Croatia osiguranje d.d. - Annual Report 2012 · 2013. 10. 24. · CROATIA osiguranje d.d. was founded in 1884 and since its founding it has held the leading position in the insurance

Annual Report 2012

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Letter from the Chairman of the Management Board to the shareholders

Dear shareholders,

We have concluded yet another fiscal year paying great attention to the liquidity of our business, the quality of our programs, and our relationship with our clients, which is based on an honest and a fair system of paying claims. It is my pleasure to conclude that this approach has resulted in very good business results, and a clear position as the leading company in the Croatian insurance market.

In 2012 we realized a gross profit in the amount of HRK 140,3 million, which represents a 34,0 % increase from the previous year. Total written premiums amount to HRK 2.707,7 million, which represents a 3,0 % decrease in comparison to the previous year. Non-life written premiums declined by 4,4 %, whereas the life insurance segment shows an increase of 6,5 % in comparison to the previous year. Total revenue for the company amounted to HRK 2.796,1 million, which is 1,2 % less than in the previous year. Total expenditures (not including corporate income tax) amounted to HRK 2.655,7 million, which is 2,5 % lower than in the previous year. The market share of CROATIA osiguranje d.d. based on the total premiums written by all insurance companies in the Republic of Croatia together with Croatia zdravstveno osiguranje (Croatia Health Insurance), amounted to 31,1 %.

The consolidated gross profit of the CROATIA osiguranje Group, prior to the eliminations, amounted to HRK 201, 8 million, which is an 8,6 % increase from the same period in the previous year.

Our strategy shows continued improvement in our insurance offerings. In 2012 we were the first in the market to offer a “Standard of Living” insurance which, at a very affordable premium, protects the insured person’s standard of living in the event of their incapacity to work. In addition to the classic Riziko loan insurance we have had so far, where the insurance beneficiary was the bank, we have also introduced RIZIKO PLUS insurance, which is designed for citizens and legal entities. We have also introduced GARANT life insurance, which made us the first insurance company in the Croatian market to offer the security of invested capital with a guaranteed profit of 17 %. This type of constant innovation, redesigning old products and introducing new ones in line with world trends in insurance development, will continue to be our rule in the upcoming years.

With the aim to provide support to citizens in this time of recession, we have dedicated additional funds to our corporate social responsibility program. We have donated over a million Kuna for 60 humanitarian, educational and cultural projects throughout the country. Some of those programs are “Good People ≤ for the Children of Croatia”, “A Friend Who Cares, Understands and Encourages” and a donation to the

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“Krijesnica” association which provides for children and families of patients suffering from malignant diseases.

We expect 2013 to be a demanding fiscal year. The biggest challenge will be Croatia’s accession to the European Union. The Croatian insurance market today offers insured persons most of products that can already be found in Europe, and according to the estimate of the European Commission and HANFA (Croatian Financial Services Supervisory Agency), the Croatian insurance sector is completely ready for accession to the Union. We expect the long-term effect of the new European directives to be positive on the protection of the insured persons, as well as provide greater transparency, compatibility and competitiveness in the market. Solvency II will improve risk management and thereby increase the profitability and security of insurance companies’ business operations.

In the future, the Republic of Croatia will experience changes in both the structure and amounts of insurance premiums. In anticipation of economic growth and recovery, we believe that the focus of the citizens’ interests will be more oriented toward life and health insurance, and we expect an increase in the sale of insurance for enterprises, trade & crafts and agricultural companies.

There is certainly growth potential for CROATIA osiguranje d.d. In the upcoming year we expect a positive technical result, an increase in profitability, greater work efficiency and a motivated organizational climate. The primary goal of the Company will continue to be the preservation of our clients’ high level of satisfaction and loyalty.

Dear shareholders of CROATIA osiguranje d.d., at the end of another successful fiscal year, I would like to thank you for your cooperation and the mutual trust we have built.

Sincerely,

Krešimir Starčević,Chairman of the Management Board of

CROATIA osiguranje d.d.

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■ Introduction 9

■ Basic information about CROATIA osiguranje d.d. 11

■ Market position of the Company in 2012 21

■ Performance indicators 25

■ Analysis of premiums and claims in 2012 26

■ Investments 34

■ Statement on implementation of the Corporate Governance Code 41

■ Risk Management Report 43

■ Description of all significant business events after the end of the fiscal year 48

■ Expected future development of the Company 49

■ INDEPENDENT AUDITOR’S REPORT

■ Independent Auditor’s Report 51

■ Responsibility for financial statements 53

■ ANNUAL FINANCIAL STATEMENTS FOR 2012

■ Financial statements 57

■ Basis of preparation of financial statements 64

■ Summary of accounting policies 65

■ Notes to the Statement of Comprehensive Income 83

■ Notes to the Statement of Financial Position 92

Contents

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■ CONSOLIDATED ANNUAL REPORT OF THE COMPANY FOR 2012

■ CROATIA osiguranje Group 117

■ Description and review of the Group Companies’ business activities 119

■ Insurance companies 120

■ Non-insurance companies 147

■ Management Board’s Report on Business Result of the Group 163

■ Expected future development of consolidated companies as a whole 167

■ Activities of subsidiaries as a whole in the field of research and development 168

■ Main characteristics of the subsidiaries’ internal control and risk management systems 169

■ Statement on Implementation of the Corporate Governance Code 171

■ INDEPENDENT AUDITOR’S REPORT

■ Independent auditor’s report 173

■ Responsibility for financial statements 175

■ ANNUAL CONSOLIDATED FINANCIAL STATEMENTS FOR 2012

■ Financial statements 179

■ Legal framework, activity and employees 188

■ Basis for preparation of financial statements 189

■ Consolidation 190

■ Basis of consolidation 190

■ Notes to the Statement of Comprehensive Income 191

■ Notes to the Statement of Financial Position 200

■ Audited annual financial statements in accordance with the Rules on Structure and content of financial statements 217

■ Harmonization of consolidated financial statements 227

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Introduction

Even in this, very demanding, fiscal year CROATIA osiguranje d.d. has warranted the trust its clients have given it for 128 years. The company has remained a stable and profitable business and, despite the recession, has increased its gross profit.

The market share of CROATIA osiguranje d.d., based on the total premiums written by all insurance companies in the Republic of Croatia at the end of 2012, amounted to 30,0 % (excluding Croatia zdravstveno osiguranje, whose market share is 1,1 %).

In 2012, CROATIA osiguranje d.d. realized total written premiums in the amount of HRK 2.707,7 million, which represents a 3, 0% decrease in comparison to the previous year. Written non-life insurance premiums declined by 4,4 %. However, the Company did experience an increase of 6,5 % in the life insurance segment in comparison to the previous year.

Gross settled claims in the period from January to December 2012 amount to HRK 1.601,3 million, which is 8,0 %, or HRK 139, 7 million less than the previous year. Non-life insurance exhibits a drop in gross settled claims, by 6,1 %, and life insurances gross settled claims are 16,9 % less than in the previous year.

Total revenue of CROATIA osiguranje d.d. amounted to HRK 2.796,1 million, which is 1,2 % less than in the previous year. Total expenditures (without corporate income tax) amounted to HRK 2.655,7 million, which is 2,5 % less than in the previous year.

In the period from January to December 2012, realized gross profit of the Company amounted to HRK 140,3 million, which is 34,0 % more than in the previous year.

CROATIA osiguranje d.d. has continuously worked on not only improving our existing products, but also on producing new ones. This is done with the aim of achieving and maintaining a high level of satisfaction among clients and their loyalty, which has earned us the leading position in the Croatian insurance market.

By constantly tracking the current situation and the conditions of the financial and economic markets, the Company continues to improve its products and introduce new ones, with the aim of contributing to the quality of the insured persons’ standard of living. In 2012 the Company was the first in the market to offer “Standard of Living” insurance, which protects, at a very affordable premium, the standard of living for the insured persons in case of incapacity to work. With that objective in mind, we have also developed the product RIZIKO PLUS, which provides, unlike the classic risk insurance where the beneficiary was the bank, the possibility of full RIZIKO PLUS insurance for citizens and legal entities. Another new product is GARANT life insurance which, for the first time in the Croatian market, offers the security of invested capital with a guaranteed profit of 17 % in five years.

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Throughout 2012, great attention was paid to corporate social responsibility. This is why we have finished this fiscal year with over a million Kuna of donations for 60 humanitarian, educational and cultural programs. Some of these projects are “Good People for the Children of Croatia” and “The Friend Who Cares, Understands and Encourages”. A special donation was made for the “Krijesnica” association, which provides for children and families of patients suffering from malignant diseases. Here CROATIA osiguranje d.d. donated 10 % of the value of every paid-in “Standard of Living” insurance policy.

