acquisition method of accounting is used for purposes of capital consolidation. This involves recognition of the assets, liabilities and contingent liabilities of the acquired undertaking at fair value (complete revaluation) and offsetting them against the parent company’s share of the equity of the subsidiary. A positive difference is allocated to goodwill, which is tested for impairment at least once a year. Negative differences are reversed with recognition in the statement of income in the year in which they originate. Income generated by subsidiaries after first-time consolidation is included in the revenue reserves of the Group after deduction of any minority interests. Minority interests are shown on the face of the statement of financial position under equity. Intragroup operating receivables and payables, expenses and income, and profits are eliminated unless they are of insignificant importance for presentation of the net assets, financial position and results of operation of the Group. Transactions between Group companies are effected on market terms as a matter of principle.

Gothaer Group Annual Report 2012

83

Consolidated Financial Statements

Scope of Consolidation The determination of the scope of consolidation is subject to materiality, which is assessed for each company on the basis of equity. In addition, a threshold is applied to the total equity of the companies judged immaterial. In special cases, the balance sheet total is used as another criterion. Where the threshold is exceeded, the company is considered to see whether its consolidation increases the validity of the consolidated financial statements. If the threshold fails to be reached after first-time consolidation, the company in question is not deconsolidated on grounds of immateriality. Materiality is applied as a criterion only to companies that are not engaged in insurance business. All the Gothaer Group insurance companies are consolidated as a matter of principle. Accordingly, 59 subsidiaries (PY: 60) were included in the consolidated financial statements in compliance with IAS 27. They comprised eight insurance companies (PY: seven), one pension trust and 50 other companies (PY: 52). 23 special purpose entities (PY: 29) were also consolidated under SIC 12. On 1 October 2012, as part of our internationalization strategy, shares were acquired in the Romanian property and casualty insurer Platinum Asigurari Reasigurari S. A. based in Bucharest. A price of €5.7 million was paid for the 67.0% share of capital and voting rights. The incidental acquisition costs of €0.7 million were recognized as an expense. In the wake of the capital increase, in which other shareholders did not participate, the share of capital held by Gothaer at the end of the financial year was 74.2%. The share of voting rights remained unchanged. The company was renamed Gothaer Asigurari Reasigurari S. A. Full consolidation will ensue on the basis of a simplified opening balance sheet at 30 September 2012 retaining most of the key figures required for compliance with Romanian accounting standards. Any adjustments that are required will be made later in 2013 and initial consolidation will be adjusted accordingly in the consolidated financial statements at 31 December 2013. At 30 September 2012, the opening balance sheet of the company acquired included the figures presented in the “2012 Acquisitions” table pursuant to IFRS 3 B64. At the time of initial consolidation, minority interests (33.00%) accounted for net assets totalling €0.5 million. Receivables from primary insurance business as well as accounts receivable in connection with reinsurance business were recognized at the net amount.

84

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Acquisitions 2012

€million Fair Value

A. Investments

3.1

B. Receivables I. Receivables from primary insurance business II. Accounts receivable in connection with reinsurance business III. Other receivables Total B.

1.5 0.5 0.5 2.5

C. Cash and cash equivalents

0.1

D. Tax assets from deferred taxes

0.3

E. Other assets

0.5

Total assets

6.5

A. Equity

1.6

B. Net underwriting reserves

3.1

C. Liabilities

1.7

D. Tax debts for deferred taxes

0.1

Total equity and liabilities

6.5

Goodwill of €4.7 million was recognized on the basis of the provisional opening balance sheet at 30 September 2012. For the impacts of the acquisition of Gothaer Asigurari-Reasigurari S. A. on cash flows, please see the Statement of Cash Flows on page 70. Two other companies were also included in the scope of consolidation: FWP Lux Feeder Beta SA as a subsidiary and OPCI French Wholesale Properties – FWP as an associated company. Gothaer Dritte Kapitalbeteiligungsgesellschaft mbH was merged with Becura Beteiligungen und Unternehmensberatung GmbH. Mermont Holdings GmbH was liquidated and deconsolidated. This produced a gain on disposal of €0.2 million. KR automotive Kapitalbeteiligungs GmbH and its participation in Reum Beteiligungs GmbH, which was previously consolidated in the Gothaer Group at equity, were deconsolidated because of the insolvency proceedings opened against Reum Beteiligungs GmbH. This produced a gain on disposal of €1.8 million, most of which related to minority interests. Because of the continued existence of shares in capital and voting rights, these companies are shown as non-consolidated affiliated and associated companies in 2012. Other changes relate to special purpose entities. One special fund was reissued. Two special funds were merged into two existing funds. Four special funds were deconsolidated in 2012. This resulted in a gain on disposal of €18.2 million.

Gothaer Group Annual Report 2012

85

Consolidated Financial Statements

Four companies (PY: four) jointly owned with non-affiliated companies were recognized proportionately in accordance with IAS 31. The companies in question are CG Car-Garantie Versicherungs-AG, KILOS Beteiligungs GmbH & Co. Vermietungs-KG, TRIFORUM Verwaltung GmbH & Co. Objekt IKS Köln KG and TRIFORUM Verwaltung GmbH & Co. Objekt NeuIsenburg II KG. Three of the companies were recognized proportionately because although the Company holds more than 50% of the shares, it holds only 50% of the voting rights. The assets and liabilities of the joint ventures are as follows:

€million

Financial information 2012

2011

Short-term assets Long-term assets

14.6 301.2

13.9 285.5

Short-term liabilities Long-term liabilities

23.1 166.8

16.4 165.1

Expenses Income

138.8 152.5

136.0 146.4

10 companies (PY: 11) in which a significant influence can be exerted were recognized in the consolidated financial statements as associates and evaluated by the equity method in accordance with IAS 28. These companies are not listed. The shares held in the associated company ARI-Armaturen Albert Richter GmbH & Co. KG were sold. This produced a gain on disposal of €26.7 million. All the consolidated companies of the Gothaer Group in 2012 (including special purpose entities) are listed below. A list of holdings pursuant to section 313 (4) of the German Commercial Code (HGB), which includes subsidiaries and associated companies that are not consolidated, is also provided.

86

Gothaer Group Annual Report 2012

Consolidated Financial Statements

List of holdings pursuant to section 313(2) of the German Commercial Code (HGB) 1. Affiliated companies included in the consolidated financial statements (section 313 (2) No. 1 of the HGB) – fully consolidated pursuant to IAS 27 Name of company

Allgemeine Versicherungs-Software GmbH Asstel Lebensversicherung AG Asstel ProKunde Versicherungskonzepte GmbH Asstel Sachversicherung AG capiton Gießereitechnik GmbH capiton II Holding GmbH & Co. KG capiton Zweite Kapitalbeteiligungsgesellschaft mbH City Asia Feeder GmbH & Co. KG FWP Lux Feeder Beta SA

€thousand

Location

Interest* as %

Currency

Financial year**

Equity

Profit or loss

Cologne Cologne

100.0 100.0

EUR EUR

2012 2012

224.9 22,305.0

– 31.9 3,000.0

Cologne Cologne Berlin Berlin

100.0 100.0 72.7 99.0

EUR EUR EUR EUR

2012 2012 2012 2012

2,958.6 13,821.0 1,317.5 8,251.1

0.0 0.0 – 1,527.1 – 4,055.6

99.0 100.0

EUR EUR

2012 2012

12,335.4 14,386.5

– 3,975.5 7,065.8

100.0 100.0 100.0

EUR EUR EUR

2012 2012 2012

700.0 –15,573.5 325,601.8

0.0 895.4 0.0

74.2 100.0

RON EUR

2012 2012

18,916.1 4,305.3

– 8,316.4 0.0

100.0

EUR

2012

1,658.0

35.0

99.5

EUR

2012

14,618.3

–878.9

100.0

EUR

2012

12,302.7

280.6

99.5 100.0

EUR EUR

2012 2012

24,940.9 844,928.5

8,904.9 0.0

100.0 100.0

EUR EUR

2012 2012

152,223.3 2,629.4

15,115.7 164.0

100.0

EUR

2012

169.1

126.0

100.0 100.0 100.0 100.0 100.0

EUR EUR EUR EUR EUR

2012 2012 2012 2012 2012

1,775.7 144,267.3 234,599.4 25,000.0 706.5

806.7 17,000.0 25,500.0 1,000.0 250.9

100.0 100.0

EUR EUR

2012 2012

75,883.4 3,535.9

6,216.3 490.9

100.0

PLN

2012

79,533.0

– 36,337.5

99.3

EUR

2012

17,366.8

– 2,799.9

100.0

EUR

2012

42.3

–12.3

100.0

EUR

2012

3,639.3

31.7

Berlin Frankfurt/M. Luxemburg Luxemburg GG-Grundfonds Vermittlungs GmbH Cologne Gothaer Allgemeine Versicherung AG Cologne Gothaer Asigurari Reasiguari S.A. Bukarest, Rumänien Gothaer Asset Management AG Cologne Gothaer Beteiligungsgesellschaft USA/Carlyle mbH Cologne Gothaer Dritte Kapitalbeteiligungsgesellschaft mbH Cologne Gothaer Erste Kapitalbeteiligungsgesellschaft mbH Cologne Gothaer Erste Meta Kapitalbeteiligungsgesellschaft mbH Cologne Gothaer Finanzholding AG Cologne Gothaer Fünfte Kapitalbeteiligungs- Pullach gesellschaft mbH & Co. KG i. Isartal Gothaer Grundbesitz GmbH Cologne Gothaer Immobilien Beteiligungsgesellschaft Méditerranée mbH Cologne Gothaer Invest- und FinanzService GmbH Cologne Gothaer Krankenversicherung AG Cologne Gothaer Lebensversicherung AG Cologne Gothaer Pensionskasse AG Cologne Gothaer Risk-Management GmbH Cologne Gothaer Sechste KapitalbeteiliPullach gungsgesellschaft mbH i. Isartal Gothaer Systems GmbH Cologne Gothaer Towarzystwo Ubezpiecze´n Warschau, S. A. Polen Gothaer Vierte Kapitalbeteiligungsgesellschaft mbH Cologne Gothaer Zweite Beteiligungsgesellschaft Niederlande mbH Cologne Gothaer Zweite Kapitalbeteiligungsgesellschaft mbH Cologne

* In the case of interests that are partially held indirectly, economic interests are calculated. **Financial year for a data source

Gothaer Group Annual Report 2012

87

Consolidated Financial Statements

1. Affiliated companies included in the consolidated financial statements (section 313 (2) No. 1 of the HGB) – fully consolidated pursuant to IAS 27 Name of company

Gotham City Residential Partners I GmbH & Co. KG Hamburg-Kölner-Vermögensverwaltungsgesellschaft mbH Janitos Versicherung AG JP Morgan IIF German 1 GmbH & Co. KG KE Power GmbH kk Metalltechnik GmbH Medico GmbH & Co. KG MediExpert Gesellschaft für betriebliches Gesundheitsmanagement mbH Munich Carlyle Productions GmbH & Co. KG PE Holding USD GmbH RE AEW Value Investors Asia Feeder GmbH & Co. KG RE Apollo Value Enhancement Fund VII Feeder GmbH & Co. KG RE Brazil Real Estate Opportunities Fund I Feeder GmbH & Co. KG RE BREP Real Estate Partner VI Feeder GmbH & Co. KG RE Brockton Capital Fund I Feeder GmbH & Co. KG RE Brockton Capital Fund II Feeder GmbH & Co. KG RE Carlyle Infrastructure Feeder GmbH & Co. KG RE Carlyle Realty Partners V Feeder GmbH & Co. KG RE Colony Realty Partners II Feeder GmbH & Co. KG RE Feeder GmbH RE Gothaer PLA Residential Fund III Green Feeder GmbH & Co. KG RE LaSalle Asia Opportunity Fund III Feeder GmbH & Co. KG RE LaSalle Japan Logistic Fund II Feeder GmbH & Co. KG RE O’Conner Capital Partners II Feeder GmbH & Co. KG RE Red Fort India Real Estate Fund I Feeder GmbH & Co. KG Tishman Speyer China Feeder (Scots/C), L. P. Unterstützungskasse der BERLIN-KÖLNISCHE Lebens- und Sachversicherug GmbH

Location

€thousand

Interest* as %

Currency

Financial year**

Equity

Profit or loss

Frankfurt/M.

100.0

EUR

2012

20,358.0

143.7

Cologne Heidelberg

100.0 100.0

EUR EUR

2012 2012

4,014.7 28,995.9

0.0 498.8

Frankfurt/M. Berlin Berlin Frankfurt/M.

100.0 72.7 72.7 99.9

EUR EUR EUR EUR

2012 2012 2012 2012

53,917.3 6.2 6,081.1 14,902.3

968.5 – 16.8 –8,389.6 –4,414.9

Cologne

100.0

EUR

2012

234.0

7.8

Grünwald Cologne

100.0 100.0

EUR EUR

2012 2012

–63,868.9 50,487.1

937.8 2,474.4

Cologne

100.0

EUR

2012

51,686.7

16,182.8

Cologne

100.0

EUR

2012

35,601.2

2,456.1

Cologne

100.0

EUR

2012

15,868.4

8,899.7

Cologne

100.0

EUR

2012

50,047.6

1,907.0

Cologne

100.0

EUR

2012

17,353.0

2,195.7

Cologne

100.0

EUR

2012

13,245.4

–34.1

Cologne

100.0

EUR

2012

48,800.2

1,279.9

Cologne

100.0

EUR

2012

31,569.1

1,493.2

Cologne Cologne

100.0 100.0

EUR EUR

2012 2012

17,140.1 116.0

– 4,503.9 49.8

Cologne

100.0

EUR

2012

37,603.9

–12.8

Cologne

100.0

EUR

2012

20,537.4

1,134.4

Cologne

100.0

EUR

2012

16,879.2

972.4

Cologne

100.0

EUR

2012

45,079.7

–44.2

Cologne Edinburgh Scotland

100.0

EUR

2012

52,630.2

229.2

75.8

USD

2012

43,302.4

– 242.2

Cologne

100.0

EUR

2012

28.7

– 2,427.2

* In the case of interests that are partially held indirectly, economic interests are calculated. **Financial year for a data source

88

Gothaer Group Annual Report 2012

Consolidated Financial Statements

2. Affiliated companies not included in the consolidated financial statements (section 313 (2) No. 4 of the HGB) Name of company

Location

A&O Vertriebs AG A.S.I. Wirtschaftsberatung AG Annex Produkte Vertriebs-GmbH capiton MT Beteiligungsgesellschaft mbH capiton Pet Food GmbH Classen Finanz GmbH & Co. KG CT GmbH FINGRO AG FVM Finanz- und Versicherungsmakler GmbH (in Liquidation) GBG-Consulting für betriebliche Altersversorgung GmbH GG-GRUNDFONDS Immobilienmanagement GmbH GKC Gothaer Kunden-Service-Center GmbH Gothaer Kapitalverwaltungs-GmbH GSC Gothaer Schaden-Service-Center GmbH KR automotive Kapitalbeteiligungs GmbH Munich Carlyle Beteiligungs GmbH PE Feeder GmbH Pensus Pensionsmanagement GmbH Zippel Netmarket GmbH

€thousand

Interest* as %

Currency

Financial year**

Equity

Profit or loss

Oldenburg Münster Cologne

100.0 100.0 100.0

EUR EUR EUR

2012 2011 2012

2,188.8 4,570.0 158.3

140.4 1,640.2 – 19.1

Berlin Berlin Kaisersesch Aalen Cologne

65.4 72.7 71.4 54.7 100.0

EUR EUR EUR EUR EUR

2011 2011 2011 2011 2012

– 4,503.6 117.3 0.5 1,049.4 156.2

1,205.2 – 4.1 – 2.1 –10,031.8 32.7

Cologne

100.0

EUR

2010

143.2

4.4

Hamburg

100.0

EUR

2011

377.6

240.2

Cologne

100.0

EUR

2011

0.0

0.0

Cologne Cologne

100.0 100.0

EUR EUR

2012 2010

50.0 183.0

0.0 – 0.9

Berlin

100.0

EUR

2012

684.6

0.0

Berlin Grünwald Cologne

72.7 98.0 100.0

EUR EUR EUR

2012 2011 2012

1.0 71.6 46.1

– 0.3 – 21.9 21.1

Göttingen ElsdorfHeppendorf

100.0

EUR

2011

886.1

180.3

55.0

EUR

2011

–6,991.2

– 158.4

* In the case of interests that are partially held indirectly, economic interests are calculated. **Financial year for a data source

Gothaer Group Annual Report 2012

89

Consolidated Financial Statements

3. Special-purpose companies included in the consolidated financial statements (section 313 (2) No. 1 of the HGB) – fully consolidated pursuant to IAS 27 in conjuncton with SIC 12 Name of company

as % Interest*

DMB 1 Gothaer Real Estate Fonds INKA GL1 INKA GOF INKA HZ INKA-GLG2-Fonds LBB-ASL 1-Fonds LBB-GoLB-Fonds LBB-GOMER-Fonds LBB-GoPK 2-Fonds LBB-GOR-Fonds LBB-GVBK-Fonds LBB-INVEST GL 1 Alpha Euro MI-FONDS F63/MI-DMB MI-FONDS 397/GKR 1 MI-FONDS 398/ASL 1 MI-FONDS 399/GA 1 MI-FONDS F09/GoPK MI-FONDS F72/ASL MI-FONDS F73/GA MI-FONDS F77/ASL 3 MI GKR 4 ZAIS Leda Fund/Credos

100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

* In the case of interests that are partially held indirectly, economic interests are calculated.

90

Gothaer Group Annual Report 2012

Consolidated Financial Statements

4. Joint ventures included in the consolidated financial statements (section 313 (2) No. 3 of the HGB) – quotal consolidated pursuant to IAS 31 Name of company

Location

CG Car-Garantie Versicherungs-AG KILOS Beteiligungs GmbH & Co. Vermietungs-KG TRIFORUM Verwaltung GmbH & Co. Objekt IKS Köln KG TRIFORUM Verwaltung GmbH & Co. Objekt Neu-Isenburg II KG

€thousand

Interest* as %

Currency

Financial year**

Equity

Profit or loss

Freiburg i. Brsg.

50.0

EUR

2012

62,844.4

16,558.3

Pöcking

93.1

EUR

2012

32,550.9

3,604.7

Pöcking Pullach i. Isartal

93.1

EUR

2012

627.7

–19.2

94.0

EUR

2012

7,478.2

1,590.1

* In the case of interests that are partially held indirectly, economic interests are calculated. **inancial year for data source

5. Associated companies included in the consolidated financial statements (section 313 (2) No. 2 of the HGB) – consolidated at equity pursuant to IAS 28

as %

Name of company

Location

Interest*

Aachener Bausparkasse AG Bioceuticals Arzneimittel AG EGRIMA HOLDING GmbH & Co. KG HSBC NF China Real Estate GmbH & Co. KG KOKI Technik Holding GmbH OPCI French Wholesale Properties - FWP ROLAND Rechtsschutz-Versicherungs-AG RREEF European Feeder GmbH & Co Value Added Fund I KG TRIFORUM Verwaltung GmbH & Co. Objekt Neu-Isenburg III KG W. Classen GmbH & Co. KG

Aachen Bad Vilbel Düsseldorf Düsseldorf Konstanz Paris, France Cologne Eschborn Pullach i. Isartal Kaisersesch

17.3 24.8 45.0 41.7 27.8 43.1 25.1 32.3 94.0 20.0

* In the case of interests that are partially held indirectly, economic interests are calculated.

Gothaer Group Annual Report 2012

91

Consolidated Financial Statements

6. Associated companies not included in the consolidated financial statements (section 313 (2) No. 4 of the HGB) Name of company

Location

Advanced Laser Separation International N.V. Barth-KG b-onlife AG (in Liquidation) Car-Garantie GmbH

Beuningen, Netherlands Munich Cologne Freiburg i. Brsg

CarGarantie (Beijing) Consulting Services Co., Ltd. Dr. Hannig GmbH EGRIMA HOLDING Verwaltungsgesellschaft mbH EMF NEIF I (A) L.P. Ensys AG Hollmann Beteiligungsgesellschaft mbH Innovationscapital Göttingen GmbH JP Morgan U.S. Real Estate Income and Growth GmbH & Co. KG LaSalle Co-Investment Management Ltd. Morgan Stanley Real Estate Fund IV MT Misselbeck Technologies GmbH Praesidian Capital III RECAP Deutscher Solarfonds II GmbH & Co. KG Reum Beteiligungs GmbH Solarpark Aquila GmbH & Co. KG Solarpark Delphinus GmbH & Co. KG WAI S.C.A., SICAV- FIS Zippel Communications GmbH

€thousand

Interest* as %

Currency

Financial year**

Equity

Profit or loss

27.9 24.0 29.9

EUR EUR EUR

2011 2012 2011

6,290.9 0.0 n.a.

517.0 0.0 n.a.

50.0

EUR

2011

7,257.7

7,148.2

Beijing, China Kaisersesch

50.0 20.0

EUR EUR

2011 2011

277.4 75.2

189.2 2.1

Düsseldorf London, UK Frankfurt/M.

45.0 42.9 26.7

EUR USD EUR

2011 2012 2011

20.4 0.0 1,476.1

– 2.0 0.0 –1,545.8

Hamburg Göttingen

34.8 35.0

EUR EUR

2011 2011

0.0 769.3

0.0 – 4.5

Frankfurt/M.

