ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance /

Transcription

1 Annual Report 2012

2 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht /

3 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 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 3

4 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 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. 4

5 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo

6 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Contents Introduction 9 Basic information about CROATIA osiguranje d.d. 11 Market position of the Company in Performance indicators 25 Analysis of premiums and claims in 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 6

7 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 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 7

8 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht /

9 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 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. 9

10 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 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. 10

11 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Basic information on CROATIA 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): 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) and PIN 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, 11

12 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 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. 12

13 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 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 13

14 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Head Office organizational scheme Management Board Management Board Office Strategic Development Office Appointed Certified Actuary Internal Audit Department Insurance Business Management Office Finance and Accounting Management Office Business Support Management 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 14

15 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 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 15

16 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 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 36 th 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, Chairman Mrs. 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 and Mr. 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 6 th 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. 16

17 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo In the 37 th 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 8 th meeting held on 30 October 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. Employee structure according to age as of 31 December ,9 % 2,7 % ,2 % ,8 % ,4 % ,0 % Overview of employee structure according to professional qualifications as of 31 December 2012 QUALIFICATIONS NUMBER OF EMPLOYEES SHARE IN TOTAL NUMBER OF EMPLOYEES IN % 31 Dec Dec Dec Dec 2012 PhD or MS/MA degree ,1 2,7 University qualifications ,7 29,7 Two-year college degree ,7 15,0 Secondary school education ,9 51,2 Lower education ,6 1,4 TOTAL ,0 100,0 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. 17

18 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Equity and shares Equity of the Company amounts to HRK and it is divided into shares with the par value of HRK All shares are initial public offering shares and they are marked as follows: ordinary shares with the code CROS-R-A; 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 in HRK Last price 31 Dec March June Sep Dec 2012 CROS-P-A 3.910, , , , ,00 CROS-R-A 4.000, , , , ,00 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. Overview of movements in the prices of shares of CROATIA osiguranje d.d , , , , , , , , , ,00 in HRK 5.000, , , , , , ,00 CROS-P-A CROS-R-A 31 Dec March June Sep Dec

19 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 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 ,00 80,23 2. Raiffeisenbank Austria d.d. custody account ,00 6,25 3. Hrvatska poštanska banka d.d. basic and custody account ,00 2,08 4. Societe Generale Splitska banka d.d. custody account ,00 2,07 5. Hypo Alpe-Adria-Bank d.d. custody account ,00 1,14 6. PBZ d.d. custody account ,00 0,57 7. Kraš d.d ,00 0,44 8. Auto Hrvatska d.d ,00 0,32 9. Erste & Steiermarkische bank d.d. basic and custody account ,00 0, Komercijalna banka d.d. in bankruptcy ,00 0, Bahovec Srečko ,00 0, Adriacommerce ,00 0, Radić Antun ,00 0, Tankerska plovidba ,00 0, Škaro Miroslav ,00 0, Fran Mihaljević Infectious Diseases Clinic ,00 0, Cemex Hrvatska d.d ,00 0, Interkapital vrijednosni papiri d.o.o. custody account ,00 0, Končar elektroindustrija d.d ,00 0, Eko Međimurje d.d ,00 0, Other shareholders ,00 5,35 TOTAL ,00 100,00 19

20 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 20

21 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 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 in HRK INSURER WRITTEN GROSS PREMIUMS INDEX STAKE in % Jan - Dec 2011 Jan - Dec / Croatia ,0 30,5 30,0 Allianz Zagreb ,2 11,2 12,1 Euroherc ,6 10,9 10,8 Jadransko ,0 7,0 6,9 Kvarner VIG ,9 4,9 4,6 Basler osig. Zagreb ,2 4,5 4,5 Grawe Hrvatska ,8 4,3 4,3 Triglav ,9 4,3 3,9 Generali ,6 3,6 3,8 Merkur ,2 3,1 3,2 Uniqa ,8 2,6 2,5 Agram life insurance ,3 2,2 2,3 HOK ,1 1,9 2,1 Helios VIG ,2 1,9 2,0 Sunce ,5 1,9 1,9 Erste VIG ,9 1,1 1,3 Croatia zdravstveno ,5 1,1 1,1 BNP Paribas Cardif ,8 0,8 0,8 Velebit ,2 0,7 0,7 Societe Generale ,3 0,4 0,5 Izvor ,3 0,2 0,4 Ergo life insurance* ,0 0,5 0,2 KD Life ,2 0,1 0,2 Velebit life insurance , ,9 0,1 0,1 HKO ,8 0,1 0,1 Wüstenrot life insurance ,0 0,1 Ergo* ,6 0,0 0,0 Total ,8 100,0 100,0 Source: Croatian Insurance Bureau (HUO) 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. 21

22 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Graphical presentation of the market share of 5 largest insurers in the Republic of Croatia Others 35,6 % Kvarner VIG 4,6 % Jadransko 6,9 % CROATIA osiguranje 30,0 % Euroherc 10,8 % Allianz Zagreb 12,1 % Source: Croatian Insurance Bureau (HUO) 22

23 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo The share of CROATIA osiguranje d.d. in total written premiums in the Republic of Croatia according to insurance types TYPE OF INSURANCE Jan - Dec 2012 SHARE OF CO IN THE INSURANCE MARKET CRO MARKET CO % Accident insurance ,9 2 Health insurance ,4 3 Road motor vehicles insurance ,6 4 Railroad rolling stock insurance ,1 5 Aircraft insurance ,8 6 Vessel insurance ,6 7 Insurance for goods in transit ,8 8 Insurance against fire and natural disasters ,4 9 Other property insurance ,4 10 Motor vehicles liability insurance ,2 11 Aircraft liability insurance ,7 12 Vessel liability insurance ,0 13 Other liability insurance ,5 14 Credit insurance ,9 15 Surety insurance ,0 16 Insurance against miscellaneous financial losses ,0 17 Legal protection insurance Travel insurance ,8 19 Annuity insurance ,0 20 Supplemental insurance with life insurance ,9 21 Wedding or birth insurance ,8 22 Osiguranje za slučaj vjenčanja ili rođenja Life or annuity insurance where the insured party 23 assumes the investment risk ,0 24 Tontine 25 Insurance with capitalized payments TOTAL (non-life insurance, types 1 18) ,6 TOTAL (life insurance, types 19 25) ,8 GRANDTOTAL (types 1 25) ,0 Source: Croatian Insurance Bureau (HUO) in HRK 23

24 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Overview of written premium according to insurance types TYPES OF INSURANCE Jan - Dec 2011 Jan - Dec 2012 INDEX 2012 / 2011 MARKET CO MARKET CO MARKET CO Accident insurance ,4 95,8 2 Health insurance ,5 74,3 3 Motor road vehicles insurance ,3 93,7 4 Railroad rolling stock insurance ,6 91,0 5 Aircraft insurance ,8 48,8 6 Vessel insurance ,4 86,0 7 Insurance of goods in transit ,1 79,1 Insurance against fire and natural 8 disasters ,6 93,6 9 Other property insurance ,8 91,4 10 Motor vehicles liability insurance ,2 99,5 11 Aircraft liability insurance ,7 393,4 12 Vessel liability insurance ,0 93,2 13 Other liability insurance ,7 94,4 14 Credit insurance ,3 140,5 15 Surety insurance ,3 105,2 Insurance against miscellaneous 16 financial losses ,4 110,5 17 Legal protection insurance ,7 18 Travel insurance ,4 148,7 19 Life insurance ,0 107,2 20 Annuity insurance ,9 117,4 21 Supplemental insurance with life insurance ,6 94,3 22 Wedding and birth insurance ,9 23 Life or annuity insurance where the insured party assumes the investment risk ,3 146,9 24 Tontine 25 Insurance with capitalized payment TOTAL (non-life insurance, types 1 18) TOTAL (life insurance, types 19 25) ,0 95, ,2 106,5 GRANDTOTAL (types 1 25) ,8 97,0 Source: Croatian Insurance Bureau (HUO) in HRK 24

25 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 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. in HRK Jan - Dec 2011 Jan - Dec 2012 INDEX 3 : PROFIT AND LOSS ACCOUNT DATA Total income ,8 Gross premiums written* ,0 Total expenditure (without income tax) ,5 Settled claims, gross ,0 Income before tax (gross income) ,0 Income after tax (net income) ,5 BALANCE SHEET DATA Total assets ,6 Capital and reserves ,7 Technical provisions ,3 Special provision for life insurance where the policyholder bears the investment risk ,0 Investments ,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 ,5 Total revenue per employee ,6 Total assets per employee ,0 Written premium per employee ,8 Income (before tax) per employee ,3 * 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. 25

26 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 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 The annual plan for written premium was realized by the Transport and Credit Department and the Life Insurance Department. Analysis of written premium in 000 HRK INTERNAL CLASSIFICATION REALIZED REALIZED INDEXES PLAN 2012 OF INSURANCE Jan - Dec 2011 Jan - Dec : 2 4 : Property ,3 93,5 Transport and credit* ,8 93,6 Motor vehicles ,4 98,1 Personal non-life insurance ,4 94,3 Non-life insurance ,6 95,6 Life insurance ,3 106,5 TOTAL ,5 97,0 * With coinsurance premium 26

27 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Graphical presentation of the structure of gross written premiums Life insurance 13,5 % Personal non-life insurance 7,3 % Property 29,3 % Motor vehicles 39,4 % Transport and credit 10,5 % Graphical presentation of movements in gross written premiums Realized Jan - Dec 2011 Realized Jan - Dec 2012 Property Transport and Motor vehicles Personal credit non-life insurance in 000 HRK Life insurance Graphical presentation of realization of plan for gross written premium in 000 HRK Life insurance Plan for 2012 Realized Jan - Dec 2012 Personal non-life insurance Motor vehicles Transport and credit Property

28 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Overview of written premium according to sales channels SALES CHANNEL TOTAL WRITTEN PREMIUM Jan - Dec 2011 SHARE in % Jan - Dec 2012 SHARE in % in 000 HRK INDEX 2012/2011 Sales consultants , ,1 75,7 Sales consultants for construction and , ,1 119,1 entrepreneurship No-commission sales consultants , ,9 94,9 Consultants , ,2 95,1 Agents , ,8 105,1 Head agents , ,4 101,5 Agents , ,2 104,7 Agencies , ,2 95,3 Agencies at MOT test stations , ,4 80,4 Travel agencies , ,1 104,8 Agencies , ,6 92,9 Commissioners , ,9 90,8 Banks , ,7 147,0 Brokers , ,0 114,1 Employees of CROATIA osiguranja* , ,1 53,3 Internet sales , ,1 133,4 Other , ,2 13,3 Other , ,4 0,2 TOTAL , ,0 97,0 * With coinsurance premium Graphical presentation of written premium according to sales channels Other 0,4 % Banks 1,7 % Brokers 8,0 % Commissioners 4,9 % Agents 22,2 % Consultants 39,2 % Agencies 23,6 % 28

29 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 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 in 000 HRK INTERNAL CLASSIFICATION REALIZED REALIZED INDEXES PLAN 2012 OF INSURANCE Jan - Dec 2011 Jan - Dec : 2 4 : Property ,3 94,6 Transport and credit ,5 99,7 Motor vehicles ,0 97,9 Personal non-life insurance ,7 96,1 Non-life insurance ,8 96,9 Life insurance ,3 106,5 TOTAL ,1 98,1 Graphical presentation of the structure of premiums collected Life insurance 13,5 % Personal non-life insurance 7,4 % Property 28,8 % Motor vehicles 39,2 % Transport and credit 11,1 % 29

30 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Graphical presentation of movements of premiums collected Realized Jan - Dec 2011 Realized Jan - Dec 2012 in 000 HRK Property Transport and Motor vehicles Personal non-life credit insurance Life insurance Graphical presentation of realization of plan for collected premiums in 000 HRK Life insurance Plan for 2012 Realized Jan - Dec 2012 Personal non-life insurance Motor vehicles Transport and credit Property

31 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 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 gross 1 settled claims INTERNAL CLASSIFICATION OF INSURANCE GROSS SETTLED CLAIMS GROSS SETTLED CLAIMS INDEX Jan - Dec 2011 Jan - Dec : Property ,2 Transport and credit ,3 Motor vehicles ,4 Personal non-life insurance ,5 Non-life insurance ,9 Life insurance ,1 TOTAL ,0 in 000 HRK Overview of net 2 settled claims INTERNAL CLASSIFICATION OF INSURANCE NET SETTLED CLAIMS NET SETTLED CLAIMS INDEX Jan - Dec 2011 Jan - Dec : Property ,1 Transport and credit ,4 Motor vehicles ,8 Personal non-life insurance ,4 Non-life insurance ,5 Life insurance ,1 TOTAL ,4 in 000 HRK 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. 31

32 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Graphical presentation of movements in net settled claims Realized Jan - Dec 2011 Realized Jan - Dec 2012 in 000 HRK Property Transport and Motor vehicles Personal non-life credit insurance Life insurance Structure of net settled claims Life insurance 15,2 % Personal non-life insurance 4,8 % Property 32,1 % Motor vehicles 35,1 % Transport and credit 12,8 % 32

33 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 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. Overview of efficiency in claims settlement according to insurance types INTERNAL CLASSIFICATION OF INSURANCE TOTAL BEING PROCESSED TOTAL SETTLED CLAIMS TOTAL CLAIMS PROCESSED Jan - Dec 2012 TOTAL CLAIMS SETTLED AT NO COST TOTAL HANDLED CLAIMS TOTAL UNSETTLED CLAIMS EFFICIENCY OF CLAIM ETTLEMENT Property ,5 Transport and credit ,5 Motor vehicles ,1 Personal non-life insurance ,6 Non-life insurance ,3 Life insurance ,3 TOTAL ,9 5 : 2 Overview of efficiency in claim settlement No. Jan - Dec 2011 Jan - Dec 2012 INDEX 4 : I CLAIMS FROM PROVISIONS 1. Number of claims in provisions ,6 2. Number of claims settled from provisions ,3 3. Number of claims settled at no cost ,2 4. Number of handled claims ,7 5. Number of unsettled claims ,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 ,6 8. Number of settled claims in the current period ,4 9. Number of claims settled at no cost ,0 10. Number of handled claims ,5 11. Number of unsettled claims ,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) ,2 14. Number of settled claims (2+8) ,7 15. Number of claims settled at no cost (3+9) ,9 16. Number of handled claims(4+10) ,7 17. Number of unsettled claims (5+11) ,2 18. Percentage of settled claims (16/13) 83,8 84,9 101,4 33

34 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 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 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 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 Statistics 5 Announcements and Statistical Reports, Employment Rate and Salaries, Croatian Bureau of Statistics 6 Announcements and Statistical Reports, Employment Rate and Salaries, Croatian Bureau of Statistics 34

35 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 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 ,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

36 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 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. Overview of total investments in 000 HRK TYPE OF INVESTMENT 31 Dec Dec 2012 INDEX DIFFERENCE IZNOS % IZNOS % 4 : State bonds and treasury bills , ,8 113, Municipal and corporate bonds and commercial bills , ,2 84, TOTAL BONDS AND BILLS , ,0 110, Real estate , ,2 104, Total deposits , ,4 99, Net loans , ,6 55, Shares and stakes , ,2 99, Investment funds , ,7 158, TOTAL , ,0 105, Graphical presentation of total investments in 000 HRK 31 Dec Dec State bonds & treasury bills Mun. and corp. bonds and comm. bills Real estate Total deposits Net loans Shares and stakes Invest. funds

37 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 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. Overview of investment of assets for the covering of technical provisions, capital and non-life insurance provisions in 000 HRK VRSTA ULAGANJA 31 Dec Dec 2012 INDEX DIFFERENCE IZNOS % IZNOS % 4 : State bonds and treasury bills , ,3 124, Municipal and corporate bonds and commercial bills , ,5 85, TOTAL BONDS AND BILLS , ,9 117, Real estate , ,9 104, Total deposits , ,3 104, Net loans , ,7 41, Shares and stakes , ,1 97, Investment funds , ,1 190, TOTAL , ,0 105,

38 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Graphical presentation of investment of assets for covering technical provisions, capital and non-life insurance provisions in 000 HRK 31 Dec Dec State bonds and treas. bills Municipal and corp. bonds and com. bills Real estate Total deposits Shares and stakes Investment funds Graphical presentation of investment of assets for covering technical provisions, capital and non-life insurance provisions % ,6 16,3 9,5 19,6 24,0 4,4 10,1 15,1 3,7 19,3 23,9 3,5 Investment funds Shares and stakes Total deposits Real estate Municipal and corp. bonds and com. bills State bonds and treas. bills 10 20,7 24, Dec Dec 2012 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 38

39 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 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. Overview of investments of assets for covering mathematical reserves, capital and life insurance reserves in 000 HRK TYPE OF INVESTMENT 31 Dec Dec 2012 INDEX DIFFERENCE AMOUNT % AMOUNT % 4 : State bonds and treasury bills , ,9 107, Municipal and corporate bonds and commercial bills , ,5 80, TOTAL BONDS AND BILLS , ,4 106, Deposits , ,8 89, Loans , ,3 157, Shares and stakes , ,7 143, Investment funds , ,9 118, TOTAL , ,0 105, Graphical presentation of investment of assets for covering mathematical provisions, capital and life-insurance reserves in 000 HRK 31 Dec Dec State bonds and treas. bills Municipal and com. bills Deposits Loans Shares and stakes Investment funds 39

40 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Graphical presentation of investment of assets for covering mathematical provisions, capital and life insurance reserves % ,9 1,3 2,2 19,7 3,3 65,6 8,9 1,7 3,3 16,8 2,5 66,9 Investment funds Shares and stakes Loans Deposits Municipal and com. bills State bonds and treas. bills Dec Dec 2012 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. 40

41 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 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 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. 41

42 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 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: AUDIO / REPUBLIC OF CROATIA NUMBER OF SHARES % STAKE IN EQUITY AUDIO / CROS-P-A 76 0,024 AUDO / CROS-R-A ,683 AUDIO / State Agency for Deposit Insurance and bank Rehabilitation / CROS-R-A ,523 TOTAL ,230 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. 42

43 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 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. 43

44 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 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. Comparison of claims ratio for 2011 and NON-LIFE INSURANCE % % Claims ratio 60,1 53,5 Expenses ratio 34,1 33,2 Combined ratio 94,2 86,7 Net claims ratio 55,5 56,6 Life insurance The primary risks in life insurance are interest rate risk and biometrical risks. Interest rate risk is processed through market risks, and biometrical risks are monitored on the basis of actuarial analyses. Analysis of mathematical provisions according to guaranteed interest rate INTEREST RATE INCLUDED IN THE TARIFF IS IN THE INTERVAL MATHEMATICAL PROVISION* 31 Dec 2011 SHARE IN % MATHEMATICAL PROVISION* 31 Dec 2012 SHARE IN % Up to 3 % , ,99 3 % 4 % , ,91 4 % 5 % , ,94 Over 5 % , ,16 TOTAL , ,00 *Mathematical provisions are mathematical provisions of contractually agreed amounts and mathematical provision of additional amounts The table shows the mathematical provision according to guaranteed interest rates. The yield on life insurance investment is presented in the following table and it is sufficient to cover the required interest for the life insurance portfolio. 44

45 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Yield on mathematical provision Prinos na matematičku pričuvu Average balance of mathematical provision Yield from investment in mathematical provision YIELD 5,3 % 5,7 % 6,0 % Average yield 5,7 % Capital adequacy The current regulatory frame prescribes the manner of calculating the limit of insurance companies solvency based on the larger one of the two criteria: premium or claim criterion. Solvency indicator Solvency indicator for life insurance 141,1 % 138,2 % Solvency indicator for non-life insurance 149,9 % 163,4 % The Company maintains the solvency limit in accordance with the legal provisions, as presented in the table above. 2) Market risk Market risk pertains to risk resulting directly or indirectly from fluctuations and/or volatility of market prices of assets, liabilities and financial instruments, and it includes currency risk, interest rate risk, real estate risk, equity securities risk, market liquidity risk and derivatives risk. The Company is exposed to market risk resulting from various types of investments, such as investments in securities, shares traded in the regulated market of the Republic of Croatia, investments in units in open-end investment funds, investment in real estate and similar. For the assessment of market risk there is a system of quantitative measures based on statistical methods which reflect expected losses which may occur in normal circumstances as well as unexpected losses which are estimated as maximum acceptable loss to which the Company is exposed. Specifically, for certain types of investments the Company has developed, implemented and regularly monitors the VaR value. The Company has established and constantly monitors the limits of investment, for which it also has certain prescribed procedures should such limits be exceeded. The comprehensive system of market risk management is prescribed by a series of internal acts, primarily the Market Risk Management Policy as umbrella document. 3) Credit risk Credit risk is the risk arising from a change or drop in credit rating of the issuer of securities, borrower as well as any other debtor from whom the Company has receivables. 45

46 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / The Company is exposed to credit risk through investments in debt securities, investments in loans to insured parties, deposits given to banks, receivables arising from premiums as well as all other receivables The Company has an established framework for managing credit risk, which involves regular analysis of credit risk or assessment of credit rating. In addition to that, the Company mitigates exposure to credit risk through concluding adequate instruments to ensure return in accordance with legal regulations, or when it assesses that there is increased credit risk involving debtors. The Company pays due attention to timely collection of receivables, with continuous improvement of the process and technology of collection. Framework for credit risk management is prescribed by a series of internal acts, primarily the Credit Risk Management Policy as the umbrella document. 4) Operational risk Operational risk is defined as the risk of loss resulting from inadequate or erroneous internal business processes, people and systems, or resulting from the occurrence of adverse external events. It includes legal and regulatory risk, as well as risk pertaining to the security of the IT system. Operational risk is inherent in all activities and business processes of the Company, and it is closely related to other risks to which the Company is exposed. By means of its prescribed internal acts, procedures and work instructions, as well as constant measures of control over business activities and processes, the Company attempts to mitigate or avoid the occurrence of event which may result in minor or greater losses for the Company. Operational Risk Management Policy is the umbrella document which defines the basic guidelines and procedures for systematic management of operational risk in the Company. 5) Liquidity risk Liquidity risk is defined as the risk of inability to transform certain types of assets into money or the risk of inability to balance the payment ability (solvency) on the one hand and liabilities on the other. The Company monitors liquidity risk on a daily basis, through the calculation of liquidity indicators according to the rules of HANFA. The average indicator of short-term liquidity in 2012 was 26,22 and at no time was it lower than the prescribed nor did it get close to the internally prescribed limits. Apart from the short-term liquidity, the Company monitors long-term liquidity as well, with the aim to determine the due dates of assets and liabilities. Liquidity risk, or the inability to settle liabilities as a result of disharmony between maturity of cash inflow and outflow, is determined according to remaining maturity of items of assets and liabilities by using assumptions regarding the possibilities of realizing certain financial instruments, and the harmonization of maturities in a period of up to one year is additionally analyzed in shorter periods of time. The company has adopted the Liquidity Risk Management Policy which, as an umbrella document, defines basic guidelines and procedures for liquidity risk management. 46