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Basic information onCROATIA osiguranje d.d.

CROATIA osiguranje d.d. was founded in 1884 and since its founding it has held the leading position in the insurance market in the Republic of Croatia, making it the most successful insurance company in the country. CROATIA osiguranje d.d. (the Company) with registered seat at Miramarska 22 in Zagreb, is entered in the Court Register of the Commercial Court in Zagreb under the Company Registration Number (MBS): 080051022. The activities of the Company involve all types of life and non-life insurance, as well as other closely related business activities.

Registration and business activities of the Company

CROATIA osiguranje d.d. (the Company) with registered seat at Miramarska 22 in Zagreb, is entered in the Court Register of companies at the Commercial Court in Zagreb under the Company Registration Number (MBS) 080051022 and PIN 26187994862. The Company’s activities include all types of life and non-life insurance, as well as other closely related activities.

Company’s business activities include writing insurance business which implies finalizing life and non-life insurance contracts, particularly the following:

■ Life insurance,

■ Annuity insurance,

■ Additional life insurance,

■ Other types of life insurance,

■ Life and annuity insurance connected with investment funds units,

■ Accident insurance,

■ Health insurance,

■ Road motor vehicles insurance,

■ Railroad rolling stock insurance,

■ Aircraft insurance,

■ Vessel insurance,

■ Insurance for goods in transit,

■ Insurance against fire and natural disasters,

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■ Other types of property insurance,

■ Motor liability insurance,

■ Aircraft liability insurance,

■ Boat liability insurance,

■ Other types of liability insurance,

■ Loan insurance/credit insurance,

■ Surety insurance,

■ Miscellaneous financial loss insurance,

■ Legal protection costs insurance,

■ Travel insurance.

The Company also performs the following tasks which are directly or indirectly connected with insurance business, these being:

■ Brokerage in sale or the sale of items acquired by the Company during its performance of insurance activities,

■ Taking measures aimed at preventing and removing the threats to insured persons’ property and the persons themselves,

■ Evaluating exposure to risk of the insured building and damage assessment,

■ Performing other intellectual and technical services pertaining to insurance business.

Organizational structure

The organization of the Company is regulated by the Articles of Association, Decision of the Supervisory Board on the number of the Management Board members and their duties, and the Decision of the Management Board on the organization of the Company’s business. The Company’s organizational structure is divided into two basic units: the Head Office and the branch offices. The Company’s branch offices’ names indicate the town where they are located.

The organization of the Head Office is determined by the Decision on Coordination of Business Activities in the Head Office as well as the Decision on Job Classification in CROATIA osiguranje d.d. - Head Office, defining the organizational forms and the management hierarchy. Jobs in the Head Office are defined by the groups of business activities coordinated by individual members of the Management Board. A new organizational structure for the Head Office was defined in 2012 in order to achieve strategic objectives, cost reduction, and a more efficient work in the Head Office, as well as a better control over business operations.

The organizational parts of the Head Office are grouped into three organizational units. The first organizational unit includes all underwriting organizational parts falling under the responsibility of the Insurance Business Management Office. The second organizational unit, the Finance and Accounting Management Office, includes organizational parts performing the tasks of managing business processes of investment, finance and accounting. The third organizational unit, the Risk Management and Business Support Management Office, includes organizational parts which serve as support to business activities.

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The new organizational structure of the Head Office was introduced on October 11, 2012, comprising the following:

■ Management Board

■ Management Board Office

■ Strategic Development Office

■ Appointed Certified Actuary

■ Internal Audit Department

Insurance Business Management Office comprises:

■ Insurance Sales Department

■ Property Insurance Department

■ Transport and Credit Insurance Department

■ Motor Vehicles Insurance Department

■ Claim Settlement Development Department

■ Life and Personal Insurance Department

The Finance and Accounting Management Office comprises:

■ Investment Department

■ Financial Business Department

■ Corporate Accounting and Controlling Department

The Risk Management and Business Support Office comprise:

■ IT Support Department

■ Procurement and General Affairs Department

■ Risk Management Department

■ Legal Affairs Department

■ Occupational Health, Fire and Environmental Safety Unit

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Head Office organizational scheme

Management Board

Management Board Office

Internal Audit Department

Strategic Development Office

Appointed Certified Actuary

Insurance Business Management Office

Finance and Accounting Management Office

Business SupportManagement Office

Insurance Sales Department

Property Insurance Department

Transport and Credit Insurance Department

Motor Vehicles Insurance Sector

Claim Settlement Development Sector

Life and Personal Insurance Sector

Investment Department

Financial Business Department

Corporate Accounting and Controlling Department

IT Support Department

Procurement and General Affairs Department

Risk Management Department

Legal Affairs Department

Occupational Health, Fire and Environmental Safety Unit

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Branch offices of CROATIA osiguranje d.d. (23 of them) cover the whole territory of the Republic of Croatia, and they are grouped according to 6 regions:

■ REGION 1: Branch offices Dubrovnik, Split, Šibenik and Zadar

■ REGION 2: Branch offices Gospić, Karlovac, Pula and Rijeka

■ REGION 3: Branch offices Čakovec, Koprivnica, Varaždin and Zabok

■ REGION 4: Branch offices Bjelovar, Kutina, Sisak and Virovitica

■ REGION 5: Branch offices Osijek, Požega, Slavonski Brod and Vinkovci

■ REGION 6: Branch offices Zagreb, greater Zagreb area ≤ Velika Gorica and PIK (Transport and Credit) Zagreb

Branch offices of CROATIA osiguranje d.d. in the Republic of Croatia

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Management and organization of business

Pursuant to the Companies Act, Insurance Act and the Articles of Association of the Company, the Company’s bodies are: the Supervisory Board, the Management Board and the General Assembly. Duties and responsibilities of these bodies are prescribed by the acts mentioned above.

The Company’s Supervisory Board

In the 36th meeting of the General Assembly of CROATIA osiguranje d.d., held on 15 June 2012, the following members of the Supervisory Board were discharged from their duty:

Prof. Nikola Mijatović, PhD, ChairmanMrs. Nataša Duspara, Deputy Chairwoman,Dr. Gzim Redžepi, Member, Mr. Josip Zaher, Member,Mr. Ante Obuljen, Member,Mr. Miroslav Hraščanec, Member

and new members of the Supervisory Board were elected: Mr. Mladen Blažević, Chairman,Mrs. Vesna Trnokop ≤ Tanta, Deputy Chairwoman,Prof. Petar Miladin, PhD, Member,Prof. Josip Tica, PhD, Member, Mrs. Đurđa Hunjet, Member andMr. Miroslav Hrašćanec remained a Member of the Supervisory Board as the employees’ representative.

In the period from January to December 2012 a total of 12 meetings of the Supervisory Board were held, two of which were attended by the following persons: prof. Nikola Mijatović, PhD, Mrs. Nataša Duspara, Dr. Gzim Redžepi, Mr. Josip Zaher, Mr. Ante Obuljen and Mr. Miroslav Hrašćanec, and the Supervisory Board comprising Mr. Mladen Blažević, Mrs. Vesna Trnokop ≤ Tanta, prof. Petar Miladin, PhD, prof. Josip Tica, PhD, Mrs. Đurđa Hunjet and Mr. Miroslav Hrašćanec held 10 meetings.

The Company’s Management Board

On 27 July 2012, the 6th meeting of the Supervisory Board of CROATIA osiguranje d.d. was held, where the Decision was made on granting discharge to Zdravko Zrinušić, Chairman of the Management Board and Silvana Ivančić, Member of the Management Board of CROATIA osiguranje d.d. and the Decision on appointment of new members of the Management Board of CROATIA osiguranje d.d. The new Management Board started its work on 31 August 2012, after having received a license from HANFA and after having been entered into the Court Register. The new members of the Management Board are:

Krešimir Starčević, Chairman and Ivan Fabijančić, Member

In the period from January to December 2012 there were 46 meetings of the Company’s Management Board, during which the Management Board made decisions and conclusions in accordance with the provisions of the Articles of Association and the Rules of Procedure of the Management Board.

In the period between 1 January 2012 and 30 August 2012 the Management Board operated with the following members: Zdravko Zrinušić, Chairman and Silvana Ivančić, Member, during which time 29 meetings were held. In the period from 30 August 2012 to 31 December 2012 the Management Board had the following members: Krešimir Starčević, Chairman and Ivan Fabijančić, Member, during which time 17 meetings were held.