20.6

EUR

2011

103,272.8

20,058.3

London, UK New York, USA Ingolstadt Delaware, USA

49.5

GBP

2011

1.2

0.0

23.1 19.6 32.7

USD EUR USD

2011 2011 2011

79,801.6 – 5,542.7 23,402.4

4,263.5 – 1,875.5 1,085.5

Frankfurt/M. Hardheim Munich

24.0 31.3 24.0

EUR EUR EUR

2012 2012 2012

0.0 0.0 0.0

0.0 0.0 0.0

Munich Luxembourg, Luxembourg ElsdorfHeppendorf

24.0

EUR

2012

0.0

0.0

22.1

EUR

2011

52,554.4

9,950.7

44.8

EUR

2011

–29,700.0

– 172.1

* In the case of interests that are partially held indirectly, economic interests are calculated. **Financial year for data source

92

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Accounting Policies Description of accounting policies Introduction

Financial statements are prepared on a going concern basis. Income and expenses are recognized when they occur, i. e., they are reported in the periods to which they relate. Settlement date accounting within the meaning of IAS 39 is used for the recognition of financial assets. At that date, acquisition costs correspond to fair values. The respective companies are taken as cash-generating units within the meaning of IAS 36 for purposes of recognition and valuation of impairment losses. The application of accounting policies requires estimates and assumptions to be made which impact on balance sheet positions, the consolidated statement of comprehensive income as well as contingent assets and liabilities. Estimates and assumptions are used, in particular, for mathematical and statistical methods of valuing reserves such as policy reserves, reserves for unpaid claims or provisions for pension benefits and similar obligations. However, they are also required for establishing the fair value of financial instruments and assessing deferred taxes and reserves for deferred premium refunds. In the case of bandwidths and interpretative matters, judgments are made on the basis of Management’s best knowledge at reporting date. As a matter of principle, estimates for future projections are made on the basis of reasonable, annually updated assumptions and experience. Because estimates naturally involve a degree of uncertainty, actual values may differ from the estimates. Estimates may thus increase or decrease net profit for the year. Further information is found in the descriptions of accounting policies for the individual balance sheet positions.

New International Financial Reporting Standards As a matter of principle, accounting policies are applied subject to the need for consistency. The following standards were applied in the financial year for the first time. IFRS 7 – Financial Instruments: Disclosures

The amendments to IFRS 7 relate to disclosures required on the transfer of financial assets. The aim of the changes is to make the relationships between transferred financial assets and the corresponding financial liabilities more transparent and permit better assessment of the nature and extent of the risk of sustained engagement after financial assets are written off. The changes have no implications for the disclosures of the Gothaer Group.

IAS 12 – Income Taxes, Deferred Taxes

The amendment of IAS 12 makes it clear that, in principle, temporary tax differences on real estate held as an investment are reversed on the sale of the asset. The changes have no implications for the disclosures of the Gothaer Group.

Gothaer Group Annual Report 2012

93

Consolidated Financial Statements

The following standards, which are not mandatory for the reporting period, were not applied ahead of schedule by the Gothaer Group. Unless stated otherwise, the impacts on the Gothaer Consolidated Financial Statements are currently being verified. Annual Improvements Projects 2009–2011

In the course of the Annual Improvements Projects 2009 – 2011, formulations in IAS 1, IAS 16, IAS 32, IAS 34 and IFRS 1 were amended to clarify rules. Marginal changes were also made with impacts on presentation, recognition, measurement and disclosures in the notes to the financial statements. The application of the amendments is mandatory for financial years beginning on or after 1 July 2013.

IAS 1 – Presentation of Financial Statements

Owing to the adaptation of IAS 1, there is a change in the way other comprehensive income is presented in the Statement of Comprehensive Income. In future, items of other comprehensive income that are later reclassified in the income statement (recycled) need to be presented separately from items of other comprehensive income that are not recycled. The application of the amendment is mandatory for financial years beginning on or after 1 July 2012.

IFRS 9 – Financial Instruments

In approving IFRS 9, the IASB took the first step towards replacing IAS 39 Financial Instruments: Recognition and Measurement. The IASB’s aim hereby is to simplify the accounting regulations regarding financial instruments. IFRS 9 starts by classifying valuation models. According to IFRS rules, the basis for the subsequent valuation of financial instruments will in future need to be either fair value or amortized cost. Valuation at amortized cost is permissible only for debt capital instruments that are held as part of a business model geared to holding financial instruments as a source of contractual cash flows and are based on contractual terms that result exclusively in predefined periodic cash flows from redemption and interest payments on outstanding capital amounts. As a matter of principle, all debt capital instruments that do not meet these requirements as well as all equity instruments need to be recognized at fair value in the statement of income. An exception to the rule of recognition at fair value in the statement of income is made in the case of equity instruments that are not held for trading. In November 2012, a draft amendment to IFRS 9 Financial Instruments was published (ED/2012/4 “Classification and Measurement: Limited Amendments to IFRS 9 (Proposed amendments to IFRS 9 (2010)”). This draft introduced a new category for financial assets where changes in fair value are initially recognized through other comprehensive income directly in equity. Two requirements need to be cumulatively met for assignment to this category. First, the contractual terms of the financial asset must give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Secondly, the financial instruments need to be managed within a business model that does not explicitly specify an intention to hold or sell. The application of IFRS 9 is mandatory for financial years beginning after 1 January 2015; earlier application is permissible. For the application of IFRS 9, all financial instruments need to be studied and classified according to the new valuation models. The new classification of financial instruments will not have such a major impact on the Gothaer Consolidated Statement of Financial Position – in contrast to expectations last year – because the new draft continues to allow debt instruments to be recognized at fair value directly in equity.

94

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Amendments to IFRS 9 and IFRS 7 relating to prior-year disclosures

In separate phases, the IASB is also currently revising the requirements relating to the recognition of impairment and hedge accounting. After the discussions are completed, the amended rules will be integrated into IFRS 9. The initial application of IFRS 9 is facilitated by the fact that adjusted prior-year figures do not need to be presented. The application of both IFRS 9 and the IFRS 9/ IFRS 7 amendments is mandatory for financial years beginning on or after 1 July 2015.

IFRS 10 – Consolidated Financial Statements and IAS 27 – Consolidated and Separate Financial Statements

IFRS 10 comprehensively redefines the principle of “control”. According to the new definition, control exists if a potential parent company has power over a potential subsidiary by virtue of voting or other rights, if it shares in positive and negative variable returns from the subsidiary and can affect those returns by exercising its power over the subsidiary. Where a company controls another company, the parent company needs to consolidate the subsidiary. This new standard may have implications for special-purposes entities and others with regard to scope of consolidation. With the adoption of IFRS 10, the rules relating to the principle of control and the requirements that need to be met in the preparation of consolidated financial statements were transferred from IAS 27 and conclusively dealt with in IFRS 10. As a result, IAS 27 in future will contain only the rules for accounting for investments in subsidiaries, joint ventures and associated companies in separate IFRS financial statements. The application of the new IFRS 10 and the adapted IAS 27 is mandatory for financial years beginning on or after 1 January 2014. If the initial application of IFRS 10 affects an investment’s qualification as a controlled subsidiary, the rules of IFRS 10 need to be applied retrospectively. Earlier application is permissible only if IFRS11, IFRS 12 and the IAS 27 und IAS 28 standards amended in 2011 are also applied. The changes have no major implications for the Gothaer Group.

IFRS 11 – Joint Arrangements and IAS 28 – Investments in Associates and Joint Ventures

IFRS 11 revises the regulations on accounting for activities conducted under joint control (joint arrangements). The new concept makes a distinction between joint operations and joint ventures. A joint operation exists where the parties that have joint control have direct rights to the assets and obligations for the liabilities of the arrangement. The individual rights and obligations are recognized in the Consolidated Statement of Financial Position on a pro rata basis. In a joint venture, the parties that have joint control have rights to the net assets of the arrangement. That right is recognized in the consolidated financial statements using the equity method; proportional recognition of joint ventures in the consolidated financial statements is not an option. The adoption of IFRS 11 coincides with amendments to IAS 28. IAS 28 still regulates the use of the equity method, as in the past. However, the adoption of IFRS 11 considerably extends the scope of its application because the equity method is required to be used in future not only for investments in associated companies but also for joint ventures. Another amendment impacts on the way assets are accounted for according to IFRS 5. Where a share in an associated company or joint venture is held for sale, IFRS 5 is partially applicable.

Gothaer Group Annual Report 2012

95

Consolidated Financial Statements

The new IFRS 11 and the amended IAS 28 are mandatory for financial years beginning on or after 1 January 2014. Special transitional regulations exist for the transition from e. g. proportional consolidation to the equity method. Earlier application is permissible only if IFRS 10, IFRS 12 and the IAS 27 and IAS 28 standards amended in 2011 are also applied. Because the Gothaer Group currently recognizes joint ventures in the consolidated financial statements on a proportional basis, the application of IFRS 11 in conjunction with the amended IAS 28 essentially results in changes affecting both the Consolidated Statement of Financial Position and the Statement of Comprehensive Income. In future, joint ventures will be recognized in the consolidated financial statements on the basis of their pro rata equity capital, whereas in the past they appeared in the consolidated financial statements based on their prorated Statement of Financial Position and Statement of Comprehensive Income items. According to current assessment, there will be no impact on comprehensive income. IFRS 12 – Disclosure of Interests in Other Entities

IFRS 12 sets out rules for the disclosure of interests in other entities. The disclosures required are considerably more extensive than those stipulated in IAS 27, IAS 28 and IAS 31. The application of the new standard is mandatory for financial years beginning on or after 1 January 2014.

Amendments to IFRS 10, IAS 27, IFRS 11 and IFRS 12 relating to transitional arrangements and investment entities

In the amendments to transitional arrangements, the switch to IFRS 10, IFRS 11 and IFRS 12 is facilitated by the fact that adjusted comparative information is required only for the preceding comparative period. As regards non-consolidated structured entities (e. g. special-purpose entities), there is no obligation to disclose comparative information for periods preceding the initial application of IFRS 12. The other amendments define investment entities and exclude them from the scope of application of IFRS 10. These amendments do not affect the Gothaer Group. As with IFRS 12, the application of the amendments is mandatory for financial years beginning on or after 1 July 2014.

IFRS 13 – Fair Value Measurement

IFRS 13 sets out standard rules for establishing fair value in IFRS financial statements. All assets that are required by other standards to be recognized at fair value must be valued in future in line with IFRS 13. Only IAS 17 and IFRS 2 will continue to have their own rules. Fair value is defined in IFRS 13 as an “exit price”, i. e. the price that would be received to sell an asset or paid to transfer a liability. As currently seen in the case of fair value measurement for financial instruments, a three-tier hierarchy is being introduced to rate valuation techniques according to their dependence on observable market prices. The changes are mandatory in financial years beginning on or after 1 January 2013. These changes have no major implications for the Gothaer Group.

96

Gothaer Group Annual Report 2012

Consolidated Financial Statements

IAS 19 – Employee Benefits

IAS 19 at present offers an option for the recognition of unexpected fluctuations in pension commitments – so-called underwriting gains and losses – in financial statements. They can either be recognized in profit or loss in the income statement, in other comprehensive income or, after a delay, by the “corridor” method. The revision of IAS 19 will eliminate that option for the sake of more transparent and more comparable reporting. Direct recognition in other comprehensive income will be the only admissible option. Income anticipated from plan assets is also currently being established on the basis of Management’s subjective expectations of the development of the investment portfolio’s value. In future, it will only be permissible to apply interest to plan assets at the current discount rate for pension commitments. Extensive disclosure requirements will also need to be met for employees’ benefits. The changes are mandatory in financial years beginning on or after 1 January 2013. Gothaer Group currently uses the corridor method. Based on the figures at 31 December 2012, the changes in the treatment of underwriting gains and losses will result in an increase of around €100 million in pension reserves. This change will be recognized directly in equity. After allowance for deferred taxes and deferred premium refunds, the effect on equity will be around €70 million. Owing to the amended definition of termination benefits, the step-up contributions pledged under part-time pre-retirement agreements now represent other long-term employee benefits. Instead of being directly reserved at their total value, they accumulate pro rata over an employee’s period of service. These changes have no major implications for the Gothaer Group.

IAS 32 – Financial Instruments: Presentation IFRS 7 – Financial Instruments: Disclosures

This amendment to IAS 32 clarifies the requirements for offsetting financial instruments. It explains both the significance of the current right to offset such instruments and the process of settling gross as net that is recognized by the standard. In the wake of this clarification, the rules on disclosures in IFRS 7 were also upgraded. Application of the amended IAS 32 is mandatory for financial years beginning on or after 1 January 2014; use of the amended IFRS 7 is required in financial years beginning on or after 1 January 2013. Whereas IFRS 7, IFRS 10, IAS 27, IFRS 11, IAS 28, IFRS 12, IFRS 13, IAS 19, IAS 32 have been adopted by the EU and incorporated into European law by endorsement, the same does not yet apply to Annual Improvements 2009–2011, IFRS 9, Amendments to IFRS 9 and IFRS 7 as well as Amendments to IFRS 10, IFRS 11, IFRS 12 and IAS 27.

Gothaer Group Annual Report 2012

97

Consolidated Financial Statements

Changes in accounting policies as well as accounting errors and reclassification Under the rules of IAS 8, changes in accounting policies as well as accounting errors are required to be corrected by retrospective adjustment. In the 2010 financial statements, procedural errors occurred in the calculation of deferred taxes. The alterations were implemented as indicated below. Consolidated statement of financial position

€million

Assets 31 Dec 2011

Adjustment IAS 8

Annual Report 2011 J. Tax assets II. from deferred taxes

417.3

Annual Report 2012

21.9

439.2

€million

Equity and Liabilities 31 Dec 2011

Adjustment IAS 8

Annual Report 2011

98

31 Dec 2011

31 Dec 2011

Annual Report 2012

A. Equity I. Revenue reserves

1,124.4

1.7

1,126.1

B. Gross underwriting reserves IV. Other underwriting reserves

1,573.2

20.2

1,593.4

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Accounting policies of different items Intangible assets In the case of intangible assets, a distinction is made between goodwill and other intangible assets. Goodwill is recognized under intangible assets in the consolidated financial statements upon first-time consolidation if the cost of an acquisition exceeds the proportionate share of the equity acquired after the release of hidden reserves. Goodwill is regularly tested for impairment within the meaning of IAS 36 (impairment only approach). For the purpose of impairment testing, the book values of the companies, including the goodwill allocated to the companies, are set against the relevant recoverable amount. Allocations are made per company because Gothaer, as a cash-generating unit within the meaning of IAS 36, defines a company. An asset is not impaired where the recoverable amount, i. e. the higher of value in use or fair value less costs to sell, is more than the carrying amount. If no direct market prices can be observed, valuation is normally by the capitalized earnings value method. Recoverable value is calculated by suitable valuation methods on the basis of assumptions made. In particular, the assumptions include anticipated future business results as well as the choice of planning horizons, discount rates and capitalization requirements. Because of the difficulty of predicting business results that lie far in the future, the long-term, sustainable earnings of the unit need to be estimated. Because estimates of amounts that have not yet been generated are fraught with uncertainty, additional plausibility tests are performed. Here, sensitivity analyses are conducted on discount rates or the main value drivers of the business plan, thus establishing which assumptions are appropriate in which areas. A check is also run on market-based transaction-related multiples, if the latter are available. Where impairment is established, i. e. where book value is not classed as recoverable, depreciation is effected on goodwill. The write-down is recognized under other expenses. Negative goodwill is accounted for in the same item as positive goodwill. In the year of acquisition, it is released with direct recognition through profit or loss under other income. Other intangible assets include purchased as well as internally generated software as well as distribution networks, client accounts, brand names and insurance portfolios acquired. All internally generated intangible assets meet the requirements of IAS 38.

Gothaer Group Annual Report 2012

99

Consolidated Financial Statements

The insurance portfolios acquired are recognized at the present value of future profits (PVFP) at the time of acquisition. The PVFP is calculated as the present value of proceeds anticipated from the insurance portfolios acquired. Straight-line depreciation of the PVFP is performed on the basis of the projected realization of surpluses arising from the underlying insurance portfolios. All remaining other intangible assets are recognized at cost less any impairment losses and amortized over their useful lives (3 to 10 years) by the straight-line method. Other intangible assets are also regularly tested for impairment in line with IAS 36 and impairment losses are recorded if necessary. Write-downs are reported in the statement of income and, in the case of an insurance company, spread over investment expenses, policyholder benefits and underwriting expenses. Where writedowns result from a non-insurance company, they are reported in other expenses.

Self-occupied property and tangible assets Self-occupied property and tangible assets include property, plant and equipment held for own use. These assets are carried at amortized cost. We refer to the comments on “investment property” for information on regular depreciation of buildings held for own use based on the component approach. Tangible assets are normally subjected to straight-line depreciation over a useful life of three to 13 years. Self-occupied property and tangible assets are also regularly tested for impairment within the meaning of IAS 36. In the event of impairment, the carrying amount of impaired tangible assets is written down to the recoverable amount. Where reasons leading to an impairment loss in the past no longer apply, the carrying amount of the asset is written up to a maximum of amortized cost. Scheduled depreciation and write-downs are also recognized in the statement of income as are write-ups. In the case of an insurance company, they are spread over investment expenses, policyholder benefits and underwriting expenses. Where they relate to a noninsurance company, depreciation and write-downs are reported in other expenses and write-ups in other income.

100

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Investments Investment property

Investment property is recognized in accordance with IAS 40 at cost less accumulated depreciation and any accumulated impairment losses. The rate of scheduled depreciation is determined by the component approach, whereby buildings are differentiated by components and depreciated on a straight-line basis over a useful life of 10 to 80 years depending on building class. In the case of permanent impairment, non-scheduled depreciation is applied to the recoverable amount, which is the lower of fair value less disposal costs or value in use. Scheduled and non-scheduled depreciation is shown in the statement of income under investment result. Subsequent acquisition or production costs are recognized as assets and depreciated according to the rules described above if they are significant and qualify for recognition under IAS 40. The fair values of properties are disclosed in the notes. Fair values are determined by external evaluators based on the Valuation Ordinance (Wertermittlungsverordnung) and the Valuation Guidelines (Wertermittlungsrichtlinien). In general, the capitalized earnings value approach is employed.

Long-term assets held for sale

In the prior year, two undeveloped sites held as investments were recognized as “in disposal groups”. One site was sold in December 2011; the transfer of ownership, rights and responsibilities ensued on payment of the purchase price in February 2012. A profit of €0.8 million was realized as a result. The second site has not been sold.

Shares in associated companies recognized at equity

Shares in associated companies are recognized in the consolidated financial statements at equity, i. e. at the proportionate share of equity. IAS 28 defines associates as basically any entity that is not a subsidiary or joint venture and where there is a possibility of a significant influence being exercised on business and company policy. Income resulting from increases or expense resulting from decreases in the proportionate share of equity is then shown under investment result. The proportionate share of equity is determined on the basis of the most recent annual financial statements available. For reasons of materiality, the carrying amounts in the financial statements of associated companies are retained and not adapted to the uniform accounting policies of the Group. Current income includes income from the consolidation of associated companies consolidated at equity. Quantitative statements on net yields are made in the notes to the consolidated financial statements on the investment result.

Investments held to maturity

In the financial year 2011, a strategic decision was taken to increase our fungible portfolio investments, which resulted in the sale of a substantial amount of our held-tomaturity securities. According to IAS 39.52, this falls under the tainting rule, which prohibits financial investments to be carried as held-to-maturity investments over the next two years.

Gothaer Group Annual Report 2012

101

Consolidated Financial Statements

Loans

Loans include not only mortgage loans, policy loans and other loans but also fixedincome securities that are not listed on an active market. An active market is present where prices are constantly available and confirmed by regular transactions. These investments are carried at amortized cost. Any premiums or discounts are spread over the entire term using the effective interest method. Impairment tests are also carried out as of each reporting date. The fair value of loans is disclosed in the notes to the consolidated financial statements. In the case of financial instruments that are not publicly traded, fair value is determined with the help of yield curves, discounted cash flow methods or prices obtained from outside valuation services. The net yield on loans includes current income, any gains or losses on disposals and, where applicable, write-downs or write-ups. Current income consists of interest income and amortization income or expense. Write-downs and write-ups include the translation differences recognized in equity for securities denominated in foreign currencies as well as impairment losses and reversals.