47 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 6) Concentration risk Concentration risk refers to the risk arising from the concentration of exposure of the Company to certain individuals or groups of associated parties and a set of exposures which are connected by common risk factors, such as the same economic sector, geographical area or similar line of work, which has significant potential for occurrence of damage or loss. Concentration risk occurs in connection with other risks: underwriting risk, market risk, credit risk, liquidity risk and similar. Managing concentration risk requires timely identification (recognizing) of concentration risk, analyzing possible threats and vulnerability in the analyzed areas as well as undertaking of timely measures for the management thereof. Concentration risk which arises through the underwriting risk determines the degree up to which a certain event or a series of events can influence the liabilities of the Company. Concentration risk can result from rare occurrences with great consequences such as natural disasters or consequences caused by the human factor. The risks which the Company insures against are primarily located in the Republic of Croatia. In non-life insurance the Company has no significant exposure to any of the groups of insured parties according to social, professional, generational or similar criteria. The biggest probability of significant losses arises from catastrophic events. The Company mitigates concentration risk in investments by dispersion of investments, in accordance with the legal requirements on investment limits. The Company has adopted the Concentration Risk Management Policy as an umbrella document defining the basic guidelines and procedures in managing this risk. 7) Other risks The Company continuously analyzes exposure to all other risks and, if necessary, takes adequate measures, procedures and introduces internal acts. Specifically, the Company has identified strategic risk and reputation risk as materially significant risks, and it has established adequate policies and methodologies defining the basic guidelines and procedures for systematic management of those risks. 47

48 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Description of all significant business events after the end of fiscal year In 2013 CROATIA osiguranje d.d. continues with the optimization of its organizational structure and rationalization of business activities of the whole Company. Optimization will be conducted successively by business segments until the end of the year, and it was started by merging certain organizational units with the purpose of introducing linear departments which will result in acceleration of work processes and reduction in the hierarchal structure of the Company. Within the process of optimizing the business, the Company implemented the Business Success Management System, a reward system for employee excellence. According to plan, CROATIA osiguranje d.d. started the year by expanding the offer of insurance products. In order for the Company to be as accessible as possible to clients in all business segments, the Company has started cooperation with Hypo Alpe-Adria-Bank d.d., which enabled accident insurance with all kinds of term deposits in both Kuna and Euro. In January the Company offered a new product, pet insurance. As part of the strategic project CROATIA osiguranje d.d. Goes Digital, already in the first quarter the Company started the building of stronger digital presence. A new Facebook site was launched, which now has more than members, and at the same time new profiles in social networks Youtube and Twitter were also made. The Company has also started a comprehensive usability analysis of its web sites and web shop, which will, after this initial step, undergo thorough redesign and which will be more salesoriented. Also, the Company launched a new Intranet portal, with new functionalities which will enable faster and more efficient exchange of information among employees. When speaking of significant expectations in the market in 2013, one should most definitely point out the accession of the Republic of Croatia to the EU. According to the assessment of the European Commission and HANFA, the Croatian insurance sector is completely ready to join the EU. Based on all success parameters, CROATIA osiguranje d.d. fulfilled (even last year) the European requirement of capital adequacy under Solvency II. After the accession of the Republic of Croatia to the EU the Company expects greater concentration in the insurance market and new adjustments in the structure and amount of insurance premium. It is foreseeable that the new European directives will have a positive effect in the insurance market in the long run, and the continued implementation of EU legislation and stronger supervision over insurance companies will lead to further stabilization of the market. 48

49 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Expected future development of the Company In 2013 the Company expects a slight recovery of the market, but at the same time a continued drop in the volume of non-life insurance premiums resulting from the reduction in economic activities in the market, as well as a trend of slight decline in the number of life insurance policies due to a lack of more significant borrowing activity in the retail segment, greater number of maturities and early purchase (surrender). Despite the fact that the market is still in a crisis, an ambitious plan for work and development in all segments of business was made. The Company plans to introduce new business processes, intense development of sales network, expansion of the insurance products range, increased activity in the field of more rational management of business expenditure, better investment results and finally a stabilization of the portfolio in the market and increase in the Company s gross profit. The central focus of sales activities will be on the retail department and on increasing the share of life insurance in the portfolio structure. One of the aims of sales is increasing the number of clients from the SME and crafts segment. The Company intends to introduce a series of new insurance products. In the domain of motor vehicles the imperative will be the preparation for liberalization of motor liability market, in property insurance there is a plan to introduce several new products from the group of property liability, but also all risk insurance. In life insurance the plan is to introduce new savings products and products designed for the elderly. In personal insurance, new risks will be included for travel health insurance and accident insurance. The plan is to design new application support for the channel of bank insurance (bancassurance) in the new architecture of the Company s applications. In addition to unifying and centralizing business rules, this kind of system will enable much simpler use of the user interface for end users and the optimization of work processes pertaining to bancassurance. The client loyalty reward program will be continued. Benefits, special offers and promotional activities will be conducted targeting particular groups of clients or insurance fields at national and local level. In 2013 CROATIA osiguranje d.d. celebrates 129 years of doing business, and enters the jubilee 130 th anniversary. The rich tradition and reputation of the Company are sure to remain a major factor in the insurance market in the future and the Company expects to maintain its position as the leader in the Croatian insurance market and in the region. Ivan Fabijančić, Member of the Management Board Krešimir Starčević, Chairman of the Management Board 49

50 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht /

51 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Independent Auditor s Report To the Shareholders of CROATIA osiguranje d.d., Zagreb 1. We have audited the accompanying consolidated financial statements of the company CROATIA osiguranje d.d., Miramarska 22, Zagreb (hereinafter the Company ) for the year ended 31 December 2012, which comprise the Balance Sheet/ Statement of Financial Position as of 31 December 2012, the Profit & Loss Account / Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity and the Statement of Cash Flows for the year then ended, as well as the related Notes to the financial statements that give a summary of significant accounting policies and other explanatory information. Management Board s Responsibility 2. Management Board of the Company is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards applicable in the Republic of Croatia, and for such internal control as the Management Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility 3. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the Company s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Management Board of the Company, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 51

52 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Opinion 4. In our opinion, the enclosed financial statements give a true and fair view of the financial position of the insurance company CROATIA OSIGURANJE d.d., Zagreb as of 31 December 2012, as well as of business results and cash flows of the Company for 2012 in accordance with the Accounting Act and the International Financial Reporting Standards applicable in the Republic of Croatia. Other legal and regulatory requirements 5. The Company s Management Board is responsible for the preparation of the annual financial statements of the Company for the year ended 31 December 2012 in the prescribed form on the basis of the Ordinance on structure and content of the financial statements of insurance and reinsurance companies (Official Gazette No. 132/10) issued by the Croatian Financial Services Supervisory Agency on the basis of the Insurance Act and the Accounting Act, and is responsible for the information in compliance with the annual financial statements of the Company in accordance with the International Financial Reporting Standards. In Zagreb, 22 March 2013 BDO Croatia d.o.o. Trg J. F. Kennedy 6b Zagreb Ines Rožić, Certified Auditor Jeni Krstičević, Chairwoman of the Board 52

53 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Responsibility for financial statements The Management Board of the company CROATIA osiguranje d.d., Zagreb, (hereinafter: the Company) is responsible for ensuring that annual financial statements for 2012 are prepared pursuant to the Accounting Act (Official Gazette no. 109/07) and the International Financial Reporting Standards (Official Gazette no. 136/09, 8/10, 18/10, 27/10, 65/10, 120/10, 58/11, 140/11, 15/2012, 118/2012) as published by the Financial Reporting Standards Board, appointed by the Government of the Republic of Croatia, so that they give a true and fair view of the financial position, business results, changes in equity and cash flows of the Company for that period. After conducting appropriate analyses, the Management Board reasonably expects the Company to have adequate resources to continue its operations in the foreseeable future. For this reason, the Management Board adopted the going concern basis in preparing of the financial statements. In preparing those financial statements, the responsibilities of the Management Board include that: Suitable accounting policies are selected and then applied consistently; Judgments and estimates given are reasonable and prudent; Applicable financial reporting standards are followed and any material deviations are disclosed and explained in financial statements; Financial statements are prepared on the going concern basis, unless it is inappropriate to presume so. The Management Board is responsible for keeping proper accounting records which, at any time disclose the financial position and business results of the Company with reasonable accuracy and it must also ensure that they comply with the Accounting Act (Official Gazette 109/07) and the International Financial Reporting Standards (Official Gazette 136/09, 8/10, 18/10, 27/10, 65/10, 120/10, 58/11, 140/11, 15/2012, 118/2012), as published by the Financial Reporting Standards Board. The Management Board is also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for prevention and detection of fraud and other irregularities. Signed on behalf of the Management Board Ivan Fabijančić, Member of the Management Board CROATIA osiguranje d.d. Miramarska 22, Zagreb, Republic of Croatia 21 March 2013 Krešimir Starčević, Chairman of the Management Board 53

54 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht /

55 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Annual Financial Statements for 2012

56 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht /

57 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo I. Financial statements Profit & Loss Account / Statement of Comprehensive Income for 2012 ITEM EARNED PREMIUMS (RECOGNIZED IN INCOME) NOTE Written gross premiums Premiums ceded to reinsurance ( ) ( ) ( ) ( ) ( ) ( ) Premiums ceded to co-insurance 0 ( ) ( ) 0 ( ) ( ) Change in gross provisions for unearned premiums Change in provisions for unearned premiums reinsurance share Total earned premiums (recognized in income) ( ) ( ) NET INVESTMENT INCOME 5.2. Income from subsidiaries, associates and joint ventures 5.2./i/ Income from investment in land buildings 5.2./ii/ Interest rate income 5.2./iii/ Impairment of investment 5.2./iv/ ( ) ( ) ( ) ( ) ( ) ( ) Unrealized investment profit valued at fair value through P&L Account Net profit/loss from sale (realization) of investment 5.2./v/ ( ) ( ) ( ) 5.2./vi/ ( ) ( ) Net positive exchange rate differences Other investment income/expenses 5.2./vii/ ( ) ( ) Total investment income OTHER INCOME 5.3. Income from commissions and fees 5.3./i/ Other insurance-technical income, net of reinsurance 5.3./ii/ Other income 5.3./iii/ Total other income

58 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / ITEM NOTE EXPENSES FOR INSURED EVENTS, NET Settled claims 6.1. ( ) ( ) ( ) ( ) ( ) ( ) Change in provisions for claims Total expenses for insured events, net ( ) ( ) ( ) ( ) ( ) ( ) CHANGE IN OTHER TECHNICAL PROVISIONS, NET OF REINSURANCE 6.2. Change in mathematical insurance provision 6.2. ( ) 0 ( ) ( ) 0 ( ) Change in other technical provisions, net of reinsurance Total change in other technical provisions, net of reinsurance CHANGES IN TECHNICAL PROVISIONS FOR LIFE INSURANCE WHERE THE POLICY HOLDER BEARS THE INVESTMENT RISK Change in technical provisions for life insurance where the policyholder bears the investment risk Total change in technical provisions for life insurance where the policyholder bears the investment risk OPERATING EXPENDITURE (EXPENSES FOR BUSINESS OPERATIONS), NET ( ) ( ) 0 ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) Acquisition costs 6.4./i/ ( ) ( ) ( ) ( ) ( ) ( ) Management costs (administration costs) 6.4./ii/ ( ) ( ) ( ) ( ) ( ) ( ) Total operating expenditure (expenses for business operations), net ( ) ( ) ( ) ( ) ( ) ( ) OTHER COSTS 6.5. Other technical costs, net of reinsurance 6.5. ( ) ( ) ( ) ( ) ( ) ( ) Other costs, including value adjustments 0 ( ) ( ) 0 ( ) ( ) Total other costs ( ) ( ) ( ) ( ) ( ) ( ) TOTAL INCOME TOTAL EXPENDITURE ( ) ( ) ( ) ( ) ( ) ( ) PROFIT BEFORE TAXATION Current taxable expenses 7. ( ) ( ) ( ) ( ) ( ) ( ) Deferred taxable expenses ( ) ( ) ( ) CORPORATE INCOME TAX ( ) ( ) ( ) ( ) ( ) ( ) CURRENT YEAR PROFIT Other comprehensive income ( ) ( ) ( ) ( ) ( ) TOTAL COMPREHENSIVE INCOME ( )

59 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Balance Sheet / Statement of Financial Position as of 31 December 2012 ITEM INTANGIBLE ASSETS NOTE Other intangible assets Total intangible assets TANGIBLE ASSETS 10. Land and buildings intended for company business operations Equipment Other tangible assets Total tangible assets INVESTMENTS 11. Investments In land and buildings not intended for business operations Investments in subsidiaries, associates and joint ventures Other financial investments Total investments INVESTMENTS FOR THE ACCOUNT AND RISK OF LIFE INSURANCE POLICYHOLDERS Investments for the account and risk of life insurance policyholders Total investments for the account and risk of life insurance policyholders REINSURANCE SHARE IN TECHNICAL PROVISIONS Unearned premiums, reinsurance share Mathematical provisions, reinsurance share Claims provisions, reinsurance share Total reinsurance share in technical provisions DEFERRED AND CURRRENT TAX ASSETS 14. Deferred and currents tax assets Total deferred and current tax assets RECEIVABLES 15. Receivables from direct insurance business Receivables from co-insurance and reinsurance business Total other receivables Total receivables

60 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / ITEM NOTE OTHER ASSETS 16. Cash at bank and in hand Other Total other assets PREPAYMENTS AND ACCRUED INCOME Prepayments and accrued income Total prepayments and accrued income TOTAL ASSETS OFF-BALANCE SHEET ITEMS CAPITAL AND RESERVES 18. Subscribed capital Revaluation reserves ( ) ( ) Reserves Transferred (retained) profit or loss Current year profit Total capital and reserves TECHNICAL PROVISIONS 19. Gross unearned premiums Gross mathematical insurance provisions Gross provisions for claims Claims fluctuation provisions Other gross insurance technical provisions Total technical provisions LIFE INSURANCE TECHNICAL PROVISIONS WHERE THE POLICYHOLDER BEARS THE RISK Life insurance technical provisions where the policyholder bears the risk Total life insurance technical provisions where the policyholder bears the risk OTHER PROVISIONS Other provisions Total other provisions

61 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo ITEM DEFERRED AND CURRENT TAX LIABILITIES NOTE Deferred and current tax liabilities Total deferred and current tax liabilities FINANCIAL LIABILITIES Financial liabilities Total financial liabilities OTHER LIABILITIES 24. Liabilities from direct insurance business Liabilities from co-insurance and reinsurance business Other liabilities Total other liabilities ACCRUALS AND DEFERRED INCOME Accruals and deferred income Total accruals and deferred income TOTAL LIABILITIES OFF-BALANCE SHEET ITEMS

62 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Statement of Changes in Equity in 2012 PAID-UP CAPITAL ORDINARY SHARES PAID-UP CAPITAL PREFERRED SHARES REVALUATION RESERVES LAND AND BUILDINGS FINANCIAL INVESTMENTS LEGAL RESERVES STATUTORY RESERVES OTHER RESERVES RETAINED PROFIT CURRENT YEAR PROFIT TOTAL CAPITAL AND RESERVES HRK HRK HRK HRK Balance at 31 December Correction of errors from previous period 0 0 ( ) Balance at 1 January 2011 (corrected) Payment of profit share/dividends ( ) ( ) Other transactions with owners ( ) 0 Unrealized profit or loss from tangible assets (land and buildings) Unrealized profit or loss from financial assets available for sale Realized profit or loss from financial assets available for sale 0 0 ( ) ( ) ( ) ( ) ( ) Other non-owner changes in equity Profit for the period Balance at 31 December ( ) Correction of errors from previous period ( ) 0 ( ) Balance at 1 January 2012 (corrected) ( ) Payment of profit share/dividends ( ) ( ) Other transactions with owners ( ) 0 Unrealized profit or loss from tangible assets (land and buildings) Unrealized profit or loss from financial assets available for sale Realized profit or loss from financial assets available for sale 0 0 ( ) ( ) ( ) ( ) ( ) Other non-owner changes in equity Profit for the period Balance at 31 December ( )

63 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Cash Flow Statement for indirect method ITEM HRK HRK CASH FLOW FROM OPERATING ACTIVITIES Income before taxation Depreciation of real estate and equipment Amortization of intangible assets Value impairment and profit/loss from reduction to fair value Interest costs Interest income ( ) ( ) Share in profit of associates ( ) ( ) Profit / loss from tangible assets sale (including land and buildings) ( ) Other adjustments ( ) Cash flow before changes in operating assets and liabilities ( ) ( ) Increase / decrease in investments available for sale Increase / decrease in investments valued at fair value through P&L Account ( ) ( ) Increase / decrease in deposits, loans and receivables Increase / decrease in investments for the account and risk of life insurance policyholders Increase / decrease of reinsurance share in technical provisions ( ) Increase / decrease in tax assets ( ) Increase / decrease in receivables Increase / decrease in prepayments and accrued income ( ) ( ) Increase / decrease technical provisions Increase / decrease in life insurance technical provisions where the policyholder bears the investment risk ( ) ( ) Increase / decrease in tax liabilities Increase / decrease in other liabilities ( ) ( ) Increase / decrease in accruals and deferred income ( ) Increase / decrease in operating assets and liabilities ( ) Paid income tax ( ) ( ) Net cash flows from operating activities ( ) CASH FLOW FROM INVESTMENT ACTIVITIES Receipts from sale of tangible assets Expenditure for purchase of tangible assets ( ) ( ) Expenditure for purchase of intangible assets ( ) Receipts from sale of land and buildings not intended for company business operations ( ) 0 Expenditure for purchase of land and buildings not intended for company business operations ( ) Increase / decrease in investments in subsidiaries, associates and joint ventures Expenditure for held-to-maturity investments ( ) ( ) Receipts from dividends and profit share Receipts from repayment of granted short-term and long-term loans Expenditure for granted short-term and long-term loans ( ) ( ) Net cash flow from investment activities ( ) CASH FLOW FROM FINANCIAL ACTIVITIES Cash receipts from received short-term and long-term loans Cash expenses for repayment of received short-term and long-term loans (78.845) (51.079) Cash expenses for profit share (dividends) payment ( ) ( ) Net cash flow from financial activities ( ) NET CASH FLOW EFFECTS OF CHANGES IN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS ( ) ( ) NET INCREASE / DECREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period NET INCREASE / DECREASE IN CASH AND CASH EQUIVALENTS

64 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / II. Basis for preparation of financial statements 2.1. Statement of Compliance and presentation basis Financial statements of the Company for 2012 have been prepared in accordance with the Accounting Act (Official Gazette No. 109/07) and the International Financial Reporting Standards ( IFRS ) (Official Gazette 136/09, 8/10, 18/10, 27/10, 65/10, 120/10, 58/11, 140/11, 15/2012, 118/2012) published by the Financial Reporting Standards Board appointed by the Government of the Republic of Croatia and in accordance with the Rules on Structure and Content of Insurance Companies Financial Statements and Reinsurance Companies Financial Statements (Official Gazette No. 132/10, 39/2012, Rules ) Preparation basis Financial statements have been prepared by applying the accrual principle under which the effects of transactions are recognized at the moment of occurring and they are presented in the financial statement for the relevant period to which they pertain, and under going-concern principle Key estimates and uncertainty of estimates In the preparing of the consolidated financial statements certain estimates were used which affect the presentation of the Company s assets and liabilities, the Company s income and expenditure, and the publication of contingent liabilities of the Company. Future events and their effects cannot be foreseen with certainty, which is why actual results may differ from those estimated. Estimates used in the preparation of the financial statements are subject to changes upon occurrence of new events, acquiring additional experience, obtaining additional information and knowledge or by changes in the Company s environment. Key estimates used in the application of accounting policies during preparation of the financial statements pertain to calculation of fixed and tangible assets depreciation, impairment of assets, value adjustment of receivables and provisions, and presentation of contingent liabilities Reporting currency The Company s financial statements have been drawn up in Croatian Kuna (HRK) as the Company s currency of measure, i.e., reporting currency. 64

65 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo III. Summary of accounting policies Summary of significant accounting policies adopted for the preparation of financial statements is stated below. The policies were consistently applied to all the periods included in these statements, unless otherwise indicated Gross written premium /i/ /ii/ /iii/ Gross written premiums represent basic operating income and they comprise the non-life and life insurance written premiums. Non-life insurance gross written premiums include all amounts of premiums written in the current accounting period, irrespective of the fact whether these amounts partially or completely pertain to a later accounting period. Life insurance gross written premiums include all amounts of premiums collected till the end of the accounting period Investment income and costs /i/ Investment income comprises the income realized through participating interests (dividends, profit share, entries increase in value), income from investments related to land and buildings, income from interests, unrealized profit from fair value investment through the Profit & Loss Account, income from investment sales, net positive exchange rate differences and other investment income. The land and buildings investment income consists of income realized due to an increase in land and buildings value, land and buildings sales income, land and buildings rental income and other investment income from land and buildings. Land and buildings rental income and other operating leases are recognized in the Profit and Loss Account by the linear method during the whole period of lease. The interest revenue is recognized in the Profit and Loss Account as it arises, taking into consideration the effective returns on certain assets. The interest on monetary assets at fair value through the Profit and Loss Account is calculated at coupon interest rate and presented within the interest income. The dividend income is recognized in the Profit and Loss Account on the day the dividends were voted. Accounting policy pertaining to the recognition of the financial income is described in Note 3.7 Financial assets. 65