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In the 37th General Assembly, held on 27 September 2012, amendments to the Company’s Articles of Association were made and adopted, for which the Supervisory Board issued the consolidated text in its 8th

meeting held on 30 October 2012.

Human resources

The value of an organization lies fundamentally in quality human resources with specific knowledge, abilities and skills. With that in mind, CROATIA osiguranje d.d. has also dedicated this year to the development of human resources management, with an emphasis on the development of talent management. Namely, talent management is becoming a discipline which is being paid more and more attention in modern corporate management, and hence in CROATIA osiguranje d.d. as well. The aim of talent management in CROATIA osiguranje d.d. is to acquire and retain employees with high competencies, ensuring their personal growth and development, with the possibility of promotion in one’s business environment.

On 31 December 2012 CROATIA osiguranje d.d. employed 2827 employees, 1690 of whom were women, and 1137 were men.

There were no significant fluctuations in the Company’s labor force throughout the year, but the trend of increased number of employees in the sales segment continues to grow in relation to the support segments. This resulted in an increase of the so-called front office by an additional 2 % (53% /47%) in relation to the back office.

Overview of employee structure according to professional qualifications as of 31 December 2012

QUALIFICATIONSNUMBER OF EMPLOYEES SHARE IN TOTAL NUMBER OF EMPLOYEES IN %

31 Dec 2011 31 Dec 2012 31 Dec 2011 31 Dec 2012

PhD or MS/MA degree 56 76 2,1 2,7

University qualifications 831 840 30,7 29,7

Two-year college degree 398 424 14,7 15,0

Secondary school education 1.377 1.448 50,9 51,2

Lower education 43 39 1,6 1,4

TOTAL 2.705 2.827 100,0 100,0

Employee structure according to age as of 31 December 2012

18 2558 65

26 33

50 57

34 4142 49

8,9 % 2,7 %

26,2 %

18,8 %

21,4 % 22,0 %

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Equity and shares

Equity of the Company amounts to HRK 442.887.200 and it is divided into 316.348 shares with the par value of HRK 1.400. All shares are initial public offering shares and they are marked as follows:

■ 307.598 ordinary shares with the code CROS-R-A;

■ 8.750 preferred shares with the code CROS-P-A.

Each share, ordinary and preferred, relates to 1 (one) vote at the General Assembly. All shares have been paid in entirety, issued in non-material form, they are free for transfer and they have been recorded in the depository of the Central Depository and Clearing Company. CROATIA osiguranje d.d. has no ownership stake in its shares.

Since 2004 the Company’s shares have been quoted in the first quotation of the Zagreb Stock Exchange d.d., at the time shares of the Company started being traded it was the publicly listed company in the Republic of Croatia with majority state ownership.

Changes in prices of shares

Overview of movements in the prices of shares of CROATIA osiguranje d.d.

6.006,02

6.400,01

5.850,00

6.490,00

3.910,00

6.000,00 6.200,13

5.750,24

6.300,00

1.000,00

2.000,00

3.000,00

4.000,00

5.000,00

6.000,00

7.000,00

31 Dec 2011 31 March 2012 30 June 2012 30 Sep 2012 31 Dec 2012

CROS-P-A CROS-R-A

4.000,00

in HRK

The highest price of preferred shares of CROATIA osiguranje d.d., in the period from January to December 2012 amounted to HRK 7.000,00 and the lowest was HRK 4.400,01. The highest price of ordinary shares of CROATIA osiguranje d.d., in the period from January to December 2012 amounted to HRK 7.379,00 and the lowest was HRK 3.900,00.

The price of preferred shares of CROATIA osiguranje d.d. as of 31 December 2012 amounted to HRK 6.490,00, while on the same day in 2011 it amounted to HRK 3.910,00. The price of preferred shares of CROATIA osiguranje d.d. as of 31 December 2012 amounted to HRK 6.300,00, while on the same day in 2011 it amounted to HRK 4.000,00.

in HRK

Last price 31 Dec 2011 31 March 2012 30 June 2012 30 Sep 2012 31 Dec 2012

CROS-P-A 3.910,00 6.000,00 6.200,13 5.750,24 6.490,00

CROS-R-A 4.000,00 6.006,02 6.400,01 5.850,00 6.300,00

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Ownership structure of CROATIA osiguranje d.d. as of 31 Dec 2012

SHAREHOLDER NUMBER

OF SHARES

31 Dec 2012

AMOUNT IN HRK % STAKE IN EQUITY

1. AUDIO / Republic of Croatia 253.807 355.329.800,00 80,23

2. Raiffeisenbank Austria d.d. ≤ custody account 19.774 27.683.600,00 6,25

3.Hrvatska poštanska banka d.d. ≤ basic and custody account

6.579 9.210.600,00 2,08

4.Societe Generale ≤ Splitska banka d.d. ≤ custody account

6.550 9.170.000,00 2,07

5. Hypo Alpe-Adria-Bank d.d. ≤ custody account 3.595 5.033.000,00 1,14

6. PBZ d.d. ≤ custody account 1.800 2.520.000,00 0,57

7. Kraš d.d. 1.400 1.960.000,00 0,44

8. Auto Hrvatska d.d. 1.004 1.405.600,00 0,32

9.Erste & Steiermarkische bank d.d. ≤ basic and custody account

709 992.600,00 0,22

10. Komercijalna banka d.d. ≤ in bankruptcy 700 980.000,00 0,22

11. Bahovec Srečko 566 792.400,00 0,18

12. Adriacommerce 500 700.000,00 0,16

13. Radić Antun 412 576.800,00 0,13

14. Tankerska plovidba 400 560.000,00 0,13

15. Škaro Miroslav 380 532.000,00 0,12

16. Fran Mihaljević ≤ Infectious Diseases Clinic 330 462.000,00 0,10

17. Cemex Hrvatska d.d. 249 348.600,00 0,08

18.Interkapital vrijednosni papiri d.o.o. ≤ custody account

234 327.600,00 0,07

19. Končar ≤ elektroindustrija d.d. 230 322.000,00 0,07

20. Eko Međimurje d.d. 226 316.400,00 0,07

21. Other shareholders 16.903 23.664.200,00 5,35

TOTAL 316.348 442.887.200,00 100,00

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Market position of the Company in 2012

Total written premiums of all insurance companies in the Republic of Croatia, in the period from January to December 2012 amounted to HRK 9.038,5 mil., which represents a reduction of 1,2 % in comparison to the same period in the previous year.

Overview of written premiums according to insurance companies

INSURERWRITTEN GROSS PREMIUMS INDEX STAKE in %

Jan - Dec 2011 Jan - Dec 2012 2012/ 2011 2011 20121 4 5 6

Croatia 2.792.781.016 2.707.693.805 97,0 30,5 30,0Allianz Zagreb 1.025.551.717 1.089.353.535 106,2 11,2 12,1Euroherc 1.000.381.874 976.512.057 97,6 10,9 10,8Jadransko 640.263.859 627.318.864 98,0 7,0 6,9Kvarner VIG 448.095.530 412.009.815 91,9 4,9 4,6Basler osig. Zagreb 411.542.517 404.041.288 98,2 4,5 4,5Grawe Hrvatska 392.680.012 391.703.499 99,8 4,3 4,3Triglav 395.951.574 347.861.771 87,9 4,3 3,9Generali 328.485.834 340.451.753 103,6 3,6 3,8Merkur 284.799.083 285.302.209 100,2 3,1 3,2Uniqa 233.660.157 226.088.783 96,8 2,6 2,5Agram life insurance 200.739.630 203.282.855 101,3 2,2 2,3HOK 176.673.204 185.724.582 105,1 1,9 2,1Helios VIG 176.119.708 179.951.540 102,2 1,9 2,0Sunce 172.525.434 168.233.917 97,5 1,9 1,9Erste VIG 104.333.074 115.725.894 110,9 1,1 1,3Croatia zdravstveno 97.276.121 98.752.184 101,5 1,1 1,1BNP Paribas Cardif 68.244.942 75.630.359 110,8 0,8 0,8Velebit 67.106.889 65.240.629 97,2 0,7 0,7Societe Generale 37.793.201 42.063.416 111,3 0,4 0,5Izvor 18.640.081 32.115.606 172,3 0,2 0,4Ergo life insurance* 43.289.178 20.767.107 48,0 0,5 0,2KD Life 12.268.165 15.849.456 129,2 0,1 0,2Velebit life insurance 8.008.736,2 11.124.199 138,9 0,1 0,1HKO 6.687.300 7.678.445 114,8 0,1 0,1Wüstenrot life insurance 0 6.818.243 ≤ 0,0 0,1Ergo* 1.346.387 1.179.450 87,6 0,0 0,0Total 9.145.245.224 9.038.475.262 98,8 100,0 100,0

Source: Croatian Insurance Bureau (HUO)

in HRK

In the period from January to December 2012, the market share of CROATIA osiguranje d.d. in total written premiums of all insurance companies amounted to 30, 0 % (without Croatia zdravstveno osiguranje /Croatia Health Insurance/, which records a share of 1, 1 %).