Investments available for sale

Investments available for sale include non-consolidated affiliated and associated companies. In most cases, the entities in question are property investment companies in which Gothaer has a stake of less than 20%. They are carried at fair value. In the case of listed shares, fair value is taken to be the trading prices at reporting date. In other cases, third-party valuations are used or carrying amounts are determined using the capitalized earnings value approach. Calculation of the capitalized earnings value is based on the latest financial projections approved by Management, which normally have a planning horizon of three to five years. For the period beyond the detailed planning horizon, a detailed analysis of past experience is used to establish a reasonable going concern value that is extrapolated into the future based on growth assumptions appropriate for the market. For parts of the property holding companies, carrying amounts are also determined based on the net asset value. Investments available for sale also include stocks, investment fund certificates, other non-fixed-income securities and other shares. In addition, bearer bonds, other fixedincome securities, registered bonds and receivables due in connection with promissory notes and loans that are not carried as loans are disclosed under this heading. Investments that were carried as held-to-maturity investments prior to 2011 and reclassified are also recognized here. These items are recognized at fair value. In the case of publicly traded financial instruments, the trading price is taken as fair value. In the case of financial instruments that are not publicly traded, fair value is determined with the help of yield curves, discounted cash flow methods or prices obtained from outside valuation services. Changes in fair value are recognized in equity as unrealized gains or losses through other reserves after allocation to reserves for deferred premium refunds and deduction of deferred taxes. In the event of permanent impairment, however, the carrying amount is reduced to fair value and the loss recognized in income. After an equity instrument is written down, any further decrease in fair value – even if impairment is insignificant or temporary – is recorded as impairment loss in the statement of income. If the reasons for earlier impairment no longer exist, the recovery in value of an equity instrument is recognized directly in equity.

102

Gothaer Group Annual Report 2012

Consolidated Financial Statements

In the case of a debt instrument, the regained value is written up and recognized in income to a maximum of its amortized cost. Gains and losses on disposal are calculated from the difference between the proceeds of the disposal and the cost or amortized cost of the asset. The net yield on investments available for sale includes current income, gains or losses on disposals and any impairment losses or reversals. Current income contains dividend payments from non-fixed-income investments and interest from fixed-income securities, including amortization income or expense. Write-downs and write-ups also include translation differences recognized through profit or loss in the case of fixed-income securities denominated in foreign currencies as well as impairment losses and reversals. Quantitative statements on net yields are made in the notes to the consolidated financial statements on the investment result. Investments measured at fair value through profit or loss

In addition to investments held for trading, this item includes investments by designation. Investments may be classed for recognition at fair value through profit or loss only at the time of acquisition. The trading portfolios are reserved exclusively for derivative financial instruments. Structured financial instruments that are not separated into host contract and derivative are assigned to the category by designation. In line with IFRIC 10, the by-designation category includes two private equity entities assigned because the expense associated with consolidation does not justify the additional benefit of the information it provides. Investments in the two subcategories are recognized at fair value, which is obtained based on stock exchange prices or other valuation (use of external prices or option price models) as of the reporting date. Only financial instruments with a positive fair value are recognized on the assets side of the statement of financial position. Financial instruments with a negative fair value are recognized under liabilities on the equity and liabilities side of the statement. Changes in the fair value of financial instruments – both those with a positive value and those with a negative one – are recognized in the statement of income as investment result. Gains and losses on disposals are determined based on the difference between the proceeds from the disposal and the fair value at the last balance sheet date. The net yield on investments measured at fair value through profit or loss includes current income, gains or losses on disposals and any impairment losses or reversals. Current income shows mainly interest on income of fixed-income securities. Changes in fair value are reflected in impairment losses or reversals. Quantitative statements on net yields are made in the notes to the consolidated financial statements on the investment result.

Gothaer Group Annual Report 2012

103

Consolidated Financial Statements

Other investments

Other investments include deposits with financial institutions, deposits with ceding undertakings and financial instruments that cannot be assigned to any other item. Pursuant to IAS 39 they are recognized as loans at (amortized) cost or at nominal value. The fair value of other investments normally corresponds to the carrying amount. The net yield on other investments includes current income, any gains or losses on disposal and, where applicable, any impairment losses or reversals.

Impairment

At every balance sheet date, a check is run to verify whether there are substantial objective indications of impairment of financial instruments or groups of financial instruments. In the Gothaer Group, shares, participations and investment funds that are classed as investments available for sale are regarded as impaired where fair value has been significantly below cost or below it for an uninterrupted period of nine months up to the balance sheet date. In the case of fixed-income securities, which are recognized as investments held to maturity, loans or investments available for sale, permanent impairment is assumed in the event of significant changes in creditworthiness. This could occur in the wake of a significant deterioration of rating or a sharp drop in fair value below cost. Impairment is recognized directly in the positions affected, without the use of value adjustment accounts.

Investments held for unit-linked life insurance policies Investments held to cover unit- or index-linked life insurance are shown separately from other investments. They are recognized at fair value. Changes in value affect neither net profit for the year nor equity since the corresponding underwriting reserve changes commensurately.

Receivables Receivables include receivables from primary insurance business, accounts receivable in connection with reinsurance business, deferred interest and rent and receivables from affiliated and associated companies. Receivables are recognized pursuant to IAS 39 as loans at nominal value less any necessary write-offs. The fair value of receivables generally corresponds to the carrying amount.

104

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Cash and cash equivalents Cash and cash equivalents are recognized pursuant to IAS 39 as loans at amortized cost. The fair value is generally the carrying amount.

Deferred acquisition costs Topic 944 (formerly SFAS 60) defines acquisition costs as all variable costs that are directly incurred in connection with the acquisition or renewal of insurance contracts. Such costs include commissions for intermediaries as well as fees for medical examinations. Acquisition costs are capitalized and amortized on a systematic basis. In the area of property/casualty insurance, acquisition costs incurred in connection with new contracts are amortized on a straight-line basis over the legal term of the contract of up to three years. In the case of life insurance policies recognized pursuant to Topic 944 (formerly FAS 60), acquisition costs are amortized in proportion to recognition of premium income. Annual amortization is determined on the same basis as for actuarial calculations used to determine policy reserves. In the case of life insurance contracts that fall under Topic 944 (formerly FAS 97), acquisition costs are amortized in proportion to the emergence of estimated profits. Estimates of future profits are based on assumptions as regards the development of biometric risks, cancellations, investment income and bonuses due to policyholders. Assumptions are regularly examined to determine whether they are appropriate. If necessary, the bases used for calculation are revised and deferred acquisition costs are increased or reversed accordingly. In the case of health insurance, acquisition costs are amortized over the term of the contract. Amortization is determined on the actuarial basis used to determine policy reserves. In the case of short-term health insurance contracts with unearned premiums, amortization is proportional to recognition of premiums in the statement of income. Deferred acquisition costs are assessed for impairment as of each reporting date by carrying out a test of recoverability.

Taxes Tax assets or tax debts that need to be recognized under national tax laws are included in the current taxes. In deferred taxes temporary differences between carrying amounts in the IFRS balance sheet and the tax base are accounted for by recognition of deferred tax assets or liabilities. Deferred taxes may also result from the carryforward of unused tax losses or from consolidation issues. Deferred tax assets are recognized only if an offset with future taxable profit is probable. The recoverability of deferred tax assets is reviewed as of each reporting date pursuant to IAS 12.56. The tax rate is determined based on the respective tax situation of individual items or that of the Group companies.

Gothaer Group Annual Report 2012

105

Consolidated Financial Statements

Changes in tax rates are taken into account as soon as they are enacted. Deferred taxes are to be consistently recognized in connection with the business transactions from which they result. That means that transactions with an impact of profit or loss result in recognition of deferred taxes in the statement of income, and transactions with no impact on profit or loss result in recognition of deferred taxes directly in equity.

Other assets All other assets are shown at cost less accumulated depreciation or at nominal value less any necessary impairment losses.

Equity Equity is subdivided in the four positions revenue reserves, other reserves, consolidated profit for the year and minority interests. Other reserves mainly include the reserve for the translation of the foreign currency positions of a subsidiary as well as unrealized gains and losses on investments available for sale after allocation to reserves for deferred premium refunds and adjustment for deferred taxes and the effects of consolidation. Minority interests include the prorated equity of subsidiaries that do not directly or indirectly belong 100% to the Gothaer Group.

Underwriting reserves Gross underwriting reserves are shown under liabilities. The reinsurers’ shares are shown on the assets side. Reinsurers’ shares are also recognized separately in the statement of income. The value of reinsurers’ shares of underwriting reserves is established based on individual reinsurance treaties. Unearned premiums

106

Unearned premiums from property/casualty insurance and short-term health insurance policies are calculated on an individual and day-by-day basis. No expenses are deducted (reduction in unearned premiums as a function of a specific expense ratio for commissions and administrative expense) since unearned premiums and deferred acquisition costs are recognized simultaneously. Unearned premiums are not recognized in the case of long-term life and health insurance contracts since the policy reserve is determined as a function of premium maturity.

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Policy reserves

The provisions of Topic 944 (formerly SFAS 60) pertaining to long-duration insurance contracts provide the basis for recognition and measurement of policy reserves in the area of life and health insurance. On the other hand, life insurance policies providing benefits that are determined by the performance of the investments covering the policyholder account are carried pursuant to Topic 944 (formerly SFAS 97). In the case of insurance contracts that primarily involve the transfer of financial risks, the provisions of IAS 39 are applied. Policy reserves for all life insurance contracts carried pursuant to Topic 944 (formerly SFAS 60) are estimated on an individual basis using the prospective method. Taking into account adequate safety margins, accounting assumptions are based on expected investment yields, mortality, cancellation frequency as well as claims settlement expenses and periods during which no premiums are paid. The estimates include the results of the Company’s own observations as well as external data. The policy reserve contains bonuses already allocated and declared to policyholders plus those components of premiums that may not be recognized in the statement of income until after the reporting date. Policy reserves for unit- and index-linked life insurance are determined in compliance with Topic 944 (formerly SFAS 97) and mainly include payments received from policyholders, withdrawals to cover risks and expenses as well as changes in the market value of the corresponding investments. Those components of the policy reserve that correspond to the market values of the investments assigned to these contracts are disclosed separately. In the case of contracts recognized pursuant to IAS 39, policy reserves are determined based on the corresponding cash flows using the effective interest method Policy reserves for health insurance contracts are determined based on the difference between the present value of future benefits including claims settlement expenses and the present value of estimated premium income. The reserves are determined based on current actuarial assumptions and adequate safety margins using the prospective unlocking approach. This enables insurers to adjust premiums. The assumptions made at the beginning of a contract are retained until the premiums for that contract are adjusted. The assumptions then remain in place until the next adjustment. Additional reserves are formed for obligations in the following year resulting from transfers.

Gothaer Group Annual Report 2012

107

Consolidated Financial Statements

Reserves for unpaid claims

Reserves for unpaid claims include liabilities in connection with insurance policies of uncertain amount or timing. In the area of property/casualty insurance, the future development of claims is estimated pursuant to Topic 944 (formerly SFAS 60) based on past claims experience using recognized statistical methods and taking into account current or anticipated parameters and the ultimate cost of settlement is calculated per year along with the cost of claims settlement. This provides the basis for determination of the required loss reserves. With the exception of reserves for annuities in connection with property/casualty insurance, loss reserves are not discounted. For technical reasons, estimated liabilities may differ from actual expenses. In the area of life insurance, reserves for unpaid claims – unless covered by settlement with lead managers in the case of group contracts – are estimated for each individual claim based on experience as of 31 December. In the case of claims under supplementary occupational disability insurance policies that have not yet been settled, reserves are established overall in an amount based on past experience. Reserves for losses incurred but not yet reported are established for insured events occurring after the general estimate is made and before 31 December through estimation of the amounts at risk on the basis of the individual claims, i.e. essentially the difference between benefits to be paid and available cover. General reserves in an amount based on past experience are established for mortalities occurring during the financial year but not reported. In the area of health insurance, reserves for unpaid claims are estimated with the help of a statistical approximation method. The estimate is based on the percentage of claims incurred as of the reporting date and settled as of the date of establishment of the reserves and a factor derived from experience in the past three financial years. Separate estimates are made for the previous year and earlier financial years.

Other underwriting reserves

Other underwriting reserves mainly include reserves for premium refunds. Reserves for premium refunds in the area of life and health insurance set aside all amounts to be used for payment of bonuses to policyholders in compliance with national or regulatory requirements, legal provisions or contractual conditions. Reserves for premium refunds, including deferred premium refunds, comply with the definition of discretionary participation features pursuant to IFRS 4. The Minimum Premium Refund Ordinance (MindZV) has to be applied in life insurance. Based on this, policyholders participate in the result sources of investment result, risk income and other income with 90%, 75% or 50%, respectively, when the respective results are positive. It can be estimated that based on this ordinance the minimum participation of the policyholders in the total surpluses continues to be approx. 90% on average. Discretionary payments of bonuses that are not already included in the policy reserves are carried as liabilities under reserves for premium refunds and liabilities from direct written insurance business.

108

Gothaer Group Annual Report 2012

Consolidated Financial Statements

In the case of health insurance modelled on life insurance, the German Ordinance on the Determination and Distribution of Interest and Profit in Health Insurance (ÜbschV) requires that 80% of profit determined in accordance with section 4(1) ÜbschV be transferred to reserves for performance-related premium refunds, whereby the minimum amount transferred is to be reduced by the surplus interest already credited pursuant to section 12a(1) of the German Insurance Supervision Act (VAG). In the case of private compulsory long-term care insurance, 80% of profit determined in accordance with section 4(1a) ÜbschV is to be transferred to reserves for performancerelated premium refunds, whereby the minimum amount transferred is to be reduced by the amount transferred to non-performance-related premium refunds for group insurance contracts. In addition to performance-related premium refunds, non-performance-related premium refunds also exist that result in particular from amounts from the area of contractual premium refunds and section 12a(3) VAG. Reserves are also established pursuant to sections 12(4a) VAG (legal supplement) and 12a(2) VAG in the case of health insurance. These reserves are used to permit lower premiums in the future and are therefore included as a component of reserves for premium refunds. In the event of changes in the value of the assets or liabilities of life and health insurers as a result of differences between the German Commercial Code (HGB) and IFRS, such differences are taken into account in the reserve for deferred premium refunds in an amount estimated to be due to policyholders upon realization. The assumptions made for estimates in policyholder profit-sharing models have changed, notably due to sustained changes in interest rate conditions and increased solvency requirements for insurance companies. In the financial year 2012, this resulted in an adjustment of the rate used to determine the deferred reserve for premium refunds in life insurance. In determining the deferred reserve for premium refunds, a distinction is also made between health tariffs that are calculated along the lines of life insurance and those modelled on non-life insurance. The adjustments are made prospectively. The impact on profit amounted to €8.4 million in the financial year 2012. Because future revaluation difference and production results are not known, the impacts of these changes on future years are not quantifiable. Provisions for contingent losses are established for some insurance portfolios in property/casualty following the premium deficiency test. Equalization reserves established pursuant to the provisions of HGB are not considered liabilities and are therefore not permissible under IAS 37.

Gothaer Group Annual Report 2012

109

Consolidated Financial Statements

Application of IFRS 4 requires regular assessment of the adequacy of insurance liabilities Adequacy of underwriting reserves (liability adequacy test). In the area of property/casualty insurance, a so-called premium deficiency test is conducted pursuant to Topic 944 (formerly SFAS 60) to establish whether future premiums and the corresponding investment result of the relevant insurance portfolio are expected to cover the anticipated claims and costs. If it emerges that future income will not cover the anticipated expenses, the reversal of deferred acquisition costs needs to be followed by the establishment of a provision for contingent losses calculated at the level of the line of insurance. The adequacy of life insurance underwriting reserves is assessed pursuant to Topic 944 (formerly SFAS 60) by means of what is referred to as loss recognition test. This involves estimation of future cash flows, taking into account realistic estimates of mortality and other decrement probabilities as well as expense ratios. The cash flows are discounted at a rate commensurate with current interest expectations. The results of the loss recognition test show that reserves and future revenues estimated on the basis of realistic assumptions currently suffice to cover all contractual obligations. The margins of safety included in the underlying assumptions for health insurance underwriting reserves are sufficiently high. In addition, the appropriateness of the reserves was assessed and verified by loss recognition testing.

Underwriting reserves for unit-linked life insurance In addition to policy reserves, other underwriting reserves are also established here for liabilities in connection with life insurance policies that transfer investment risk to policyholders or provide index-linked benefits Pursuant to Topic 944 (formerly SFAS 97), the amount stated for gross policy reserves is the same as the amount stated for investments held for unit-linked life insurance policies. Investments assigned to unit-linked life insurance are carried separately from those of the Group. In this case unrealized gains and losses result in an increase or decrease in the corresponding reserves. All gains on these investments accrue to policyholders, as do all losses.

110

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Provisions for pension benefits and similar obligations Group companies for the most part use defined-benefit plans to provide pension benefits. Defined-benefit pension plans are accounted for pursuant to IAS 19 using the projected unit credit method and taking into account actuarial parameters. Calculation is based on the use of current mortality tables, disability and fluctuation probability, assumptions on increases in remuneration and annuities and a realistic discount rate. Actuarial gains and losses result from differences between actual obligations and benefits paid and obligations and benefits anticipated based on actuarial assumptions as well as from changes in actuarial assumptions. Actuarial gains and losses are accounted for using the corridor method pursuant to IAS 19.92.

Other accruals Other accruals and provisions are capitalized for current legal or de facto obligations towards third parties arising from past events. Assigned values are based on the best estimate of payments needed to meet the relevant obligation. Long-term accruals and provisions are discounted if the interest effect is significant.

Liabilities This item includes participation certificates, subordinate liabilities, bonds and loans, deposits received from reinsurers and other liabilities. These liabilities are all recognized at repayable amounts or amortized cost. Investments held for trading with a negative fair value are also shown under this item.

Premiums Earned premiums do not contain those components of premiums that may be recognized in the statement of income only after the reporting date. In property/casualty insurance, premiums are essentially booked as income on a day-by-day basis over the term of the insurance contract. Unearned premiums are calculated and deferred for each individual contract. Premium income from short-term accident and health insurance contracts is recorded on a pro rata basis over the term of each contract. In classical life insurance and in long-term accident and health insurance contracts, premiums are booked as earned when due. At the same time, reserves for anticipated benefits are formed to spread profits over the term of the contracts. In the Life and Health segment, written premiums include premiums from the reserve for premium refunds as well as the direct credit. In the case of life insurance products that primarily cover assignment of financial risk or can be separated explicitly in insurance and savings components (e. g. unit-linked life policies), savings components are deducted from the gross premiums written because only income from the coverage of risks and costs may be recognized as earned premiums. In addition, a deduction is made from premiums to allow for a collective valuation allowance. This takes account of payment default risk based on past experience.

Gothaer Group Annual Report 2012

111

Consolidated Financial Statements

Currency translation The consolidated financial statements of the Gothaer Group are denominated in euros. The companies whose accounts are included in the consolidated financial statements essentially denominate their financial statements in euros. The balance sheet of our Polish and Romanian subsidiaries is translated by the functional currency method at the reporting date rate and the income statement at average rates in euros. Translation differences are recognized in equity in other reserves. In line with IAS 21, goodwill resulting from the acquisition of a foreign operation is treated as an asset of the foreign operation and translated at the reporting date rate. The translation differences resulting from this are recognized in other reserves. Since our business is concentrated in Germany, other currency translation is of insignificant importance for the Group. Monetary items in foreign currencies are translated at the exchange rate prevailing as of the reporting date. Non-monetary items in foreign currencies that are carried at historical cost are translated at the exchange rate prevailing at the time of acquisition. Nonmonetary items in foreign currencies that are carried at fair value are translated at the exchange rate at the time of valuation. Underwriting liabilities involving payment in foreign currencies are covered by funds in the same currency (congruent coverage) to the extent possible due to the difficulty of estimating such uncertain liabilities. Congruent coverage has no impact on further financial statements. Differences in connection with monetary financial instruments that result from translation of items in foreign currencies as of the reporting date at an exchange rate that differs from that used for first-time recognition are shown in the statement of income.

112

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Leasing agreements Intangible assets and tangible assets are used under operating leases. In the case of operating leases, assets are not recognized by the lessee since the lessor retains the related benefits and risks of ownership. Lease payments are recognized as expense in the financial year in which they occur. Finance lease contracts exist for motor vehicles. The assets used under finance lease contracts are capitalized by the lessee. In addition, future lease instalments are recognized as a liability.

Other information Due to the presentation of amounts in millions of euro, rounding differences may occur in tables. Comments on the information on insurance policies required under IFRS 4 as well as information on financial instruments required under IFRS 7 are provided in the risk report within the management report where they are not provided in the accounting policies and notes to the consolidated financial statements. Classification for the presentation of information required in IFRS 7 is based on the accounting categories contained in IAS 39. The information on capital management required by IAS 1.134f is provided in a separate section of the Management Report.

Gothaer Group Annual Report 2012

113

Consolidated Financial Statements

Notes to the Consolidated Statement of Financial Position – Assets [1] Goodwill

€million

Developments in the financial year

Gross as of 1 Jan. Accumulated amortization as of 1 Jan. Balance as of 1 Jan. Change in consolidated group Currency translation differences Balance as of 31 Dec. Accumulated amortization as of 31 Dec. Gross as of 31 Dec.

2012

2011

67.5 8.7 58.8

33.8 8.7 25.1

4.7 3.2

38.0 –4.3

66.7 8.7 75.4

58.8 8.7 67.5

Gothaer Asigurari Reasigurari S. A. was acquired in the financial year 2012. Goodwill accrued as a result.

€million

Breakdown by company

114

2012

2011

CG Car-Garantie Versicherungs-AG Gothaer Dritte Kapitalbeteiligungsgesellschaft mbH Gothaer Systems GmbH Gothaer Invest- und FinanzService GmbH Gothaer Finanzholding AG Gothaer Towarzystwo Ubezpiecze`n S. A. Gothaer Asigurari Reasiguari S. A.