66 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / /ii/ Investment costs include interest costs, investment value adjustment (impairment) costs, losses realized on the sale of investments, net negative exchange rate differences and other investment costs Expenditure for insured events The insured event expenditure includes all paid amounts for claims in the accounting period, regardless of the accounting period in which the losses actually occurred, decreased by the reinsurance share in claims, collected recourses, sold and saved parts and increased by the claims provisions at the end of the accounting period but decreased by the claims provisions at the beginning of the accounting period. The gross paid claims, apart from net paid claims, include the costs related to claims settlement (assessments, attorneys fees and alike), surrenders and recourse claims expenditure Operating expenditure Operating expenditure includes the costs of insurance sale and administration costs. The sales costs include all direct costs incurred in concluding insurance contracts, such as agents costs, commissions and marketing costs. Commission costs are recognized as they arise in accordance with the accruals principle. Administration costs include the costs incurred in connection with portfolio management, expenses for employees as well as other tangible and intangible costs Intangible and tangible assets and investment in real estate DLong-term intangible and tangible assets are initially presented at purchase costs that comprise the purchase price, including import fees and non-refundable taxes after deducting commercial discounts and rebates, as well as all costs directly related to transfer of the assets to the location and in operating condition for their intended use. The long-term intangible and tangible assets are recognized if it is likely that future economic benefits which can be ascribed to the assets will flow into the Company, if the asset purchase costs can be reliably identified and if an individual asset purchase value exceeds HRK After the initial recognition, assets are presented at their purchase cost less accumulated depreciation and accumulated impairment losses. After the initial recognition, land and buildings are presented at revaluated amount representing the fair value on the date of revaluation less accumulated depreciation and accumulated impairment loss. Increase in value of assets due to the revaluation is approved directly to the principal capital as revaluation provision. The revaluation is performed regularly, so the booking amount does not differ significantly from the amount arrived at by determining fair value on the date of the balance sheet. Costs of current maintenance and repairs, replacement, and minor investment maintenance are recognized as expenditure in the period of their occurrence. In situations where it is clear that such costs resulted in increased expected future economic benefits realizable through the use of such assets above the assets 66

67 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo initially assessed potential, they are capitalized, i.e., included in the book value of that asset. Profits and losses based on write-off or sale of assets are presented in the Profit and Loss Account in the period of their occurrence. Depreciation of assets starts when the assets are ready for use, i.e., located in adequate necessary conditions. Depreciation of assets ceases when the assets are classified as the assets held for sale. Depreciation is calculated by writing off the purchasing cost of each particular asset, except for land and fixed intangible and tangible assets in preparation, during the estimated useful life of the asset, by applying the straight-line method as follows: Depreciation rate (from to %) Concessions, patents, licenses, software and alike 25 Other intangible assets 25 Buildings 2,5 Furniture and fixtures Computer hardware 33,33 Vehicles 20 Investments in real estate (land, buildings) not intended for business activities, owned by the Company or under a finance lease are kept in order for the Company to earn rental income and/or because of expected increase in market value of the assets, and they are presented at fair value through the Profit and Loss Account Investments in subsidiaries and associates Subsidiaries are companies in which the Company controls the adoption and implementation of financial and business policies. Associates are companies in which the Company has significant influence but not control over the adoption and implementation of financial and business policies. Investments in subsidiaries and associates are presented by the cost method Financial assets /i/ Financial assets at fair value through the Profit and Loss Account The financial instruments included in this portfolio are financial instruments held for trade and purchased in order to benefit from the short-term price fluctuations or securities included in the portfolio with a pattern for the realization of short-term profit. In accordance with the Company's investment policy, each financial instrument may be classified as asset set out at fair value through the Profit and Loss Account with the exception of investments in equity instruments without a listed price on the active market and whose fair value is not reliably measurable. 67

68 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / These instruments are initially set out at purchase cost and later they are measured again at fair value based on the listed purchase prices on the active market. All connected realized and unrealized profits and losses are included in investment income/ expenses. Earned interest incurred during the period of holding these instruments is set out as income from interest. All purchases and sales of instruments held for trade are recognized on the date the trade is realized, which is the date the Company undertakes to purchase or sale the asset. The transactions that are not recognized on the trade date are calculated as financial derivatives. /ii/ Loans and receivables Loans and receivables are non-derivative financial assets with fixed and determinable payments which are not listed in an active market. Loans and receivables are created when the Company approves financial resources without the intention to trade in such receivables, and they include loans to insured parties and deposits with banks. Loans granted and receivables which were created by the Company are recognized at the moment of transfer of funds by the Company. Loans and receivables are presented decreased by the provisioning for value impairment. Provisioning for value impairment is done if there is objective proof that the Company will not be able to collect on the entire receivable upon its maturity. Provisioning for identified losses is assessed on the basis of credit rating and business results of the borrower, taking into account the value of insurance instruments. Upon learning that there is no longer the possibility to collect on a loan and that all legal options for collection have been used, upon determining the total loss amount, the loan is written off. If the amount of value impairment subsequently decreases and such decrease is objectively related to an event which occurred after, the value impairment or provisioning is decreased through the Profit and Loss Account. In the event of delayed payment, the Company charges default interest to the debtors, which is calculated upon accrual and presented as revenue from interest. /iii/ Financial assets available for sale Financial assets available for sale are those non-derivative financial assets that are defined as available for sale or those not classified either as assets at fair value through the Profit and Loss Account or as loans and receivables. Financial instruments included in the assets available for sale consist of debt and equity securities. These instruments are initially recognized according to the investment expenses, and after the initial recognition they are set out at fair value based on listed prices and amounts derived from the models of cash flows. In cases when listed market prices are not available, the fair value of debt securities is estimated by applying current value of future financial flows, and the fair value of unlisted equity instruments is estimated by applying current value of future financial flows, and fair value of unlisted equity instruments is estimated by applying a correspondent ratio of price/ earnings or price/cash flow cleared in a way that it reflects specific circumstances connected with the issuer. 68

69 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Profits and losses resulting from change of fair value of a financial asset available for sale are recognized directly to capital as a revaluation reserve, and they are presented in the report on changes in capital up to the moment of sale, when cumulative losses or profits which had previously been recognized in the capital are now included in the Profit and Loss Account for the period. Interest earned during the period of holding securities available for sale is accrued on a daily basis and presented as income from interest. Exchange rate differences in equity instruments in foreign currency classified as available for sale are presented in the capital, together with profits and losses from the change in fair value, until the moment of sale of the instrument. Exchange rate differences in debt instruments in foreign currency classified as available for sale are presented in the Profit and Loss Account. Dividends from securities classified as available for sale are booked when published. /iv/ Held-to-maturity investment Held-to-maturity investments are non-derivative financial assets with fixed amounts of payments or with payments which are determinable, and with fixed maturity dates, which the Company intends to hold (and is capable of holding) until maturity. These include treasury bills and debt securities. Held-to-maturity investments are presented according to amortised costs by applying the effective interest rate method, decreased by any value adjustment due to impairment of the asset. The Company regularly checks whether there is objective proof which indicates that the held-tomaturity investment has been impaired. The value of a financial asset is impaired if its book amount exceeds the estimated recoverable amount which is equal to the current value of expected future cash flows discounted by applying the original effective interest rate for that instrument. The amount of loss from impairment of a certain asset which is presented at amortized cost is calculated as the difference between the book amount of that asset and the current value of expected future cash flows discounted by applying the original effective interest rate for that instrument. After establishing that impairment of an asset has occurred, the Company recognizes value impairment in the Profit and Loss Account Receivables /i/ Receivables from insurance include receivables from insured parties based on premiums of non-life insurance. Receivables based on non-life insurance premiums comprise receivables for written, but not yet invoiced premium and receivables for invoiced, but not paid premium. Recognition of insurance premium is described in note 3.1 Gross written premiums. /ii/ Receivables for invoiced but unpaid premium are presented at nominal value, and adjustment is done for questionable and uncollectible receivables value. Value adjustment as the reduction of receivables based on premium is presented for all unpaid receivables whose maturity was 180 days ago. Value adjustment can be decreased for receivables which are used as basis for payment of claim to the debtor (provision for claims). 69

70 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / /iii/ /iv/ Receivables under the right to recourse are recognized for all recourse cases from an out-ofcourt procedure arising from receivables from another insurance company and recourses for which a financial settlement was concluded. Value adjustment of recourse receivables is done for all receivables which have not been collected within 180 days after their recognition in the balance sheet or after the date of last payment. The determined value adjustment can be decreased by recourse receivables that are likely to be collected. Other receivables pertain to receivables arising from interest on loans and deposits, receivables arising from advance payments, receivables arising from received payment instruments and alike Impairment On every balance sheet date, the Company checks the book value of its assets in order to ascertain whether there is indication that there have been losses as result of value impairment. If there are such indications, the recoverable amount of the asset is assessed in order for such possible loss resulting from the impairment to be determined. If the recoverable amount of an asset is estimated at an amount which is lower than the book value, the book value of such asset is reduced to that recoverable amount Cash and cash equivalents and short-term deposits For the purposes of reporting on cash flow, cash and cash equivalents refer to money at bank and in hand, as well as received cheques and bills of exchange. Deposits with maturity under one year are considered to be short-term deposits. Cash equivalents and deposits are presented at cost price, and those which are presented in foreign currencies are recalculated using the mean exchange rate of the Croatian National Bank at the end of the year Corporate income tax Corporate income tax comprises current and deferred tax. Current tax represents the expected tax liability calculated on the income for the given year, and adjusted by amounts which are not included in the tax basis or tax non-deductible expenditure, by using the tax rates applicable on the day of reporting. Deferred taxes are recognized by the balance sheet method, reflecting temporary differences, changes in book value of assets and liabilities for the requirements of financial reporting as well as in amounts which are used to calculate the tax. Deferred tax is not recognized in case of investments in subsidiaries if it is not recoverable in the near future. Deferred tax is calculated by using tax rates which are to be implemented on temporary differences at the moment when such differences are either compensated for or settled, according to regulations which were applicable or generally effective on the balance sheet date. Deferred tax assets are recognized up to the amount for which it is likely that future taxable income will be sufficient for temporary differences to be used. Deferred tax liability is examined on each reporting date and it is reduced if realization of related tax benefit is no longer probable. Deferred tax assets and liabilities are not discounted and they are presented as long-term assets and/or long-term liabilities Capital and reserves In its financial records the Company records capital categorized as follows: subscribed capital, revaluation reserves, statutory reserves, legal reserves, other reserves, retained earnings and current year profit. 70

71 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo /i/ /ii/ /iii/ /iv/ Subscribed capital represents the indivisible share capital of the Company, paid in full. The effect of increase/reduction in the value of investments classified as investments available for sale and real estate which serve for the performance of business activities, upon being reduced to the estimated market value, is presented by the Company in the balance sheet as revaluation reserve. Throughout the period the revaluation reserves increase/decrease as a result of value adjustment to recoverable market value. Allocations to statutory reserves, legal reserves, other reserves and retained income are regulated by the Decisions of the Company s General Assembly. Current financial year income is presented according to the balance as of 31 December and it is transferred into the upcoming fiscal year. The utilization or allocation of profit is determined by a Decision of the Company s General Assembly Technical provisions Technical provisions presented in financial statements pertain to unearned premiums, mathematical reserve for life insurance, provisions for claims and other insurance-technical provisions. They are formed in accordance with the Rules on minimum standards, manner of calculation and measures for the calculation of technical insurance provisions. All technical provisions have been granted a positive opinion of the appointed certified actuary of the Company. /i/ Unearned premiums The Company calculates unearned premiums for those types of insurance where the insurance coverage lasts even after the end of the accrual period, since the insurance year and the accrual year do not overlap. The basis for calculation of gross unearned premium of non-life insurance is the accrued (written) premium, while the basis for the calculation of gross unearned premium of supplemental insurance with life insurance is the collected premium. Unearned premiums are calculated according to the pro rata temporis method, except for the types of loan insurance where a decrease of insurance cover throughout the contract term is taken into consideration. /ii/ Mathematical life insurance provisions Mathematical life insurance provisions are calculated individually for every insurance contract, in a manner described in the report of the appointed certified actuary of the Company upon calculation of the mathematical provisions. /iii/ Claims provisions Claims provisions contain provisions for reported losses, provisions for incurred but not reported losses, provisions for costs of processing claims, and a share of reinsurance in such provisions. Provisions for reported losses are determined by individual assessment. Actuarial methods are applied upon determining provisions for the costs of processing claims and for incurred but unreported losses. The reinsurance share in provisions is determined in accordance with reinsurance contracts. 71

72 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / /iv/ Other insurance-technical provisions Other insurance-technical provisions are created for the risk of earthquake and risks which have not expired. Provision for earthquake risk is created in consideration of foreseeable future liabilities and risks of major claims resulting from earthquake insurance. Provisions for unexpired risks are created for non-life insurance products where the expected value of claims and costs pertaining to unexpired periods of policies which are valid on the reporting date, exceeds the provisions for unearned premiums pertaining to such policies. Provisions for unexpired risks are calculated separately for individual types of insurances Technical life insurance provisions where the policy holder bears the investment risk Since the Company issues life insurance policies where the policy holder bears the investment risk, adequate separate provisions are created for every such insurance contract Other liabilities /i/ /ii/ /iii/ Liabilities arising from direct insurance pertain to liabilities under claims. Liabilities resulting from reinsurance pertain to liabilities under contractually agreed sums for claims covered by reinsurance, and liabilities under the reinsurance premium. Other liabilities pertain to liabilities toward domestic suppliers, liabilities under received advance payments, commission liabilities and alike Employees earnings Salaries, taxes and contributions from salaries and to salaries are accrued as the costs of the period in which an employee worked Provisioning Provisioning is recognized only when the Company has a current liability as a result of a past event and if it is likely that the settlement of such liabilities will require an outflow of resources with economic benefits and if the amount of the liability can be reliably estimated. Provisioning is re-evaluated on every balance sheet date and adjusted in accordance with the latest best assessments. Provisioning is done for costs of court procedures and costs of employees rewards for many years of work and retirement (regular jubilee awards and severance payments). Provisioning for costs of employees awards for many years of work and retirement (regular jubilee awards and severance payments) is determined as current value of future money outflows, by using the discount rate relevant for the interest rate on state bonds Contingent liabilities and assets Contingent liabilities are not recognized in financial statements, but they are rather only included in the notes to the financial statements. 72

73 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Contingent assets are not recognized in financial statements but they are recognized at the moment when the inflow of economic benefits becomes likely Events after the Balance Sheet date Events after the balance sheet date which provide additional information on the position of the Company on the balance sheet date (events which result in adjustments) are recognized in financial statements. Events which do not result in adjustments are only included in the notes to the financial statements if they are substantially significant Earnings per share Earnings per share are calculated as profit of the period decreased by dividends of preferred shares divided by the weighted average of ordinary shares decreased by own shares Classification of contracts Contracts through which the Company undertakes significant underwriting risk on behalf of the other party (policy holder) by accepting to indemnify the policy holder or another insurance beneficiary, if a particular future event occurs (insured event) which has a negative effect on the policy holder or other insurance beneficiary, are classified as insurance contracts. The underwriting risk differs from financial risk. Financial risk is the risk of possible future change in one or more of the defined interest rates, prices of securities, prices of assets, foreign exchange rates, price or rate indexes, credit rating or credit indexes or other variables, provided that when it comes to a non-financial variable, this variable is not specific to one of the contractual parties. Insurance contracts can also transfer financial risk to some extent. Contracts where the transfer of risk from the policy holder to the Contract is not significant are classified as investment contracts Concentration of underwriting risk The key aspect of underwriting risk to which the Company is exposed in the degree of concentration of underwriting risk which determines the extent to which a certain event or series of events could affect the Company s liabilities. Such concentration could result from a single insurance contract or from a greater number of contracts. A significant aspect of concentration of underwriting risk is the fact that it can result from accumulated risks from different types of insurance. Concentration of risk can result from rare events with major consequences, such as natural disasters, in situations where the Company is exposed to unexpected changes in trends, for example, unexpected changes in human mortality rate or behavior of the insured parties; or when significant judicial or regulatory risks can cause major individual losses, or have a significant impact on a great number of contracts. Risks which the Company underwrites are primarily located in the Republic of Croatia. In non-life insurance activities, the Management Board believes that the Company is not exposed in any group of insured parties according to social, professional, generational or similar criteria. The biggest probability of significant losses arises from natural disasters such as floods, storms or damage caused by earthquakes. The techniques and assumptions which the Company uses to calculate such risks include: 73

74 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Survey of geographical accumulations; Assessment of the biggest possible loss; Excess of loss reinsurance Underwriting risk management The Company is exposed to actuarial risk and the acquisition risk which result from a wide range of life and non-life insurance products: participating traditional life products, unit-linked policies and all types of non-life insurance. Underwriting risk pertains to the uncertainty of insurance activities. The most significant components of underwriting risk are premium risk and provisions risk. They pertain to the adequacy of premium tariffs and adequacy of provisions in relation to liabilities under the insurance and the capital stock. Premium risk is present at the moment of issuing the policy before the insured event occurs. There is risk that the costs and losses that may occur might be bigger than the premiums received. The provision risk represents the risk of having the absolute amount of technical provisions wrongly assessed and that actual losses would vary around the statistical mean value. The risk of acquiring non-life insurance also includes the risk of catastrophic event, which results from extraordinary events which are not sufficiently covered by premium risk or provision risk. The risk of acquisition of life insurance involves biometrical risk (which includes mortality rate, longevity and risk of becoming ill or disabled) and the risk of withdrawal. The risk of withdrawal represents a larger or smaller rate of withdrawal from policies, terminations, changes in capitalization (cessation of payment of premium) and surrender. The Company manages underwriting risk through acquisition limits, procedures for approval of transactions which involve new products or exceed defined limits, by determining tariffs, through product design and through reinsurance management. Acquisition strategy aims at diversity which will provide a balanced portfolio and which is based on a big portfolio of similar risks over many years, which reduces the variability of results. All non-life insurance contracts are generally on a yearly basis and the acquirers have the right to refuse renewal of contract or to change the conditions of contract upon renewal. The Company reinsures a portion of the risk it acquires in order to control exposure to losses and to protect the capital stock. The Company purchases a combination of proportional and non-proportional reinsurance contracts in order to reduce net exposure to individual risks depending on the type of insurance Basic assumptions which have the biggest effect on recognized assets, liabilities, income and expenditure from insurance transactions /i/ Non-life insurance On the balance sheet date provisions are created for the estimated final cost of settling all claims resulting from events occurred by that date, whether reported or not, together with relevant costs of processing such claims, decreased by amounts already paid. The liability for reported but unsettled claims is estimated separately for every individual claim, taking into consideration the circumstances, available information from the claims adjuster and historical evidence of amounts of similar claims. Individual claims are regularly examined and provisions are regularly updated when new information is available. The assessment of provision for incurred, but unreported losses (IBNR) are generally subject to a greater degree of uncertainty than the provision for reported 74

75 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo losses. IBNR provisions are assessed by the Company s actuaries by using statistical and actuarial methods such as chain-ladder method and the Bornhuetter Ferguson method. Key methods which are used for liability and accident insurance are: The chain-ladder method, which uses historical data in order to assess final costs of claims; The Bornhuetter Ferguson method, which combines the estimated loss ratio and the projections method. This method improves on the use of naïve loss ratio by taking into account the information available from the latest pattern in loss development. The actual method which is used depends on the year of the accident being analyzed, the type of insurance and the observed historical development of claims. To the extent in which these methods use historical loss development, it is assumed that the historical pattern of loss development will be repeated in the future. There are reasons why this may not be the case, and such reasons are taken into consideration (to the extent that they are determinable) by modifying the assessment methods. Such reasons include: Economic, political and social trends (which cause a different level of inflation than expected); Changes in the combination of the types of insurance contracts which are acquired; random variations, including the effect of major losses. For other types of insurance, IBNR is determined by flat rate methods. IBNR provisions are initially estimated in gross amount and a special calculation is performed in order to assess the reinsurance portion. Assumptions which most affect the measuring of amount of provision for non-life insurance are the following: Residual factor of loss development For long-tail claims, the level of provision greatly depends on the assessment of loss development for which there is historical data until the final development. Residual factor of loss development is prudently assessed by using mathematical methods of curves which serve as projections of observed factors or which are based on actuarial assessment. Discounting Apart from annuity claims, the non-life provisions are not discounted. Provisions for liability insurance which is payable in annuities are determined as current value of future liabilities at the discount rate of 2 % per year and based on Mortality Tables for the Republic of Croatia for the period from /ii/ Life insurance Mathematical provisions are calculated by net prospective method using rational actuarial assumptions, in accordance with the guidelines issued by HANFA. Guaranteed technical interest rate in insurance policies ranges from 2,75 % to 3,3 %, depending on the tariff. In case of death and survival, policy holders are entitled to a share in the Company s profit realized by life insurance funds management. Shares in profit are calculated once a year, at the earliest at the end of the first or second year of insurance term, depending on the tariff. The amount of the share in the profit is determined by the Management Board. 75

76 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Main sources of uncertainty related to assessments /i/ Impairment losses on loans and receivables The need for impairment of assets booked by amortized cost is evaluated as described in Note 3.12./ii/. Impairment due to particular exposure in the total losses from impairment is based on the management s best estimate of the current value of expected future money receipts. In their evaluation of such money receipts the management assesses the debtor s financial position and net sales value of insurance instruments. Any asset which has undergone impairment is evaluated separately and the function of credit risk helps to approve a recovery strategy and assessment of realizable cash flows. /ii/ Determining fair value For financial instruments which are rarely traded and which have a non-transparent price, fair value is less objective and it requires a different level of assessment depending on liquidity, concentration, uncertainty of market-related factors, assumptions regarding prices and other risks which affect a certain instrument. /iii/ Uncertainty of estimates pertaining to the forming of reserves The most significant assessments in terms of the Company s financial statements pertain to provisioning. The Company has a conservative approach to forming provisions and it applies regulations issued by HANFA (Croatian Financial Services Supervisory Agency). The Company s staff includes certified actuaries. The Management Board believes that the current level of technical provisions is sufficient. /iv/ Uncertainty of estimates related to litigation A significant source of uncertainty of assessment results from litigation. The Management Board believes that the current level of provisions is sufficient. /v/ Corporate income tax The Company s tax liability is determined in accordance to tax regulations of the Republic of Croatia. Tax returns are subject to control by the tax authorities which have the right to subsequent inspection of a tax payer s financial records. /vi/ Regulatory requirements HANFA is authorized to conduct regulatory inspections of the Company s business operations and, if necessary, to demand changes to be made to the book value of assets and liabilities in accordance with the relevant regulations. /vii/ Mutual liabilities The Company is liable toward the Croatian Insurance Bureau pertaining to the Company s share in claims under motor liability insurance caused by unregistered or uninsured vehicles. Apart from that, the company is liable for a portion of unsettled motor liability insurance claims in case of winding up of any of the insurance companies, in accordance with the Insurance Act. 76