* On 6 September 2012 there was a change in the name of “Victoria osiguranje d.d. for Life and Non-life Insurance” to “Ergo osiguranje d.d. for Life and Non-life Insurance”.

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Graphical presentation of the market share of 5 largest insurers in the Republic of Croatia


Kvarner VIG 4,6 %

Euroherc 10,8 %

CROATIA osiguranje 30,0 %

Allianz Zagreb 12,1 %

Others 35,6 %

Jadransko 6,9 %

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The share of CROATIA osiguranje d.d. in total written premiums in the Republic of Croatia according to insurance types

TYPE OF INSURANCEJan - Dec 2012

SHARE OF CO IN THE INSURANCE

MARKET

CRO MARKET CO %

1 2 3 4 5

1 Accident insurance 504.047.953 175.708.076 34,9

2 Health insurance 238.667.629 15.257.635 6,4

3 Road motor vehicles insurance 720.518.418 271.133.697 37,6

4 Railroad rolling stock insurance 4.346.005 3.957.146 91,1

5 Aircraft insurance 7.536.388 6.997.118 92,8

6 Vessel insurance 181.426.980 113.616.940 62,6

7 Insurance for goods in transit 51.616.254 36.547.367 70,8

8 Insurance against fire and natural disasters 586.510.882 242.744.997 41,4

9 Other property insurance 709.204.937 421.309.550 59,4

10 Motor vehicles liability insurance 2.939.903.773 799.292.567 27,2

11 Aircraft liability insurance 6.045.653 5.063.032 83,7

12 Vessel liability insurance 35.890.419 20.104.559 56,0

13 Other liability insurance 288.439.243 116.745.864 40,5

14 Credit insurance 147.360.164 60.220.499 40,9

15 Surety insurance 8.050.311 646.321 8,0

16 Insurance against miscellaneous financial losses 89.670.837 45.776.345 51,0

17 Legal protection insurance 2.844.768 ≤ ≤

18 Travel insurance 55.240.702 8.752.662 15,8

19 Annuity insurance 2.134.691.019 341.650.035 16,0

20 Supplemental insurance with life insurance 8.225.471 2.625.139 31,9

21 Wedding or birth insurance 165.224.227 19.490.808 11,8

22 Osiguranje za slučaj vjenčanja ili rođenja 8.243.703 ≤ ≤

23Life or annuity insurance where the insured party assumes the investment risk

144.769.527 53.446 0,0

24 Tontine ≤ ≤ ≤25 Insurance with capitalized payments ≤ ≤ ≤

TOTAL (non-life insurance, types 1 ≤ 18) 6.577.321.316 2.343.874.377 35,6

TOTAL (life insurance, types 19 ≤ 25) 2.461.153.946 363.819.427 14,8

GRANDTOTAL (types 1 ≤ 25) 9.038.475.262 2.707.693.805 30,0

in HRK


24


TYPES OF INSURANCEJan - Dec 2011 Jan - Dec 2012

INDEX2012 / 2011

MARKET CO MARKET CO MARKET CO

1 2 3 4 5 6 7 8

1 Accident insurance 517.410.367 183.477.802 504.047.953 175.708.076 97,4 95,8

2 Health insurance 255.146.977 20.528.493 238.667.629 15.257.635 93,5 74,3

3 Motor road vehicles insurance 797.849.422 289.318.510 720.518.418 271.133.697 90,3 93,7

4 Railroad rolling stock insurance 5.325.247 4.347.307 4.346.005 3.957.146 81,6 91,0

5 Aircraft insurance 15.129.611 14.351.530 7.536.388 6.997.118 49,8 48,8

6 Vessel insurance 205.142.104 132.145.253 181.426.980 113.616.940 88,4 86,0

7 Insurance of goods in transit 62.119.694 46.214.326 51.616.254 36.547.367 83,1 79,1

8Insurance against fire and natural disasters

565.981.448 259.345.408 586.510.882 242.744.997 103,6 93,6

9 Other property insurance 755.922.476 460.962.934 709.204.937 421.309.550 93,8 91,4

10 Motor vehicles liability insurance 2.935.198.221 803.009.374 2.939.903.773 799.292.567 100,2 99,5

11 Aircraft liability insurance 2.564.748 1.287.031 6.045.653 5.063.032 235,7 393,4

12 Vessel liability insurance 36.622.213 21.578.653 35.890.419 20.104.559 98,0 93,2

13 Other liability insurance 289.347.729 123.713.259 288.439.243 116.745.864 99,7 94,4

14 Credit insurance 130.084.459 42.846.857 147.360.164 60.220.499 113,3 140,5

15 Surety insurance 7.868.615 614.469 8.050.311 646.321 102,3 105,2

16Insurance against miscellaneousfinancial losses

82.689.591 41.422.892 89.670.837 45.776.345 108,4 110,5

17 Legal protection insurance 2.911.104 ≤ 2.844.768 ≤ 97,7 ≤

18 Travel insurance 46.663.469 5.884.842 55.240.702 8.752.662 118,4 148,7

19 Life insurance 2.092.894.927 318.780.729 2.134.691.019 341.650.035 102,0 107,2

20 Annuity insurance 9.046.899 2.235.833 8.225.471 2.625.139 90,9 117,4

21Supplemental insurance with lifeinsurance

156.469.110 20.679.142 165.224.227 19.490.808 105,6 94,3

22 Wedding and birth insurance 8.969.056 ≤ 8.243.703 ≤ 91,9 ≤

23Life or annuity insurance where the insured party assumes theinvestment risk

163.887.736 36.374 144.769.527 53.446 88,3 146,9

24 Tontine ≤ ≤ ≤ ≤ ≤ ≤

25 Insurance with capitalized payment ≤ ≤ ≤ ≤ ≤ ≤

TOTAL (non-life insurance, types 1 ≤ 18)

6.713.977.496 2.451.048.938 6.577.321.316 2.343.874.377 98,0 95,6

TOTAL (life insurance,types 19 ≤ 25)

2.431.267.728 341.732.078 2.461.153.946 363.819.427 101,2 106,5

GRANDTOTAL (types 1 ≤ 25) 9.145.245.224 2.792.781.016 9.038.475.262 2.707.693.805 98,8 97,0

Overview of written premium according to insurance typesin HRK


25


Performance indicators

The Company’s business performance is monitored through profitability and cost-efficiency indicators which, on the final day of the reporting period, showed satisfactory values.

All profitability indicators exhibit growth in comparison to the same period in the previous year, as a result of stable business operations and increased profit.

DESCRIPTION Jan - Dec 2011 Jan - Dec 2012INDEX 3 : 2

1 2 3 4

PROFIT AND LOSS ACCOUNT ≤ DATA

Total income 2.829.491.614 2.796.057.422 98,8

Gross premiums written* 2.792.781.016 2.707.693.805 97,0

Total expenditure (without income tax) 2.724.792.019 2.655.713.578 97,5

Settled claims, gross 1.741.057.518 1.601.347.002 92,0

Income before tax (gross income) 104.699.595 140.343.844 134,0

Income after tax (net income) 78.666.745 118.425.061 150,5

BALANCE SHEET ≤ DATA

Total assets 7.799.753.360 8.154.969.994 104,6

Capital and reserves 1.641.086.136 1.751.600.522 106,7

Technical provisions 5.706.237.624 5.720.743.463 100,3

Special provision for life insurance where the policyholder bears the investment risk

16.320.627 11.425.214 70,0

Investments 5.330.950.235 5.625.259.913 105,5

PROFITABILITY INDICATORS

ROA (return on assets %) (net income / assets) 1,01 1,45 144,0

ROE (return on equity %) (net income / capital and reserves) 4,79 6,76 141,0

Gross profit margin (%) (gross income / total income) 3,70 5,02 135,6

INSURANCE INDICATORS (NON-LIFE)

Claims ratio 60,1 53,5 89,0

Expense ratio 34,1 33,2 97,4

Combined ratio 94,2 86,7 92,0

INDICATORS OF EFFICIENCY

Efficiency of total business operations (total revenue/total expenditure %)

103,8 105,3 101,4

OTHER INDICATORS

Number of employees 2.705 2.827 104,5

Total revenue per employee 1.046.023 989.055 94,6

Total assets per employee 2.883.458 2.884.673 100,0

Written premium per employee 1.032.451 957.798 92,8

Income (before tax) per employee 38.706 49.644 128,3

in HRK

* With coinsurance premium

In 2012 the Company operated with a high liquidity ratio which as of 31 Dec 2012, was 22,2. In 2012 the Company operated with a high liquidity ratio which as of 31 Dec 2012, was 22,2.