13.2 0.2 5.9 2.5 3.3 36.8 4.7

13.2 0.2 5.9 2.5 3.3 33.7 0.0

Balance as of 31 Dec.

66.7

58.8

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Impairment test method

[2] Intangible assets

Model factors

Assumptions

Management approach

Mainly capitalized earnings value approach, in individual cases net asset value

Planning horizon

Detail planning over 3–5 years Extrapolation of past experience by detailed analysis

Future cash flows for detail planning

moderately rising revenues, depending on field of business moderately rising stock markets initially constant, then slowly rising interest rates

Extrapolation growth rates

0.5%– 2.5%

Discount rate

Cost of equity capital determined by capital asset pricing model Use of a peer group of international primary insurance companies 7.65%– 10.4%

€million

Developments in the financial year Internally generated

Gross as of 1 Jan. Accumulated amortization as of 1 Jan. Balance as of 1 Jan. Additions Change in consolidated group Disposals Currency translation differences Scheduled amortization Impairment Balance as of 31 Dec. Accumulated amortization as of 31 Dec. Gross as of 31 Dec.

Total

Purchased

2012

2011*

2012

2011*

2012

2011

291.6

278.9

272.6

224.9

564.1

503.8

159.1 132.4

143.9 135.0

217.6 55.0

206.0 18.9

376.7 187.4

349.8 153.9

7.1 0.0 0.0 0.0 19.3 0.0

10.9 0.0 –2.2 0.0 15.7 0.0

33.5 0.0 4.9 1.9 13.0 – 0.8

27.7 28.5 3.2 – 3.0 13.9 0.0

40.6 0.0 4.9 1.9 32.3 – 0.8

38.6 28.5 1.0 – 3.0 29.6 0.0

120.3

132.4

71.7

55.0

192.0

187.4

178.4 298.7

159.1 291.6

194.7 266.4

217.6 272.6

373.1 565.0

376.7 564.1

* Comparatives after restatement

Gothaer Group Annual Report 2012

115

Consolidated Financial Statements

[3] Self-occupied property/tangible assets

€million

Developments in the financial year Property self-occupied

Gross as of 1 Jan. Accumulated amortization as of 1 Jan. Balance as of 1 Jan. Additions Change in consolidated group Disposals Currency translation differences Scheduled amortization Balance as of 31 Dec. Accumulated amortization as of 31 Dec. Gross as of 31 Dec.

Total

Tangible assets

2012

2011

2012

2011

2012

2011

259.1

259.3

163.4

200.8

422.5

460.1

102.0 157.1

99.6 159.7

139.8 23.6

174.3 26.5

241.8 180.7

274.0 186.1

0.4 0.0 0.0 0.1 3.2

1.7 0.7 1.7 –0.1 3.2

7.0 0.3 0.1 0.2 7.7

8.6 0.6 3.8 – 0.1 8.0

7.4 0.3 0.1 0.2 10.9

10.3 1.3 5.5 – 0.2 11.2

154.4

157.1

23.3

23.6

177.6

180.7

105.2 259.6

102.0 259.1

131.2 154.5

139.8 163.4

236.5 414.1

241.8 422.5

The fair value of self-occupied property comes to €206.4 million (PY: €205.8 million). [4] Investment property

€million

Developments in the financial year

Gross as of 1 Jan. Accumulated amortization as of 1 Jan. Balance as of 1 Jan. Disposals Scheduled amortization Impairment Reversals Balance as of 31 Dec. Accumulated depreciation as of 31 Dec. Gross as of 31 Dec.

2012

2011

189.8 106.4 83.4

191.2 107.2 84.0

4.9 1.8 0.1 1.3

1.3 1.8 0.1 2.7

77.8 106.2 184.1

83.4 106.4 189.8

The fair value of investment property comes to €115.7 million (PY: €117.8 million). Operating expenses directly attributable to rented property, including repairs and maintenance, come to €2.9 million (PY: €2.6 million). For the rental income achieved, please refer to the current income from investment shown in table 26 (Investment result).

116

Gothaer Group Annual Report 2012

Consolidated Financial Statements

[5] Shares in affiliated and associated companies

Ten (PY: eleven) associated companies were carried at equity in the amount of €148.1 million (PY: €85.6 million). Any negative consolidation differences are amortized directly in the financial year in which they occur. In the financial year 2012, a negative consolidation difference occurred in the case of Aachener Bausparkasse AG because the company’s merger with HUK-Coburg-Bausparkasse AG resulted in increased pro rata equity. No passive consolidation differences occurred in the prior year. The fair value of the associated companies consolidated at equity totals €544.8 million (PY: €487.7 million). Four associated companies currently have limits on the funds they are allowed to transfer to the shareholder. Two companies are currently prohibited from distributing dividends and two companies can only pay dividends in line with the stipulations of the regulatory authority.

€million

Financial information* Assets

Consolidated

Liabilities

Sales revenues

Profit

2012

2011

2012

2011

2012

2011

2012

2011

853.7

522.3

660.3

394.7

144.2

154.4

20.4

33.9

* The most recent financial statement acc. to local GAAP

Gothaer Group Annual Report 2012

117

Consolidated Financial Statements

[6] Loans

€million

Breakdown by type of investment Amortized cost

Unrealized gains

Unrealized losses

Fair value

2012

2011

2012

2011*

2012

2011*

2012

2011*

298.7

330.2

28.8

23.2

0.5

1.2

327.0

352.2

Loans and advance payments on insurance policies

59.3

62.3

16.6

13.9

–0.1

0.1

76.0

76.1

Loans to affiliated companies

13.0

16.6

0.0

0.0

0.0

0.0

13.0

16.6

Loans to associated companies

37.1

33.5

0.0

0.0

0.0

0.0

37.1

33.5

Other loans

25.8

38.2

1.8

1.1

0.0

0.0

27.6

39.3

923.0

1,027.4

20.4

5.7

108.6

285.9

834.8

747.2

Registered bonds

1,649.2

1,937.2

194.6

120.1

1.3

27.8

1,842.5

2,029.4

Promissory notes

3,259.9

3,295.8

314.9

144.3

63.3

118.6

3,511.5

3,321.5

21.0

0.0

0.0

0.0

0.0

0.0

21.0

0.0

6,287.0

6,741.2

577.1

308.2

173.7

433.6

6,690.4

6,615.8

Mortgage loans

Bearer bonds

Other investments Total

* Comparatives after restatement

Loans to associated companies include €23.3 million (PY: €23.5 million) in loans to consolidated companies and €13.8 million (PY: €10.0 million) in loans to non-consolidated companies.

118

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Loans

€million

Breakdown by residual term Amortized cost

Fair value

2012

2011

2012

2011*

Up to 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years 5 to 10 years After 10 years

213.6 464.4 704.3 601.0 363.4 1,355.8 2,584.4

563.5 401.7 571.7 910.8 603.3 1,169.8 2,520.4

215.3 459.8 690.0 598.2 395.8 1,484.6 2,846.9

553.6 426.3 552.7 807.4 536.4 1,202.5 2,536.9

Total

6,287,0

6,741,2

6,690,4

6,615,8

* Comparatives after restatement

€million

Breakdown by rating category Amortized cost

Fair value

2012

2011

2012

2011*

AAA AA A BBB BB B CCC and lower Non-rated

1,956.5 1,303.4 783.1 1,345.0 590.7 59.6 125.1 123.4

2,525.1 1,467.2 672.9 1,344.4 376.7 108.9 105.6 140.3

2,135.2 1,503.5 885.1 1,381.6 537.6 57.0 64.9 125.6

2,662.2 1,537.6 661.6 1,221.7 272.6 72.7 45.7 141.6

Total

6,287.0

6,741.2

6,690.4

6,615.8

* Comparatives after restatement

€million

Impairment 2012

2011

Amortized cost before impairment Impairment Due to significant change in creditworthiness Due to significant decrease in fair value

53.9

75.7

1.6 15.0

0.8 17.6

Amortized cost after impairment

37.3

57.3

Gothaer Group Annual Report 2012

119

Consolidated Financial Statements

Reclassification in accordance with IAS 39.50

In 2008 financial instruments available for sale were reclassified as loans. These financial instruments had a carrying value, i. e. amortized costs of €795.5 million (PY: €863.3 million) at the end of the financial year and a fair value of €730.1 million (PY: €614.9 million).

€million

Change in fair value of reclassified investments

Without reclassification (shadow accounting) Unrealized gains and losses Realized gains and losses

[7] Investments available for sale

2012

2011

280.9 – 2.7

– 3.5 – 144.8

€million

Breakdown by type of investment Amortized cost

Unrealized gains

Unrealized losses

Fair value

2012

2011

2012

2011

2012

2011

2012

2011

Investmentfund

1,135.0

1,237.5

38.9

26.6

80.8

132.4

1,093.1

1,131.6

Shares in affiliated and associated companies

1,397.9

1,403.5

271.5

216.5

2.7

5.4

1,666.7

1,614.7

178.1

177.1

10.7

21.7

2.1

0.0

186.7

198.7

2,711.0

2,818.1

321.0

264.7

85.6

137.8

2,946.4

2,945.1

12,986.4 11,837.4

991.6

313.0

148.1

Non-fixed-income securities

Other Total Fixed-income securities Bearer bonds Registered bonds

19.3

23.4

1.6

1.1

0.0

0.0

20.8

24.6

Promissory notes

421.6

615.6

6.8

3.9

1.3

1.1

427.0

618.4

103.1

40.6

5.0

0.0

0.3

4.8

107.8

35.8

Total

13,530.3 12,517.1

1,004.9

318.0

149.7

628.7 14,385.5 12,206.4

Total

16,241.3 15,335.2

1,325.9

582.8

235.3

766.5 17,331.9 15,151.5

Other loans

120

622.9 13,829.8 11,527.6

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Affiliated and associated companies

€million

Financial information* Assets

Consolidated Investments available for sale

Liabilities

Sales revenues

Profit

2012

2011

2012

2011

2012

2011

2012

2011

21.6

25.4

27.6

33.7

60.2

98.3

– 0.5

– 1.2

* The most recent financial statements acc. to HGB

Investments available for sale

€million

Breakdown by residual term Amortized cost

Fixed-income securities

Up to 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years 5 to 10 years After 10 years Total

Fair value

2012

2011

2012

2011

896.8 882.5 1,217.3 968.3 1,187.1 4,930.7 3,447.6

611.7 1,030.6 1,079.8 1,316.0 1,209.1 4,817.3 2,452.5

901.4 901.5 1,261.5 1,036.3 1,259.9 5,335.5 3,689.4

609.3 1,021.3 1,078.1 1,266.3 1,233.1 4,671.0 2,327.2

13,530.3

12,517.1

14,385.5

12,206.4

€million

Breakdown by rating category Amortized cost

AAA AA A BBB BB B CCC and lower Non-rated Total

Gothaer Group Annual Report 2012

Fair value

2012

2011

2012

2011

3,124.9 2,097.4 3,555.8 3,211.6 700.7 169.8 28.4 641.8

4,123.4 1,838.3 3,032.6 1,680.9 910.8 200.2 47.0 683.8

3,459.2 2,280.0 3,798.1 3,336.4 648.9 178.6 15.1 669.2

4,214.9 1,857.3 2,959.7 1,560.3 723.5 186.1 30.8 673.7

13,530.3

12,517.1

14,385.5

12,206.4

121

Consolidated Financial Statements

Investments available for sale

€million

Impairment 2012

2011

Amortized cost before impairment Impairment Due to significant change in creditworthiness Due to significant decrease in fair value Due to permanent negative fair value reserve Due to repeated impairment of impaired investments

458.9

1,192.4

1.6 25.2 4.1 25.1

4.2 81.6 0.0 68.7

Amortized cost after impairment

402.9

1,037.9

Concentration of default risks is avoided through strict limits for all fixed-income securities imposed by the supervisory bodies of the Gothaer Group. In addition, the amounts and ratings of individual exposures are constantly monitored to permit timely identification of possible defaults. The effective interest rates on our fixed-income securities lie between 0.0% and 16.81%. The valuation categories loans and available for sale include financial instruments with variable coupons that are dependent upon market conditions or specific corporate events. [8] Investments measured at fair value through profit or loss

€million

Breakdown by type of investment Amortized cost

Held for trading Non-fixed-income Fixed-income By designation Non-fixed-income Fixed-income

Total

Fair value

2012

2011

2012

2011

0.0 0.0 0.0

0.0 0.0 0.0

120.4 0.1 120.4

46.8 0.4 47.3

34.5 91.6 126.2

16.8 0.0 16.8

34.5 95.1 129.6

18.6 0.0 18.6

126.2

16.8

250.1

65.8

The Gothaer Group does not use hedge accounting within the meaning of IAS 39. All derivative financial instruments are therefore shown under investments held for trading. Derivatives are financial instruments whose value changes as a function of the changes in one or more underlying variables. Derivative financial instruments are used within the Gothaer Group for purposes of performance management and protection of investment portfolios against falling prices. In particular, forward foreign exchange contracts are used to protect against exchange rate risks and interest swaps to protect against changes in interest rates. All derivative financial instruments are recognized based on conventional option, future or swap models. 122

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Derivative financial instrument

Valuation models Derivative

Pricing method

Parameters

Pricing model

Listed share options

Quoted price





Total return swaps

Theoretical price

Market value of reference instrument Yield curve

Cash value method

Yield swaps

Theoretical price

Swap curve Money market yield curve

Cash value method

Forward exchange transactions

Theoretical price

Spot rate Money market yield curve

Cash value method

Credit default swaps

Theoretical price

Credit spreads Recovery rates Yield curve

Cash value method

Embedded derivatives are separated from the host contracts and shown under investments held for trading. Hybrid financial instruments are generally fixed-income securities that have been combined with a derivative. All hybrid instruments are separated from their host contracts in compliance with the provisions of IAS 39.11(a) if their characteristics and risks are not closely related to those of the respective host contracts and they go beyond the interest risks of the respective host contracts. Host contracts are recognized as fixed-income securities at amortized cost under loans or investments held to maturity or alternatively at fair value under investments available for sale. Separation of derivatives from underlyings involves two categories of securities. The first category includes bonds with interest coupons and/or redemption linked to a reference instrument (e. g., stock indices or hedge funds). Such structures consist of a plain vanilla bond and a long call or a total return swap on the underlying reference asset. In the case of a total return swap, we assume that the yield of the plain vanilla bond is variable and in line with the market. The fluctuation in fair value is thus recognized through profit or loss at total return swap level. The second category includes separate recognition of credit-linked notes. In this case, the embedded credit default swap used to hedge the credit risk is shown separately. Since the year under review, hybrid bonds have no longer been separated into a plain vanilla bond maturing on the call date and a short put. Because of the absence of market parameters, the separation method produced economically illogical results.

Gothaer Group Annual Report 2012

123

Consolidated Financial Statements

In line with IFRIC 10, the by-designation category includes two private equity entities assigned because the expense associated with consolidation does not justify the additional benefit of the information it provides. In line with IAS 39.11A, structured products that require separation in special funds are recognized as financial instruments at fair value through profit or loss by designation. Derivative financial instruments with a negative fair value are shown in equity and liabilities under item E. – liabilities. The maximum credit risk of the investments recognized at fair value through profit or loss by designation amounts to €95.1 million. There are no credit derivatives that mitigate the credit risk of these financial instruments. The change results from an acquisition of securities. Investments measured at fair value through profit or loss

€million

Breakdown by residual term Held for trading

Fixed-income securities – held for trading Up to 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 Years 5 to 10 Years After 10 years

By designation

2012

2011

2012

2011

0.0 0.0 0.0 0.0 0.1 0.0 0.0

0.4 0.0 0.0 0.0 0.0 0.0 0.0

2.1 0.0 0.0 0.0 0.8 0.0 92.2

0.0 0.0 0.0 0.0 0.0 0.0 0.0

0.1

0.4

95.1

0.0

€million

Breakdown by rating category Held for trading

AAA AA A BBB BB B CCC and lower Non-rated

124

By designation

2012

2011

2012

2011

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1

0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.3

0.0 0.0 0.0 0.0 93.0 2.1 0.0 0.0

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

0.1

0.4

95.1

0.0

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Investments measured at fair value through profit or loss

€million

Valuation hierarchy Level 1 Quoted prices

Level 2 Valuation based on observed market data

Level 3 Valuation based on individual parameters

Total

2012

2012

2012

2012

Investments measured at fair value and recognized directly in equity Non-fixed-income Fixed-income

303.6 12,641.9

1,791.6 1,303.7

851.2 440.0

2,946.4 14,385.5

Investments measured at fair value through profit or loss Held for trading By designation

1.6 2.9

118.0 126.8

0.0 0.0

119.6 129.6

1,376.4

0.0

0.0

1,376.4

14,326.4

3,340.0

1,291.2

18,957.6

Investments held for unit-linked life insurance policies Total

€million

Valuation hierarchy Level 1 Quoted prices

Level 2 Valuation based on observed market data

Level 3 Valuation based on individual parameters

Total

2011

2011

2011

2011

Investments measured at fair value and recognized directly in equity Non-fixed-income Fixed-income

365.8 9,088.7

1,557.6 2,679.3

1,021.7 438.4

2,945.1 12,206.4

Investments measured at fair value through profit or loss Held for trading By designation

– 5.1 0.0

– 50.9 18.6

0.0 0.0

–56.0 18.6

1,198.5

0.0

0.0

1,198.5

10,647.9

4,204.6

1,460.0

16,312.5

Investments held for unit-linked life insurance policies Total * Comparatives after restatement

Gothaer Group Annual Report 2012

125

Consolidated Financial Statements

The valuation hierarchy also shows the investments measured at fair value through profit or loss, which have a negative fair value and are recognized accordingly under liabilities on the equity and liabilities side of the statement of financial position. In 2012, investments with a fair value of €153.2 million (PY: €620.5 million) were reclassified from Level 1 to Level 2. This was essentially due to a change of valuation method from mark-to-market to mark-to-model. In the financial year 2012, investments with a carrying value of €973.3 million (PY: €0.0 million) were reclassified from Level 2 to Level 1 because, on the one hand, markets were more liquid and, on the other, a different valuation method was used. Non-fixed-income investments categorized as available for sale were reclassified from Level 3 to Level 2 because the return of a liquid market was observed in the financial year. In some cases, a liquid market had ceased to exist, so there were also reclassifications from Level 2 to Level 3. Reconciliation of level 3 investments

€million

Developments in the financial year

Value as of 1 Jan. Change in value recognized through profit or loss Change in value recognized in equity Acquisitions Sales Transfer in Level 3 Transfer out Level 3 Value as of 31 Dec.

2012

2011

1,460.0

1,476.9

– 27.6 49.1 151.3 108.5 94.1 327.2

–17.5 37.6 334.7 234.4 195.9 333.2

1,291.2

1,460.0

Level 3 investments produced a net loss of €8.7 million (PY: €28.4 million)

126

Gothaer Group Annual Report 2012

Consolidated Financial Statements

[9] Other investments

€million

Breakdown by type of investment 2012

2011

Deposits with ceding undertakings Bank deposits Miscellaneousother

62.8 745.1 0.0

65.9 718.2 25.4

Total

807.9

809.5

€million

Breakdown by residual term Deposits with ceding undertakings

Bank deposits

Other investments

2012

2011

2012

2011

2012

2011

Up to 1 year 1 to 5 years After 5 years

61.6 0.0 1.2

64.6 0.0 1.3

744.6 0.5 0.0

717.6 0.6 0.0

0.0 0.0 0.0

4.7 20.7 0.0

Total

62.8

65.9

745.1

718.2

0.0

25.4

The carrying amount of other investments corresponds to the fair value. [10] Receivables

€million

Breakdown by type of receivable 2012

2011

146.6 86.6

118.0 97.1

Accounts receivable in connection with reinsurance business

52.6

66.8

Accounts receivable from affiliated and associated companies

6.2

5.8

Deferred interest and rent

400.8

375.9

Miscellaneous other

259.5

293.0

Total

952.3

956.5

Receivables from primary insurance business from policyholders from intermediaries

The carrying amount of receivables almost equals the fair value. As in the previous year, no prepayments were made in the financial year. There are no receivables from related parties.