77 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Key accounting estimates in the application of the Company s accounting policies i/ Classification of financial assets and liabilities Accounting policies of the Company enable initial classification of assets and liabilities (under certain conditions) into different accounting categories. When classifying the financial assets and liabilities as intended for trade, the Company establishes that they are in accordance with the definition of assets and liabilities provided under Note 3.7. /ii/ Product classification For the accounting policy on the classification of contracts as insurance or investment contracts see Note /iii/ Classification of real estate The Company classifies all non-operational real estate held for rental as investments in real estate. /iv/ Estimated useful life of tangible and intangible assets Amortization rates are initially determined according to the best assessment of the useful life of such assets. The Company believes that the applied amortization rates reflect the useful life of tangible and intangible assets Financial risk management The Company s primary objective in financial and underwriting risk management is to maintain a level of capital which is adequate for the scope and types of insurance it transacts, and with due consideration of the risks it is exposed to. The Management Board recognizes the importance of having of an efficient and effective risk management system. Competent regulatory bodies control the Company s solvency in order to ensure that there is coverage for liabilities arising from possible economic changes or natural disasters. The Company actively manages its assets by using an approach which balances quality, diversification, harmonization of assets and liabilities, liquidity and return on investments. The Management Board examines and approves portfolios, determines the limits and supervises the process of managing assets and liabilities. Due attention is also paid to compliance with regulations under the Insurance Act. In financial instruments transactions the Company assumes financial risks. These risks include market risk, credit risk and liquidity risk. Each of these risks is described below, together with a summary of the methods used by the Company to manage such risks. Market risk Market risk is the risk of fluctuation in fair value of future cash flows under financial instruments resulting from changes in market prices. Market risk includes three types of risk: currency risk, interest rate risk and other price-related risks. 77

78 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / a) Currency risk is the risk of fluctuation of fair value or cash flows under financial instruments resulting from changes in foreign currency exchange rates. The Company is exposed to the risk of exchange rate fluctuations through its transactions in foreign currencies. The risk is that the value of a financial instrument might change due to changes in the foreign exchange rates. The Company is exposed to currency risk through its credit, deposit and investment activities, and also through income from premiums, calculation of related technical provisions and settling of damages under insurance policies with a currency clause. The Company manages currency risk by attempting to reduce the difference between assets and liabilities denominated in foreign currency or with a currency clause. Investments for covering mathematical provisions are mostly denominated in Euro, since most of the mathematical provisions are also denominated in Euro. b) Interest rate risk is the risk of fluctuation in fair value or cash flows under financial instruments resulting from changes in interest rates in the market. The Company s exposure to the market risk of changes in interest rates is concentrated in its investment portfolio. The Company s business operations are exposed to the risk of changes in interest rates because interest-bearing assets and liabilities come due or the interest rates change in different periods or in different amounts. The Company is also exposed to risk in future cash flow resulting from interest rate changes in the market. However, this risk is limited because most of the Company s interest-bearing investments on the balance sheet date have fixed interest rates. Changes in interest rates do not affect the level of provisions for life insurance, apart from annuity payments under liability claims. The rate used in the calculation of mathematical provisions somewhat reflects the expected movements in interest returns over a longer period of time. The Company monitors this exposure by examining the balance of its assets and liabilities. The general objective is to limit net changes in the value of assets and liabilities which result from interest rate changes. The Company attempts to harmonize future receipts from these assets with liabilities under insurance by purchasing state bonds. However, considering the relatively short duration of such bonds and longer life of liabilities under life insurance, as well as the Company s inability to purchase an interest rate swap in Croatia, the Company is still exposed to interest rate risk. c) Other price-related risks are risks of fluctuation of fair value or cash flows in connection with financial instruments resulting from changes in market prices (which are not the result of interest rate risk or currency risk), whether this involves changes caused by factors relatable to an individual financial instrument or its issuer or if there are other factors which effect all similar financial instruments being traded in the market. The marketable equity securities portfolio, which is presented in the balance sheet at fair value, exposes the Company to price risk. Price risk is the risk that the value of a financial instrument might change due to changes in market prices, regardless of whether such changes were caused by factors which are specific for a particular security or its issuer, or by factors which affect all instruments being traded with in the market. The Company s objective is to earn competitive returns by investing in a diversified securities portfolio. The characteristics of the portfolio are regularly analyzed. 78

79 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo The Company s portfolio contains securities of various issuers, and the concentration of any single company is limited by parameters prescribed by the Management Board and by legal regulations. Credit risk Credit risk is the risk that one contractual party to a financial instrument might cause the other party to suffer financial losses as a result of failure to fulfill its obligations. The Company s portfolio which includes fixed income securities, mortgage loans and also short-term and other investments is exposed to credit risk. This risk is defined as potential reduction in the market value as a result of negative changes in the debtor s ability to pay off the debt. The Management Board has adopted a credit policy and continuously monitors exposure to credit risk. Assessments of creditworthiness of all insured parties are made, and insurance instruments are collected prior to payment of granted loans or renewal of such loans. Payments of secured instruments are in accordance with the Insurance Act. On the balance sheet date the Company had a significant concentration of receivables from the Republic of Croatia in bonds and treasury bills. Liquidity risk Liquidity risk is the risk that a sudden and unexpected withdrawal of liabilities might require the Company to liquidate assets in a short time and at a low price. Liquidity risk occurs as the result of the Company s financial activities and management of items of assets. This risk involves the risk of inability to finance assets in appropriate time periods and interest rates, as well as the risk of inability to liquidate assets at a reasonable price and within an adequate period of time. The Company has a portfolio of liquid assets as a part of liquidity risk management strategy, which ensures continuation of business and satisfies legal requirements. The Company s liquidity is good and all legal requirements regarding claim settlement throughout the year have been met Adopting new and amended International Financial Reporting Standards (IFRS) The following amendments to the existing standards published by the International Accounting Standards Board and interpretations issued by the IFRS Interpretations Committee are effective for the current period: Amendments to IFRS 1 First-time Adoption of IFRS Severe Hyperinflation and Removal of Fixed Dates in First-Time Adopters (effective for periods beginning on or after 1 July 2011); Amendments to IFRS 7 Financial Instruments: Disclosure transfer of financial assets (effective for periods beginning on or after 1 July 2011.); Amendments to IAS 12 Income Taxes deferred taxes: recovery on underlying assets (effective for periods beginning on or after 1 January 2012) 79

80 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Adoption of the mentioned amendments to existing standards, revisions and interpretations has not led to a change in the Company s accounting policies. On the date of approval of the financial statements, the following standards, revisions and interpretations were issued, but not yet effective: IFRS 9 Financial Instruments (effective for periods beginning on or after 1 January 2015), IFRS 10 Consolidated Financial Statements, published in May 2011 and amended in 2012, it replaces the previous version of IAS 27 (2008) Consolidated and Separate Financial Statements (effective for periods beginning on or after 1 January 2013), IFRS 11 Joint Arrangements, published in May 2011 and amended in 2012, it replaces IAS 31 Interests in Joint Ventures (effective for periods beginning on or after 1 January, 2013), IFRS 12 Disclosure of Interests in Other Entities, published in May 2011 and amended in 2012 (effective for periods beginning on or after 1 January, 2013), IFRS 13 Fair Value Measurement, published in May 2011 (effective for periods beginning on or after 1 January 2013), IAS 27 Separate Financial Statements (revised and amended in 2011), consolidation requirements previously described under IAS 27 (2008) have been revised and they are now included in IFRS 10 Consolidated Financial Statements (effective is IAS 27 as revised and amended in 2011, applicable for periods beginning on or after 1 January 2013), IAS 28 Investments in Associates and Joint Ventures (revised and amended in 2011). This version replaces IAS 28 (2003) Investments in Associates (effective is IAS 28 (amended and revised in 2011) for periods beginning on or after 1 January 2013), Amendments to IFRS 1 First-time Adoption of IFRS published in March 2012, regulating calculation of government loans at interest rates lower than those in the market upon adoption of IFRS (effective for periods beginning on or after 1 July 2013), Amendments to IFRS 7 Financial Instruments: Disclosures published in December 2011 and regulating the disclosure of detailed information on offsetting financial assets and financial liabilities (effective for periods beginning on or after 1 January 2013, Amendments to IFRS 9 Financial Instruments: Classification and Measurement, published in December 2011, prescribing the disclosure of information on first adoption of IFRS 9 (effective for periods beginning on or after 1 January 2015) Amendments to IAS 1 Presentation of Financial Statements amendments to the presentation of items of other comprehensive income (effective for periods beginning on or after 1 July 2012), Amendments to IAS 19 Employee Benefits improvements to the accounting for post-employment benefits (effective for periods beginning on or after 1 January 2013), Amendments to IAS 32 Financial Instruments: Disclosure, published in December 2011, prescribing the disclosure of additional information on offsetting financial assets and financial liabilities (effective for periods beginning on or after 1 January 2014), IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine (effective for periods starting on or after 1 January 2013), 80

81 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Amendments to various standards and interpretations titled Annual Improvements in the Period , published in May 2012, pertaining to published amendments from , primarily affecting five standards (IFRS 1, IAS 1, IAS 16, IAS 32, IAS 34), which led to amendments to numerous other standards (effective for periods beginning on or after 1 January 2013). The Management Board has elected not to implement the mentioned standards, revisions and interpretations before their effective date. Below is an overview of main requirements of issued but unadopted standards and interpretations: Requirements of IFRS 9 prescribe that all financial assets within the scope of IAS 39 Financial Instruments: Recognition and Measurement be valuated at their amortized cost or fair value after first-time recognition. IFRS 10 replaces parts of IAS 27 Consolidated and Separate Financial Statements which pertain to consolidated financial statements. According to IFRS 10, there is only one basis for consolidation, and that is control. It prescribes a new definition of control which contains three elements: a) control over an entity being invested in, b) exposure or rights to variable returns based on participation in the investment entity c) ability to use control over an entity being invested in with the aim of influencing the amount of investor s return. IFRS 11 replaces IAS 31 Interests in Joint Ventures. According to IFRS 11, joint ventures are further categorized as joint arrangements or joint ventures, depending on the rights and obligations of the parties involved. Furthermore, according to IFRS 11, accounting for joint ventures is based on the equity method or the proportional method. 81

82 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 4. Reporting by operational segments Earned premiums (recognized in income) ACCIDENT INSURANCE CASCO INSURANCE PROPERTY INSURANCE LIABILITY INSURANCE TRANSPORT / CREDIT INSURANCE OTHER INSURANCE TOTAL NON-LIFE LIFE INSURANCE HRK HRK HRK Net income from investments Income from commissions and fees Other insurance technical income, net of reinsurance ( ) Other income Expenses for insured events, net ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) Change of other technical provisions, net of reinsurance (+/-) 0 ( ) ( ) 0 ( ) ( ) ( ) ( ) ( ) Change of technical provisions for life insurance where the policy holder bears the investment risk, net of reinsurance (+/-) Operating expenditure (expenses for business operations), net Other technical costs, net of reinsurance Other costs, including value adjustments Profit or loss in the accounting period before tax (+/-) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) (66.420) ( ) ( ) ( ) ( ) ( ) 0 0 ( ) 0 ( ) ( ) ( ) ( ) Income tax or loss ( ) (73.148) 0 ( ) ( ) ( ) ( ) ( ) ( ) Profit or loss in the accounting period after tax<<<<<<<<<<<<<<<<<<<z ( ) ( ) ( ) TOTAL 82

83 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Notes to the Profit and Loss Account / Comprehensive Income Statement 5. Total income Earned premiums (recognized in income) Investment income Income from commissions and fees Other insurance-technical income, net of reinsurance OOther income TOTAL Earned premiums (income) GROSS WRITTEN PREMIUM Insurance premium gross Coinsurance premium Value adjustment and collected premium adjustment 0 ( ) ( ) 0 ( ) ( ) Total PREMIUMS CEDED TO REINSURANCE Domestic reinsurance premium ( ) ( ) ( ) ( ) ( ) ( ) Reinsurance premium abroad 0 ( ) ( ) 0 ( ) ( ) Total ( ) ( ) ( ) ( ) ( ) ( ) PREMIUMS CEDED TO CO- INSURANCE Premiums ceded to co-insurance 0 ( ) ( ) 0 ( ) ( ) Total 0 ( ) ( ) 0 ( ) ( ) CHANGE IN UNEARNED PREMIUMS PROVISIONS Gross unearned premiums provisions Unearned premiums provisions reinsurance share ( ) ( ) Total TOTAL

84 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 5.2. Net investment income Income from subsidiaries, associates and joint ventures Income from investment in land and buildings Interest rate income Impairment of investment ( ) ( ) ( ) ( ) ( ) ( ) Unrealized investment profit/loss at fair value through P&L Account ( ) ( ) ( ) Net profit/loss from sale (realization) of investment ( ) ( ) Net positive exchange rate differences Other investment income/expenses ( ) ( ) TOTAL /i/ /ii/ Income from subsidiaries, associates and joint ventures in the amount of HRK (in the amount of HRK in 2011) pertains to dividends and profit shares received. Income from investment in land and buildings Profit/loss from change in fair value of real estate 0 ( ) ( ) Rental income Sales income TOTAL The Company owns 18 real estate units motor vehicle test stations (MOT test stations), which it gave to its daughter-company CROATIA TEHNIČKI PREGLEDI d.o.o. by means of an Agreement on Business and Technical Cooperation, thus transferring to the said company all the rights and obligations arising from all MOT test station related contracts with third parties, as well as any and all technical, organizational and legal affairs related to the MOT test stations as technical-technological units. The company CROATIA TEHNIČKI PREGLEDI d.o.o. undertakes to pay an annual fee of HRK for said use. Considering that these real estate units realize revenue from their business operations and that they are expected to make a profit, authorized assessors used the income capitalization approach in their 2012 assessment of the said real estates. 84

85 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo /iii/ Interest income Held-to-maturity investments Deposits given Loans given and other investments TOTAL /iv/ Impairment of investment Investments in associates 0 ( ) ( ) 0 ( ) ( ) Held-to-maturity investments ( ) ( ) ( ) 0 ( ) ( ) Investments available for sale ( ) ( ) ( ) ( ) ( ) ( ) Investments at fair value through P&L Account 0 ( ) ( ) Loans and deposits 0 ( ) ( ) 0 ( ) ( ) TOTAL ( ) ( ) ( ) ( ) ( ) ( ) /v/ Unrealized profit/loss from investment at fair value through P&L Account Debt securities ( ) ( ) ( ) Shares 0 ( ) ( ) 0 ( ) ( ) Investment funds Loans TOTAL ( ) ( ) ( ) /vi/ Net profit/loss from investment sale (realization) Investments available for sale ( ) ( ) ( ) ( ) ( ) Investments at fair value through P&L Account Other investments (56.074) (56.074) TOTAL ( ) ( ) 85

86 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / /vii/ Other investment income Income from collected loans that had been written-off Interest impairment 0 ( ) ( ) 0 ( ) ( ) Income from MOT test stations Other income/expenses ( ) ( ) ( ) ( ) ( ) ( ) TOTAL ( ) ( ) Other income Income from commissions and fees Other insurance-technical income, net of reinsurance Other income TOTAL /i/ Income from commissions and fees Income from commissions and fees in the amount of HRK (in the amount of HRK in 2011) pertains to commissions from reinsurance companies under reinsurance contracts. /ii/ Other insurance-technical income, net of reinsurance Guarantee fund income Foreign claims income Income from interest on premium Cross-border insurance compensation income Income from receivables with recourse 0 ( ) ( ) 0 ( ) ( ) Other income TOTAL

87 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo /iii/ Other income Income recognition of costs calcul. for unused vacation days Service assessment income Recognition of provisions to income Income from collected insurance claims Income from sale of tangible assets Income from reimbursements and subventions Other income TOTAL Total expenses Insured events expenses, net Change in other technical provisions, net of reinsurance Change in tech. provisions of life insurance where the policyholder bears ( ) 0 ( ) ( ) 0 ( ) the risk Operating expenses (expenses for business operations), net Other technical costs, net of reinsurance Other costs, including value adjustments TOTAL Insured events expenses, net SETTLED CLAIMS Gross amount Co-insurer s share Reinsurer s share 0 ( ) ( ) 0 ( ) ( ) Total CHANGE IN CLAIMS PROVISIONS Gross amount ( ) ( ) ( ) ( ) Reinsurer s share ( ) ( ) Total ( ) ( ) ( ) ( ) ( ) ( ) TOTAL

88 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 6.2. Change in other technical provisions, net of reinsurance CHANGE IN MATHEMATICAL INSURANCE PROVISION Gross amount Reinsurance share (65.559) 0 (65.559) ( ) 0 ( ) Total CHANGE IN OTHER TECHNICAL PROVISIONS, NET OF REINSURANCE Gross amount Total TOTAL Change in technical provisions for life insurance where the policyholder bears the risk Change in tech. provisions of life insurance where the policyholder bears ( ) 0 ( ) ( ) 0 ( ) the risk TOTAL ( ) 0 ( ) ( ) 0 ( ) 6.4. Business expenditure (expenses for business activity performance), net ACQUISITION COSTS Commission Other acquisition costs Total MANAGEMENT COSTS (ADMINISTRATION COSTS) Amortization Salaries, taxes and contributions from and to salaries Other administration costs Total TOTAL

89 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo /i-1/ Commission Commission for banks, agencies and brokers Commission for employees Commission of credit card companies Insurance commissioner s commission Commission of MOT test stations Other commissions TOTAL /i-2/ Other acquisition costs Costs of promotion Costs of policy issuance Other direct acquisition costs TOTAL /ii-1/ Amortization Amortization of intangible assets Depreciation of tangible assets TOTAL /ii-2/ Salaries, taxes and contributions from and to salaries Net salaries and wages Taxes and contributions from salaries Contributions to salaries TOTAL

90 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / /ii-3/ Other administration costs Tangible costs Services Transport and telecommunications services Maintenance services Rental services Municipal services Intellectual services Other services Reserving Reserving for severance payments and jubilee awards ( ) Reserving for court procedures Costs for unused vacation days Other material rights of employees Vacation bonuses, severance payments and jubilee awards Daily allowances costs Reimbursements to employees Other operating expenses Representation expenses Insurance premiums Other operating expenses TOTAL Other technical expenses, net of reinsurance /i/ Other technical expenses, net of reinsurance Contributions for health insurance out of motor liability insur. premium Guarantee fund fee Contribution for Fire Department Fee to Croatian Insurance Bureau HANFA (Croatian Financial Services Supervisory Agency) fee Insurance-technical expenses Other expenses TOTAL

91 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 7. Corporate income tax Corporate income tax was calculated at the rate of 20 % (in 2011 it was 20 %) in accordance with legal regulations, applied to the legal tax base which is comprised of the difference between realized income and expenditure in the accounting period for which the tax base is determined. ITEM HRK HRK BEFORE TAX PROFIT Amortization % of representation expenses % of personal transportation expenses Costs of fines for misdemeanors and offences Expenses for gifts exceeding prescribed sums Interests between associates Expenses from unrealized losses Value adjustment and write-off of receivables Value adjustment of financial assets Reserving costs Increase in tax basis for all other expenses and other increases Increase in profit for other income and tax loss for expired right of use TOTAL INCREASE IN PROFIT Income from dividends and shares in profit ( ) ( ) Income from collected receivables that had been written-off ( ) ( ) Other expenditures from previous periods ( ) ( ) Decrease in profit for other income ( ) ( ) State subvention for education and training ( ) ( ) State subvention for research and development projects ( ) TOTAL DECREASE IN PROFIT ( ) ( ) Tax basis Tax rate 20 % 20 % Tax liability Advances paid Difference for payment ( ) ( ) The difference in the amount of HRK between the tax liability presented in the corporate income tax return form for 2012 in the amount of HRK and the tax liability in the profit and loss account in the amount of HRK is explained in Note 14 to the financial statements. 8. Earnings per share HRK HRK Net profit for the period Less: dividends on preferred shares ( ) ( ) Net profit for the period per ordinary share Weighted average of ordinary shares except of own shares Earnings per share 381,81 252,56 91

92 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Notes to the Balance Sheet / Statement of Financial Position 9. Intangible assets RESEARCH AND DEVELOPMENT EXPENSES OTHER INTANGIBLE ASSETS INTANGIBLE ASSETS IN PREPARATION HRK HRK HRK HRK PURCHASE VALUE Balance at 1 January Initial balance correction 0 0 ( ) ( ) Transfer to real estate investment 0 0 ( ) ( ) Increase Transfer to utilization ( ) 0 Write-off 0 ( ) 0 ( ) Balance at 31 December Increase Transfer to utilization ( ) 0 Addition from tangible assets Expenditure ( ) 0 0 ( ) Balance at 31 December VALUE ADJUSTMENT Balance at 1 January Amortization during Write-off 0 ( ) 0 ( ) Balance at 31 December Amortization during Write-off ( ) 0 0 ( ) Balance at 31 December CURRENT VALUE 1 January December December TOTAL 92