26


Analysis of premiums and claims in 2012

Written premium

In the period from Jan to Dec 2012 the written premium amounted to HRK 2.707,7 million and shows a reduction of 3, 0 % when compared to the same period in the previous year.

The plan was realized at 96, 5 %, which is 3, 5 percentage points less than the annual plan for 2012. The annual plan for written premium was realized by the Transport and Credit Department and the Life Insurance Department.

Analysis of written premium

INTERNAL CLASSIFICATIONOF INSURANCE

PLAN 2012REALIZED REALIZED INDEXES

Jan - Dec 2011 Jan - Dec 2012 4 : 2 4 : 3

1 2 3 4 5 6

Property 849.534 848.365 792.857 93,3 93,5

Transport and credit* 272.234 304.706 285.318 104,8 93,6

Motor vehicles 1.119.428 1.088.215 1.067.989 95,4 98,1

Personal non-life insurance 211.578 209.762 197.711 93,4 94,3

Non-life insurance 2.452.775 2.451.049 2.343.874 95,6 95,6

Life insurance 352.150 341.732 363.819 103,3 106,5

TOTAL 2.804.925 2.792.781 2.707.694 96,5 97,0

in 000 HRK


27


Graphical presentation of the structure of gross written premiums

Life insurance 13,5 %

Motor vehicles 39,4 %

Personal non-life insurance 7,3 %

Property 29,3 %

Transport and credit 10,5 %

Graphical presentation of movements in gross written premiums

0

100.000

200.000

300.000

400.000

500.000

600.000

700.000

800.000

900.000

1.000.000

1.100.000Realized Jan - Dec 2011 in 000 HRK

Transport andcredit

Property Motor vehicles Personalnon-life insurance

Life insurance

Realized Jan - Dec 2012

Graphical presentation of realization of plan for gross written premium

0 200.000 1.000.000400.000 600.000 800.000

Realized Jan - Dec 2012Plan for 2012

Motor vehicles

Property

Transport andcredit

Personal non-lifeinsurance

Life insurance

1.200.000

in 000 HRK

28


Graphical presentation of written premium according to sales channels

in 000 HRK

SALES CHANNELTOTAL WRITTEN PREMIUM INDEX

2012/2011 Jan - Dec 2011 SHARE in % Jan - Dec 2012 SHARE in %

1 2 3 4 5 6

Sales consultants 75.743 2,7 57.313 2,1 75,7

Sales consultants for construction and entrepreneurship

71.570 2,6 85.243 3,1 119,1

No-commission sales consultants 968.061 34,7 918.374 33,9 94,9

Consultants 1.115.374 39,9 1.060.929 39,2 95,1

Agents 509.949 18,3 535.869 19,8 105,1

Head agents 64.659 2,3 65.640 2,4 101,5

Agents 574.608 20,6 601.509 22,2 104,7

Agencies 574.189 20,6 547.160 20,2 95,3

Agencies at MOT test stations 113.294 4,1 91.112 3,4 80,4

Travel agencies 1.562 0,1 1.637 0,1 104,8

Agencies 689.045 24,7 639.909 23,6 92,9

Commissioners 145.028 5,2 131.662 4,9 90,8

Banks 31.369 1,1 46.126 1,7 147,0

Brokers 189.555 6,8 216.372 8,0 114,1

Employees of CROATIA osiguranja* 7.346 0,3 3.914 0,1 53,3

Internet sales 1.576 0,1 2.102 0,1 133,4

Other 38.881 1,4 5.170 0,2 13,3

Other 47.802 1,7 11.186 0,4 0,2

TOTAL 2.792.781 100,0 2.707.694 100,0 97,0

Overview of written premium according to sales channels


Consultants 39,2 %

Agents 22,2 %

Other 0,4 %

Banks 1,7 %

Brokers 8,0 %

Commissioners 4,9 %

Agencies 23,6 %

29


Premium collected

In the accounting period from Jan to Dec 2012 the total premium collected amounted to HRK 2.696,3 million, which is 1,9 % less than in the same period in the previous year.

The plan was realized by 1,1 percentage points over the annual plan.

Overview of premiums collected

INTERNAL CLASSIFICATION OF INSURANCE

PLAN 2012REALIZED REALIZED INDEXES

Jan - Dec 2011 Jan - Dec 2012 4 : 2 4 : 3

1 2 3 4 5 6

Property 780.677 818.835 774.929 99,3 94,6

Transport and credit 254.698 300.012 299.169 117,5 99,7

Motor vehicles 1.079.681 1.080.432 1.057.732 98,0 97,9

Personal non-life insurance 199.121 208.726 200.606 100,7 96,1

Non-life insurance 2.314.178 2.408.005 2.332.436 100,8 96,9

Life insurance 352.150 341.732 363.819 103,3 106,5

TOTAL 2.666.328 2.749.737 2.696.255 101,1 98,1

in 000 HRK

Graphical presentation of the structure of premiums collected


Personal non-life insurance 7,4 %

Transport and credit 11,1 %Motor vehicles 39,2 %

Property 28,8 %

30


Graphical presentation of movements of premiums collected

0

100.000

200.000

300.000

400.000

500.000

600.000

700.000

800.000

900.000

1.000.000

1.100.000Realized Jan - Dec 2011 Realized Jan - Dec 2012 in 000 HRK

Transport andcredit

Property Motor vehicles Personal non-lifeinsurance

Life insurance

Graphical presentation of realization of plan for collected premiums

0 200.000 1.000.000400.000 600.000 800.000

Realized Jan - Dec 2012Plan for 2012

Motor vehicles

Property

Transport andcredit

Personal non-lifeinsurance

Life insurance

1.200.000

in 000 HRK

31


Settled claims

In the period from Jan to Dec 2012 gross settled claims amounted to HRK 1.601,3 million, which represents a reduction of 8,0 % in comparison to the same period in the previous year.

Overview of gross1 settled claims


GROSSSETTLED CLAIMS

GROSSSETTLED CLAIMS

INDEX

Jan - Dec 2011 Jan - Dec 2012 3 : 2

1 2 3 4

Property 567.848 551.902 97,2

Transport and credit 162.073 139.871 86,3

Motor vehicles 612.939 566.364 92,4

Personal non-life insurance 84.972 82.846 97,5

Non-life insurance 1.427.832 1.340.983 93,9

Life insurance 313.225 260.364 83,1

TOTAL 1.741.058 1.601.347 92,0

1 Gross settled claims are comprised of the amount of net settled claims decreased by the received recourse and the amount of saved assets, but increased by the costs of recourse requests and other insurance claims expenses.

2 Net settled claims is the accrued and granted amount of compensation for the insured party, increased by interest and direct costs of settlement of claim.

in 000 HRK

Overview of net2 settled claims


NETSETTLED CLAIMS

NETSETTLED CLAIMS

INDEX

Jan - Dec 2011 Jan - Dec 2012 3 : 2

1 2 3 4

Property 566.961 550.706 97,1

Transport and credit 229.431 218.979 95,4

Motor vehicles 642.155 602.174 93,8

Personal non-life insurance 83.662 81.490 97,4

Non-life insurance 1.522.209 1.453.349 95,5

Life insurance 313.175 260.317 83,1

TOTAL 1.835.384 1.713.665 93,4

in 000 HRK

32


Graphical presentation of movements in net settled claims

Structure of net settled claims


Personal non-lifeinsurance 4,8 %

Transport and credit 12,8 %

Motor vehicles 35,1 %

Property 32,1 %

050.000

200.000250.000

400.000450.000500.000550.000600.000650.000

Realized Jan - Dec 2011 Realized Jan - Dec 2012 in 000 HRK

Transport andcredit

Property Motor vehicles Personal non-lifeinsurance

Life insurance

300.000350.000

100.000150.000

33


Efficiency in claims settlement

In the period from Jan Dec 2012 there was an increased number of claims being processed, as well as the number of settled claims, which resulted in a 1,4 % increase in efficiency in claim settlements.