Gothaer Group Annual Report 2012

127

Consolidated Financial Statements

€million

Breakdown by residual term

Up to 1 year 1 to 5 years After 5 years Total

2012

2011

949.9 39.8 57.0

1.002.5 34.6 59.4

1,046.7

1,096.5

In addition to the receivables shown under item E. receivables in the statement of financial position, other receivables include the tax refunds due in the amount of €94.4 million (PY: €140.0 million) that are shown under item J. I. of the statement of financial position. [11] Deferred acquisition costs (net)

€million

Breakdown by segment* Property/ Casualty**

Life

Health

Total

2012

2011

2012

2011

2012

2011

2012

2011

Balance 1 Jan. Gross Reinsurers’ share Net

71.8 13.0 58.8

63.4 19.4 44.0

784.7 28.4 756.3

809.0 39.0 770.1

172.4 0.0 172.4

166.1 1,028.9 1,038.5 0.0 41.4 58.3 166.1 987.5 980.2

New deferred acquisiton cost Gross Reinsurers’ share Net

57.5 10.0 47.5

48.6 2.4 46.2

64.1 0.7 63.4

61.0 0.6 60.4

21.2 0.0 21.2

28.3 0.0 28.3

142.8 10.7 132.1

138.0 3.1 134.9

Amortization Gross Reinsurers’ share Net

50.9 9.9 41.0

40.2 8.8 31.4

87.7 10.6 77.1

85.4 11.2 74.2

20.0 0.0 20.0

22.0 0.0 22.0

158.6 20.5 138.1

147.6 20.0 127.6

Balance 31 Dec. Gross Reinsurers’ share Net

78.5 13.1 65.3

71.8 13.0 58.8

761.1 18.5 742.6

784.7 28.4 756.3

173.5 0.0 173.5

172.4 1,013.1 1,028.9 0.0 31.6 41.4 172.4 981.5 987.5

* Figures based on full consolidation **Including insurance portfolio of Gothaer Finanzholding AG

128

Gothaer Group Annual Report 2012

Consolidated Financial Statements

[12] Tax assets

€million

Distribution by maturity

Corporation tax loss carryforwards can be carried forward up to 5 years can be carried forward indefinitely Trade tax loss carryforwards can be carried forward indefinitely

2012

2011

17.2 155.4 172.6

5.3 189.7 195.0

110.8 110.8

157.4 157.4

Deferred tax assets are based on the one hand on deferred taxes arising from tax loss carryforwards and on the other hand on lower carrying amounts for investments under IFRS than under the tax balance sheet and higher carrying amounts for provisions for pension benefits. In the current financial year, corporate income tax losses were considered not utilizable so that no deferred tax assets were recognized. [13] Other assets

€million

Breakdown by asset item 2012

2011

Inventories Miscellaneous assets

1.7 5.5

1.8 6.4

Total

7.2

8.2

Gothaer Group Annual Report 2012

129

Consolidated Financial Statements

Notes to the Consolidated Statement of Financial Position – Equity and Liabilities [14] Other reserves

€million

Breakdown by reserve item 2012

2011

Unrealized gains and losses on investments available for sale resulting from reclassification of investments

222.2 – 10.9

–8.0 – 14.9

Total

211.2

–22.9

Unrealized gains and losses on reclassified investments are recognized as a special reserve under other reserves. In the event of the disposal or impairment of an investment, the reserve is reversed in full. If the investment remains unchanged in the portfolio, the reserve is reversed by amortization over the residual term of the asset. Due to the application of the revised version of IAS 39 in 2005 and the new option of IAS 39.50 established in 2008, investments in the available-for-sale category were reassigned to the valuation category for loans. For information on capital management, please refer to the separate chapter in the Management Report. Unrealized gains and losses on investments available for sale

€million

Reconciliation

Gross amount

2012

2011

1,090.6

– 183.7

Less: Reserves for deferred premium refunds Deferred taxes Effects of consolidation

797.9 70.5 0.1

– 145.7 – 30.0 0.1

Summe

222.2

–8.0

Unrealized gains and losses include exchange rate differences of €1.0 million (PY: €–0.8 million) resulting from the recognition of securities quoted in foreign currencies. [15] Minority interests

Revenue reserves Other reserves Net profit for the year Total

130

€million

Breakdown by equity item 2012

2010

2.5 0.1 – 0.2

5.3 0.1 0.1

2.4

5.5

Gothaer Group Annual Report 2012

Consolidated Financial Statements

[16] Underwriting reserves

€million

Breakdown by type of underwriting reserve 2012

Gross

Re

Net

Unearned premiums Policy reserves Reserves for unpaid claims Other underwriting reserves Reserves for premium refunds Miscellaneous other underwriting reserves

472.8 18,648.5 2,429.7

75.6 1,204.2 454.5

397.2 17,444.3 1,975.2

2,815.7 16.3

0.1 – 3.6

2,815.5 20.0

Total

24,383.0

1,730.9

22,652.1

€million

Breakdown by type of underwriting reserve 2011

Gross

Re

Net

Unearned premiums Policy reserves Reserves for unpaid claims Other underwriting reserves Reserves for premium refunds Miscellaneous other underwriting reserves

452.9 18,260.4 2,360.8

66.0 1,238.4 439.2

387.0 17,022.0 1,921.5

1,583.3 10.1

0.1 – 5.2

1,583.2 15.3

Total

22,667.5

1,738.5

20,929.0

€million

Breakdown by type of underwriting reserve

Opening balance sheet 2011

Gross

Re

Net

Unearned premiums Policy reserves Reserves for unpaid claims Other underwriting reserves Reserves for premium refunds Miscellaneous other underwriting reserves

491.5 18,158.1 2,221.6

88.9 1,285.4 425.0

402.6 16,872.7 1,796.6

1,718.3 17.3

0.2 – 4.3

1,718.1 21.6

Total

22,606.8

1,795.2

20,811.6

Gothaer Group Annual Report 2012

131

Consolidated Financial Statements

Underwriting reserves – gross

€million

Maturities 2012

Unearned premiums Policy reserves Reserves for unpaid claims Other underwriting reserves Reserves for premium refunds Miscellaneous other underwriting reserves Total

1 year

1 to 5 years

More than 5 years

Without a fixed term

Total

418.4 803.7 880.6

54.1 3,187.2 621.3

0.3 9,110.1 830.4

0.0 5,547.5 97.5

472.8 18,648.5 2,429.7

44.5 15.3

128.7 1.0

0.0 0.0

2,642.5 0.0

2,815.7 16.3

2,162.5

3,992.2

9,940.8

8,287.4

24,383.0

€million

Maturities 2011

Unearned premiums Policy reserves Reserves for unpaid claims Other underwriting reserves Reserves for premium refunds Miscellaneous other underwriting reserves Total

1 year

1 to 5 years

More than 5 years

Without a fixed term

Total

397.5 859.3 844.9

55.4 3,084.6 602.6

0.1 9,094.0 815.6

0.0 5,222.4 97.6

452.9 18,260.4 2,360.8

54.2 9.1

92.0 1.0

0.0 0.0

1,437.1 0.0

1,583.3 10.1

2,165.1

3,835.6

9,909.7

6,757.1

22,667.5

€million

Maturities Opening balance sheet 2011

132

1 year

1 to 5 years

More than 5 years

Without a fixed term

Total

Unearned premiums Policy reserves Reserves for unpaid claims Other underwriting reserves Reserves for premium refunds Miscellaneous other underwriting reserves

375.6 1,116.4 823.9

115.9 2,800.0 547.5

0.0 9,311.4 764.4

0.0 4,930.3 85.8

491.5 18,158.1 2,221.6

49.8 15.5

70.6 1.8

0.0 0.0

1,597.9 0.0

1,718.3 17.3

Total

2,381.2

3,535.8

10,075.8

6,614.0

22,606.8

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Underwriting reserves – reinsurers’ share

€million

Maturities 2012 1 year

1 to 5 years

More than 5 years

Without a fixed term

Total

Unearned premiums Policy reserves Reserves for unpaid claims Other underwriting reserves Reserves for premium refunds Miscellaneous other underwriting reserves

55.7 81.9 157.0

19.8 316.3 130.6

0.1 673.4 122.7

0.0 132.5 44.3

75.6 1,204.2 454.5

0.1 – 3.6

0.0 0.0

0.0 0.0

0.0 0.0

0.1 – 3.6

Total

291.1

466.8

796.1

176.8

1,730.9

€million

Maturities 2011 1 year

1 to 5 years

More than 5 years

Without a fixed term

Total

Unearned premiums Policy reserves Reserves for unpaid claims Other underwriting reserves Reserves for premium refunds Miscellaneous other underwriting reserves

42.6 82.6 141.3

23.4 324.6 123.8

0.0 705.3 124.9

0.0 125.8 49.2

66.0 1,238.4 439.2

0.1 – 5.2

0.0 0.0

0.0 0.0

0.0 0.0

0.1 – 5.2

Total

261.4

471.8

830.2

175.0

1,738.5

Gothaer Group Annual Report 2012

133

Consolidated Financial Statements

[17] Unearned premiums

€million

Breakdown by segment* Property/Casualty** Life

Health

Total

2012

2011

2012

2011

2012

2011

2012

2011

Gross Reinsurers’ share

472.8

452.9

0.0

0.0

0.0

0.0

472.8

452.9

75.6

66.0

0.0

0.0

0.0

0.0

75.6

66.0

Net

397.2

386.9

0.0

0.0

0.0

0.0

397.2

387.0

* Figures based on full consolidation ** Including insurance portfolio of Gothaer Finanzholding AG

[18] Policy reserves

€million

Breakdown by segment* Property/Casualty** Life

2012

Gross Reinsurers’ share

49.8

Net

49.8

0.0

2011

Health

2011

2012

50.2 14,419.2 14,214.7

4,179.5

0.0

2012

Total

1,204.2

1,238.4

0.0

50.2 13,215.0 12,976.3

4,179.5

2011

2012

2011

3,995.5 18,648.5 18,260.4 0.0

1,204.2

1,238.4

3,995.5 17,444.3 17,022.0

* Figures based on full consolidation ** Including insurance portfolio of Gothaer Finanzholding AG

Life insurance policy reserves

€million

Developments in the financial year 2012

Balance as of 1 Jan. Allocations Amount used Balance as of 31 Dec.

134

2011

Gross

Re

Net

Gross

Re

Net

14,214.7

1,238.4

12,976.3

14,320.8

1,285.4

13,035.5

392.1 187.6

0.7 34.9

391.4 152.7

1,286.7 1,392.9

0.4 47.4

1,286.3 1,345.4

14,419.2

1,204.2

13,215.0

14,214.7

1,238.4

12,976.3

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Health insurance policy reserves

€million

Developments in the financial year 2012

Balance as of 1 Jan.

Gross

Re

Net

Gross

Re

Net

3,995.5

0.0

3,995.5

3,786.4

0.0

3,786.4

184.0

0.0

184.0

209.1

0.0

209.1

4,179.5

0.0

4,179.5

3,995.5

0.0

3,995.5

Allocations Balance as of 31 Dec.

[19] Reserves for unpaid claims

2011

€million

Breakdown by segment* Property/ Casualty** 2012

Life

Health

Total

2011

2012

2011

2012

2011

Gross Reinsurers’ share

2,191.1 2,128.2

57.3

53.7

181.3

178.9 2,429.7 2,360.8

436.7

0.7

1.3

0.6

Net

1,737.9 1,691.4

56.6

52.4

180.7

453.2

1.2

2012

454.5

2011

439.2

177.7 1,975.2 1,921.5

* Figures based on full consolidation ** Including insurance portfolio of Gothaer Finanzholding AG

Reserves for unpaid property/casualty insurance claims

€million

Developments in the financial year 2012

2011

Balance as of 1 Jan. Gross Reinsurers’ share Net

2,128.2 436.7 1,691.4

2,012.5 423.3 1,589.2

Plus losses incurred (net) Financial year Previous year Total

1,091.3 – 102.4 989.0

1,076.1 – 85.5 990.5

558.2 398.0 956.2

613.1 328.1 941.2

5.1 0.4 8.2

– 6.6 55.7 3.8

1,737.9 453.2 2,191.1

1,691.4 436.7 2,128.2

Less claims paid (net) Financial year Previous year Total Currency translation Additions from first-time consolidation Other changes Balance as of 31 Dec. Netto Reinsurers’ share Gross

Gothaer Group Annual Report 2012

135

Consolidated Financial Statements

Gross reserves for unpaid claims of Gothaer Allgemeine Versicherung AG (primary business)

136

€million

Run-off Financial year

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2003 Reserves 1 Jan. Payments Reserves 31 Dec. Run-off

— 449.5 407.4 —

407.4 204.0 171.3 32.0

171.3 58.3 122.3 – 9.3

122.3 23.9 92.7 5.7

92.7 13.3 80.6 – 1.2

81.7 7.5 67.0 7.2

67.0 13.0 54.7 – 0.6

54.7 7.1 47.1 0.4

47.1 9.2 43.5 –5.5

43.5 4.7 38.7 0.1

2004 Reserves 1 Jan. Payments Reserves 31 Dec. Run-off

— — — —

— 433.5 399.9 —

399.9 196.5 170.8 32.6

170.8 52.8 116.0 2.0

116.0 24.0 93.0 – 0.9

93.0 13.5 79.3 0.2

79.3 10.2 66.2 2.9

66.2 11.0 59.5 – 4.2

59.5 10.2 53.6 –4.3

53.6 6.8 49.4 – 2.6

2005 Reserves 1 Jan. Payments Reserves 31 Dec. Run-off

— — — —

— — — —

— 403.9 385.1 —

385.1 171.2 209.8 53.6 171.2 128.7 4.1 – 11.1

128.7 24.0 84.9 19.8

84.9 10.3 70.8 3.8

70.8 10.5 57.5 2.7

57.5 6.5 51.5 –0.5

51.5 5.8 47.0 – 1.3

2006 Reserves 1 Jan. Payments Reserves 31 Dec. Run-off

— — — —

— — — —

— — — —

— 396.8 406.4 —

406.4 168.5 218.5 58.6 168.5 125.7 19.3 – 15.8

125.7 25.6 95.7 4.4

95.7 20.1 76.0 – 0.4

76.0 11.1 66.5 –1.5

66.5 6.2 53.1 7.2

2007 Reserves 1 Jan. Payments Reserves 31 Dec. Run-off

— — — —

— — — —

— — — —

— — — —

— 469.1 421.1 —

421.1 206.8 188.1 26.3

188.1 56.7 118.5 12.8

118.5 29.1 86.2 3.2

86.2 13.8 72.7 –0.2

72.7 7.2 63.9 1.6

2008 Reserves 1 Jan. Payments Reserves 31 Dec. Run-off

— — — —

— — — —

— — — —

— — — —

— — — —

— 431.3 447.1 —

447.1 215.2 198.3 33.6

198.3 58.9 121.7 17.7

121.7 25.0 95.3 1.3

95.3 16.3 74.1 5.0

2009 Reserves 1 Jan. Payments Reserves 31 Dec. Run-off

— — — —

— — — —

— — — —

— — — —

— — — —

— — — —

— 402.1 440.0 —

440.0 221.2 181.2 37.6

181.2 61.2 126.5 –6.5

126.5 26.5 89.8 10.1

2010 Reserves 1 Jan. Payments Reserves 31 Dec. Run-off

— — — —

— — — —

— — — —

— — — —

— — — —

— — — —

— — — —

— 430.7 461.2 —

461.2 240.9 198.4 21.9

198.4 67.7 123.7 7.1

2011 Reserves 1 Jan. Payments Reserves 31 Dec. Run-off

— — — —

— — — —

— — — —

— — — —

— — — —

— — — —

— — — —

— — — —

— 411.5 457.4 —

457.4 235.7 196.0 25.6

2012 Reserves 1 Jan. Payments Reserves 31 Dec. Run-off

— — — —

— — — —

— — — —

— — — —

— — — —

— — — —

— — — —

— — — —

— — — —

— 426.7 490.1 —

Gothaer Group Annual Report 2012

Consolidated Financial Statements

[20] Other underwriting reserves

2012

Gross

Other underwriting reserves (net)

€million

Breakdown by type of reserve

Reserve for premium refunds Miscellaneous others

2,815.7

Total

2,832.0

16.3

Opening balance sheet 2011

2011

Re

Net

Gross

0.1 2,815.5 1,583.3 –3.6

20.0

10.1

–3.5 2,835.5 1,593.4

Re

Net

Gross

0.1 1,583.2 1,718.3 –5.2

15.3

17.3

–5.1 1,598.5 1,735.6

Re

Net

0.2 1,718.0 –4.3

21.7

–4.1 1,739.7

€million

Breakdown by segment* 2012 Property/ Casualty**

Life

Health

Total

Reserve for premium refunds Miscellaneous other

6.6 15.6

1,598.5 4.4

1,210.4 0.0

2.815.5 20.0

Total

22.2

1,602.9

1,210.4

2.835.5

€million

Breakdown by segment* 2011 Property/ Casualty**

Life

Health

Total

Reserve for premium refunds Miscellaneous other

11.3 12.0

758.3 3.3

813.6 0.0

1,583.2 15.3

Total

23.3

761.5

813.6

1,598.5

€million

Breakdown by segment* Opening balance sheet 2011 Property/ Casualty**

Life

Health

Total

Reserve for premium refunds Miscellaneous other

11.8 17.8

914.2 3.8

792.0 0.0

1,718.0 21.7

Total

29.6

918.0

792.0

1,739.7

* Figures based on full consolidation ** Including insurance portfolio of Gothaer Finanzholding AG

Gothaer Group Annual Report 2012

137

Consolidated Financial Statements

Reserve for premium refunds (bonus reserve) includes on the one hand the performancerelated and non-performance-related amounts credited to policyholders in compliance with national or regulatory requirements, legal provisions or contractual conditions; on the other hand, it also includes the deferred premium refunds that result for life and health insurance companies from differences in the value of assets and liabilities between the German Commercial Code (HGB) and IFRS. In accounting for deferred premium refunds, care is taken to ensure that they are no less – at each legal entity – than the appropriated reserves for premium refunds. Reserves for life insurance premium refunds

Amounts transferred pursuant to national requirements (gross) Balance as of 1 Jan. Allocations Amount used Balance as of 31 Dec. Deferred premium refunds Balance as of 1 Jan. Change in unrealized gains and losses on investments available for sale Other changes Balance as of 31 Dec. Gross Reinsurers’ share Net

Reserves for health insurance premium refunds

2012

2011

Opening balancesheet 2011

691.5 88.7 121.2 659.0

672.5 123.4 104.4 691.5

653.7 120.0 101.2 672.5

66.7

241.7

335.4

697.7 175.0 939.5

– 137.1 – 37.8 66.7

– 69.1 –24.6 241.7

1,598.5 0.0 1,598.5

758.3 0.0 758.3

914.2 0.0 914.2

€million

Developments in the financial year

Amounts transferred pursuant to national requirements (gross) Balance as of 1 Jan. Allocations Inanspruchnahme Reversals Balance as of 31 Dec. Deferred premium refunds Balance as of 1 Jan. Change in unrealized gains and losses on investments available for sale Other changes Balance as of 31 Dec. Gross Reinsurers’ share Net

138

€million

Developments in the financial year

2012

2011

732.7 162.7 41.6 0.2 853.6

646.9 123.7 37.8 0.2 732.7

80.9

145.0

245.8 30.1 356.8

– 59.1 – 5.1 80.9

1,210.4 0.0 1,210.4

813.6 0.0 813.6

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Reserves for property/casualty insurance premium refunds

€million

Developments in the financial year

Amounts transferred pursuant to national requirements (gross) Balance as of 1 Jan. Allocations Amount used Reversals Balance as of 31 Dec. Gross Reinsurers’ share Net

2012

2011

11.4 7.8 1.2 11.2 6.8

12.1 1.7 1.2 1.1 11.4

6.8 0.1 6.6

11.4 0.1 11.3

[21] Provisions for pension benefits and similar obligations

The companies of the Gothaer Group provide pension benefits for their employees and insurance agents. Both defined benefit and defined contribution plans are used. Total obligations arising from provisions for pension benefits came to €331.5 million in the financial year (PY: €319.6 million).

Defined benefit plans

In case of defined benefit plans, beneficiaries are promised specific benefits through the company or a pension scheme. The contributions of the company are not fixed in advance. Pension schemes are pension funds and benefit associations and societies that insure mainly employees of domestic enterprises. Defined benefit plans are based on the use of actuarial estimates and assumptions.

Actuarial assumptions

The basic biometric values for both years are based on the Prof. Dr. Heubeck 2005 G Mortality Tables. Anticipated yields are mostly at the level of anticipated bonuses for Gothaer Lebensversicherung AG’s life insurance policies.

Parameters

Discount rate Expected rate of return on plan assets Expected salary increase Expected increase of pensions Expected average remaining working lifetime (in years) Fluctuation probability

Gothaer Group Annual Report 2012

2012

2011

3.60 % 4.50 % 2.20 % 1.80 % 1–14 6.00 % to age 35 3.00 % to age 45 1.00 % to age 60

4.85 % – 4.90 % 4.00 % – 4.50 % 2.50 % 1.90 % – 2.00 % 0– 15 6.00 % to age 35 3.00 % to age 45

139

Consolidated Financial Statements

The present value of provisions for pension benefits as of 31 December 2012 represents total estimated obligations as of that time less plan assets and unrecognized actuarial gains or losses. The individual steps involved in calculation are presented below in tabular form. Defined benefit obligations (DBO)

€million

Developments in the financial year 2012

2011

Present value of defined benefit obligations as of 1 Jan. Current service cost including interest Interest cost New actuarial gains (–)/ losses on liabilities Pension benefits paid from plan assets Pension benefits paid by employer Transfers in Transfers out

689.8 10.9 33.0

685.7 10.4 32.8

118.3 –16.2 –14.1 4.6 – 4.6

– 8.7 –15.7 –13.9 96.3 – 97.1

Present value of defined benefit obligations as of 31 Dec.

821.9

689.8

Capital cover comes to 47.0% (PY: 54.2%). Plan assets

€million

Developments in the financial year 2012

2011

Plan assets as of 1 Jan. Expected return on plan assets Actuarial gains/losses (–) on plan assets Employer contributions to plan assets Pension benefits paid from plan assets transfers in/out

373.8 14.7

364.9 16.2

10.8 6.0 –16.2 – 2.4

2.6 5.8 –15.7 0.0

Plan assets as of 31 Dec.