93 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 10. Tangible assets /i/ Land and buildings used for business activities ASSETS IN PREPARATION GIVEN ADVANCES LAND BUILDINGS TOTAL HRK HRK HRK HRK HRK PURCHASE VALUE Balance at 1 January Initial balance correction 0 ( ) 0 0 ( ) Newly purchased assets Addition from preparation ( ) 0 0 Transfer from /to 0 (39.753) ( ) (4.157) ( ) Addition to land and buildings not intended for company business operations Transfer to land and buildings not intended for company business operations ( ) ( ) 0 0 ( ) Write-off 0 (29.022) 0 0 (29.022) Balance at 31 December Newly purchased assets Addition from preparation ( ) ( ) 0 Transfer to intangible assets 0 0 ( ) ( ) ( ) Addition to land and buildings not intended for company business operations Transfer to land and buildings not intended for company business operations 0 ( ) 0 0 ( ) Write-off ( ) ( ) 0 0 ( ) Balance at 31 December VALUE CORRECTION Balance at 1 January Depreciation from revaluation Depreciation in Transfer to land and buildings not intended for company business operations 0 ( ) 0 0 ( ) Write-off 0 (25.037) 0 0 (25.037) Balance at 31 December Depreciation from revaluation Depreciation in Transfer to land and buildings not intended for company business operations 0 ( ) 0 0 ( ) Write-off 0 (99.095) 0 0 (99.095) Balance at 31 December CURRENT VALUE Balance at 1 January Balance at 31 December Balance at 31 December

94 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / If the Company s buildings were presented by historical cost, their book value would be as follows: HRK HRK LAND Purchase cost Depreciation BUILDINGS Purchase cost Depreciation ( ) ( ) TOTAL /ii/ Equipment EQUIPMENT AND FURNITURE MEANS OF TRANSPORT INSTRUMENTS ASSETS IN PREPARATION TOTAL HRK HRK HRK HRK HRK PURCHASE VALUE Balance at 1 January Increase Addition from preparation ( ) 0 Write-off ( ) ( ) 0 0 ( ) Balance at 31 December Increase Addition from preparation ( ) 0 Write-off ( ) ( ) ( ) 0 ( ) Balance at 31 December VALUE ADJUSTMENT Balance at 1 January Depreciation in Write-off ( ) ( ) 0 0 ( ) Balance at 31 December Depreciation in Write-off ( ) ( ) ( ) 0 ( ) Balance at 31 December CURRENT VALUE 1 January December December

95 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo /iii/ Other tangible assets OTHER TANGIBLE ASSETS HRK TOTAL PURCHASE VALUE Balance at 1 January Increase Balance at 31 December Balance at 31 December VALUE ADJUSTMENT Balance at 1 January Depreciation in Balance at 31 December Depreciation in Balance at 31 December CURRENT VALUE 1 January December December HRK 11. Investments 31 Dec Dec 2011 Investments in land and building not intended for business activities Investments in subsidiaries, associates and joint ventures Other financial investments TOTAL

96 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Investments in land and buildings not intended for business activities INVESTMENTS HRK Balance at 1 January Initial balance adjustment (20.172) Transfer to land and buildings intended for business activities ( ) Addition from land and buildings intended for business activities Fair value increase credited to the Profit and Loss Account Newly purchased during the year Assets in preparation intended for business activities Sold during the year ( ) Balance at 31 December Transfer to land and buildings intended for business activities ( ) Addition from land and buildings intended for business activities Fair value decrease charged to the Profit and Loss Account ( ) Newly purchased during the year Assets in preparation not intended for business activities Sold during the year ( ) Balance at 31 December Investment in subsidiaries and associates and participation in joint ventures 31 Dec Dec 2011 Shares and stakes in subsidiaries Shares and stakes in associates TOTAL

97 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo /i/ Shares and stakes in subsidiaries BUSINESS ACTIVITY COUNTRY PERC. OF OWNERSHIP GROSS INVESTMENT AMOUNT 31 Dec Dec 2011 DECREASE IN VALUE NET INVESTMENT AMOUNT PERC. OF OWNERSHIP GROSS INVESTMENT AMOUNT DECREASE IN VALUE NET INVESTMENT AMOUNT % HRK HRK HRK % HRK HRK HRK Croatia Lloyd d.d., Zagreb Reinsurance Croatia 94, , Croatia Leasing d.o.o., Zagreb Leasing Croatia 100, ( ) 0 100, ( ) Croatia Tehnički pregledi d.o.o., Zagreb Herz d.d., Požega Croatia osiguranje, mirovinsko društvo d.o.o., Zageb Croatia zdravstveno osiguranje d.d., Zagreb PBZ Croatia osiguranje d.d., Zagreb Milenijum osiguranje a.d., Beograd, Serbia Croatia Sigurimi sh.a., Priština, Kosovo Croatia osiguranje d.d., Ljubuški, Bosnia and Herzegovina Croatia osiguranje život a.d, društvo za osiguranje života, Skopje, Macedonia Croatia osiguranje neživot a.d., društvo za osiguranje neživota, Skopje, Macedonia Slavonijatrans Tehn. pregledi d.o.o., Slavonski Brod Technical inspection Technical inspection Pension fund management Croatia 100, , Croatia 100, , Croatia 100, ( ) , ( ) Insurance Croatia 66, , Pension fund management Croatia 50, , Insurance Serbia 99, , Insurance Kosovo 100, , Insurance Bosnia and Herzegovina 52, , Insurance Macedonia 92, , Insurance Macedonia 100, , Technical inspection Croatia 76, , TOTAL ( ) ( ) /ii/ Shares and stakes in associates OWNERSHIP PERCENTAGE GROSS INVESTMENT AMOUNT 31 Dec Dec 2011 DECREASE IN VALUE NET INVESTMENT AMOUNT OWNERSHIP PERCENTAGE GROSS INVESTMENT AMOUNT DECREASE IN VALUE NET INVESTMENT AMOUNT % HRK HRK HRK % HRK HRK HRK Brioni d.d., Pula 25, , Autoprijevoz d.d., Otočac 28, ( ) 0 28, ( ) TOTAL ( ) ( )

98 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Other financial investments 31 Dec Dec 2011 Held-to-maturity investments Investments available for sale Investments at fair value through P&L Account Deposits, loans and receivables TOTAL /i/ Held-to-maturity investments 31 Dec Dec 2011 State bonds Corporate bonds Local government bonds Total Treasury bills Commercial bills TOTAL /ii/ Investments available for sale 31 Dec Dec 2011 Shares Listed on stock exchange Not listed on stock exchange Total Units in investment funds TOTAL

99 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo /iii/ Investment structure at fair value through Profit & Loss Account is presented as follows: 31 Dec Dec 2011 INVESTMENT FUNDS ZB Plus PBZ Novčani Erste Money Raiffeisen Cash HPB novčani fond PBZ Novčani VB Cash OTP novčani fond HPB novčani Auctor Cash HI cash Allianz Cash PBZ Bond Erste Bonds Raiffeisen bonds Total BONDS RHMF-O-227E RHMF-O-17BA RHMF - O-203E RHMF - XS RHMF - XS RHMF-O-167A RHMF-O-203A INSTITUT IGH d.o.o., Zagreb Total SHARES Pozavarovalnica Sava d.d., Slovenija HT Hrvatske telekomunikacije d.d., Zagreb Adris Grupa d.d., Rovinj Končar distributivni i specijalni transformatori d.d., Zagreb Podravka d.d., Koprivnica Luke ploče d.d., ploče Ledo d.d., Zagreb Atlantic grupa d.d., Zagreb Končar grupa d.d., Zagreb Ericsson Nikola Tesla d.d., Zagreb Total TOTAL

100 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / /iv/ Deposits, loans and receivables 31 Dec Dec 2011 Deposits in banks Loans TOTAL /iv-1/ Loans Maturity dates of granted loans are presented as follows: 31 Dec Dec 2011 Gross amount Value decrease 0 ( ) ( ) 0 ( ) ( ) TOTAL In the Balance Sheet as of 31 December 2012 loans to associated companies were granted in the amount of HRK (in 2011 they amounted to HRK ). 31 Dec Dec 2011 Up to 1 year Up to 5 years Over 5 years TOTAL Loans structure according to collaterals is presented as follows: 31 Dec Dec 2011 Mortgages and real estate fiduciaries Life insurance policies Guarantees of business banks Other (bills, debentures) TOTAL Investments for the account and risk of life insurance policyholders Investments for the account and risk of life insurance policy holder in the amount HRK (on 31 December 2011 in the amount of HRK ) pertain to products which combine insurance and investment components for policy holders through investing the premium in investment funds on behalf and for the account of policy holders. 100

101 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 13. Reinsurance share in technical provisions 31 Dec Dec 2011 Unearned premiums, reinsurance share Mathematical provisions, reinsurance share Claims provisions, reinsurance share TOTAL Current and deferred tax assets Deferred tax assets are presented in the amount of HRK (on 31 December 2011 the amount was HRK ). The increase in the deferred tax assets resulted from larger temporary differences between unrealized losses from financial assets impairment and the cancelled liability arising from realized losses of financial assets, which increased the deferred tax assets in Receivables 31 Dec Dec 2011 Receivables from direct insurance activities Receivables from insurance agents, i.e. brokers Receivables from co-insurance and reinsurance activities Other receivables TOTAL Potraživanja iz neposrednih poslova osiguranja 31 Dec Dec 2011 Receivables arising from domestic premiums Receivables arising from premiums abroad Impairment 0 ( ) ( ) 0 ( ) ( ) TOTAL

102 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / /i/ Maturity structure of receivables from domestic insurance premiums, as well as coverage of due but unpaid receivables(for more than 180 days) 31 Dec 2012 HRK Written uninvoiced domestic premium Invoiced unpaid domestic premium Invoiced unpaid premium abroad Co-insurance premium receivables 0 Total receivables Undue and due for up to 180 days Past due for more than 180 days Total upon maturity date Past due for more than 180 days At value adjustment Unadjusted receivables value COVERAGE FOR RECEIVABLES PAST DUE FOR MORE THAN 180 DAYS Claims provisions for debatable receivables Total coverage /ii/ Impairment movements in 2012 and HRK HRK Balance at 31 December of previous year ( ) ( ) Increase in value impairment ( ) ( ) Collection of previously decreased amounts Write-offs Balance at 31 December of current year ( ) ( ) Ostala potraživanja 31 Dec Dec 2011 Receivables from other insurance activities Receivables for returns on investment Other receivables TOTAL

103 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo /i/ Receivables from other insurance 31 Dec Dec 2011 Receivables with recourse Value impairment 0 ( ) ( ) 0 ( ) ( ) Total Receivables under foreign claims Value impairment 0 ( ) ( ) 0 ( ) ( ) Total TOTAL Receivables with recourse for which the Company concludes a payment settlement with the debtor, and receivables from another insurance company are recognized as income at the moment the settlement is made. Other receivables with recourse which are not the subject of litigation are recognized in the Balance Sheet as of 31 December 2012 in the amount of HRK (as of 31 December 2011 they amounted to zero HRK), and due to uncertainty of collection they are presented as deferred income from the moment the settlement is concluded with the recourse debtor (see Note 25). /ii/ Receivables for returns on investment 31 Dec Dec 2011 Receivables for regular interest on given loans Receivables for regular interest on given deposits Receivables for due interest Receivables for default interest Other receivables for interest Value impairment 0 ( ) ( ) 0 ( ) ( ) TOTAL

104 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / /iii/ Other receivables 31 Dec Dec 2011 Receivables from credit card companies Receivables for sold flats Receivables obtained through cession Receivables for sold loans Receivables from buyers Receivables under writs of execution Receivables from buyers Receivables for given advances Receivables from the state Other receivables TOTAL Other assets 31 Dec Dec 2011 Cash at bank and in hand Other TOTAL Cash at bank and in hand 31 Dec Dec 2011 Cash in HRK accounts Cash in foreign currency accounts Cash in hand Cash covering mathematical provisions TOTAL Other 31 Dec Dec 2011 Up to 3 months deposits Received cheques Received bills of exchange TOTAL

105 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 17. Prepayments and accrued income 31 Dec Dec 2011 Deferred interest and rent Other prepayments TOTAL Capital and reserves Subscribed capital Subscribed capital was determined in the nominal value of HRK (the same amount as on 31 December 2011) and it comprises shares at par value of HRK 1.400, which were entirely paid in cash and entered in the Register of the Commercial Court in Zagreb. All shares are initial public offering shares and they are marked as follows: are ordinary shares with the code CROS-R-A; are preference shares with the code CROS-P-A. Each share, either ordinary or preferred, entitles its holder to 1 (one) vote in the Company s General Assembly. All shares were paid in full, issued in dematerialized form, they are freely transferable and they are deposited at the Central Depository and Clearing Company (CDCC). Ownership structure as of 31 December 2012 and 31 December 2011 is presented a follows: SHAREHOLDERS NUMBER OF SHARES 31 Dec Dec 2011 IAMOUNT IN HRK % OF STAKE IN EQUITY NUMBER OF SHARES IAMOUNT IN HRK % OF STAKE IN EQUITY AUDIO / Republic of Croatia , ,23 Raiffeisenbank Austria d.d. custody account , ,22 Hrvatska poštanska banka d.d. basic and custody account , ,06 Societe Generale Splitska banka d.d. custody account , ,04 Hypo Alpe-Adria-Bank d.d custody account , ,47 PBZ d.d. custody account , ,87 Kraš d.d , ,44 Auto Hrvatska d.d , ,32 Erste & Steiermärkische Bank d.d. basic and custody account , ,39 Komercijalna banka d.d. in bankruptcy , ,22 Bahovec Srečko , ,18 Adriacommerce , ,16 Radić Antun , ,13 Tankerska plovidba , ,13 Škaro Miroslav , ,12 Fran Mihaljević Infectious Diseases Clinic , ,10 Cemex Hrvatska d.d , ,08 Interkapital vrijednosni papiri d.o.o. custody account , ,00 Končar elektroindustrija d.d , ,07 Eko Međimurje d.d , ,07 Zagrebačka banka d.d. custody account , ,22 Zvonena holding d.d ,67 Ostali dioničari , ,81 TOTAL , ,00 105

106 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Revaluation reserves Revaluation reserves in the amount of HRK (as of 31 December 2011 amounting to HRK ) are presented as follows: 31 Dec Dec 2011 Land and buildings Assets available for sale shares ( ) ( ) ( ) ( ) ( ) ( ) Assets available for sale funds ( ) ( ) ( ) TOTAL ( ) ( ) /i/ Revaluation reserve for land and buildings REAL ESTATE REVALUATION HRK Balance at 31 December Correction of previous period errors ( ) Transfer to retained profit (depreciation of revaluation) ( ) Balance at 31 December Transfer to retained profit (depreciation of revaluation) ( ) Balance at 31 December /ii/ Revaluation reserves for financial assets available for sale INVESTMENTS IN FUNDS INVESTMENTS IN SHARES AND STAKES TOTAL HRK HRK HRK 31 December 2010 ( ) Changes in fair value of available-for-sale financial assets ( ) ( ) ( ) Decrease in financial assets Realized losses from available-for-sale financial assets / net ( ) December 2011 ( ) ( ) ( ) Changes in fair value of available-for-sale financial assets ( ) ( ) ( ) Decrease in financial assets Realized losses from available-for-sale financial assets / net ( ) ( ) 31 December ( ) ( ) Reserves Reserves in the amount of HRK (as of 31 December 2011 amounting to HRK ) were formed by Decisions of the Company s General Assembly out of the profit realized in previous years, as follows: 31 Dec Dec 2011 HRK HRK Legal reserves Statutory reserves Other reserves TOTAL

107 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Retained profit RETAINED PROFIT HRK 31 December Correction of errors from previous period Transfer of profit Unrealized profit / loss from tangible assets (land and buildings) Other non-owner changes in equity December Transfer of profit ( ) Unrealized profit / loss from tangible assets (land and buildings) Other non-owner changes in equity December Current year profit Current year profit was realized in the amount of HRK (as of 31 December 2011 in the amount of HRK ). Profit realized by the Company s business operations in 2011 in the amount of HRK was allocated according to the Decision of the Company s General Assembly. HRK Legal reserves (see Note 18.3) Statutory reserves (see Note 18.3) Dividend payment liability Retained profit (see Note 18.4) TOTAL Technical provisions 31 Dec Dec 2011 Gross unearned premiums Gross mathematical insurance provisions Gross provisions for claims Fluctuation provision Other insurance-technical provisions, gross TOTAL

108 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 20. Life insurance technical provisions where the policyholder bears the risk Technical provisions for life insurance where the policy holder bears the risk, in the amount of HRK (as of 31 December 2011 in the amount of HRK ), were formed for life insurance policies where the policy holder bears the investment risk. 21. Other provisions 31 Dec Dec 2011 Provisions for pensions and court procedures Other provisions TOTAL Movements in provisions for pensions and court procedures in 2012 and 2011 COSTS OF COURT PROCEDURES COSTS OF JUBILEE AWARDS AND SEVERANCE PAYMENTS TOTAL HRK HRK HRK Balance at 1 January Additional provisions Cancellation of provisions ( ) ( ) ( ) Balance at 31 December Additional provisions Cancellation of provisions ( ) ( ) ( ) Balance at 31 December Current and deferred tax liability 31 Dec Dec 2011 Deferred tax liability Current tax liability TOTAL Deferred tax liability was recognized due to adjustment to the fair value of land and buildings used for the performance of business, and the part of the land and buildings which are not used for that purpose. In every accounting period it is reduced by 20 % of the amount of accrued depreciation resulting from revaluation of real estate for performance of business activities. 108

109 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 23. Financial liabilities 31 Dec Dec 2011 Short-term loans from domestic banks Other financial liabilities TOTAL Short-term loan was repaid at the beginning of Other liabilities 31 Dec Dec 2011 Liabilities arising from direct insurance activities Liabilities arising from co-insurance and reinsurance activities Other liabilities TOTAL /i/ Liabilities arising from direct insurance activities 31 Dec Dec 2011 Liabilities for Guarantee fund Liabilities under settled claims Liabilities under motor liability insurance Liabilities for Fire Department contributions Other liabilities TOTAL /ii/ Liabilities arising from coinsurance and reinsurance activities 31 Dec Dec 2011 Liabilities under reinsurance premium life Liabilities under reinsurance premium transport and loans Liabilities under reinsurance premium facultative insurance Liabilities under reinsurance premium accident Liabilities under reinsurance premium P&I ship owners club Liabilities under reinsurance premium stop loss Liabilities under reinsurance premium abroad TOTAL

110 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / /ii/ Other liabilities 31 Dec Dec 2011 Liabilities towards suppliers Liabilities for received advances Liabilities for dividends Liabilities for net salaries Liabilities for contributions from salaries Liabilities for tax and surtax from salaries Liabilities for contributions to salaries Deductions from salaries and wages Liabilities under motor liability and casco insurance Liabilities to the state for sold flats Other liabilities TOTAL Accruals and deferred income 31 Dec Dec 2011 ACCRUALS Calculated expenses for unused vacation days Calculated acquisition costs Deferred payment of financial assets Other calculated expenses Total accruals DEFERRED INCOME Deferred recognition of recourse income due to uncertain collection Amortization of discount/premium on treasury and commercial bills Other deferred income Total deferred income TOTAL Deferred recognition of income from recourses due to uncertainty of collection, presented in the amount of HRK (as of 31 December 2011 in the amount of HRK ) represents (in the amount of HRK ) deferred recognition of income from recourses for which no payment settlement has been made or receivables with recourse from other insurance companies (see Note 15.2./i/). 110

111 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 26. Off-balance sheet items 31 Dec 2011 INCREASE DECREASE 31 Dec 2012 HRK HRK HRK HRK Premiums from companies in bankruptcy Shares and stakes of companies in bankruptcy Placements and interests of companies in bankruptcy Other Default interest on placements Receivables from companies in bankruptcy Receivables with recourse TOTAL In order to ensure comprehensive monitoring of receivables with recourse, in 2012 the Company presented receivables with recourse which are the subject of litigation as an off-balance sheet item. 27. Earnings of the Management Board and Supervisory Board 31 DEC Dec 2011 HRK HRK Gross salaries of the Management Board members Remuneration of the Supervisory Board members TOTAL

112 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 28. Related party transactions /i/ Profit & Loss Account HRK HRK EARNED PREMIUMS (RECOGNIZED IN INCOME) Gross written premiums Co-insurance premiums Premiums ceded to reinsurance ( ) ( ) Change in unearned premium provisions reinsurance share ( ) Total ( ) ( ) INVESTMENT INCOME Income from subsidiaries and associates Rental income Interest income Other investment income Total Income from commissions and fees Other income EXPENSES FOR INSURED EVENTS, NET Settled claims gross amount ( ) ( ) Settled claims coinsurance share 0 (60.093) Settled claims reinsurance share Change in claims provisions reinsurance share ( ) Total CHANGE IN OTHER TECHNICAL PROVISIONS, NET OF REINSURANCE Reinsurance share OPERATING EXPENDITURE Commission ( ) 0 Other acquisition costs 0 0 Administration costs ( ) ( ) Total ( ) ( ) 112

113 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo /ii/ Balance Sheet HRK HRK INVESTMENTS Investment in subsidiaries, associates and joint ventures Given loans and receivables Total REINSURANCE SHARE IN TECHNICAL PROVISIONS Unearned premiums, reinsurance share Mathematical insurance provisions, reinsurance share Claims provisions, reinsurance share Total RECEIVABLES Receivables from direct insurance business Receivables from reinsurance business Other receivables Total OTHER LIABILITIES Liabilities arising from co-insurance and reinsurance business Other liabilities Total IV. Contingent liabilities /i/ /ii/ According to information received from the Company s legal department, apart from court procedures which were initiated against the Company for compensation of losses, court procedures of another nature have also been initiated against the Company. An assessment of the Company s court dispute outcomes was used to arrive at the possibility of outflow of assets as a result of negative outcome of litigation, and for this the Company has made a provision of HRK As a result of restructuring of the Company s staff one can presume that there is a contingent liability for future payment of severance payments for employees that may be found redundant. V. Audit of financial statements The audit of the Company s financial statements for 2012 was performed by the audit company BDO Croatia d.o.o., Zagreb, for an agreed fee in the amount of HRK plus value added tax. VI. Approval of financial statements Financial statements were adopted by the Management Board and authorized for publication on 21 March For Croatia osiguranje d.d. Zagreb, Ivan Fabijančić, Member of the Management Board Krešimir Starčević, Chairman of the Management Board 113

114 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht /

115 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Consolidated Annual Report of the Company for 2012