No. DESCRIPTION Jan - Dec 2011 Jan - Dec 2012INDEX4 : 3

1 2 3 4 5

I CLAIMS FROM PROVISIONS

1. Number of claims in provisions 35.900 36.122 100,6

2. Number of claims settled from provisions 17.561 17.789 101,3

3. Number of claims settled at no cost 4.399 4.541 103,2

4. Number of handled claims 21.960 22.330 101,7

5. Number of unsettled claims 13.940 13.792 98,9

6. Percentage of settled claims from provisions (4/1) 61,2 61,8 101,1

II CURRENT PERIOD CLAIMS

7. Number of claims reported in the current period 186.784 215.933 115,6

8. Number of settled claims in the current period 146.110 171.555 117,4

9. Number of claims settled at no cost 18.492 20.159 109,0

10. Number of handled claims 164.602 191.714 116,5

11. Number of unsettled claims 22.182 24.219 109,2

12.Percentage of claims settled in the current year (10/7)

88,1 88,8 100,7

III TOTAL CLAIMS BEING PROCESSED

13. Number of claims being processed (1+7) 222.684 252.055 113,2

14. Number of settled claims (2+8) 163.671 189.344 115,7

15. Number of claims settled at no cost (3+9) 22.891 24.700 107,9

16. Number of handled claims(4+10) 186.562 214.044 114,7

17. Number of unsettled claims (5+11) 36.122 38.011 105,2

18. Percentage of settled claims (16/13) 83,8 84,9 101,4

Overview of efficiency in claim settlement

Overview of efficiency in claims settlement according to insurance types


TOTAL CLAIMS PROCESSEDJan - Dec 2012

EFFICIENCY OF CLAIM

ETTLEMENT5 : 2

TOTAL BEING PROCESSED

TOTAL SETTLED CLAIMS

TOTAL CLAIMS SETTLED AT NO

COST

TOTAL HANDLED CLAIMS

TOTAL UNSETTLED

CLAIMS

1 2 3 4 5 6 7

Property 99.242 75.428 12.357 87.785 11.457 88,5

Transport and credit 10.624 8.528 869 9.397 1.227 88,5

Motor vehicles 106.939 78.453 6.169 84.622 22.317 79,1

Personal non-life insurance 23.573 15.977 4.907 20.884 2.689 88,6

Non-life insurance 240.378 178.386 24.302 202.688 37.690 84,3

Life insurance 11.677 10.958 398 11.356 321 97,3

TOTAL 252.055 189.344 24.700 214.044 38.011 84,9

34


Investments

Overview of macroeconomic indicators and the money and capital market in the Republic of Croatia

BReal gross domestic product was 1,9 % less in the third quarter of 2012 than it was in the same quarter in 2011, mostly as a consequence of reduced household consumption by 3,5 %, reduced expenditure for consumption of non-profit institutions which provide for households (NPUSK) by 0,6 %, and a reduction in expenditure for the state’s consumption by 0,4 %. A reduction in gross investments in fixed capital amounted to 4,3 %. Export of goods and services dropped by 0,1 %. Import of goods and services dropped by 3,3 %.3

Average annual inflation rate in 2012 was 3,4 %. In the last month of 2012 consumer prices grew by 4,7 %, and the biggest increase in prices on the annual level was in the prices of energy and food. The average annual growth rate of consumer prices in 2012 was 3,4 %, and in 2011 it was 2,3 %. If we exclude the two mentioned categories from the consumer price index, since their share in the structure of consumer prices is just under 50 %, prices have risen on average by 1 % in comparison to 2011. In 2012 inflationary pressure was created by tax increase (increased VAT rate), the increase in prices which are administratively regulated (i.e. the prices of gas and electric), as well as bad weather, (i.e. drought) which resulted in the increase in the price of food. On the other hand, because of the conditions of a prolonged recession, there was less pressure in terms of demand.4

According to the latest data published by the Croatian Bureau of Statistics, in November 2012 the number of employees in legal entities of the Republic of Croatia was 1.120.899. In comparison to October 2012, the total number of employees in legal entities dropped by 0,9 %. The number of unemployed persons increased in November 2012 in comparison to October 2012 by 4,1 %. The registered unemployment rate in November 2012 was 20,4 %.5 For the period from January to October 2012, the average monthly net salary paid per employee in legal entities of Republic of Croatia was HRK 5.457, which compared to the same period in 2011 is a nominal increase of 0,9 %, but in reality is a net decrease of 2,2 %.6

The high exchange rate of HRK against the EUR which was present in the first nine months of 2012 continued in the fourth quarter of 2012 as well. The average monthly mean exchange rate in the fourth quarter of 2012 was between 7,50 ≤ 7,53 HRK for one EUR. The Croatian National Bank had five interventions in 2012 regarding the exchange rate of HRK against EUR, and in the fourth quarter there were no such

3 Announcements and Statistical Reports, National Accounts, Croatian Bureau of Statistics 4 Announcements and Statistical Reports, Prices, Croatian Bureau of Statistics5 Announcements and Statistical Reports, Employment Rate and Salaries, Croatian Bureau of Statistics6 Announcements and Statistical Reports, Employment Rate and Salaries, Croatian Bureau of Statistics

35


interventions by the CNB. The average exchange rate in December was 7,52 HRK against one EUR. The average monthly mean exchange rate USD/HRK in the fourth quarter of 2012 ranged between 5,74 ≤ 5,87 HRK for one USD. Almost throughout the entire quarter the HRK strengthened slightly against USD, except in November. In December the exchange rate stabilized at about 5,74 HRK for one USD. Movements in this exchange rate were the consequence of movements of the currency relationship EUR - USD in the world foreign exchange market.7

Interest rates in the fourth quarter of 2012 in the Republic of Croatia‘s money market continued the trend from the previous quarter in that they declined to the levels of June 2011, when they were at a historical low. The reason behind these trends was the extremely high Kuna liquidity in the money market. The aforementioned trend was not even disrupted by the fact that in mid-December Standard & Poor’s lowered the credit rating of the Republic of Croatia to “BB+/B”, with a stable prognosis. Reference interest rates to over-night deposits in Kuna money market (ZIBOR), in the fourth quarter of 2012 moved in intervals from 0,4 % to a maximum of 1,6 %, while the one-year ZIBOR (Zagreb InterBank Offered Rate) interest rate moved within the interval of 2,9 % to 3,9 %. In the fourth quarter of 2012 interest rates of EURIBOR of all maturity were at a historical low. In 2012, the European Central Bank reduced the reference interest rate (0, 75 %) on two occasions, in order to aid in the economic recovery of EU member states. In the fourth quarter of 2012 interest rates of one-year EURIBOR continued the trends from the previous quarter, ranging from 0, 69 % at the beginning of the period to 0,54 % at the end of the period.

The Ministry of Finance of the Republic of Croatia in the fourth quarter of 2012 held only 5 auctions of treasury bills, whereas in the whole 2012 there was a total of 31 treasury bill auctions. In auctions held in the last quarter of 2012 a total of HRK 5.384,0 million in Kuna treasury bills and EUR 223, 7 million in Euro treasury bills were issued. In auctions held in 2012 the Ministry of Finance of the Republic of Croatia issued a total of HRK 23.119,0 million in treasury bills in the domestic currency and EUR 2.060,5 million in Euro-denominated treasury bills. The whole 2012 was marked by a declining trend in the yield on treasury bills of all maturity types.8

On 31 December 2012 there were 13 tranches of commercial bills in circulation, issued by 9 different issuers, in total nominal amount of HRK 258,0 million. In 2012 a total of 16 tranches of commercial bills were issued, in total nominal value of HRK 341, 4 million. Of the total issued tranches of commercial bills in 2012 four of them were denominated in Euro, in the nominal amount of HRK 106, 5 million, or 31,2 % of the total issued commercial bills. The average size of an individual tranche of commercial bills in 2012 was HRK 21,3 mil. Although in 2012 the average weighted interest rate on Kuna-denominated commercial bills with 364 days maturity was 7,93 %, the investors’ interest in commercial bills decreased despite yields which were still pretty high. The reason behind the lack of investors’ interest in commercial bills is the fact that several tranches of commercial bills were left unpaid upon maturity, which resulted in additional caution among the investors and their resorting to investment in safer forms of assets.9

At the end of the fourth quarter of 2012 the Crobex index realized the closing value of 1.740,39 points, which represents an increase of 1,47 % compared to the previous quarter in the same year. Despite the lowering of the national rating, the stock market realized minimum growth in the mentioned quarter.