386.6

373.8

Reinsurance and direct insurance account for 5.3% (PY: 5.2%) of plan assets, and assets of the pension funds for 94.7% (PY: 94.8%).

140

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Actuarial gains/losses

Provisions for pension benefits

2012

2011

– 3.3

8.3

Unrecognized gains (–)/losses as of 1 Jan. Actuarial gains (–)/ losses on liabilities as of 31 Dec. Actuarial gains/losses (–) on plan assets as of 31 Dec. Amortization of actuarial gains/losses (–)

118.3

–8.7

– 10.8 – 0.4

– 2.6 – 0.3

Unrecognized gains (–)/losses as of 31 Dec.

103.8

–3.3

€million

Developments in the financial year

Present value of defined benefit obligations as of 31 Dec. Plan assets as of 31 Dec. Net obligations as of 31 Dec. Unrecognized actuarial gains/ losses (–) as of 31 Dec. Unrecognized past service costs as of 31 Dec. Provisions for pension benefits as of 31 Dec.

Expected defined benefit obligations (DBO)

€million

Developments in the financial year

2012

2011

821.9 – 386.6 435.3

689.8 – 373.8 316.1

–103.8 0.0

3.3 0.0

331.5

319.5

€million

Developments in the financial year 2012

2011

Present value of defined benefit obligations as of 1 Jan. Current service cost including interest Interest cost Transfers in Transfers out Pension benefits paid

689.8 10.9 33.0 4.6 – 4.6 –33.8

685.7 10.4 32.8 96.3 – 97.1 –33.1

Expected defined benefit obligations as of 31 Dec.

699.9

695.0

Gothaer Group Annual Report 2012

141

Consolidated Financial Statements

Actuarial gains/losses on liabilities

€million

Developments in the financial year 2012

2011

Present value of defined benefit obligations as of 31 Dec. Expected defined benefit obligations as of 31 Dec. Actual payments of pension benefits Expected payments of pension benefits

821.9 699.9 –30.1 –33.8

689.8 695.0 – 29.6 –33.1

Actuarial gains (–)/ losses on liabilities as of 31 Dec.

118.3

–8.7

Expected plain assets

€million

Developments in the financial year

Actuarial gains/losses on plan assets

2012

2011

Plan assets as of 1 Jan. Expected return on plan assets Expected employer contributions to plan assets Expected pension benefits paid from plan assets transfers in/ out (–)

373.8 14.7 5.7 –17.2 – 2.4

364.9 16.2 6.3 –17.0 0.0

Expected plan assets as of 31 Dec.

374.5

370.3

Plan assets as of 31 Dec. Expected plan assets as of 31 Dec. Actual employer contributions to plan assets Actual pension benefits paid from plan assets Expected employer contributions to plan assets Expected pension benefits paid from plan assets Actuarial gains/losses (–) on plan assets as of 31 Dec.

142

€million

Developments in the financial year 2012

2011

386.6 374.5 – 6.0 16.2 – 5.7 17.2

373.8 370.3 – 5.8 15.7 – 6.3 17.0

10.8

2.6

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Pension costs

€million

Breakdown by type of expense

Current service cost including interest Interest cost Expected return on plan assets Amortization of actuarial gains (–)/losses Amortization of past service cost of plan amendments For vested benefits For non-vested benefits Pension costs

Provisions for pension benefits

2012

2011

10.9 33.0 – 14.7 0.4

10.4 32.8 – 16.2 0.3

0.0 0.0

0.0 0.0

29.6

27.3

€million

Developments in the financial year 2012

2011

Provisions for pension benefits as of 1 Jan. Pension cost for financial year Transfers in/out DBO Transfers in/out assets Actual pension benefits paid by employer Actual employer contributions to plan assets

319.5 29.6 0.0 2.4 – 14.1 – 6.0

312.5 27.3 – 0.7 0.0 – 13.9 – 5.8

Provisions for pension benefits as of 31 Dec.

331.4

319.5

Expected income from plan assets came to €14.7 million (PY: €16.2 million) and actual income from plan assets to €23.1 million (PY: €18.8 million). Plan assets are invested exclusively in fixed-income securities.

Amortization amount

€million

Information

Present value of defined benefit obligations as of 31 Dec. Plan assets as of 31 Dec. Unrecognized cost of plan amendments for financial year Provisions for pension benefits as of 31 Dec. Unrecognized gains (–)/losses as of 31 Dec. Corridor pursuant to IAS 19.92 Gains (–)/losses outside of corridor Amortization for subsequent years Amortization period in years

Gothaer Group Annual Report 2012

2012

2011

821.9 386.6 0.0 331.3 103.8 82.2 39.1 7.1 1–14

689.8 373.8 0.0 319.5 – 3.3 69.4 4.3 0.4 0–15

143

Consolidated Financial Statements

The estimate of provisions for pension benefits as of 31 December 2013 which is required for compliance with IAS19, is based on the following assumptions about the volume of anticipated pension costs as well as the future amortization payable. Expected pension costs

Current service cost including interest Interest cost Expected return on plan assets Amortization of actuarial gains (–)/losses Expected pension costs

Expected provisions for pension benefits

Defined contribution pension plans

€million

Breakdown by type of expense 2013

2012

13.5 29.0 – 17.1 7.1

10.9 33.0 – 14.7 0.4

32.4

29.6

€million

Developments 2013

2012

Provisions for pension benefits as of 1 Jan. Expected pension cost Expected pension benefits paid by employer Expected employer contributions to plan assets

331.3 32.4 –17.1 – 5.9

319.5 29.6 – 16.6 – 5.7

Expected provisions for pension benefits as of 31 Dec.

340.7

326.8

€million

Breakdown by type of plan 2012

2011

Pension benefit plans by the use of deferred compensation Direct insurance paid by employer Direct insurance paid by employees Lump-sum taxes

0.6 0.1 0.2 0.1

0.7 0.1 0.2 0.1

Total

0.9

0.9

Defined contribution pension plans involve either direct commitments or direct insurance. In this case, predetermined amounts are paid, for example, as a function of compensation, and the rights of the recipient exist in the form of a pledge or title against an insurance company and the obligation of the employer is fulfilled upon payment of premiums.

144

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Defined benefit obligations, plan assets and experience-based adjustments in chronological comparison

€million

Other information

Present value of defined benefit obligation as of 31 Dec. amount of unfunded defined benefit obligations amount of wholly or partly funded defined benefit obligations Fair value of plan assets as of 31 Dec. Net obligations as of 31 Dec. Experience adjustments of plan liabilities based on inventory change assumption change plan assets

[22] Other accruals

2012

2011

2010

2009

2008

2007

821.9

689.8

685.7

643.9

610.4

617.3

323.1

318.2

317.5

299.0

283.5

294.7

498.7 386.6 435.3

371.6 373.8 316.1

368.2 364.9 320.8

344.9 351.0 293.0

326.9 344.9 265.5

323.8 332.2 285.1

– 2.4 –119.5 12.1

5.1 0.1 3.5

9.5 –40.4 7.9

1.1 –21.8 0.5

–12.1 31.2 8.0

14.1 32.5 3.8

€million

Developments in the financial year 2012 Accruals for

Jubilee obligations

Part-time preretirement

Social plan

Litigation

Miscellaneous others

20.8

46.6

1.5

38.5

36.3

0.0 0.2 0.7

0.0 3.8 0.1

0.3 0.2 0.1

12.3 0.7 4.0

15.4 8.8 31.0

21.3

43.0

1.0

29.4

43.1

Balance as of 1 Jan Amount used Reversals Allocations Balance as of 31 Dec.

€million

Developments in the previous year 2011 Accruals for

Balance as of 1 Jan Amount used Reversals Allocations Balance as of 31 Dec.

Gothaer Group Annual Report 2012

Jubilee obligations

Part-time preretirement

Social plan

Litigation

Miscellaneous others

20.7

46.5

3.0

33.3

16.3

0.3 0.3 0.7

0.0 1.6 1.7

0.7 0.9 0.1

5.3 2.2 12.6

3.9 1.5 25.4

20.8

46.6

1.5

38.5

36.3

145

Consolidated Financial Statements

Other accruals

€million

Breakdown by type of reserve and maturity 2012 Up to 1 year

1 to 5 years

After 5 years

Total

Jubilee obligations Part-time pre-retirement Social plan Litigation Miscellane-ous others

1.5 2.2 0.3 29.4 39.6

8.3 30.2 0.6 0.0 3.3

11.4 10.6 0.1 0.0 0.3

21.3 43.0 1.0 29.4 43.1

Total

73.1

42.5

22.3

137.9

€million

Breakdown by type of reserve and maturity 2011 bis zu 1 Jahr

1 bis 5 Jahre

länger als 5 Jahre

Gesamt

Jubilee obligations Part-time pre-retirement Social plan Litigation Miscellane-ous others

1.6 2.0 0.4 38.5 33.1

6.9 29.3 1.0 0.0 2.9

12.3 15.3 0.1 0.0 0.3

20.8 46.6 1.5 38.5 36.3

Total

75.5

40.2

28.0

143.6

The interest cost of continued discounting was €0.0 million (PY: €2.5 million). While uncertainty about both the extent and maturity of the anticipated obligation is relatively low in the case of accruals for jubilee obligations, the remaining accruals are marked by a higher degree of uncertainty.

146

Gothaer Group Annual Report 2012

Consolidated Financial Statements

[23] Liabilities

€million

Breakdown by type of liability

Participation certificates Subordinate liabilities Bonds and loans Other liabilities Deposits received from reinsurers Liabilities in connection with primary insurance business towards policyholders towards intermediaries Liabilities in connection with reinsurance business Liabilities toward affiliated and associated companies Sundry Total

2012

2011

20.0 281.9 162.7

35.0 314.3 162.5

1,273.1

1,297.7

662.7 37.2 52.2 2.8 183.6

706.7 37.4 49.0 5.6 269.0

2,676.2

2,877.2

The liabilities in connection with primary insurance business mainly include accumulated interest-bearing surpluses and premium deposits from life insurance. Aside from derivative financial instruments with negative fair values, sundry liabilities include social security liabilities, trade payables and miscellaneous other liabilities. The interest payable on participation certificates and subordinate liabilities as well as bonds and loans is recognized separately in the statement of income as financing expenses and amounted to €23.4 million in the financial year (PY: €22.8 million). Participation certificates had a fair value of €25.3 million (PY: €38.7 million) and subordinate liabilities a fair value of €283.8 million (PY: €266.4 million). The fair value of the remaining liabilities was virtually equal to the balance sheet value.

Gothaer Group Annual Report 2012

147

Consolidated Financial Statements

Liabilities

€million

Breakdown by residual term 2012 Up to 1 year

1 to 5 years

After 5 years

Without a fixed term

Total

Participation certificates Subordinate liabilities Bonds and loans Derivatives with negative fair value Miscellaneous other liabilities

0.0 0.0 7.7 0.0 889.5

0.0 18.3 90.0 0.3 21.0

20.0 263.6 65.0 0.0 1,330.0

0.0 0.0 0.0 0.5 0.0

20.0 281.9 162.7 0.8 2,240.5

Total

897.2

129.6

1,678.6

0.5

2,705.9

€million

Breakdown by residual term 2011 Up to 1 year

1 to 5 years

After 5 years

Without a fixed term

Total

Participation certificates Subordinate liabilities Bonds and loans Derivatives with negative fair value Miscellaneous other liabilities

15.0 0.0 7.5 0.2 877.6

0.0 3.4 90.0 0.2 26.2

20.0 311.0 65.0 0.0 1,396.5

0.0 0.0 0.0 102.9 0.0

35.0 314.3 162.5 103.3 2,300.2

Total

900.3

119.7

1,792.5

102.9

2,915.3

The presentation of miscellaneous other liabilities according to maturities includes tax liabilities in the amount of €29.7 million (PY: €38.1 million) that are shown under item F.I. on the face of the statement of financial position. The derivative financial instruments with negative fair values included in other liabilities are shown separately here. Derivative financial instruments are generally not rated and have no cost. [24] Tax debts

Current tax debts consist of accruals for taxes of €150.1 million (PY: €141.1 million) and current tax liabilities of €29.7 million (PY: €38.1 million). Deferred tax liabilities are mainly due to higher carrying amounts under IFRS than under the tax balance sheet in the case of investments and lower carrying amounts for underwriting reserves.

148

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Notes to the Consolidated Statement of Comprehensive Income [25] Premiums

€million

Breakdown by segment* Property/ Casualty**

Life

Health

Total

2012

2011

2012

2011

2012

2011

2012

2011

Premiums written Gross 1,792.2 Reinsurers’ share 284.5 Net 1,507.7

1,741.6 284.6 1,456.9

1,499.9 68.1 1,431.8

1,456.5 73.2 1,383.3

888.7 4.8 883.9

852.2 4.4 847.9

4,180.8 357.4 3,823.4

4,050.3 362.2 3,688.1

Change in unearned premiums Gross Reinsurers’ share Net

–10.0 – 6.7 –3.3

–13.3 3.9 –17.2

0.0 0.0 0.0

0.0 0.0 0.0

0.0 0.0 0.0

0.0 0.0 0.0

– 10.0 – 6.7 –3.3

–13.3 3.9 –17.2

Savings components Gross Reinsurers’ share Net

0.0 0.0 0.0

0.0 0.0 0.0

336.3 0.1 336.2

364.4 0.0 364.4

0.0 0.0 0.0

0.0 0.0 0.0

336.3 0.1 336.2

364.4 0.0 364.4

1,504.4

1,439.7

1,095.6

1,018.9

883.9

847.9

3,483.9

3,306.5

Net premiums earned

* Figures based on full consolidation **Including insurance portfolio of Gothaer Finanzholding AG

Gross premiums in the amount of €4,095.4 million (PY: €3,973.0 million) were written in primary insurance business in the financial year. Reinsurance assumed accounted for gross premiums in the amount of €85.4 million (PY: €77.4 million). In the case of life insurance policies where the investment risk is borne by the policyholder, only that part of the premium used to cover risks and expenses is shown. Savings components are therefore not included in premiums earned.

Gothaer Group Annual Report 2012

149

Consolidated Financial Statements

[26] Investment result

€million

Breakdown by segment and type of income or expense*

Current income Write-ups Gains on disposals Current expenses Write-downs Losses on disposals Summe

Property/ Casualty

Life

Health

Other Activities

Total

2012

2011

2012

2011

2012

2011

2012

2011

2012

2011

98,9 12,1 62,8 7,0 10,5

100,0 8,4 53,5 8,2 33,5

603,8 75,2 359,8 41,3 60,0

639,4 46,2 400,1 36,8 176,9

227,2 21,7 77,8 9,8 22,1

218,7 9,7 71,4 11,5 33,5

51,6 12,9 10,6 8,5 31,1

73,6 4,3 44,8 13,5 17,9

981,5 122,0 511,0 66,6 123,7

1.031,7 68,7 569,8 70,0 261,9

28,5

32,4

156,4

303,7

71,5

86,2

5,4

8,1

261,9

430,5

127,9

87,8

781,2

568,2

223,2

168,6

30,1

83,2

1.162,3

907,9

* Figures based on full consolidation

The result from investments held for unit-linked life insurance policies consists of €178.9 million (PY: €99.4million) unrealized gains and €82.0 million (PY: €218.7 million) unrealized losses. The result from investments includes an expense of €11.5 million (PY: income of €27.2 million) resulting from exchange rate differences recognized in the statement of income. Fees pursuant to IFRS 7.20c were not paid. Current expenses in the financial year consist exclusively of portfolio management expenses (PY: €69.5 million). Expenses and income in connection with shares in associated companies are shown below. Shares in associated companies

150

€million

Expense and income 2012

2011

Write-ups Gains on disposals Write-downs

39.1 26.7 15.6

36.0 0.0 1.4

Total

50.2

34.6

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Investment result

Breakdown by segment and type of investment* Property/ Casualty 2012

Investment property Shares in affiliated and associated companies Investments held to maturity

Life

2011

in Mio. EUR Health

Other Activities

Total

2012

2011

2012

2011

2012

2011

2012

2011

0.0

0.0

0.2

0.2

0.0

0.0

9.1

8.5

9.3

8.7

11.5

8.1

56.0

35.1

40.2

10.5

26.3

64.6

133.9

118.3

0.0

7.3

0.0

28.6

0.0

13.9

0.0

0.0

0.0

49.8

Loans

43.1

37.1

190.2

201.8

77.5

78.0

3.9

6.1

314.6

322.9

Investments available for sale

518.3

382.9

139.0

113.4

1.0

13.5

728.2

559.7

56.0 –48.4 –24.1 –37.7

–2.6

1.9

38.8

– 93.1

69.9

49.9

Investments measured at fair value through profit or loss

9.5

–9.0

Other investments

1.0

2.7

1.7

4.9

0.5

1.9

1.1

1.7

4.2

11.1

Less cost of portfolio management

7.0

8.2

41.3

36.8

9.8

11.5

8.5

13.0

66.6

69.5

127.9

87.8

781.2

568.2

223.2

168.6

30.1

83.2 1,162.3

907.9

Total

* Figures based on full consolidation

Gothaer Group Annual Report 2012

151

Consolidated Financial Statements

Investment result

€million

Breakdown of net profit by type of investment 2012 Income

Expenses

Net profit

Current income

Write-ups

Gains on disposals

Writedowns

Losses on disposals

7.9

1.3

2.0

1.9

0.0

9.3

107.4

9.1

65.1

43.6

4.1

133.9

0.0

0.0

0.0

0.0

0.0

0.0

Loans

296.0

0.6

52.4

23.2

11.4

314.6

Investments available for sale Non-fixed-income Fixed-income

40.6 518.2

0.0 8.1

12.5 291.5

15.0 36.4

8.3 83.1

29.8 698.3

Investments measured at fair value through profit or loss Held for trading By designation

3.1 4.4

94.4 8.1

87.5 0.0

2.5 1.2

154.9 0.2

27.6 11.2

Other investments

3.8

0.4

0.0

0.0

0.0

4.2

981.5

122.0

511.0

123.7

261.9

1,228.9

Investment property Shares in affiliated and associated companies Investments held to maturity

Total

Current income includes interest income from impaired fixed-interest securities of €6.7 million (PY: €16.5 million) and amortization income of €33.1 million (PY: €70.2 million).

152

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Investment result

€million

Breakdown of net profit by type of investment 2011 Income

Net profit

Current income

Write-ups

Gains on disposals

Writedowns

Losses on disposals

7.7

2.7

0.3

2.0

0.0

8.7

105.2

1.1

42.3

28.0

1.8

118.7

47.4

0.0

6.3

0.0

4.0

49.8

Loans

312.5

1.9

30.6

20.2

1.9

322.9

Investments available for sale Non-fixed-income Fixed-income

60.9 485.7

0.0 51.2

39.2 128.5

60.9 67.2

19.0 58.7

20.3 539.4

1.5 0.0

8.6 2.9

320.9 1.7

83.6 0.0

345.0 0.2

–97.5 4.4

10.8

0.3

0.0

0.0

0.0

11.1

1,031.7

68.7

569.8

261.9

430.5

977.9

Investment property Shares in affiliated and associated companies Investments held to maturity

Investments measured at fair value through profit or loss Held for trading By designation Other investments Total

[27] Other income

Expenses

€million

Breakdown by type of income

Income from commissions and services Interest and similar income Sales revenues from non-consolidated companies Foreign currency gains Miscellaneous other Total

Gothaer Group Annual Report 2012

2012

2011

22.0 32.7 34.1 0.6 52.9

20.9 48.4 33.8 1.1 56.6

142.3

160.8

153

Consolidated Financial Statements

[28] Policyholder benefits (net)

€million

Property/casualty insurance*/** 2012

2011

Gross

Re

Net

Gross

Re

Net

1,154.0

197.7

956.2

1,125.3

184.1

941.2

45.8

13.1

32.7

36.4

– 13.0

49.4

Changes in policy reserves and other underwriting reserves

4.9

1.6

3.3

–6.4

–0.4

– 6.0

Premium refunds

3.8

0.2

3.6

2.8

0.0

2.8

11.2

3.6

7.6

12.0

4.6

7.4

1,219.6

216.2

1,003.4

1,170.0

175.4

994.7

Claims paid Changes in reserves for unpaid claims

Other underwriting income (–)/ expenses(+) Total

* Figures based on full consolidation **Including insurance portfolio of Gothaer Finanzholding AG

Policyholder benefits (net)

€million

Life insurance* 2012

Claims paid Changes in reserves for unpaid claims Changes in policy reserves and other underwriting reserves Premium refunds Due to national regulations Deferred premium refunds Premium refunds total Other underwriting income (–)/ expenses(+) Total

2011

Gross

Re

Net

Gross

Re

Net

1,399.8

130.9

1,268.9

1,863.5

156.0

1.707.6

3.7

– 0.5

4.2

– 2.4

0.2

– 2.6

46.2

– 34.2

80.4

– 666.8

– 47.0

–619.7

99.3 152.5 251.8

0.0 0.0 0.0

99.3 152.5 251.8

118.7 –54.9 63.8

0.0 0.0 0.0

118.7 –54.9 63.8

45.0

–43.1

88.1

40.4

–44.7

85.1

1,746.5

53.1

1,693.5

1,298.5

64.4

1.234.1

* Figures based on full consolidation

154

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Policyholder benefits (net)

€million

Health insurance* 2012

2011

Gross

Re

Net

Gross

Re

Net

557.0

5.0

552.1

522.2

4.5

517.7

2.4

– 0.6

3.0

26.0

0.6

25.4

Changes in policy reserves and other underwriting reserves

184.0

0.0

184.0

209.1

0.0

209.1

Premium refunds Due to national regulations Deferred premium refunds Premium refunds total

197.7 28.7 226.4

0.0 0.0 0.0

197.7 28.7 226.4

143.7 – 5.2 138.5

0.0 0.0 0.0

143.7 – 5.2 138.5

5.1

0.0

5.1

4.7

0.0

4.7

975.0

4.4

970.6

900.5

5.1

895.4

Claims paid Changes in reserves for unpaid claims

Other underwriting income (–)/ expenses (+) Total * Figures based on full consolidation

Gothaer Group Annual Report 2012

155

Consolidated Financial Statements

[29] Underwriting expenses (net)

€million

Breakdown by segment* Property/ Casualty**

Life

2012

2011

2012

2011

2012

2011

2012

2011

258.7

241.7

119.7

121.7

56.6

70.6

435.0

434.0

–6.1

–22.7

23.5

24.4

–1.1

–6.3

16.3

– 4.6

Administrative expenses

269.4

270.8

31.4

35.6

25.9

25.4

326.6

331.8

Underwriting expenses (gross)

522.0

489.8

174.7

181.6

81.3

89.7

777.9

761.1

Commissions and profit sharing received on reinsurance business ceded

72.6

70.4

0.7

1.4

0.0

0.0

73.3

71.8

Change in deferred acquisition cost

–0.3

–3.3

9.9

10.6

0.0

0.0

9.6

7.3

Underwriting expenses (reinsurers’ share)

72.4

67.1

10.6

12.0

0.0

0.0

83.0

79.1

449.6

422.6

164.1

169.7

81.3

89.7

695.0

682.0

Acquisition costs Change in deferred acquisition cost

Total

Health

Total

* Figures based on full consolidation **Including insurance portfolio of Gothaer Finanzholding AG

Overall, reinsurance produced an income of €6.0 million (PY: expense of €42.2 million) comprised of reinsurers’ shares of premiums, policyholder benefits and underwriting expenses as well as commissions and profit sharing received on reinsurance business ceded.