116 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht /

117 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Croatia osiguranje Group Organization scheme of CROATIA osiguranje Group Croatia Lloyd d.d., Zagreb, 94,64 % Milenijum osiguranje a.d., Belgrade, Serbia, 99,78 % Croatia osiguranje d.d. Društvo za osiguranje života, Skopje, Macedonia, 92,50 % Croatia osiguranje d.d Društvo za osiguranje neživota, Skopje, Macedonia, 100,00 % Croatia osiguranje d.d., Ljubuški, Bosnia and Herzegovina, 52,05 % Croatia Sigurimi sh.a., Pristina, Kosovo, 100,00 % PBZ Croatia osiguranje d.d, Zagreb, 50,00 % Croatia osiguranje dobrovoljno mirovinsko društvo d.o.o., Zagreb, 100,00 % Croatia mirovni dom d.o.o., Zagreb, 100,00 % Plančić d.o.o., Vrbanj, 51,00 % Milenijum Auto d.o.o., Belgrade, 100,00 % Crotehna d.o.o., Ljubuški, 100,00 % Croauto d.o.o., Mostar, 66,80 % Croatia remont d.d., Čapljina, 69,79 % Croatia Vitez d.o.o., Vitez, 90,04 % Hotel Hum d.o.o., Ljubuški, 80,00 % Ponte d.o.o., Mostar, Crotehna and Croauto each 50,00 % Croatia leasing d.o.o., Zagreb, 100,00 % Croatia zdravstveno osiguranje d.d., Zagreb, 66,19 % CO, 33,81 % Croatia Lloyd Herz d.d., Požega, 100,00 % Poliklinika Ars Medica, Pula, 74,00 % Poliklinika Croatia zdravstveno osiguranje, Zagreb, 100,00 % Croatia Tehnički pregledi d.o.o., Zagreb, 100,00 % Slavonijatrans Tehnički pregledi d.o.o., Slavonski Brod, 76,00 % MOT PITOMAČA, Pitomača, 100,00 % 117

118 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht /

119 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Description and review of the Group members business activities CROATIA osiguranje d.d. has a majority share in 7 (seven) insurance companies, these being: Croatia Lloyd d.d., Zagreb, CROATIA zdravstveno osiguranje d.d., Zagreb, CROATIA osiguranje d.d., Ljubuški, MILENIJUM osiguranje a.d., Belgrade, CROATIA sigurimi sh.a., Pristina, CROATIA osiguranje d.d. društvo za osiguranje života, Skopje and CROATIA osiguranje d.d. društvo za neživotno osiguranje, Skopje. Also, CROATIA osiguranje d.d., has a majority share in 5 (five) non-insurance companies, these being: CROATIA osiguranje mirovinsko društvo za upravljanje dobrovoljnim mirovinskim fondom d.o.o., Zagreb, CROATIA Leasing d.o.o., Zagreb, CROATIA Tehnički pregledi d.o.o., Zagreb, SLAVONIJATRANS Tehnički pregledi d.o.o., Slavonski Brod and HERZ d.d., Požega. In the company PBZ CROATIA osiguranje d.d. za upravljanje obveznim mirovinskom fondom Zagreb, CROATIA osiguranje d.d. owns 50 % of shares. 119

120 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Insurance companies 1. CROATIA LLOYD d.d., Zagreb Ulica grada Vukovara 62, Zagreb CROATIA Lloyd d.d. is a company which is celebrating its 45 th anniversary of operations. It is the only reinsurance company in Croatia and it successfully connects domestic and international insurance with the reinsurance market. It provides reinsurance coverage for all risk types, and their primary business activities involve property and transport risks. Management Board 1. Robert Stude, Chairman 2. Kitica Mioč, Member Supervisory Board 1. Ivan Fabijančić, Chairman since 17 Dec Zoran Zaninović, Deputy Chairman 3. Krešimir Starčević, Member since 17 Dec Eugen Sunara, Member since 17 Dec Employees representative Supervisory Board before 17 Dec Zdravko Zrinušić, Chairman 2. Silvana Ivančić 3. Zoran Zaninović 4. Nikola Mijatović 5. Ramis Šerifović, employees representative Ownership structure 1. CROATIA osiguranje d.d. 94,64 % 2. Legal entities 3,19 % 3. Natural persons and custody accounts 2,17 % The Company has stakes in other companies as follows: 1. CROATIA Mirovni Dom d.o.o., Zagreb 100,00 % 2. Plančić d.o.o., Vrbanj 51,00 % 3. Strmec projekt d.o.o., Zagreb 49,76 % 4. CROATIA zdravstveno osiguranje d.d., Zagreb 33,81 % 120

121 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Business result summary In 2012 the Company s total income was 14,66 % less than in 2011, and total expenditure was 15,50% less than in Gross profit decreased by 9,65 % when compared to 2011, and was 6,86 % lower than the plan. Capital and reserves were 2,85 % less than planned, but in terms of realization they show an increase of 1,72 %. Assets/liabilities are 7,24 % lower than realized in 2011, and 9,42 % lower than planned for Technical provisions are 11,19 % lower than in the previous year, and 19,23 % lower than planned. P&L ACCOUNT, BALANCE SHEET IN 000 HRK Assets management and investments PLAN FOR 2012 REALIZED 2011 / 4 th Q REALIZED 2012 / 4 th Q CHANGE in % 2012 / 2011 CHANGE in % 2012 / PLAN 4 : 3 4 : Total income ,66-10,12 Total expenditure ,50-10,68 Profit/loss before taxation ,65-6,86 Gross premium written ,18-10,89 Equity Capital and reserves ,72-2,85 Total Assets / Liabilities ,24-9,42 Technical provisions ,19-19,23 Equity in the currency HRK Stake of CO / total number of shares (94,64 %) / Par value of share / stake 800,00 HRK Number of employees 2011 / / 41 Source: Report Package (collection of reports) for consolidation of financial statements of Croatia osiguranje Group as at 31 Dec 2011 and 31 Dec 2012 In the performance of its business operations, Croatia Lloyd (being a reinsurance company) is required to implement the Insurance Act and all other relevant legal regulations of the Republic of Croatia, as well as subordinate legislation issued by the supervisory body the Croatian Financial Services Supervisory Agency (hereafter: HANFA). As a Company whose shares are listed on the Zagreb Stock Exchange it is also obliged to comply with the Capital Market Act, the Companies Act and the Stock Exchange Act. The Company invests most of its assets (capital and technical provisions) in the form of first-class assets, state bonds and deposits with renowned banks, or other first-class securities. A smaller portion of its assets is invested in real estate, shares and hybrid deposits, which represent (to some extent) higher risk investments. The Company refrains from investing abroad, although they have the legal ability to do so. In 2012 the Company acquired shares of the company Moja banka Sarajevo in an amount which corresponds to only 2,21 % of total investments. By implementing the Insurance Act and the Rules on investing assets from technical provisions with limited types and amounts of investment, the Company has performed a restructuring of invested assets to cover technical provisions, depending on the Company s needs in terms of maturity and currency harmonization of assets, as well as technical provisions. 121

122 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / In this way the Company realized full coverage of technical provisions with invested assets throughout the year, which is one of the most important prerequisites for being successful in the reinsurance market. Due to low returns, investments in bonds and treasury bills have been reduced, while investments in funds are at the same level as last year. Some indications that mixed funds could realize greater returns have not yet been confirmed, so the Company continues to place its investments into cash funds. Risk management The Company continues to recognize the significant role of a risk management system, its existence and inclusion in the business processes, and especially in the industry in which the Company operates, but always observing the Insurance Act and the guidelines of HANFA. The Risk Management Strategy and the Rules on Risk Management as an umbrella document prescribe the Company s policy, objectives, role and tasks. Risk management is performed in accordance with the defined and identified risks to which the Company is exposed. The risk management system is oriented toward maintaining the required level of capital which is proportionate to the scope and types of reinsurance transactions, taking into consideration the financial, operational, business and event risks. In accordance with the provisions of the Insurance Act, the Company creates guidelines for the development, investment, and management of assets and liabilities by balancing assets and liabilities, diversifying risks, determining the price of reinsurance and monitoring for the entire portfolio. By defining risk tolerance and risk-bearing capacity, the Company efficiently and responsibly manages risks and systematically monitors the risk profiles which it is exposed to, and takes correctional activities in problem-solving. Reinsurance risk results from the Company s primary activity, which is reinsurance and consequently retrocession. The stated risk could occur if the amounts of claim payments, if compensations and costs are greater than the realized premium or other Company income. This risk involves risk of occurrence of harmful events which are significant in terms of amount or number, risks pertaining to incorrect assessment of reinsurance price, risks of forming insufficient technical provisions and risks pertaining to the realization of retrocession. The Company manages this risk by giving attention to a quality underwriting process, data processing, determining adequate retention, limits, and clearly defined conditions for risk placement in reinsurance/retrocession. By transferring parts of risk to retrocession, the Company controls its exposure to potential losses, disperses risks and protects its capital. Contracts are mostly completed for a period of one year, and depending on the type of insurance, protection against the net exposure of the Company is implemented through non-proportional and proportional coverage. In its business operations the Company is exposed to the following financial risks: credit risk, market risk and liquidity risk. Credit risk Credit risk mostly results from a decrease in creditworthiness of the issuer of securities, borrower or other debtors from whom the Company has receivables. In its portfolio the Company is exposed to credit risk when it comes to investments in loans, deposits with commercial banks, investing in investment funds, receivables from retrocession contracts and receivables from reinsurance premiums from cedents and other receivables. With an aim to improve the credit risk management system, in accordance with the Insurance Act, the Company adopted in November 2010 the Rules on Investing Financial Assets, which among other things enables timely assessment of credit risk, and in July 2011 the Rules on Classification and Valuation of Loans 122

123 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo which establishes the methodology for assessment of potential losses. These Rules provide a framework for the Company s investments and enable monitoring of credit risk. On the reporting date the Company had a significant concentration of placement in financial activities and insurance activities. The maximum amount of credit risk is equal to the nominal value of placed assets. Credit policy and exposure to this risk is systematically monitored by the Company. Due to the exceptionally difficult collection of receivables on approved loans, this is precisely the category that the Company finds to be most exposed to credit risk, owing to the current, extremely unfavorable economic situation. As one of the most significant risk management instruments the Company has appropriate insurance instruments. For some of the loans, collection under those instruments is performed by the Company through enforcement procedures. Market risk Market risk pertains to the risk arising from changes in market prices of assets, liabilities and financial instruments, and it includes interest rate risk, currency risk and other price related risks. The Company was not exposed to interest rate risk in 2012 since it has no assets with variable interest rate contracts, and on the other side, it has no liabilities under received loans, or any other liabilities with contractual interest. The Company was significantly exposed to currency risk in the segment of business transactions with foreign partners (retrocessionaires) due to payment of premiums and settlement of claims under retrocession. It is also exposed in a segment of investment activities and in some of the business activities pertaining to holding of assets in accounts of commercial banks in foreign currencies, primarily in USD and EUR. Liquidity risk In accordance with the Rules on Liquidity the Company defines the basic procedures of monitoring and managing this risk. Liquidity is monitored in the Company on daily, weekly and monthly basis, by following changes in indicators as defined by the competent regulatory body. As part of its liquidity risk management strategy, the Company maintains a liquid assets portfolio, which ensures the continuation of business activities and meets the requirements under legal regulations. Description of significant business events after fiscal year end In order to regulate its portfolio in pre-sale procedures, the mother company CROATIA osiguranje d.d. Zagreb has offered the voluntary Tender Offer for the repurchase of shares of small shareholders of Croatia Lloyd d.d. Zagreb. Namely, CROATIA osiguranje d.d. has an ownership stake of 94,6 % of the share portfolio of Croatia Lloyd d.d.. After the offer for takeover, CROATIA osiguranje d.d. holds a total of shares, which represents 99,37 % in total equity, or 99,37 % shares with the voting right in the General Assembly of Croatia Lloyd. The Company s Management Board comprising Robert Stude and Kitica Mioč have come to the end of their mandate on 25 February As of 26 February 2013, Kitica Mioč is the new Chairwoman of the Management Board, and Tomislav Malenica is Member of the Management Board. The employees representative in the Supervisory Board of the Company shall (as of February 15, 2013) be Snježana Pelajić. The Company has reported its receivables to bankruptcy proceedings of the company Validus d.d. Varaždin and it actively monitors and participates in procedures of already initiated enforcement procedures in order to collect its receivables through activating collaterals for loans which have not been repaid in time. 123

124 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Company development Price and transaction of the CRLL-R-A share Share price (HRK) Share transaction (HRK) Source: Zagreb Stock Exchange It is expected that the Company will continue to grow successfully and to keep its position in the reinsurance market in the Republic of Croatia. All major, renowned reinsurers have also been present in the Croatian reinsurance market for years, so there is no expected reduction in the market share of the Company after accession to the EU. The fact that the Republic of Croatia will soon be part of the EU should not have a big impact on further development of the Company. It can be expected that the business operations of all participants in the domestic and foreign market will be more transparent due to more detailed regulations which will ultimately, although indirectly, be under the control of a European supervisory body. 2. CROATIA zdravstveno osiguranje d.d., Zagreb Miramarska 22, Zagreb The Company was founded in March 2004, as a company specializing in health insurance. In January 2009 the Company underwent recapitalization in the amount of HRK ,00 by CROATIA LLOYD d.d., so that the share of CROATIA osiguranje d.d. dropped to 66,19 %, while the share of CROATIA LLOYD d.d. amounted to 33,81 %. Management Board 1. Kristian Podrug, Chairman 2. Mario Puljiz, Member Supervisory Board 1. Krešimir Starčević, Chairman since 30 Nov Kitica Mioč, Deputy Chairwoman 3. Ivan Fabijančić, Member since 30 Nov Anita Oreč, Member since 30 Nov Tea Dakić, employees representative 124

125 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Supervisory Board before 30 Nov Svemir Kalinić, Chairman 2. Kitica Mioč, Deputy Chairwoman 3. Boris Rozić 4. Zvonimir Lovrić 5. Tea Dakić, employees representative Ownership structure CROATIA osiguranje d.d. 66,19 % Croatia Lloyd d.d. 33,81 % Croatia zdravstveno osiguranje d.d. has majority stakes in two polyclinics: 1. Poliklinika Croatia zdravstveno osiguranje Ars Medica u Puli 74,00 % 2. Poliklinika Croatia zdravstveno osiguranje u Zagrebu 100,00 % Business result summary Total income in 2012 stayed at the level realized in 2011, while in comparison to plan it increased by 2,82 %. Total expenditure increased by 0,24% compared to 2011, and compared to the plan they increased by 2,32 %. Realized gross profit in 2012, although 16,85 % higher than planned, is 5,31 % less than the profit realized in Gross written premiums are 1,50 % higher than the realized profit in 2011, but 0,84 % lower than planned. Capital and reserves are 1,39 % higher than the plan for 2012 and 3,72 % higher than those realized in Assets and liabilities are 2,03 % lower than planned, but they are 1,29 % higher than those realized in Technical provisions in 2012 are 2,85 % lower than those realized in 2011, but still exceed the required coverage of HRK 17,9 million. Compared to the technical provisions plan they are 6,36 % lower than planned. P&L ACCOUNT, BALANCE SHEET IN 000 HRK PLAN FOR 2012 REALIZED 2011 / 4 th Q REALIZED 2012 / 4 th Q CHANGE in % 2012 / 2011 CHANGE in % 2012 / PLAN 4 : 3 4 : Total income ,02 2,82 Total expenditure ,24 2,32 Profit/loss before taxation ,31 16,85 Gross premium written ,50-0,84 Equity Capital and reserves ,72 1,39 Total Assets / Liabilities ,29-2,03 Technical provisions ,85-6,36 Equity in the currency HRK Stake of CO / total number of shares (66,19 %) / Par value of share / stake 1.000,00 HRK Number of employees 2011 / / 171 Source: Report Package (collection of reports) for consolidation of financial statements of Croatia osiguranje Group as at 31 Dec 2011 and 31 Dec

126 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / In 2012 the Company increased its market share in the health insurance market, which is now 41,34 %, enabling it to maintain the leading position in Croatia. Share in the health insurance market of the Republic of Croatia 42,00 41,00 41,34 40,00 % 39,00 38,00 37,00 37,58 38,17 36,00 35,00 35, Source: HANFA, monthly reports Risk management According to the provisions of the Insurance Act, the Rules on Calculation of Solvency Limits (Capital Adequacy) and the Rules on the structure and contents of financial statements of an insurance company and a reinsurance company, the Company has performed calculations and met all the requirements prescribed by the mentioned Act and Rules in terms of solvency limit and capital adequacy. The Company continues to implement all activities in terms of preparation for the entering into force the Solvency II Directive of the European Commission, by assessing its assets and risks according to Solvency II principles. Assets management and investments The main objective of the Company in managing financial risks is the protection of the Company s shareholders from events which may prevent business objectives to be realized. At this stage in the Company s development emphasis is placed on security, striving to achieve the maximum possible return on investments. The Management Board recognizes the significance of having an efficient and effective risk management system, so it has adopted a series of internal acts pertaining to risk management. In transactions dealing with financial instrument the Company underwrites price risk, credit risk, liquidity risk and cash flow risk. The Company maintains a liquid assets portfolio as a part of liquidity risk management strategy, which ensures business continuity and meets legal requirements. The Company is solvent, which is something that the Management Board pays special attention to, as well as meeting all regulations pertaining to timely claims settlement, as well as payment of other liabilities, which is to remain their objective in the future as well. The liquidity management policy involves regular planning of inflow and outflow of cash, regular monitoring of liquidity and existence of adequate measures for prevention or remedying of non-liquidity causes, according to the Rules on Liquidity. The Company has prescribed and established a systematic approach to collection of receivables, which ensures sufficient inflow of cash assets to settle all liabilities and for investment. 126

127 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Description of significant business events after fiscal year end On 20 February 2013 Damir Mihanović was appointed as Chairman of the Management Board, and the previous Chairman Kristijan Podrug became a Member of the Management Board, so the Management Board now has three members. Company development In 2013 the Company plans to increase insurance sales through an even more intensive application of the bancassurance model, which showed good results in In 2013 the Company will place new products which will be available for sale, and that too will contribute to better business result in CROATIA OSIGURANJE d.d., LJUBUŠKI, BiH Nikole Kordića bb, Ljubuški, BiH The company is the fifth largest insurance company in Bosnia and Herzegovina, dealing with life and nonlife insurance. CROATIA osiguranje d.d. Ljubuški has complete or majority ownership of several companies whose business is mostly connected with MOT test stations (hereafter: MOT) and therefore also with motor liability insurance. These companies are: Crotehna d.o.o., Ljubuški (100 %) MOT in Ljubuški and Tomislavgrad; Croatia Vitez d.o.o., Vitez, (90,04 %) MOT in Vitez, Novi Travnik and Jajce; Croatia Remont d.d., Čapljina (69,79 %) MOT in Čapljina; Croauto d.o.o., Mostar (66,80 %) MOT in Mostar; Hotel Hum d.o.o., Ljubuški (80 %) hotel and catering services; Agencija Ponte d.o.o. Mostar, for representation in insurance, owned by: Croauto d.o.o. Mostar (50 % stake) and Crotehna d.o.o. Ljubuški (50 % stake). Management Board 1. Mladen Markotić, Managing Director 2. Viktor Zadro, Executive Director since 9 July 2012 Supervisory Board 1. Krešimir Starčević, Chairman since 20 Dec Ivan Fabijančić, Member since 20 Dec Hrvoje Knežević, Member since 20 Dec Ivan Luburić, Member 5. Zdravko Petrović, Member Supervisory Board before 19 Dec Ivan Luburić, Chairman 2. Borislav Brkić, Member 3. Bernard Mršo, Member 4. Hrvoje Parlov, Member 5. Zdravko Petrović, Member 127

128 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Supervisory Board before 19 March Borislav Brkić, Chairman 2. Bernard Mršo, Member 3. Zdravko Petrović, Member 4. Ivan Luburić, Member 5. Florijan Boras, Member Ownership structure 1. CROATIA osiguranje d.d. 52,05 % 2. Ivan Luburić, Ljubuški 9,55 % 3. Zdravko Petrović, Zagreb 8,24 % 4. Nedeljka Bilić, Ljubuški 2,69 % 5. Biskupski Ordinarijat, Mostar 2,39 % 6. Ostali 25,08 % Business result summary The Company realized a decrease in total income by 3,25 %. Expenditures also decreased by 5,13 % from Compared to the plan, total income was 5,20 % lower, and total expenditure was 6,12 % lower than planned. Realized gross profit was 131,75 % higher than in 2011, and compared to the plan it was 32,79 % higher. Gross written premium is 3,25 % lower than realized in 2011 and 5,43 % lower than planned. In 2012 the Company s business operations resulted in increased assets/liabilities by 1,76 % in comparison to 2011, and exceeded the plan by 26,40 %. Capital and reserves increased by 6,25 % compared to 2011, and exceeded the plan by 26,4 %. Technical provisions decreased by 11,47 % compared to those realized in 2011, and fell short of the plan by 3,29 %. Since the Company was operating in a time of economic crisis, it can be said that the Company has stabilized its business and still achieved good business results. These results are even better if one considers the overall major decrease in all economic activities in Bosnia and Herzegovina in 2012, including the insurance market. P&L ACCOUNT, BALANCE SHEET IN 000 HRK PLAN FOR 2012 REALIZED 2011 / 4 th Q REALIZED 2012 / 4 th Q CHANGE in % 2012 / 2011 CHANGE in % 2012 / PLAN 4 : 3 4 : Total income ,25-5,20 Total expenditure ,13-6,12 Profit/loss before taxation ,75 32,79 Gross premium written ,25-5,43 Equity ,01 0,50 Capital and reserves ,25 26,40 Total Assets / Liabilities ,76 3,45 Technical provisions ,47-3,29 Equity in the currency BAM ( HRK) Stake of CO / total number of shares (52,05 %) / Par value of share / stake 266 BAM Number of employees 2011 / /