7 Monthly averages of foreign currency exchange of CNB, CNB 8 www.mfin.hr; www.trzistenovca.hr 9 www.zse.hr; www.skdd.hr

36


In general, the stock market in 2012, measured by the Crobex index, remained at the same levels, i.e. the change of index was a minimal +0, 01 %.10

The Company’s investments as of 31 December 2012

In 2012, in accordance with legal regulations, CROATIA osiguranje d.d. maintained its already made investments and invested its newly available funds in available financial instruments, observing the principles of safety of investment, marketability, profitability, solvency and corresponding diversity and dispersion of such investments.

10 www.zse.hr

Overview of total investments

Graphical presentation of total investments

TYPE OF INVESTMENT31 Dec 2011 31 Dec 2012 INDEX DIFFERENCE

IZNOS % IZNOS % 4 : 2 4 - 2

1 2 3 4 5 6 7

State bonds and treasury bills 1.974.068 37,0 2.240.446 39,8 113,5 266.378

Municipal and corporate bonds and commercial bills

211.692 4,0 178.089 3,2 84,1 -33.603

TOTAL BONDS AND BILLS 2.185.760 41,0 2.418.535 43,0 110,6 232.775

Real estate 814.143 15,3 853.381 15,2 104,8 39.238

Total deposits 1.045.985 19,6 1.035.568 18,4 99,0 -10.417

Net loans 365.206 6,9 200.998 3,6 55,0 -164.208

Shares and stakes 576.825 10,8 573.199 10,2 99,4 -3.626

Investment funds 343.032 6,4 543.579 9,7 158,5 200.547

TOTAL 5.330.951 100,0 5.625.260 100,0 105,5 294.309

in 000 HRK

1.97

4.06

8

211.

692

814.

143

1.04

5.98

5

365.

206

576.

825

343.

032

2.24

0.44

6

178.

089

853.

381

1.03

5.56

8

200.

998

573.

199

543.

579

0

400.000

800.000

1.200.000

1.600.000

2.000.000

2.400.00031 Dec 2011 31 Dec 2012

State bonds &treasury bills

Mun. and corp. bondsand comm. bills

Real estate Total deposits Net loans Shares and stakes Invest. funds

in 000 HRK

37


Overview of investment of assets for the covering of technical provisions, capital and non-life insurance provisions

The value of total investments at the end of 2012 amounted to HRK 5.625,3 mil., and compared to the end of 2011 it is by HRK 294, 3 mil. higher, thus the total assets have increased by 5,5 %.

The biggest increase in assets compared to the end of 2011, an increase by 58,5 %, was realized by the investment funds as a result of maturity of loans and a drop in interest rates on deposits. Additionally, a growth of 13,5 % was recorded in the category of state bonds and treasury bills. The increase of investments in this category is the result of attractive yield in comparison to the rest of the capital market. The category of real estate, compared to the end of 2011, realized an increase of 4,8 %, while the category of deposits realized a drop of 1,0 %. The biggest drop was realized by the category of net loans. The amount of net loans dropped by 45,0 %, or HRK 164, 2 mil. The reason behind this is the maturing of principle amounts of loans and a more restrictive approach to the granting of new loans, and the booking of due but unpaid receivables to value adjustment. Apart from the category of net loans, the biggest drop was recorded in the category of municipal and corporate bonds and commercial bills, a drop by 15,9 % or HRK 33,6 mil. Investments in this category have been reduced due to the realized maturity and inability to collect on existing commercial bills, as well as a general lack of investments in new tranches.

In the structure of total investments, the state debt securities still hold the largest share, 39, and 8 %, which represents an additional increase in comparison to the same period in the previous year when the share was 37,0 %. The categories of deposits, real estates, net loans, shares and stakes and the category of municipal and corporate bonds and commercial bills have recorded a relative drop in their share in total investments.

VRSTA ULAGANJA31 Dec 2011 31 Dec 2012 INDEX DIFFERENCE

IZNOS % IZNOS % 4 : 2 4 2

1 2 3 4 5 6 7

State bonds and treasury bills 700.134 20,7 870.331 24,3 124,3 170.197

Municipal and corporate bonds and commercial bills

148.141 4,4 126.703 3,5 85,5 -21.438

TOTAL BONDS AND BILLS 848.275 25,0 997.034 27,9 117,5 148.759

Real estate 814.143 24,0 853.381 23,9 104,8 39.238

Total deposits 662.924 19,6 691.903 19,3 104,4 28.979

Net loans 322.302 9,5 133.575 3,7 41,4 -188.727

Shares and stakes 552.511 16,3 538.333 15,1 97,4 -14.178


TOTAL 3.390.168 100,0 3.576.376 100,0 105,5 186.208

in 000 HRK

38


20,7

4,4

24,0

19,6

9,5

16,3

5,6

24,3

3,5

23,9

19,3

3,7

15,1

10,1

31 Dec 2011 31 Dec 20120

10

20

30

40

50

60

70

80

90

100

%

State bonds and treas. bills

Municipal and corp. bonds and com. bills

Real estate

Total deposits

Shares and stakes

Investment funds

0

200.000

400.000

600.000

800.000

1.000.00031 Dec 2011 31 Dec 2012

State bondsand treas. bills

Municipal and corp.bonds and com. bills

Real estate Total deposits Shares and stakes Investment funds

700.

134

148.

141

814.

143

662.

924

322.

302

552.

511

190.

013

870.

331

126.

703

853.

381

691.

903

133.

575

538.

333

362.

150

in 000 HRK

Graphical presentation of investment of assets for covering technical provisions, capital and non-life insurance provisions

Graphical presentation of investment of assets for covering technical provisions, capital and non-life insurance provisions

Investments of assets for the covering of technical provisions, capital and non-life insurance provisions amounted on 31 December 2012 to HRK 3.576,4 mil. and they have increased in comparison to 31 December 2011 by 5,5 % or HRK 186,2 mil.

Investments in state securities grew at the end of 2012 by 24,3 % or by HRK 170,2 mil. Such increase of investment pertains primarily to state bonds due to attractive yields in comparison to the rest of the capital market. When it comes to other investment categories, the mentioned period also shows a significant increase in assets in the category of real estates of 4,8%. Significant growth was realized in the category

39


of deposits, a growth of 4,4 % or HRK 29,0 mil. The biggest decrease at the end of 2012 compared to the same period in the previous year was realized by the categories of net loans, which dropped by 58,6 % and the category of municipal and corporate bonds and commercial bills, which dropped by 14,5 %. The category of investment funds recorded major growth of 90, 6 % or HRK 172, 1 mil.

In the structure of investments, the major portion belongs to the categories of real estate (23,9 %), state bonds and treasury bills (24,3%), deposits (19,3 %), and shares and stakes (15,1 %). The least portion belongs to corporate bonds with the share of 3,5 % and net loans with the share of 3,7 % in the total investments.

TYPE OF INVESTMENT31 Dec 2011 31 Dec 2012 INDEX DIFFERENCE

AMOUNT % AMOUNT % 4 : 2 4 2

1 2 3 4 5 6 7

State bonds and treasury bills 1.273.934 65,6 1.370.115 66,9 107,5 96.181

Municipal and corporate bondsand commercial bills

63.551 3,3 51.386 2,5 80,9 -12.165

TOTAL BONDS AND BILLS 1.337.485 68,9 1.421.501 69,4 106,3 84.016

Deposits 383.061 19,7 343.665 16,8 89,7 -39.396

Loans 42.904 2,2 67.423 3,3 157,1 24.519

Shares and stakes 24.314 1,3 34.866 1,7 143,4 10.552


TOTAL 1.940.783 100,0 2.048.884 100,0 105,6 108.101

in 000 HRK

Overview of investments of assets for covering mathematical reserves, capital and life insurance reserves

Graphical presentation of investment of assets for covering mathematical provisions, capital and life-insurance reserves

0

200.000

400.000

600.000

800.000

1.000.000

1.200.000

1.400.00031 Dec 2011 31 Dec 2012

State bondsand treas. bills

Municipal andcom. bills

Deposits Loans Shares and stakes Investment funds

1.27

3.93

4

63.5

51

383.

061

42.9

04

24.3

14 153.

019

1.37

0.11

5

51.3

86

343.

665

67.4

23

34.8

66 181.

429

in 000 HRK

40


65,6

19,7

2,21,3

3,3

7,9

66,9

16,8

3,3

8,9

31 Dec 2011 31 Dec 20120

10

20

30

40

50

60

70

80

90

100

%State bonds and treas. bills

Municipal and com. bills

Deposits

Loans

Shares and stakes

Investment funds

2,5

1,7

Graphical presentation of investment of assets for covering mathematical provisions, capital and life insurance reserves

Investment of assets for the covering of mathematical provisions, capital and life-insurance reserves on 31 December 2012 amounted to HRK 2.048,9 mil., and in comparison to 31 December 2011 they have increased by 5,6 % or HRK 108,1 mil.