156

Gothaer Group Annual Report 2012

Consolidated Financial Statements

[30] Other expenses

€million

Breakdown by type of expense 2012

2011

Expenses for commissions and services Interest and similar expense Personnel expenses Other amortization and depreciation Foreign currency losses Miscellaneous other

30.2 41.0 67.4 17.1 0.6 119.3

27.1 50.3 71.3 16.3 1.0 115.9

Total

275.6

281.9

Personnel expenses do not comprise expenses of the insurance companies. Those costs are distributed to investment expenses, policyholder benefits and underwriting expenses through cost unit accounting. Other amortization and depreciation mainly include amortization of intangible assets and depreciation of operating and office equipment. This item does not contain amortization and depreciation of the insurance companies. As in the case of personnel expenses, the latter are allocated to functional areas

Gothaer Group Annual Report 2012

157

Consolidated Financial Statements

[31] Taxation

€million

Taxes on income 2012

2011*

Current tax expenses for the financial year

67.9

29.6

Current tax expenses for other periods

19.8

4.4

Deferred taxes as a result of the occurrence or reversal of temporary differences

28.0

23.5

Deferred taxes as a result of the occurrence or use of tax loss carryforwards

1.0

5.9

Deferred taxes as a result of the write-down of a deferred tax claim

0.6

1.5

–0.5

– 5.0

116.8

59.9

Deferred taxes as a result of the write-up of a deferred tax claim Total * Comparatives after restatement

The taxes shown in the statement of comprehensive income also include changes in deferred taxes as well as the current taxes to be paid by the individual Group companies. The current taxes to be paid essentially resulted from the minimum taxation of Gothaer Versicherungsbank VVaG and the companies grouped with it for tax purposes. Deferred taxes take account of the deferred taxation for differences in valuation between the IFRS balance sheet and the tax balance sheet as well as differences due to consolidation processes. In addition to tax expenses recognized in the statement of income, deferred tax reserves of €102.4 million (PY: tax receivables of €16.1 million) were recognized directly in equity in the financial year. At 31 December 2012, a tax liability of €24.4 million for temporary differences of €88.2 million in connection with subsidiaries and associated companies was not recognized for the first time because the Gothaer Group can manage the elimination of the differences and no elimination will occur in the foreseeable future. Set against that tax liability was an unrecognized reduction of €21.4 million in the deferred reserve for premium refunds. The expected tax expense was calculated on the basis of the German income tax rate. This was an unchanged 32.0% and took account of 15.0% corporation tax, the solidarity surcharge of 5.5% on the corporation tax payable and an average trade tax rate.

158

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Taxation

€million

Reconciliation of taxes on income

Operating result less net interest x Expected tax rate = Expected tax expenses Adjusted to correct for: Tax-exempt income/expense Non-deductible withholding taxes Other tax attributions or deductions Effects of tax losses Effects of policyholders’ profit sharing Differences in tax rates Taxes for other periods Change in tax rates Other effects = Taxes on income

Gothaer Group Annual Report 2012

2012

2011

224.0 32.0 % 71.7

145.1 32.0 % 46.4

16.9 2.0 6.0 –6.1

– 15.8 1.3 28.7 – 5.0

8.5 – 2.1 19.8 0.0

4.6 –4.5 4.4 –0.2

116.8

59.9

159

Consolidated Financial Statements

[32] Other comprehensive income

€million

Reconciliation

Unrealized gains and losses on investments available for sale Recognized in equity Transferred to the statement of income Less: Provision for premium refund Deferred tax

Total

2012

2011*

1,289.9 1.2 1,291.1

– 253.9 6.9 –246.9

954.6 102.3 1,056.9

– 179.0 – 19.3 –198.3

234.2

–48.6

* Comparatives after restatement

The unrealized gains and losses transferred to the statement of income resulted partly from the disposal of securities and realization of the related reserves or losses and partly from the reversal of the “hidden” losses shown as write-downs in the statement of income in the event of impairment. In the financial year an expense of €12.0 million (PY: €131.8 million) was incurred due to impairment losses. In addition, the separate reserves resulting from reclassification of securities were amortized. The unrealized gains and losses recognized in equity result from investments available for sale that remained in the Group portfolio. The change in valuation at equity includes deferred taxes of €13.4 thousand (PY: €21.5 thousand) and deferred reserves for premium refunds of €4.7 thousand (PY: €379.4 thousand). No deferred taxes and no deferred reserves for premium refunds resulted from currency translation.

160

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Representatives of Members Dr. Martin Willich Chairman

Media consultant and lawyer, Hamburg

Konrad Kraft Vice Chairman

Diplom-Kaufmann, Krailling

Knut Kreuch Vice Chairman

Mayor of the City of Gotha, Günthersleben-Wechmar up to 22 June 2012 Ordinary Member as of 22 June 2012 Vice Chairman

Gesine Rades Vice Chairwoman

Diplom-Kauffrau, Auditor/tax accountant, Noer up to 22 June 2012

Heiner Alck

Physical therapist, Warendorf

Peter Arndt

Diplom-Ingenieur, Berlin

Georg Behre

Diplom-Ingenieur, Authorized Officer of TÜV Rheinland Kraftfahrt GmbH, TÜV Rheinland Group, Gelsenkirchen

Helmut Berg

Albig

Klaus Bronny

Diplom-Betriebswirt, Corporate consultant, Essen

Wilm-Hendric Cronenberg

Managing Partner of Julius Cronenberg o. H., Arnsberg

Werner Dacol

Managing Director of Aachener Siedlungs- und Wohnungsgesellschaft mbH, Cologne

Dr. Heinz Dräger

Dentist (Retd), Remagen

Sabine Engler

Diplom-Kaufmann, Publicly appointed surveyor, Vermessungsbüro Engler, Saarbrücken

Andreas Formen

Diplom-Betriebswirt, Oberursel

Prof. Dr. Klaus Goder

Specialist in General Medicine, Neuss

Gerhard Groß

Independant wholesaler, Mannheim

Horst Horrmann

Minister of Education (Retd), Peine

Walter Hüglin

Master painter, Weilheim

Norbert D. Hüsson

Betriebswirt, Master painter, Managing Partner of Hüsson FGB GmbH, Düsseldorf

Bernhard John

Diplom-Ingenieur, Consultant BJ consult + support, Mannheim

Heinz Kiesel

Master plumber, Munich

Bernd Kieser

Diplom-Kaufmann, Managing Partner of ms.conect S.L., Madrid (Spain)

Gothaer Group Annual Report 2012

161

Consolidated Financial Statements

Dr.-Ing. Hans-Herbert Klein

Consulting engineer VBI, Sulzbach

Wolfgang Klemm

Chamber musician, Raesfeld

Peter Ködderitzsch

Textile merchant, Werther

Elke Köhler

Specialist in General Medicine, Vice President of Landesärztekammer Brandenburg, Executive Officer of Hartmannbund-Verband der Ärzte Deutschlands e. V., Chairwoman of Hartmannbund State of Brandenburg Section, Executive Officer of Ärzte-Union Brandenburg e. V., Jüterbog

Hans-Otto Kromberg

Diplom-Kaufmann, Managing Partner of Kromberg & Schubert KG, Wuppertal

Dr. Hans-Werner Lange

Chief Executive Officer of TUPAG-Holding-AG, Effelder

Wolfgang Leibnitz

Notary (Retd.), Essen

Prof. Dr. Claus Luttermann

Vice-Dean of the Economics Faculty of the Catholic University of Eichstätt-Ingolstadt, Ingolstadt

Hans Mauel

Chairman of the Board of Stiftung der Cellitinnen zur hl. Maria, Erftstadt

Dr. Peter Nagel

General practitioner (Retd), Goslar/ Hahnenklee

Siegfried Nimsch

Diplom-Verwaltungswirt, Erster Polizeihauptkommissar a. D., Witten

Rudolf Nüllmeier

Diplom-Finanzwirt, Tax accountant, Essen

Uwe von Padberg

Diplom-Kaufmann, President Verband der Vereine Creditreform e. V., Creditreform Köln v. Padberg KG, Cologne

Ilse Peiffer

Secretary, Witten

Dr. Angelika Prehn

Specialist in General Medicine, President of Kassenärztliche Vereinigung Berlin, President of Berufsverband der Allgemeinärzte Berlin und Brandenburg, Berlin

Dr. Roland Reistenbach

Dentist, Siegburg

Jürgen Scheel

Chairman of the Board of Kieler Rückversicherungsverein a. G., Mühbrook

Uwe Schumacher

Oberstudienrat (Retd), Usingen

Walter Stelzl

Pensioner, Ebergötzen

Christian Sutter

Diplom-Kaufmann, Essen

162

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Prof. Dr. jur. Jürgen Vocke

Judge (Retd), Member of the Landtag of Bavaria, President of Landesjagdverband Bayern e. V., Ebersberg

Axel F. Waschmann

Member of the Board of Management (Retd) of EWE Aktiengesellschaft, Oldenburg

Albrecht Wendenburg

Lawyer and Notary (Retd.), Celle

Spokesman Albrecht Wendenburg

Lawyer and Notary (Retd), Celle

Honorary Chairman Dr. Karlheinz Gierden

Oberkreisdirektor and Bankdirektor (Retd), Frechen-Königsdorf

Honorary member Prof. Dr. A. Wilhelm Klein General Director (Retd), Honorary Chairman of the Supervisory Board of Gothaer Versicherungsbank VVaG, Cologne

Gothaer Group Annual Report 2012

163

Consolidated Financial Statements

Supervisory Board Dr. Roland Schulz Chairman

Former Managing Partner, Düsseldorf

Carl Graf von Hardenberg Chairman of the Supervisory Board of Hardenberg-Wilthen AG, Vice Chairman Nörten-Hardenberg

Gabriele Eick

Executive Communications Unternehmensberatung für synchronisierte Kommunikation und Marketing, Frankfurt am Main

Jürgen Wolfgang Kirchhoff

Diplom-Ingenieur, Managing Partner and COO of Kirchhoff Automotive GmbH & Co., Iserlohn

Eberhard Pothmann

Former member of Corporate Management of Vorwerk & Co. KG, Düsseldorf

Dr. Gerd G. Weiland

Lawyer, Hamburg

Honorary Chairmen Hansgeorg Klanten

Director (Retd), Cologne

Prof. Dr. A. Wilhelm Klein General Director (Retd), Cologne

164

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Management Dr. Werner Görg Vorsitzender

Cologne

Dr. Mathias Bühring-Uhle

Düsseldorf

Dr. Helmut Hofmeier

Bergisch-Gladbach

Michael Kurtenbach

Bornheim

Thomas Leicht

Cologne

Jürgen Meisch

Cologne

Dr. Hartmut Nickel-Waninger

Cologne

The list of names of members of the Supervisory Board and Management consists of information to be provided in the notes to the financial statements pursuant to section 314(1) No. 6 of the German Commercial Code (HBG).

Gothaer Group Annual Report 2012

165

Consolidated Financial Statements

Advisory Board Gothaer Versicherungsbank VVaG Peter Adler

Co-Owner of Hans Adler oHG, Bonndorf

Andreas Barth

Diplom-Ingenieur, Managing Director of OMEGA Blechbearbeitung GmbH, Limbach-Oberfrohna

Klaus Michael Baur

Publisher and Editor in Chief of Badische Neueste Nachrichten Badendruck GmbH, Karlsruhe

Dr. Hans Bücken

Chairman of Vereinigte Postversicherung VVaG, Köln

Prof. Dr. Dr. h. c. Axel Ekkernkamp

Medical Director/Managing Director of Unfallkrankenhaus Berlin, Heidesee

Dieter Härthe

Honorary General Consul, President of Senat der Wirtschaft e. V., Bonn

Lorenz Hanelt

Managing Director of Albatros Versicherungsdienste GmbH, Gleichen as of 1 January 2013

Andreas Helbig

Diplom-Kaufmann, Chief Executive Officer of Städtische Werke AG, Kassel

Hans Jürgen Hesse

Managing Partner of Hesse GmbH & Co. KG, Drensteinfurt

Peter Hoffmann

Diplom-Betriebswirt, Managing Director of Albatros Versicherungsdienste GmbH, Büttelborn up to 31 December 2012

Karl Friedrich Fürst von Hohenzollern

Fully Authorized Representative of Fürst von Hohenzollern Group, Sigmaringen

Willi Hullmann

Chairman of Kölner Wohnungsgenossenschaft eG, Cologne

Hans-Dieter Kettwig

Managing Director of Enercon GmbH, Großefehn

Clemens Klinke

Executive Officer of DEKRA SE, Boffzen

Dr. Karsten Kölsch

Executive Officer of Ahlers AG, Herford

Dr. Hans Konle

Spokesman of the Management of NetCologne GmbH, Pulheim

Hans Jürgen Kulartz

Executive Officer of Landesbank Berlin AG, Berlin

Andreas Mosler

Diplom-Betriebswirt, Diplom-Wirtschaftsinformatiker, Executive Officer of AEP AG, Tornesch

Goetz Neumann

Head Legal, Taxation and Insurance of Wacker Chemie AG, Vaterstetten

Dr. med. Ulrich Oesingmann

President of Bundesverband der Freien Berufe, Dortmund

166

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Jörg Pfirrmann

Executive Officer of Sartorius AG, Nörten-Hardenberg as of 1 October 2012

Andreas Pieper

Diplom-Betriebswirt, Managing Director of Erste APB Beteiligungen GmbH, Gelsenkirchen

Hermann Reichenecker

Managing Partner of Storopack Hans Reichenecker GmbH, Metzingen

Christof Renz

Diplom-Ingenieur, Managing Director of Aluminium Féron GmbH & Co. KG, Krefeld

Peter Riegelein

Diplom-Kaufmann, Hans Riegelein + Sohn GmbH & Co. KG, Cadolzburg

Klaus Riemenschneider

Chairman of Administrative Board of Endress + Hauser Holding AG, Wehr

Herbert Rohkohl

Corporate Officer, Head Finance and Accounting of Uhl Kies- und Baustoffgesellschaft mbH, Steinach up to 8 March 2013

Christian Sander

Diplom-Ingenieur, Managing Director of frisch menü GmbH, Kassel-Harleshausen

Göran Sjöstrand

Managing Director, CFO of IKEA Deutschland Service GmbH, Königstein

Erich Staake

Diplom-Kaufmann, Chief Executive Officer of Duisburger Hafen AG, Düsseldorf

Patrick Tessmann

Executive Officer of Landesbank Berlin AG, Gruenwald

Alexander Trautmann

Diplom-Ingenieur, Ratingen

Thomas Wahl

Managing Partner of Alfred Wahl KG, Siegen as of 1 January 2013

Mike Wasel

Corporate Officer, HR + Legal Director Flexible Packaging Europe of Huhtamaki Deutschland GmbH & Co. KG, Markt Rettenbach as of 1 July 2012

Dr. Notker Wolf

OSB, Abbot Primate of the Benedictine Confederation, Rome

Hans-Joachim Zinser

Managing Partner of Modehaus Zinser GmbH & Co. KG, Tübingen

Gothaer Group Annual Report 2012

167

Consolidated Financial Statements

Directorships of Members of the Supervisory Board and Management Supervisory Board

Membership on other supervisory boards

Dr. Roland Schulz Chairman

Gothaer Finanzholding AG, Chairman Asstel Lebensversicherung AG, Chairman Gothaer Krankenversicherung AG, Chairman Gothaer Allgemeine Versicherung AG, Chairman Gothaer Lebensversicherung AG, Vice Chairman

Carl Graf von Hardenberg Vice Chairman

Gothaer Finanzholding AG Gothaer Allgemeine Versicherung AG Hardenberg Wilthen AG, Chairman m3Team AG

Volksbank Göttingen eG, Chairman

Gabriele Eick

Gothaer Finanzholding AG

Goethe-Universität Frankfurt am Main (Foundation), ARAMARK Holdings GmbH & Co. KG, Neu-Isenburg

Jürgen Wolfgang Kirchhoff

Gothaer Finanzholding AG

Märkische Bank eG

Eberhard Pothmann

Gothaer Finanzholding AG, Frowein & Co. Beteiligungs-AG, Chairman

Vescore Solutions AG Schweiz, Administrative Board

Dr. Gerd Gustav Weiland

Gothaer Finanzholding AG, Gothaer Allgemeine Versicherung AG, Asstel Lebensversicherung AG, Reset Consultants AG, Chairman

168

Comparable domestic and foreign directorships and officerships

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Supervisory Board

Membership on other supervisory boards

Comparable domestic and foreign directorships and officerships

Dr. Werner Görg Chairman

Asstel Sachversicherung AG, Chairman ROLAND RechtsschutzVersicherungs-AG, Gothaer Pensionskasse AG, Chairman

EurAPCo AG, Member of the board, Schweiz

Dr. Mathias Bühring-Uhle Janitos Versicherung AG Gothaer Systems GmbH, Vice Chairman Dr. Helmut Hofmeier

A.S.I. Wirtschaftsberatung AG Fingro AG, Vice Chairman up to 31 January 2012 Gothaer Asset Management AG

Versorgungskasse Gothaer Versicherungsbank VVaG, Chairman, Pensionskasse der BERLIN-KÖLNISCHE Versicherungen VVaG, Chairman

Michael Kurtenbach

A.S.I. Wirtschaftsberatung AG, Vice Chairman

Pensionskasse der BERLIN-KÖLNISCHE Versicherungen VVaG, Vice Chairman Versorgungskasse Gothaer Versicherungsbank VVaG, Vice Chairman ZESAR Zentrale Stelle zur Abrechnung von Arzneimittelrabatten GmbH, as of 24 September 2012

Thomas Leicht

Janitos Versicherung AG, Chairman A&O Vertriebs-AG, Vice Chairman Asstel Sachversicherung AG

Gothaer Towarzystwo Ubezpiecze´n S. A.

Jürgen Meisch

Gothaer Pensionskasse AG Gothaer Asset Management AG, Chairman CG Car-Garantie Versicherungs-AG Aachener Bausparkasse AG, up to 30 September 2012 Chairman, as of 30 September 2012 Ordinary Member

Gothaer Towarzystwo Ubezpiecze´n S. A., Chairman Gothaer Asigurari Reasigurari S. A., Vice Chairman, as of 22 February 2013

Dr. Hartmut Nickel-Waninger

Janitos Versicherung AG, Vice Chairman Asstel Sachversicherung AG, Vice Chairman A&O Vertriebs-AG, Chairman A.S.I. Wirtschaftsberatung AG, Chairman Fingro AG, Chairman, up to 31 January 2012 Gothaer Pensionskasse AG, Vice Chairman

Gothaer Group Annual Report 2012

169

Consolidated Financial Statements

Other Information Personnel expenses €million

Breakdown by type of expense 2012

2011*

Wages and salaries Social security contributions and employee benefits Expenses for employees’ pensions

282.3 43.2 15.4

287.6 42.6 17.4

Total

340.9

347.7

2012

2011

4,952 621 5,573

4,936 626 5,562

188 281

181 249

6,042

5,992

* Comparatives after restatement

Number of employees (average for the year)

Breakdown by group of employee

In house Field Apprentices Employees of joint-venture undertakings Total

Remuneration of members of the Supervisory Board and Management Remuneration of members of the Management

In the financial year Management of our parent company received remuneration in the amount of €6.5 million (PY: €5.8 million). Retirement and survivors’ benefits for former members of Management came to €2.5 million (PY: €2.4 million). Further accruals in the amount of €19.3 million (PY: €17.8 million) exist for current pensions and pension entitlements for this group of individuals. Key management personnel, i. e. Management of Gothaer Finanzholding, received remuneration in the amount of €7.0 million (PY: €6.4 million) in the financial year. Provisions in the amount of €17.9 million (PY: €12.1 million) were established for pension benefits to be paid to this group of individuals upon termination of the employment relationship.