129 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo BAM EXCHANGE RATE Q Q CHANGE in % As of (31 Dec) 3, , ,20 Average exchange rate 3, , ,16 Source: Report Package (collection of reports) for consolidation of financial statements of Croatia osiguranje Group as at 31 Dec 2011 and 31 Dec 2012 Share in the insurance market of FBIH, 31 Dec 2012 Other participants on the market 9,36 % Grawe 6,26 % Sarajevo 17,67 % Merkur BH 6,19 % VGT 6,70 % Bosna-Sunce 12,04 % Triglav BH 8,93 % CROATIA osiguranje 9,96 % Euroherc 11,49 % Uniqa 11,41 % Source: Insurance Supervisory Agency of FBIH, monthly reports The Company managed to maintain its market share in the insurance market of Bosnia and Herzegovina, which showed a slight slowing, and according to data from the monthly reports of the Insurance Supervisory Agency of Federation of Bosnia and Herzegovina, the Company s market share at the end of 2012 was 9,96 %. It should be pointed out that the Company s direct competitors also recorded a reduction of their market share, and the market leader is still Sarajevo osiguranje. Risk management In its business operations the Company is exposed to risks of acquisition, premium risk, risks of inadequate and insufficient provisions, as well as other risks which did not have a significant effect on the Company s business. The Company was successful in managing underwriting risks by limiting acquisition, through procedures of transaction approval, by applying tariffs and managing reinsurance. In 2012 the Company was faced with the usual credit, market, operational and liquidity risks. Using internal reports on the degree and amount of risk exposure, the Company manages financial risks pertaining to operations which the Company undertakes in the domestic and international financial markets. The Company bases its business policy on cooperating only with creditworthy and reliable business partners, with the use of quality collateral which insures against risks and any financial losses. Market risk The Company has a significant amount of assets invested in real estate. A major portion of the mathematical provision, and a part of technical provisions for non-life insurance, the Company has invested in deposits with commercial banks. The Company is, therefore, greatly exposed to the risk of interest rate change, as well as concentration risk. By investing in deposits, the Company assesses the strength and stability of banks in which it deposits its assets, while taking into consideration concentration risk with individual banks so most term deposit contracts have a fixed interest rate throughout the contract term. 129

130 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Assets and liabilities are denominated mostly in BAM, some of the deposit contracts are in EUR, while a slight portion is in other foreign currencies. Insurance policies written are mostly in EUR. Since the convertible mark (BAM) is bound by fixed exchange rate to EUR, the Company is not exposed to risk of exchange rate fluctuations or currency risk. Credit risk The Company is exposed to this risk through investments of mathematical provisions and technical provisions for non-life insurance in deposits with Unicredit banka d.d. and Hypo Alpe-Adria-Bank d.d., and due to the underdeveloped financial market in Bosnia and Herzegovina, the Company is forced to invest in deposits, for which it has obtained approval of the Insurance Supervisory Agency of Federation of Bosnia and Herzegovina. In the Company s portfolio there are several groups which have significant participation in the Company s income. Investment concentration risk Društvo je izloženo ovom riziku kod ulaganja matematičke pričuve i tehničkih pričuva neživotnih osiguranja u depozite kod Unicredit banke d.d. i Hypo Alpe-Adria-Bank d.d., a zbog nerazvijenog financijskog tržišta u F BiH, Društvo je prisiljeno ulagati u depozite, za što ima suglasnost Agencije za nadzor osiguranja Federacije BiH. U portfelju Društva ima nekoliko grupa koje značajno sudjeluju u prihodu Društva. Operational risk Kao i svi gospodarski subjekti tako je i Društvo izloženo ovom riziku. Kod odlaska zaposlenika s ključnih radnih mjesta, osim što treba manje ili više vremena da zamjena preuzme kvalitetno sve poslove, postoji rizik i iznošenja informacija i čak zloupotrebe. Pogoršanje opće ekonomske situacije je posebno naglašeno u F BiH i zbog nestabilne političke situacije, što je dodatni povećani rizik za Društvo. Neusklađena zakonska regulativa u oba entiteta i nemogućnost usuglašavanja, kao i prijedlog nove regulative u F BiH o novom porezu na premiju neživotnih osiguranja, predstavlja značajan rizik. Liquidity risk The Company is exposed to this risk due to exceeding the total amount of investments in affiliated companies. The Company manages liquidity risk by monitoring short-term and long-term inflow and outflow, by maintaining adequate provisions in accordance with the Act and the rules of the Insurance Supervising Agency, which enables the Company to cover, at any given moment, its contingent liabilities under claims as well as other liabilities. In accordance with the Rules on Liquidity of Insurance Companies, daily liquidity is monitored and recorded (inflow and outflow), and weekly reports are made to that effect on an L form which is regularly submitted to the Agency for inspection. Assets management and investments The Company distributes its financial instruments to financial assets at fair value through profit or loss, deposits, loans and receivables, financial assets available for sale and held-to-maturity investments. In 2012, at the request of the Insurance Supervisory Agency of Federation of Bosnia and Herzegovina the Company implemented the Consolidation and Financial Restructuring Program, which was achieved successfully and all relevant remarks of the Agency pertaining to the inadequacy of assets for coverage of technical provisions (too much real estate, stakes and shares) and poor placement to business partners were remedied. Upon performing inspection the Insurance Supervisory Agency confirmed that the capital adequacy is good in 130

131 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo terms of the solvency limit, and that assets are adequate to cover technical provisions. In accordance with the adopted Consolidation Program, in 2012 the Company made a realistic valuation of real estate, shares and stake and it wrote-off all bad (uncollectible) receivables, which had an effect on the business result in 2012 due to the relevant operating costs. 4. MILENIJUM osiguranje a.d., Belgrade Milutina Milankovića br. 19 b, Novi Beograd, Republic of Serbia This is one of the smaller insurance companies operating in the Republic of Serbia. At the beginning of 2003 CROATIA osiguranje d.d. acquired majority ownership of Milenijum osiguranje a.d. by purchasing shares. Soon after the acquisition of shares, recapitalization took place to enable Milenijum osiguranje a.d. to operate not only in auto insurance but also in all other types of non-life insurance. In 2012 the Company increased its equity of RSD 6,610 thousand, in order to fulfill the provisions of Art. 28 of the Insurance Act of the Republic of Serbia which prescribes that the Company must have (for the performance of all types of non-life insurance) at any moment, minimum equity in Dinar counter-value of EUR 4,5 million. An increase of equity was realized from retained profit from previous fiscal years, and the relationship between shareholders remained the same. Management Board Veljko Knežević, Managing Director Supervisory Board 1. Marijan Ćurković, Chairman since 6 Aug Eugen Sunara, Member since 6 Aug Krešimir Starčević, Member since 28 Dec Ivan Fabijančić, Member since 28 Dec Vančo Balen, Member since 28 Dec 2012 Supervisory Board from 6 Aug to 28 Dec Marijan Ćurković, Chairman 2. Eugen Sunara 3. Zdravko Zrinušić 4. Silvana Ivančić 5. Svemir Kalinić Prior to harmonization with the amendments to the Companies Act of the Republic of Serbia the company had monistic management system with a Management Board and a Supervisory Board. Management Board 1. Silvana Ivančić, Chairwoman 2. Eugen Sunara 3. Hrvoje Parlov 4. Svemir Kalinić 5. Veljko Knežević, General Manager 131

132 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Supervisory Board 1. Zdravko Zrinušić, Chairman 2. Boris Rozić 3. Stamenka Milović Ownership structure 1. CROATIA osiguranje d.d. 99,78 % 2. Ilija Crnomarković 0,11 % 3. Veljko Knežević 0,11 % The Company has stakes in following companies: Milenijum Auto d.o.o. Belgrade 100,00 % Business result summary The Company realized an increase in total income by 14,2 % compared to the realized income in The plan was exceeded by 2,77 %. Total expenditure increased by 13,39 % in comparison to the previous year, and compared to the plan there was an increase of 5,65 %. Gross profit was 198,93 % higher than in 2011, but it was 69,38 % lower than planned for Gross written premium was 2,54 % lower than planned and 3,47 % lower than realized in the same period in the previous year. The Company increased the equity in the domestic currency by 1,2 % in comparison to 2011, but due to depreciation of the Dinar and its conversion to Kuna, the following table shows this decrease. Technical provisions were 1,55 % higher than in 2011, but they were 9,34 % less than planned. P&L ACCOUNT, BALANCE SHEET IN 000 HRK PLAN FOR 2012 REALIZED 2011 / 4 th Q REALIZED 2012 / 4 th Q CHANGE in % 2012 / 2011 CHANGE in % 2012 / PLAN 4 : 3 4 : Total income ,20 2,77 Total expenditure ,39 5,65 Profit/loss before taxation ,93-69,38 Gross premium written ,47-2,54 Equity ,16-15,25 Capital and reserves ,89-15,67 Total Assets / Liabilities ,22-8,17 Technical provisions ,55-9,34 Equity in the currency RSD ( HRK) Stake of CO / total number of shares (99,78 %) / Par value of share / stake RSD Number of employees 2011 / / 308 RSD EXCHANGE RATE Q Q CHANGE in % As of (31 Dec) 0, , ,30 Average exchange rate 0, , ,45 Source: Report Package (collection of reports) for consolidation of financial statements of Croatia osiguranje Group as at 31 Dec 2011 and 31 Dec

133 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Share in the insurance market of the Republic of Serbia, 30 Sep ,80 2,60 Share of non-life insurance market of Serbia Share of insurance market of Serbia 2,56 2,64 2,40 % 2,20 2,00 1,80 1,60 1,40 1,78 1,56 2,15 1,84 1,98 1,65 2,11 2,18 1,20 1, Source: National Bank of Serbia, monthly reports Share in the insurance market of the Republic of Serbia, 30 Sep 2012 Other participants on the market 11,41 % Milenijum osiguranje Belgrade 2,18 % Triglav 2,85 % Takovo 3,62 % Dunav 30,22 % Delta Generali 20,04 % Uniqa 7,03 % Wiener 8,72 % DDOR 13,94 % Source: National Bank of Serbia, monthly reports According to the available data, the share of Milenijum osiguranje in the non-life insurance market in Serbia in 2012 increased in comparison to 2011 by 2,64 %, while in the overall insurance market of Serbia it reached a market share of 2,18 %. Risk management In 2012 the Company was exposed to operational and market risk, underwriting risk and financial risk involving credit risk and liquidity risk. The Company was successful in managing all of the above risks and there were no consequences which could have a detrimental effect on the Company s business. Underwriting risk Underwriting risk is basically the consequence of failure to observe the professional rules of insurance, which results in inadequate risk assessments which are underwritten, inadequate retention as well as inadequate insurance premiums. In the process of underwriting risk management, the Company used the 133

134 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / following methods: risk retention until maximum retention level, transfer of excess risk to reinsurance, avoiding risks by reducing the number of certain types of insurance, diversification of insurance portfolio and the method of internal risk reduction (standardization of claims assessment, training of staff, and development of IT system). Financial Risk Management Managing of financial risk is organized by the Company department in charge of investments, which coordinates the approach to domestic financial markets, monitors and manages financial risks which involve market risk, liquidity risk and credit risk. Market risk Market risk includes currency risk, change of interest rates and the risk of price change in financial instruments. Currency risk is present in most of the financial assets, some of the liabilities under foreign claims, and claims under correspondent contracts. The Company successfully manages market risks to the extent where such risks can be influenced, or it attempts to react promptly in order to reduce losses which could occur as a result of currency fluctuations, interest rate change or the changes in prices of financial instruments. Liquidity risk The Company manages liquidity risk by daily monitoring the dynamics of liabilities falling due and the possibility of collecting on receivables. Based on such dynamics one can determine the key days for the Company s liquidity. Credit risk The Company continuously monitors the financial position and business operations of its big clients, as well as the exposure to the risk of investing in deposits and other types of investment. Assets management and investments The Company uses financial instruments which are commonly used by insurance companies, and which are regulated by the Insurance Act of the Republic of Serbia. Available capital and technical provisions are mostly invested in state bonds and deposits with first-class banks. The Company generally does not grant loans to insured parties or other clients, and there is very little investment in shares and stakes in other companies. The financial risk management policy and the protection policy pertain to stable and successful business operations which involve maintaining capital and assets at the legally prescribed level, ability to settle liabilities in due time, as well as maintaining constant liquidity and solvency of the Company. The Company implemented the Rules on Internal Control System and Risk Management, Rules on Conditions and Manner of Deposing and Investing Company s Assets, as well as other regulations prescribed by the National Bank of Serbia as the insurance supervisory agency in the Republic of Serbia, which pertain to risk management. The Company department which is involved in investments continuously monitors the situation in the financial market, gathers information on the position of economic operators to which one could place assets, and monitors changes in interest rates in the market as well as all other indicators which are relevant for quality investment of assets. The Company s liquidity and financial situation are monitored on a daily basis, as well as the balance between the maturity of assets and liabilities. 134

135 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo 5. CROATIA osiguranje a.d. Društvo za osiguranje života Skopje, Republic of Macedonia Mito Hadživasilev J. br. 20/II, 1000 Skopje, Republic of Macedonia The Company started operating in March 2005 under the name CROATIA osiguranje a.d. The basic activity of the Company consists of all types of life insurance. In December 2007 the stake of Croatia osiguranje d.d. in the Company increased from 36,40 % to 70 %. In December 2008 the Company was recapitalized at the amount of EUR 2,250, and the stake of CROATIA osiguranje d.d. in the Company increased from 70 % to 92,50 %, and the Company changed its name to CROATIA osiguranje a.d. društvo za osiguranje života, Skopje. At the end of 2011 the Company bought the remaining shares from the shareholders of Triglav osiguranje a.d., Skopje (Vardar osiguranje a.d. Skopje). Management Board Vilma Učeta Duzlevska, Executive Director Board of Directors 1. Željko Jukić, Chairman 2. Krešimir Starčević, Member since 29 Nov Darija Ivandić Vidović, Member since 29 Nov Ognjen Blaževski, Independent Member 5. Vilma Učeta Duzlevska, Executive Member Board of Directors before 29 Nov Željko Jukić, Chairman 2. Marin Palada 3. Mario Puljiz 4. Ognjen Blaževski, Independent Member as of 15 May 2012, before him: Vlado Kambovski 5. Vilma Učeta Duzlevska, Executive Member Ownership structure 1. CROATIA osiguranje d.d. 92,50 % 2. CROATIA osiguranje a.d. ŽIVOT, Skopje, own shares 7,50 % Business result summary The Company s business operations in 2012 were successful. The growth of all the Company s performance indicators continued. Total income of the Company exceeded the plan by 26,64 %, and in comparison to the same period in the previous year, it records an increase of 19,46 %. Total expenditure increased by 18,49 % compared to the expenditure realized in 2011, and by 28,86 % when compared to the plan, which resulted in an increase of gross profit by 33,42 %. Gross written premiums are 39,70 % higher than planned, and 21,42 % higher than in the previous year. Capital and reserves show an increase of 6,32 % compared to 2011, and a reduction of 2,29 % compared to the plan. Technical provisions (mathematical provisions) are 34,53 % higher. Assets and liabilities showed an increase of 24,10 % compared to those realized in 2011, and compared to the plan the increase is 14,84 %. 135

136 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / P&L ACCOUNT, BALANCE SHEET IN 000 HRK PLAN FOR 2012 REALIZED 2011 / 4 th Q REALIZED 2012 / 4 th Q CHANGE in % 2012 / 2011 CHANGE in % 2012 / PLAN 4 : 3 4 : Total income ,46 26,64 Total expenditure ,49 28,86 Profit/loss before taxation ,42 3,79 Gross premium written ,42 39,70 Equity ,30 0,61 Capital and reserves ,32-2,29 Total Assets / Liabilities ,10 14,84 Technical provisions ,53 22,52 Equity in the currency EUR ( HRK) Stake of CO / total number of shares (92,50 %) / Par value of share / stake 100 EUR Number of employees 2011 / / 32 MKD EXCHANGE RATE Q Q CHANGE in % As of (31 Dec) 0, , ,30 Average exchange rate 0, , ,25 Source: Report Package (collection of reports) for consolidation of financial statements of Croatia osiguranje Group as at 31 Dec 2011 and 31 Dec 2012 The Company is constantly increasing its market share, which grew to 43,71 % in 2012, which resulted in the Company getting significantly close to Grawe Insurance who is a leader in that segment of insurance in Macedonia. Share in the life insurance market of the Republic of Macedonia, 30 Sep 2012 CROATIA osiguranje a.d. ŽIVOT 43,71 % Winner 1,67 % Uniqa 6,72 % QBE 1,72 % Grawe 46,17 % Source: Insurance Supervision Agency, Republic of Macedonia 136

137 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Share in the life insurance market of the Republic of Macedonia, 30 Sep ,00 44,00 43,00 43,71 42,00 41,00 40,00 40,44 % 39,00 38,00 37,00 37,71 38,67 36,00 35,00 34, Source: Insurance Supervision Agency, Republic of Macedonia In 2012 there were 15 insurance companies active in the insurance market of the Republic of Macedonia, 11 of which are involved in non-life insurance, while 4 are involved in life insurance. In 2012 the number of brokerage companies increased by 2 new companies (Citrus AD Skopje and Nov Osiguritelen Broker AD Skopje), now totaling 20 companies. The number of insurance representation companies increased by 3 new companies (Fortis Proa AD Skopje, Safe Life AD Skopje and REA Inšurens AD Skopje), now totaling 9 companies. In 2012 there was a positive growth trend in both insurance segments, but where non-life insurance took the dominant share in total insurance. According to available data for the 9-month period in 2012, life insurance records significant growth of 26,55 %. Risk management Risk management is the basic function of all financial institutions. Because of that the Company adequately manages all risks to which it is exposed in its business operations, in order to ensure safety of the business, timely payment of claims to insured parties, adequate profitability and compliance with all legal and regulatory provisions. The Board of Directors of Croatia osiguranje - Život d.d., Skopje has adopted the Rules on Risk Management, based on which the Managing Director made the Decision on Establishing a Risk Management Board. The Board has 4 members, each of whom is in charge of monitoring and taking measures in risk prevention or mitigation. The Chairwoman of the Board is responsible for risk identification, application of efficient risk management methods in all financial operations, adoption of accounting standards and managing mathematical provisions. She is also responsible for the following: risk identification, implementation of efficient risk management methods in the segment of planning and sales, implementation of efficient risk management methods in the segment of maintaining system solutions in the Company, IT support, and in assessing the scope and dynamics of risks in terms of major losses, adoption of efficient risk management methods in the segment of personal data protection, prevention of money laundering and financing of terrorism, 137

138 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / implementing efficient risk management methods in human resources management as well as marketing and public relations. In its meetings the Board discusses, identifies and manages various operational and market risks. A variety of operational risks are connected with uncertainty of the financial market, especially changes in interest rates and fluctuations of foreign exchange rates was characterized by minor changes in the EUR exchange rates against the Macedonian Denar. The Company implements a conservative investment policy in order to minimize this potential risk. In spite of that, the effect of fluctuations of the foreign exchange rate is reflected in the Company s business operation through its recording of positive/negative exchange rate differences, which is something the Company cannot influence. The risk of potential fluctuations in exchange rates is only foreseeable, but not precisely measurable by the Company until it really happens. In accordance with the business strategy, the Company s management identifies potential risks on a daily basis, and assesses them and attempts to find alternative solutions and methods of regulating risks in order to make acceptable decisions. In order to avoid risk in business operations the Company implements the following methods: refusal to offer insurance which does not meet the requirements, preventive evasion of all potential risks, underwriting only in case of low risk assessment, transfer of risk to reinsurance and risk management through division and reduction of risk. Assets management and investments A variety of operational risks are also connected to the uncertainty of the financial markets, especially the fluctuations in interest and foreign exchange rates. The Company implements a conservative investment policy with an aim to minimize potential investment risk. Investments by insurance companies in the Republic of Macedonia are strictly regulated by the Act on Insurance Supervision. By keeping all significant determinants of investment management in mind, the Company has adopted an investment strategy and model which leads to realizing planned return on investment and therefore a stable, solvent and profitable business in the long run. The Company has undertaken and continuously undertakes all necessary preventive measures to reduce the potential negative effects of the global financial crisis. In the investment portfolio of CROATIA osiguranje d.d. život, state bonds still take the first place, and together with treasury bills they make up a share of almost 86 %. They are followed by deposits, with over 12 % of total invested assets, whereas loans to insured parties have an almost symbolic share. The Company has all of its deposits in renowned and high-liquidity banks of the Republic of Macedonia. Some of the deposits are flexible, which means that a portion of assets can be withdrawn at any time (a vista deposits), and these assets are used for the mathematical provision, so the Company is at any given moment capable of settling its due or unforeseen liabilities under life insurance policies. Significant business events after fiscal year end At the end of 2012 they began to sell 750 of owned shares of the Company to the sole shareholder, CROATIA osiguranje d.d. from Zagreb. The transaction was completed on 10 January 2013 by entry into the register of the Central Securities Depository of the Republic of Macedonia. By purchasing these shares, CROATIA osiguranje d.d. has a total of shares and it is the sole shareholder of the Company, with a total of 95% of the Company s shares. 138

139 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Company development in 2013 In 2013 the Company intends to strengthen its own sales network and to find adequate methods of encouraging sales representatives to achieve even better results. The plan is to use promotional activities to encourage the insured parties to pay the premiums regularly. In 2013 the Company plans to offer new products in the market which will be especially adapted to the demands of the life insurance market in the Republic of Macedonia, which will bring the Company closer to the insured persons. The Company s objective in 2013 is to further increase the market share. 6. CROATIA Sigurimi sh.a., Pristina, Kosovo Rr. Luan Haradinaj 5/A, Pristina, Kosovo The Company was founded in March 2005, with minimum equity of EUR ,00. The Company deals in non-life insurance. In June 2005, the Banking and Payments Authority of Kosovo (BPK) introduced an amendment to the regulation on requirements for obtaining a license to operate as a non-life insurance company, and it pertained to an increase of the minimum amount of equity from the amount of EUR ,00 to an amount of EUR ,00, by 31 December The Company made those changes. Uprava Društva Gresa Shabani, Managing Director Management Board 1. Ivan Jurina, Chairman 2. Gresa Shabani, Executive Member 3. Marin Palada, Member since 20 Dec Mahmut Alidemaj, Member since 20 Dec Latif Kryeziu, Member since 20 Dec 2012 Management Board before 20 Dec Ivan Jurina, Chairman 2. Gresa Shabani, Executive Member 3. Mišo Glavinić 4. Mahmut Alidemaj 5. Nazmi Bytyqi Ownership structure CROATIA osiguranje d.d. 100,00 % Business result summary The Company realized total income which was 38,68 % higher than in the previous year. Total expenditure was 48,97 % higher than the total expenditure in Gross written premiums increased by 8,55 % compared to