Investments in state securities by the end of 2012 increased by 7,5 % or HRK 96,2 mil. The increase in investments primarily pertains to state bonds due to attractive yields when compared to the rest of the capital market. When it comes to the other categories of investments in the stated period, assets have also increased in the category of net loans, by 57,1 % or HRK 24,5 mil, then shares and stakes by 43,4 % or HRK 10,6 mil. and investment funds by HRK 18,6 % or 28,4 mil.

The biggest drop by the end of 2012 compared to the same period in the previous year pertains to the category of municipal and corporate bonds and commercial bills, a drop by 19,1 % or HRK 12,2 mil. and the category of deposits which dropped by 10,3 % or HRK 39, 4 mil.

In the structure of investment of assets of life insurance, the largest portion pertains to state securities with the share of 66,9 %, deposits with 16,8 % and investment funds with 8,9 %, and the smallest portion belonging to the categories of shares and stakes with the share of 1, 7 % and the category of municipal and corporate bonds and commercial bills with the share of 2,5 % in the total investments.

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Statement on implementation of the Corporate Governance Code pursuant to the Companies Act, Article 272p

In 2007 the Company decided, on its own accord, to start implementing the principles described under the Corporate Governance Code, which was drawn up by the Zagreb Stock Exchange and the Croatian Financial Services Supervisory Agency (HANFA).

In 2012 the Company made its business operations and business results completely transparent and available to the public, in accordance with the principles of the Corporate Governance Code, which involves in particular:

■ All reports

■ Regularly updated list of shareholders

■ Information on securities

■ Nominations of all nominees for membership in the Supervisory Board

■ Information on the composition of the Management and Supervisory Boards, and their auxiliary bodies

■ Agendas of assembly meetings

■ All relevant information published and available in English, as well as other information on the business operations of CROATIA osiguranje d.d. on the Company’s website.

In 2012, in accordance with the rules of the Stock Exchange, the Company’s Articles of Association and the Companies Act, all the principles of corporate governance were observed, and particularly as it applies to the organization of the General Assembly of the Company and delivery of documents pertaining to the meeting of the General Assembly to all shareholders.

In accordance with the Insurance Act, Chapter VIII, which regulates the work of the Internal Audit of Insurance Companies, Internal Audit recommended a strategic plan which was adopted by the Supervisory Board, with consent of the Management Board. The basis for the making of the strategic plan was risk assessment.

The objective and task of the risk assessment process was to identify priorities of certain audits in work programs for a given period. Based on the identified business and audit risks the work program for the Internal Audit Department for 2012 was made, as well as the program for individual audits in 2012. Following the recommendations of the Company’s Management Board the programs were adopted by the Company’s Supervisory Board.

Following the work program adopted, and in accordance with the Rules on Internal Audit Management, International Internal Auditing Standards, the Croatian Internal Auditing Standards and the Code of Professional Ethics, audit of business operations in 2012 was performed.

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According to the Rules on Internal Audit Management, the report on audit of organizational parts of the Company (subsidiaries and departments in the Head Office) is delivered to the Management Board, and the Board discusses such reports in its regular meetings.

Apart from that, according to the Insurance Act, Art. 149 and the Rules on Internal Audit Management, Art. 17, the Internal Audit delivers a report to the Management Board and the Supervisory Board, twice a year, regarding performed audits, identified problems and shortcomings, about the performance of the internal control system, any irregularities or illegalities, and about recommendations for removal thereof, as well as about activities performed in line with the given recommendations.

In the manner as described above, the Company’s Management Board is safe in the assumption that it receives good feedback regarding the performance of business activities, and that it reduces any possible risks to an acceptable level, which contributes to the credibility of financial statements of the Company.

Risk management is the basic function of all financial institutions. Consequently, CROATIA osiguranje d.d., being a financial institution and market leader, must adequately manage all risks which it is exposed to in its business operations in order to realize the security and sustainability of business and to realize fair compensation of damages claimed by the insured parties, adequate profitability for owners and employees, and to observe all legal and regulatory provisions.

In the upcoming period risk management will be raised to the highest possible level. A clear risk management system will be formally implemented both on the level of the Company as a whole, and on the level of organizational units and associated companies.

AUDIO is the most significant holder of shares of the Company, and it owns the number of shares as presented in the following table:

In accordance with the currently valid Articles of Association of the Company, there is no limitation in the voting rights of shareholders, or any partial limitation of voting rights.

Pursuant to Article 24, Paragraph 2 of the Articles of Association, AUDIO appoints one (1) member of the Supervisory Board, and this authority belongs to it for as long as it holds at least 25 % of the equity of the Company.

Members of the Management Board and the Supervisory Board are not holders of shares of the Company. The Company holds no shares of its own, nor has the Company’s General Assembly authorized the Company to acquire own shares.

Information on the composition and activities of the Management Board and the Supervisory Board is presented in the chapter Management and management organization.

AUDIO / REPUBLIC OF CROATIA NUMBER OF SHARES%

STAKE IN EQUITY

1 2 3

AUDIO / CROS-P-A 76 0,024

AUDO / CROS-R-A 242.586 76,683

AUDIO / State Agency for Deposit Insurance and bank Rehabilitation / CROS-R-A

11.145 3,523

TOTAL 253.807 80,230

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Risk Management Report

In its daily business operations the Company is exposed to a whole variety of risks. The Company’s answer to risk exposure is the establishment of an efficient risk management system based on good market practices and regulatory requirements. The Company recognizes the significance of continuous improvement of its risk management system as well as the need for timely and quality preparations for the implementation of the EU Solvency II Directive.

The Company actively manages its assets and liabilities by using an approach which balances quality and diversification it its portfolio, risk profile, liquidity and return on investments. The Company determines the guidelines and limits of investment and oversees the balancing of assets and liabilities. Due attention is also paid to the compliance with the regulations which are defined by the law and rules of HANFA (Croatian Financial Services Supervisory Agency). The following contains a short overview of the most significant risks to which the Company is exposed.

1) Underwriting risk

Underwriting risk pertains to the uncertainty of the insurance business. An insurance contract is a legal arrangement which binds the policy holder to pay the insurance premium, and the insurer undertakes to pay compensation in the event of occurrence of the insured event.

Underwriting risk pertains to the risk that may arise if actual payment of claims and compensations exceed the net booking amount of insurance liabilities due to coincidence, error and/or change in circumstances. Underwriting risk includes the risk of the occurrence of a loss-event, risk of determining the amount of premium (setting the tariff), the risk of forming provisions and the risk of reinsurance.

Premium risk is present at the moment of issuing the policy, before the insured event occurs. There is risk that the costs and losses which may occur might be greater than the premiums received.

The provision risk represents the risk of having the total amount of technical reserves wrongly assessed or of having the losses vary around the statistical mean value.

Non-life insurance acquisition risk also includes the risk of disaster which arises from highly extraordinary events which are not sufficiently covered by the premium risk or provision risk. Life insurance acquisition risk includes of biometrical risk (which involves mortality, longevity, risk of becoming ill or disabled) and the risk of withdrawal. The risk of withdrawal represents a higher or lower rate of withdrawal from policies, interruptions, changes in capitalization (cessation of payments of premium) and surrender. The Company manages the underwriting risk through limited acquisition, procedures for approval of transactions which involve new products or which exceed defined limits, through tariff determination, product design and reinsurance management.

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Sales strategy aims at diversity which will ensure a balanced portfolio and which is based on a large portfolio of similar risks for several years, which reduces the variability of results. As a rule, all non-life insurance contracts are concluded on a yearly basis and the underwriters have the right to decline renewal of contract or to change the contract terms upon renewal.

The Company transfers a part of the risk to reinsurance in order to control exposure to losses and protect the capital stock. The Company purchases a combination of proportional and non-proportional reinsurance contracts in order to reduce net exposure to a particular risk depending on the type of insurance.

A report on the adequacy of provisions, insurance premium and retention is submitted by the appointed certified actuary.

Non-life insurance

The basic indicator of underwriting risk is the relevant claims ratio. The following tables present loss ratios, cost ratios and combined ratios as well as claims ratio net of reinsurance.

NON-LIFE INSURANCE2011 2012

% %

Claims ratio 60,1 53,5

Expenses ratio

Documents

Croatia osiguranje d.d. - Annual Report 2012 · 2013. 10. 24. · CROATIA osiguranje d.d. was founded in 1884 and since its founding it has held the leading position in the insurance