Remuneration of members of the Supervisory Board

Remuneration paid to the Supervisory Board came to €0.9 million (PY: €0.9 million). Remuneration paid to members of the Advisory Board came to €0.1 million (PY: €0.1 million). No amounts were paid to former members of the Supervisory Board and the Advisory Board, or deferred.

Loans

Loans in the amount of €0.1 million (PY: €0.2 million) were granted to members of Management and the Supervisory Board in the financial year. The interest rate was 2.5% and the remaining term three years.

170

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Auditors’ fees €million

Breakdown by type of service 2012

2011

Auditing of financial statements Other services

1.5 0.1

1.2 0.5

Total

1.6

1.7

Provisions and contingent liabilities The information on provisions, contingent liabilities and contingent assets provided herein goes beyond that required by IAS 37, according to which disclosure is required only in cases in which an outflow of funds is not improbable. Although this does not apply in the case of the Gothaer Group, information is disclosed pursuant to sections 251 and 285 No. 3 HGB. The Group has contingent liabilities in the amount of €20.2 million (PY: €27.9 million). This amount is accounted for virtually completely by surety insurance of the former Gothaer Credit Versicherung AG.

Contingent assets The Group has no contingent assets in the year under review. The contingent asset of €7.9 million in the prior year related to the purchase price receivable from the sale of a participation, which was deposited in a trust account.

Other financial commitments The Group has liabilities in the amount of €403.5 million (PY: €561.0 million) arising from commitments to make payments in connection with investments. Capital calls are possible within the contractually defined period as a matter of principle. Asstel Sachversicherung AG, Gothaer Allgemeine Versicherung AG and Janitos Versicherung AG are members of “Verkehrsopferhilfe e. V.”. Membership entails an obligation to contribute to the funds this association requires to carry out its activities. Contributions are based on the respective shares of the premium income generated by member companies from direct motor and liability insurance in the year prior to the past calendar year. Group companies also belong to insurance pools such as Deutsche Kernreaktor-Versicherungs-Gemeinschaft and Pharma-Rückversicherungsgemeinschaft. In the event of default on the part of any of the other members, the respective Group company is obligated to assume its pro rata share of any such default. Shares are also held in EXTREMUS Versicherungs-AG.

Gothaer Group Annual Report 2012

171

Consolidated Financial Statements

In accordance with sec. 124 ff of the German Insurance Supervision Act (VAG), the life insurance companies of the Group are members of the guarantee fund for life insurers (Sicherungsfonds für die Lebensversicherer). In addition to the obligatory current contributions, the fund can levy special contributions up to 1‰ of the sum of net underwriting reserves on the basis of the Guarantee Fund Financing Ordinance (Life). Furthermore, the companies have committed to make financial resources available to the guarantee fund – or alternatively to Protektor Lebensversicherungs-AG – in the event of the fund not having the resources needed to handle a rescue case. This commitment amounts to 1% of the sum of net underwriting reserves less contributions already made to the guarantee fund. The total commitment to the guarantee fund at balance sheet date was €156.1 million. On the basis of statutory amendments to sec.124 ff VAG, health insurers are also required to become members of a guarantee fund. After the assumption of insurance contracts, the fund can levy special contributions up to 2‰ of the sum of net underwriting reserves for the fulfilment of its duties. The commitment in the area of health insurance is €10.6 million.

Underwriting pools and coinsurance In the area of syndicated life insurance, data are used as reported by the lead manager of the syndicates. In the case of syndicated business under our management, proportionate values are used; such business is otherwise accounted as primary business. In the area of health insurance, a coinsurance arrangement is in place that involves a group of private insurance companies that provide long-term care coverage under the Long-Term Care Insurance Act of 26 May 1994 for members of the health insurances for postal and railway civil servants. The association of private health insurers (PKV) prepares financial statements and settles accounts with the individual member insurance companies on a pro rata basis, and the results of these accounts flow into the consolidated financial statements.

Basis for allocation of interest to policyholders In the case of conventional products, interest is allocated to policyholders in the area of life insurance in the form of a guaranteed interest credit on the one hand and a surplus sharing on the other hand. The bonus is determined by Management on the basis of legal provisions. In the case of unit-linked products, policyholders assume the risk of any investment losses. No interest credits are made in this case. The distribution of any surplus in connection with private health insurance is subject to the provisions of national legislation, in particular the German Insurance Supervision Act (VAG) and an ordinance that governs the determination and distribution of surplus interest and profit for health insurance plans (ÜbSchV).

172

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Pursuant to section 12b VAG, any transfer of funds from reserves for premium refunds is essentially subject to the approval of an independent trustee. The trustee must verify in particular that the interests of the insured and especially of older insured are adequately protected. Section 12a(1) VAG stipulates that holders of health insurance policies and voluntary longterm care insurance (care cost and daily allowance) that resemble life insurance are entitled to an annual credit for interest on the total positive balance of the ageing reserve for the respective insurance as of the end of the previous financial year. This credit is equal to 90% of the average investment result in excess of the basic actuarial interest rate used (surplus interest). The funds accumulated in this manner are used for the most part to partially or completely finance increases in premium payments resulting from premium increases in the case of insureds who have reached the age of 65 and also to reduce premiums in the case of insureds who have reached the age of 80. Section 12a(1) VAG requires that at least 80% of the surplus determined on the basis of the respective regulatory requirements be allocated to the reserve for premium refunds (with separate accounts for health insurance organized along the lines of life insurance and for private compulsory long-term care insurance).

Related party disclosures In Gothaer’s claims settlement department, a framework agreement exists for handling legal proceedings relating to motor processes and liability events involving a company in which a party related to the Group is a shareholder. Remuneration was based at most on the statutory provisions of the German Lawyers’ Remuneration Act. Fees of €0.3 million (PY: €0.5 million) were paid by Gothaer in the year under review. In addition, related parties subscribed a sum of €0.8 million (PY: €1.1 million) to our member and premium bond and €3.1 million (PY: €0.8 million) to other fund products. Gothaer Allgemeine Versicherung AG granted credit totalling €10.0 million to related parties, which was the same volume as in the prior year. The loan of €1.6 million between Gothaer Finanzholding AG and a related party was repaid. A related party rendered business consultancy services to Gothaer Finanzholding AG in the prior year with a volume of €0.4 million. These transactions were conducted under normal market terms and conditions. Various service functions in the Gothaer Group – such as claims and benefit settlement or retirement planning services – have been outsourced to separate companies. Some of those service companies have not been included in the scope of consolidation on grounds of immateriality. Standard market service agreements have been concluded with the companies. Below is a report on business relationships with non-consolidated companies that are materially important in the eyes of the Gothaer Group.

Gothaer Group Annual Report 2012

173

Consolidated Financial Statements

GSC Gothaer SchadenService-Center GmbH

GSC Gothaer Schaden-Service-Center GmbH carries out communication-intensive business processes (call centers) and other services and also adjusts claims for Gothaer Allgemeine Versicherung AG and Gothaer Versicherungsbank VVaG. Revenues of GSC Gothaer Schaden-Service-Center GmbH in the amount of €11.8 million (PY: €12.0 million) in 2012 were received exclusively from companies of the Gothaer Group, with Gothaer Allgemeine Versicherung AG accounting for 92.5% of the total. At €7.6 million (PY: €7.0 million), personnel expense represented the most important expense item in the statement of income of GSC Gothaer-Schaden-Service-Center GmbH. Receivables from affiliated companies amounted to €0.8 million (PY: €0.6 million). Liabilities towards affiliated companies in the amount of a total of €2.1 million (PY: €2.1 million) consist to 87.1% of liabilities towards Gothaer Allgemeine Versicherung AG, including a loan of €1.8 million, as in the prior year, to GSC Gothaer Schaden-ServiceCenter GmbH.

GKC Gothaer KundenService-Center GmbH

GKC Gothaer Kunden-Service-Center GmbH performs services involving communicationintensive business processes (call centers) as well as other services such as policy processing and sales support for the insurance companies of the Gothaer Group. Its principal client is Gothaer Allgemeine Versicherung AG but services are increasingly performed for Asstel Sachversicherung AG, Asstel Lebensversicherung AG and Gothaer Lebensversicherung AG. The major part of the revenues of €28.7 million (PY: €31.4 million) recorded by GKC Gothaer-Kunden-Service-Center GmbH in 2012 resulted from the processing of contractually defined business transactions and the handling of telephone queries in connection with the private customer business of Gothaer Allgemeine Versicherung AG. Revenues were offset in particular by personnel expense in the amount of €13.9 million (PY: €15.2 million) and other operating expenses in the amount of €12.3 million (PY: €13.9 million). The latter amount includes mainly start-up costs for EDP and communication systems. Receivables from affiliated companies amounted to €0.7 million (PY: €3.4 million) in the financial year, the lion’s share relating to Asstel Sachversicherung AG. Liabilities towards affiliated companies totalled €12.1 million (PY: €14.6 million), €11.5 million (PY: €13.9 million) of which related to a loan granted by Gothaer Finanzholding AG.

174

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Pensus Pensionsmanagement GmbH

Pensus Pensionsmanagement GmbH is responsible for the administration of pension plans for private and public sector companies and customer support. As in the prior year, revenues received from companies of the Gothaer Group, in particular Gothaer Lebensversicherung AG, Gothaer Allgemeine Versicherung AG and Gothaer Versicherungsbank VVaG, accounted for €0.8 million of the company’s total revenues of €1.9 million (PY: €1.8 million). Personnel expenses were at €1.3 million (PY: €1.1 million). Liabilities amounted to €1.2 million (PY: €1.1 million) and receivables to €0.5 million (PY: €0.3 million). As in the financial year 2011, €0.1 million of this related to receivables from affiliated companies.

Gothaer Group Annual Report 2012

175

Consolidated Financial Statements

Leasing Finance lease contracts of €0.6 million were again generated as a result of the initial consolidation of Gothaer Asigurari Reasigurari S. A. They relate entirely to motor vehicles. The table below shows the breakdown of leases according to the residual term of each contract. Minimum lease payments

€million

Finance leases 2012

2011

Up to 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years 5 to 10 years After 10 years

0.0 0.0 0.0 0.6 0.0 0.0 0.0

0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total

0.6

0.0

Operating leases are used mainly for DP software and hardware as well as company vehicles. The lease contracts were concluded under standard market conditions. Total future minimum lease payments in connection with operating leases come to €51.8 million (PY: €67.2 million). This amount is shown below according to payment terms. Minimum lease payments

176

€million

Operating leases 2012

2011

Up to 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years 5 to 10 years After 10 years

29,4 10,4 10,1 1,9 0,0 0,0 0,0

34,2 12,4 10,1 8,6 1,9 0,0 0,0

Total

51,8

67,2

Gothaer Group Annual Report 2012

Consolidated Financial Statements

Post-balance sheet events We refer to our statement in the outlook. No events occurred after the reporting date that would require separate disclosure. The Management of Gothaer Versicherungsbank VVaG approved the consolidated financial statements for submission to the Supervisory Board on 19 April 2013. The Supervisory Board is responsible for examining the consolidated financial statements and issuing a statement as to whether or not it approves the consolidated financial statements. Cologne, 19 April 2013

Management

Dr. Werner Görg

Dr. Mathias Bühring-Uhle

Dr. Helmut Hofmeier

Michael Kurtenbach

Thomas Leicht

Jürgen Meisch

Dr. Hartmut Nickel-Waninger

Gothaer Group Annual Report 2012

177

Auditor’s Report We audited the consolidated financial statements prepared by Gothaer Versicherungsbank VVaG, Cologne – consisting of the statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows and notes to the consolidated financial statements – and the Group management report for the financial year from 1 January to 31 December 2012. In accordance with the International Financial Reporting Standards (IFRS) as applied in the EU and the complementary provisions of commercial law pursuant to Section 315a(1) of the German Commercial Code (HGB), Management of the parent company is responsible for the preparation of the consolidated financial statements and the Group management report. Our responsibility is to provide an opinion on the consolidated financial statements and the Group management report on the basis of our audit. We conducted our audit of the consolidated financial statements in compliance with section 317 HGB and the German generally accepted principles for the audit of annual financial statements issued by the Institut der Wirtschaftsprüfer (IDW). Accordingly, an audit is to be planned and performed to obtain reasonable assurance of detecting material misstatements or non-compliance with laws and regulations in the presentation of the net assets, financial position and results of operations in the consolidated financial statements and the Group management report in accordance with applicable accounting principles. Auditing procedures are determined to take into account knowledge of the business activities as well as of the economic and legal context of the Group and an evaluation of possible misstatements. The audit includes an assessment of the efficacy of the internal system of control procedures and, primarily on a test basis, examination of evidence supporting amounts and disclosures in the consolidated financial statements and the Group management report. The audit includes assessment of the annual financial statements of consolidated companies, the scope of consolidation, the accounting and valuation principles applied and significant estimates made by the Management of the company as well as evaluation of the overall presentation of the consolidated financial statements and the Group management report. We believe that our audit provides a sufficiently reasonable basis for our opinion. Our audit resulted in no reservations. In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRS, as applied in the EU, and the complementary provisions of commercial law pursuant to section 315a(1) HGB and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The Group management report is consistent with the consolidated financial statements, conveys a true and fair view of the situation of the Group and accurately presents the opportunities and risks of future developments Cologne, 23 May 2013

KPMG AG Wirtschaftsprüfungsgesellschaft

(Dr. Ellenbürger) Wirtschaftsprüfer 178

(Dr.Dahl) Wirtschaftsprüfer Gothaer Group Annual Report 2012

Report of the Supervisory Board The Supervisory Board continuously monitored the conduct of business by Management in the course of the reporting period in fulfilment of its duties under the law and the bylaws of the Company. Management regularly submitted written reports on business developments and the situation of the Company and reported orally to the Board at five meetings. The Board was involved in all decisions of fundamental importance for the Company. The committees of the Board were also involved in informational and oversight activities. The Investment Committee met four times, the Audit Committee and the Executive Committee each met three times. Management’s reports on business and on special issues were supplemented by written presentations and documents which were submitted to each member of the Board for preparation ahead of meetings. The financial statements and consolidated financial statements as well as the audit reports of the auditor were also duly submitted ahead of the Audit Committee meeting and the Supervisory Board meeting convened to review the financial statements. The issues addressed regularly by the Supervisory Board included developments in premiums, claims and costs, the performance of major Group holdings and the impact of such developments on the financial statements. The Supervisory Board also monitored the development of membership figures and the measures taken to raise the standard of service and advice for the exclusive organization as well as the development of types of future-compliant agency and processes. The Board maintains a regular dialogue with Management on key strategic issues for the future gearing of the Group. One major area of reporting related to the measures introduced to tackle effectively the deficits in cross-functional cooperation within the enterprise that were identified in the latest employee survey. Corporate culture, internal organization, HR and management tools as well as – although to a lesser extent – strategy were identified as key areas for action. The primary objective is cultural change and the creation of a culture of teamwork and constructive cooperation throughout the Group. Action in the other priority areas will be dovetailed with efforts to this end. The Supervisory Board paid special attention to the development of strategic participations of sustainable benefit for the Group. In view of the tougher equity requirements anticipated under Solvency II, the primary focus here was dividend capacity. The Board also received reports on the development of distribution channels for Group companies, restructuring programmes and cost structure optimization measures. In line with the internationalization strategy of the Gothaer Group, Management reported on activities aimed at further successful expansion in the growth regions of Central and Eastern Europe. One example was the acquisition of Platinum Asigurari Reasigurari, a Romanian property insurance company based in Bucharest, now renamed Gothaer Asigurari Reasigurari. Management also reported in detail on the financial market crisis’s possible implications for general economic development and its impacts on the insurance industry as a whole and the revenue and earnings situation of Gothaer Group companies.

Gothaer Group Annual Report 2012

179

Management regularly informed the Supervisory Board of its mid-term corporate planning, the solvency developments, the risk strategy and the risk situation of Group companies. In addition, the Audit Committee set up by the Board in accordance with section 107 (3) of the German Stock Corporation Act (AktG) engaged in detailed discussion with Management and the auditors of the annual accounts on not only the accounting process and the effectiveness of the internal monitoring system, risk management system and internal auditing system but also the valuation of investments – notably special funds – in the balance sheet presented. There were no objections. The Audit Committee therefore proposed to the Supervisory Board that the financial statements for the financial year 2012 should be formally adopted in accordance with section 172 AktG. Management’s investment planning and policy were regularly a subject of Investment Committee meetings. Management reported extensively to the Board on developments in the capital markets and the resulting impacts on Group companies’ investments, development of hidden reserves/hidden charges and investment income, and discussed the possible general economic consequences of the financial market crisis as well as the implications for the insurance industry and society. The Supervisory Board performed its statutory duty to examine Management personnel matters, devoting particular attention to the restructuring of Management employment contracts and the issues of remuneration, including the agreement on objectives for variable remuneration components. Management also informed the Board about the pay systems in place. The financial strength ratings carried out for Group companies in 2012 also resulted in positive findings. The ratings document the continued security and financial strength of the Group. Gothaer Allgemeine Versicherung AG and Gothaer Lebensversicherung AG again confirmed the ratings received in the past from Standard & Poor’s (A–) and Fitch (A). Gothaer Krankenversicherung also retained its prior-year rating (A–) from Standard & Poor’s. The financial statements for the 2012 financial year with the management report and the consolidated financial statements for 2012 prepared in accordance with IFRS and the Group management report were audited, including in each case assessment of the early-warning system, by the auditor appointed pursuant to section 341k HGB, KPMG AG Wirtschaftsprüfungsgesellschaft, Cologne. Both sets of financial statements received an unqualified audit opinion from the audit firm. The auditors attended the corresponding meetings of the Supervisory Board and reported on the material results of the audit. The Supervisory Board received the audit reports submitted and took note of and approved the results of the audits.

180

Gothaer Group Annual Report 2012

After examination of the presented financial statements and management report for the 2012 financial year and the consolidated financial statements and Group management report for the 2012 financial year, the Supervisory Board raised no objections. The Supervisory Board approved the financial statements and the consolidated financial statements for the year 2012. The financial statements are therefore adopted pursuant to section 172 of the German Stock Corporation Act (AktG). The Supervisory Board approves Management’s proposal for the use of retained profit. The Supervisory Board wishes to express its special appreciation and heart-felt thanks to Management and to the staff, directors and executives of the Gothaer Group companies for their work last year in an extremely difficult environment. Cologne, 23 May 2013 The Supervisory Board

Dr. Roland Schulz Chairman

Gothaer Group Annual Report 2012

181

Addresses of Major Group Companies Gothaer Versicherungsbank VVaG Arnoldiplatz 1 50969 Cologne

Telephone 0221 308-00 Internet www.gothaer.de

Gothaer Finanzholding AG Arnoldiplatz 1 50969 Cologne

Telephone 0221 308-00 Internet www.gothaer.de

Gothaer Allgemeine Versicherung AG Arnoldiplatz 1 50969 Cologne

Telephone 0221 308-00 Internet www.gothaer.de

Gothaer Lebensversicherung AG Arnoldiplatz 1 50969 Cologne

Telephone 0221 308-00 Internet www.gothaer.de

Gothaer Krankenversicherung AG Arnoldiplatz 1 50969 Cologne

Telephone 0221 308-00 Internet www.gothaer.de

Gothaer Pensionskasse AG Arnoldiplatz 1 50969 Cologne

Telephone 0221 308-00 Internet www.gothaer.de

Asstel Lebensversicherung AG Schanzenstr. 28 51063 Cologne

Telephone 0221 9677-677 Internet www.asstel.de

Asstel Sachversicherung AG Schanzenstr. 28 51063 Cologne

Telephone 0221 9677-677 Internet www.asstel.de

Janitos Versicherung AG Im Breitspiel 2-4 69126 Heidelberg

Telephone 06221 709-1000 Internet www.janitos.de

Gothaer Towarzystwo Ubezpiecze´n S. A. Ul. Woloska 22a Telephone 0048 22 58 26 300-304 02-675 Warsaw Internet www.ptu.pl

182

Gothaer Asigurari Reasigurari S. A. Str. Clucerului nr.9 bis Sector 1, Bucuresti

Telephone 0040 21 2 000 000 Internet www.gothaer.ro

CG Car-Garantie Versicherungs-AG Gründlinger Str. 12 79111 Freiburg

Telephone 0761 4548-0 Internet www.cargarantie.de

Gothaer Group Annual Report 2012

Gothaer Versicherungsbank VVaG Arnoldiplatz 1 50969 Cologne Tel. 0221 308-00 Fax 0221 308-103 www.gothaer.de