140 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / The Company concluded the fiscal year with a loss of HRK 505 thousand, as a result of the order of the Central Bank of the Republic of Kosovo (insurance supervisory agency in Kosovo) effective since July 2012, prescribing that all insurance companies must increase provisions for coverage of claims under the so-called cross-border policy. For CROATIA Sigurimi sh.a this amounted to EUR Technical provisions in 2012 increased by 32,94 %, compared to those realized in Total assets/liabilities record an increase of 10,15 % compared to the previous year, and an increase of 0,67 % compared to the plan. P&L ACCOUNT, BALANCE SHEET IN 000 HRK PLAN FOR 2012 REALIZED 2011 / 4 th Q REALIZED 2012 / 4 th Q CHANGE in % 2012 / 2011 CHANGE in % 2012 / PLAN 4 : 3 4 : Total income ,68 29,66 Total expenditure ,97 67,62 Profit/loss before taxation Gross premium written ,55 1,45 Equity ,20 0,72 Capital and reserves ,54-22,24 Total Assets / Liabilities ,15 0,67 Technical provisions ,94 47,72 Equity in the currency EUR ( HRK) Stake of CO / total number of shares (100 %) / Par value of share / stake 100 EUR Number of employees 2011 / / 85 EUR EXCHANGE RATE Q Q CHANGE in % As of (31 Dec) 7, , ,20 Average exchange rate 7, , ,16 Source: Report Package (collection of reports) for consolidation of financial statements of Croatia osiguranje Group as at 31 Dec 2011 and 31 Dec 2012 Share in the insurance market of the Republic of Kosovo 4,50 4,45 4,40 4,45 4,47 4,35 4,30 4,30 4,25 % 4,20 4,20 4,25 4,24 4,15 4,10 4,05 4, Source: Central Bank of the Republic of Kosovo, statistics 140

141 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Risk management The main risks in the territory of Kosovo in 2012 are the same as in the previous fiscal year, and amounted to price risk, largely due to unfair competition from other insurers who illegally reduce the prices of all types of insurance policies, especially in motor liability insurance. On the other hand, the costs of the guarantee fund keep growing due to claims which are constantly increasing as a result of a great number of unregistered vehicles participating in traffic, as well as an increasing number of more expensive vehicles which participate in claims. Another additional cost comes from provisioning for claims under cross-border motor liability insurance policies, and a significant increase in costs for the operation of the newly-founded National Insurance Bureau of Kosovo. The increase of those costs as well as arbitrary provisioning for claims under cross-border policies (to which the Company has practically no influence at all) has significantly contributed to the present loss in the business operations in Ambiguous, incomplete or inexistent regulations greatly affect the business environment and make it possible for the supervisory body, the Central Bank of the Republic of Kosovo (CBK) to make arbitrary decisions and act with bias, thus preventing fairness in the market. Taking into account the amount of calculated taxes, high contributions to the Central Bank of the Republic of Kosovo, unclear calculation of VAT on reinsurance, as well as different implementation of the Value Added Tax Act for different types of economic activities, there have been no positive changes which are needed, both in legislation and in practice. Assets management and investments In its business activities the Company uses the financial instruments prescribed by legal regulations in Kosovo, International Accounting Standards as well as rules and orders of the Central Bank of the Republic of Kosovo. In submitting its quarterly financial statements to the supervisory body, it is mandatory to calculate the solvency limit, guarantee capital, ROA and ROE indexes and the liquidity of the Company. The Company constantly stays informed of the legal regulations which regulate the settling of claims, in order to avoid threatening the Company s liquidity. Cash assets for the capital stock and technical provisions are kept as deposits in first-class banks in Kosovo. Business success in 2012 was satisfactory, so the Company was not exposed to liquidity risk or cash flow risk. The Company does not offer or use loans and it is not exposed to credit risk. Due to a borderline illegal competition in the market, there is significant exposure to price risk. Price risk greatly affects the speed of growth of business parameters and the Company, but by implementing an adequate business policy the Company generally manages to keep it under control. Company development In 2012 the Company has achieved further market share growth in the insurance market of Kosovo, and the plan is to grow more in Also, preparations have been made for the introduction of health insurance as a new product. In addition to that, the Company is also working on introducing new products adapted to the Kosovo insurance market. 141

142 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 7. CROATIA osiguranje d.d. Društvo za osiguranje neživota Skopje, Republic of Macedonia Mito Hadživasilev J. br. 20/II, 1000 Skopje, Republic of Macedonia The Company started operation on 1 June, It deals with all types of non-life insurance. Management Board Dragan Lazareski, Executive Director Board of Directors 1. Ivan Fabijančić, Chairman since 3 Dec Vlado Ošust, Member 3. Dragan Lazareski, Executive Member 4. Risto Malčeski, Independent Member 5. Vančo Balen, Member since 3 Dec 2012 Board of Directors before 3 Dec Vlado Ošust, Chairman 2. Dragan Lazareski, Executive Member 3. Risto Malčeski, Independent Member 4. Jakov Sučević 5. Gzim Redžepi Ownership structure CROATIA osiguranje d.d. 100,00 % Business result summary In 2012 the Company realized total income which was 34,05 % higher than in 2011, and 9,44 % higher than planned. Total expenditure increased by 49,21 % compared to 2011, and compared to the plan by 42,23 %. Gross written premiums increased by 30,20 % compared to The Company ended the fiscal year with a loss of HRK 1, 4 million. The reason for this loss in 2012 was the large increase in the value adjustment of the insurance premium, a nominal increase by HRK 3 million compared to Namely, the Insurance Supervision Agency of the Republic of Macedonia introduced a new interpretation of the provisions of the Rules on Valuation Methods of Balance Sheet Items and Preparation of Balance Sheets (Official Gazette of the Republic of Macedonia No. 169/2010) pertaining to value adjustment of receivables for insurance premium (which the Company had regulated by means of Company s Accounting Policies). This prescribed that unpaid premium is debited to the costs of business operations in the observed period. The practice so far among insurers in the Republic of Macedonia was that value adjustment deadlines and percentages for insurance premium can be corrected if there is collateral for the collection of the premium, and this new interpretation excluded this possibility. The negative result was also greatly affected by the increase in settled claims by 66 %, the increase of claims provisions by as much as 171 %, the increase of acquisition costs by 42 % and an increase of administration costs by 36 %. Capital and reserves are 7,28 % lower than in 2011 and 24,45 % lower when compared to the plan. Assets and liabilities of the Company in the observed period increased by 21,12 %, but they are still 6,68 % lower than planned. Technical provisions are 56,62 % higher than those realized in 2011, and 10,54 % higher than planned. 142

143 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo P&L ACCOUNT, BALANCE SHEET IN 000 HRK PLAN FOR 2012 REALIZED 2011 / 4 th Q REALIZED 2012 / 4 th Q CHANGE in % 2012 / 2011 CHANGE in % 2012 / PLAN 4 : 3 4 : Total income ,05 9,44 Total expenditure ,21 42,23 Profit/loss before taxation Gross premium written ,20-1,71 Equity ,29 0,61 Capital and reserves ,28-24,45 Total Assets / Liabilities ,12-6,68 Technical provisions ,62 10,54 Equity in the currency EUR ( kn) Stake of CO / total number of shares (100 %) / Par value of share / stake 100 EUR Number of employees 2011 / / 90 Share in the non-life insurance market of the Republic of Macedonia 6,00 MKD EXCHANGE RATE Q Q CHANGE in % As of (31 Dec) 0, , ,30 Average exchange rate 0, , ,25 Source: Report Package (collection of reports) for consolidation of financial statements of Croatia osiguranje Group as at 31 Dec 2011 and 31 Dec 2012 The Company has reached a market share of 4,88 %, which is a very good result considering that it has been active in the Macedonian market since June 2009, so visible growth of market share is a constant in the Company s business. 5,00 4,88 4,00 4,03 3,00 % 2,30 2,00 1,00 0, Source: Insurance supervision agency, Republic of Macedoniaa 143

144 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Share in the non-life insurance market of the Republic of Macedonia, 30 Sep 2012 Winner 10,49 % Insurance Policy 8,78 % QBE 11,25 % Uniqa 7,55 % Sava 11,17 % Eurolink 12,68 % Triglav 18,04 % Evroins 7,30 % Albsig 5,01 % Croatia osiguranje a.d. Non-life 4,88 % Insig 2,85 % Risk management In its business operations the Company is exposed to different types of financial risks, as well as other types of risks. The Company s approach to financial risk management is focused on evaluating the financial market and attempting to rapidly reduce potential negative effects. Financial risk management is in accordance with the policies approved by the Board of Directors and the International Accounting Standards (IAS). Currency risk In order to reduce exposure to currency risk, the Company implements a policy under which free cash assets from the capital and technical provisions are placed in state bonds denominated in EUR, and they are turned into term deposits in foreign currency or in Macedonian Denar with a currency clause. Credit risk The Company has no significant concentration of credit risk. There are policies and procedures designed for credit risk management. For deferred payments and payments in installments of bigger insurance amounts, contracts are made with adequate insurance, and if necessary with a guarantee issued by a third party. In natural persons there are mandatory clauses included pertaining to collateral for collection of receivables. In investing free cash assets the Company applies a risk dispersion principle by placing deposits in a larger number of first-class banks, and also by investing in state securities. Liquidity risk Source: Insurance supervision agency, Republic of Macedonia In the event that the Company struggles to finance its operations, the Company has a policy under which it can place a portion of its free cash assets into short-term deposits (up to three months), and in deposits with a term of up to one year, there is possibility of early termination without significant loss of interest yield. Activities in employee safety and environmental protection The Company has undertaken measures prescribed by legislation, and trained all employees in fire protection. The required normative acts and studies have been made. Employees rights are observed by organizing regular health examinations, in accordance with legal requirements. 144

145 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Operational risks In 2012 the company implemented an audit of procedures in claims settlement and in acquisition, as well as of the use of mobile phones in the Company. Expert analysis showed that there had been abuse of the European Accident Report in reporting losses. Measures and activities were undertaken to improve the process of claim settlement, which prevented further abuse. A control of mobile phone costs showed a significant increase in those costs, as well as the fact that mobile phones are stolen by employees-administrators, for which measures were implemented preventing further abuse. Financial instruments Investments in financial instruments are initially recognized at purchase costs, including the cost of transfer. Transaction costs include brokerage commission, stock exchange fee and the fee imposed by the Central Securities Depository. The value of a financial investment is recorded on the day of the investment. Heldto-maturity investments, after their initial recognition, are valued at their amortization value. The Company also has non-derivative financial assets loans and receivables with fixed or defined payments. Interest earned from those loans is recognized as income in the Profit and Loss Account. Non-derivative financial assets loans and receivables are initially recognized at actual value. Foreign currency risk The Company performs international transactions related with reinsurance, so it is exposed to risk arising from fluctuation of foreign currency exchange rates. In order to reduce exposure to foreign currency risk, the Company implements a policy under which free cash assets from the capital are placed in state bonds denominated in EUR and in term deposits in Denar with a currency clause. Assets from technical provisions are invested in bonds with a currency clause and deposits are in Denar in order to realize greater yield. Interest rate risk The Company has cash term deposits in several banks with a fluctuating interest rate of 2,3 3,5 % with a currency clause, and up to 5,8 % in Denar deposits. The interest rates offered by the banks are preferential and they are somewhat higher than the usual interest rates offered in the market. Also, the Company has assets in state bonds with a fixed annual interest rate of 2 %. Market risk The Company has substantial assets in financial instruments held-to-maturity investments. They are amortized in fixed time intervals fixed maturity, with fixed and prescribed payments. Market risk could occur if the Company were to become incapable of preserving the cash value of investments with fixed maturity, which would result in its decision to sell such assets prior to maturity. In this case the value of such assets would fluctuate as a result of changes in market prices. Expected Development of the Company in 2013 The objective of the Company s business in 2013 is harmonized with the mid-term mission of the Company, which has the primary objective of reaching a market share of 10 % in insurance market of the Republic of Macedonia by 2016, as well as profitable business operations, by using optimum 145

146 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / professional staff, technological equipment and an improvement in the business operations in general by advancement and implementation of the Group s corporate standards. The objective for 2013 is a market share of 7 %, with assumed growth of the Macedonian insurance market by 5 % in comparison to 2012, collection of due premium at a minimum of 72 % and profitable business operations with return on equity of 11 % (ROE). These planned goals are realizable and they ensure a profitable business and provisions in accordance with the law. It is expected that the Company will continue to grow, and make significant improvements in technology and business processes. 146

147 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Non-insurance companies 1. CROATIA osiguranje mirovinsko društvo za upravljanje dobrovoljnim mirovinskim fondom d.o.o., Zagreb Gundulićeva 63, Zagreb The Company was founded in April 2003 as a voluntary pension fund management company. The Company currently manages one open-end fund (CROATIA OSIGURANJE voluntary pension fund) and five closed-end funds (CROATIA OSIGURANJE closed-end voluntary pension fund, or in short CROSIG pension fund, Closedend voluntary pension fund of HEP Group, or in short HEP pension fund, Closed-end voluntary pension fund of Hrvatske autoceste or in short HAC pension fund, Closed-end voluntary pension fund of the Seafarers Union of Croatia or in short SPH pension fund and the Closed-end voluntary pension fund of AUTOCESTA RIJEKA- ZAGREB or in short ARZ pension fund). Management Board Veronika Šapina-Pezelj, Director Supervisory Board 1. Lidija Kralj, Chairwoman 2. Hrvoje Pauković, Member 3. Eugen Sunara, Member Ownership structure CROATIA osiguranje d.d. owns one stake (100 %) in the amount of ,00 HRK Business result summary In 2012 the Company realized a total income which was 19,84 % lower than planned and 7,49 % lower than in Total expenditures were 9,38 % lower than planned and 2,14 % lower than expenditures realized in the previous year. Gross profit was 40,33 % lower than realized in 2011 and 62,96 % lower than planned. Capital and reserves increased by 4,52 % in comparison to 2011, but they are 6,51 % lower than planned. Assets and liabilities are 3,38 % higher than in 2011, but they are 6,99 % lower than planned. 147

148 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / P&L ACCOUNT, BALANCE SHEET IN 000 HRK PLAN FOR 2012 Share in net assets of voluntary pension funds REALIZED 2011 / 4 th Q REALIZED 2012 / 4 th Q CHANGE in % 2012 / 2011 CHANGE in % 2012 / PLAN 4 : 3 4 : Total income ,49-19,84 Total expenditure ,14-9,38 Profit/loss before taxation ,33-62,96 Equity Capital and reserves ,52-6,51 Total Assets / Liabilities ,38-6,99 Equity in the currency HRK Stake of CO / total number of shares 1 stake (100 %) Par value of share / stake HRK Number of employees 2011 / / 12 Source: Report Package (collection of reports) for consolidation of financial reports of Croatia osiguranje Group as of 31 Dec 2011 and 31 Dec 2012 The Company s share in net assets of all voluntary pension funds in Croatia in the last three years has been relatively stable, and it recorded a slight increase in 2012 to 13,79 %. 60,00 50,00 40,00 Market share (net assets) closed-end voluntary pension fund Market share (net assets) total voluntary pension fund Market share (net assets) open-end voluntary pension fund 49,42 49,17 48,77 46,71 % 30,00 20,00 13,80 13,65 13,74 13,79 10,00 0 7,01 6,77 6,70 6, Source: HANFA, monthly reports Risk management In 2012 the Company was exposed to operational, market, credit risk and the risk of change in legislation. Operational risk was manifested in the inability to realize the planned operational parameters (number of new members and amounts of payments in the funds) primarily as a result of increased number of unemployed persons and a reduction in available income. Market and credit risk pertain to the Company s investments where, as a result of a decrease in interest rates and the debtors (fund members ) inability to settle liabilities, the Company failed to realize the financial income plan, and recorded a decrease in sales. 148

149 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo By investing in Company assets in financial instruments, certain risks are taken which may affect impairment of assets. Most important risks are price change risk, interest rate risk, currency risks, credit risk and liquidity risk. Financial instruments price change risk By investing in instruments which are traded with in the financial markets, the Company s assets are exposed to the risk of price drop and consequently of asset impairment. Since the Company has no ownership instruments, there is no such risk. Interest rate risk In accordance with legal limitations the Company s assets can be invested in debt instruments the price of which directly depends on changes in interest rates. The relationship between prices and interest rates is a counter-proportional one, which means that the increase in interest rates results in reduction of financial instruments prices. By classifying most of debt instruments in the portfolio held to maturity, interest rate risk has been reduced significantly. This enables valuation by applying the effective interest rate, which further eliminates fluctuations in market prices as a result of interest rate change. The Company also protects itself from this risk by managing durations of debt instruments as a sensitivity measure for the change of their market price in comparison to interest rate change. Currency risk Currency risk represents the probability of impairment as a result of a decrease in foreign currency exchange rate of currencies in which the financial instruments are denominated. Since all financial assets of the Company are denominated in the domestic currency, there is no currency risk. Credit risk Credit risk represents the probability that the issuer of the financial instrument in which the Company s assets are invested will not be able to settle its liabilities, which would have a negative impact on the value of the Company s assets. The Company protects itself from credit risk by investing in financial instruments with trustworthy and high-quality issuers. In the financial assets structure, the largest share (83 %) is invested in instruments issued by the Ministry of Finance of the Republic of Croatia as the most high-quality debtor. Liquidity risk Liquidity risk represents the possibility that the Company will not be able to quickly sell its financial assets to settle its liabilities. Since most of the current demand for liquid assets is settled through current receipts, liquidity risk is assessed as low. Apart from that, 57 % of financial assets at year end were in short-term instruments with maturity of up to one year. Assets management and investments In accordance with the limitations defined by the Compulsory and Voluntary Pension Funds Act, the Company s assets have been invested in bonds issued by the Republic of Croatia and deposits in domicile banks. This way the Company achieves optimum return on investment with minimum risk. The objective of financial risk management is to limit potential losses which could result from changes in market variables and the financial position of the issuer of securities which are part of the Company s portfolio, as well as unexpected demand for liquid assets. Periodical payments of fees to the Company 149

150 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / are the primary source of income to cover the demand for liquid assets, which enables investment of financial assets for a longer term. In accordance with the principle of investment risk dispersion, some of the assets have been placed in bonds portfolio held to maturity, which eliminates price risk in the assets. The remainder of assets was placed in domicile banks (maturity up to 12 months) which exposes that portion of assets to change of interest rates in the market, but enables realizing greater return in case interest rates increase. Expected Company development in 2013 After 4 fiscal years characterized by negative parameters of economic growth the decline of the Croatian economy should finally stop in Analysts agree that economic growth in this year should be 0,2 %. By observing trends in the Company s business operations, the negative circumstances in which sales activities are performed should cease, thus creating a good basis for growth in the upcoming years. Apart from that, this means the relief from pressures regarding early termination of savings which was caused by economic circumstances. In financial markets one should not expect circumstances to be like those in Although the continuation of monetary expansion provides further incentive for stock exchange markets, a significant reduction in interest rates does not leave to much space for increase of bonds in The Company s sales activities will be concentrated on including as many members as possible whose employers encourage them to enter an open-end fund. The cessation of negative trends should, in that segment as well, create an improved situation for the Company s activities. As a result of restructuring in the transportation sector, we expect the realization of announced changes in the business operation of the companies Hrvatske autoceste and Autocesta Rijeka Zagreb. By outsourcing the works of maintenance and collection of tolls to a new company, the operation of funds under their management will have to be adjusted, and one of the possible combinations is fund merger. Dedication to rationality and cost efficiency of the Company will remain crucial in realizing appropriate profitability, in accordance with economic circumstances. The Company will continue to actively participate in work groups pertaining to changes in legislation regulating the Company s business. Certain adjustments to the voluntary pension savings system are being proposed, with the purpose of providing more options to the members and reducing costs at the same time. 2. PBZ CROATIA osiguranje d.d. za upravljanje obveznim mirovinskim fondom, Zagreb Ulica kralja Držislava 5, Zagreb The Company was founded in 2001 and it is jointly managed by Croatia osiguranje d.d. and Privredna banka Zagreb d.d. Management Board 1. Dubravko Štimac, Chairman 2. Renata Kašnjar Putar, Member Supervisory Board 1. Danko Špoljarić, Chairman 2. Dajana Kobeščak, Member 3. Nedjeljko Pavlović, Member Changes of Supervisory Board Members are under way. 150

151 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Ownership structure 1. CROATIA osiguranje d.d. 50,00 % 2. Privredna banka Zagreb d.d. 50,00 % Business result summary In 2012 the Company realized a total income that was 16,61 % lower than the previous year, and total expenditures increased by 37,26 %. Gross profit realized was 49,02 % lower than in 2011, and at the same time it was 22,64 % higher than planned. Capital and reserves record an increase of 11,18 % compared to 2011, and the plan was exceeded by 11,92 %. Assets and liabilities increased by 12,44 % compared to 2011, and at the same time the plan was exceeded by 13,61 %. It is important to point out that at the beginning of 2012 changes in legislation led to a reduced fee for fund assets management, which directly reduced the Company s income by about 30 %. P&L ACCOUNT, BALANCE SHEET IN 000 HRK PLAN FOR 2012 REALIZED 2011 / 4 th Q REALIZED 2012 / 4 th Q CHANGE in % 2012 / 2011 CHANGE in % 2012 / PLAN 4 : 3 4 : Total income ,61-11,94 Total expenditure ,26-3,72 Profit/loss before taxation ,02-22,64 Equity Capital and reserves ,18 11,92 Total Assets / Liabilities ,44 13,61 Equity in the currency HRK Stake of CO / total number of shares (50 %) / Par value of share / stake HRK Number of employees 2011 / / 20 Source: Report Package (collection of reports) for consolidation of financial reports of Croatia osiguranje Group as of 31 Dec 2011 and 31 Dec 2012 Market share is in slight decline and it amounts to 16,34 % (last year it was 16,68 %), but there is also a slight increase in the number of fund members compared to the same period in

152 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Share in net assets of compulsory pension funds at 31 Dec 2012 Erste OMF 13,40 % PBZ CO 16,34 % AZ OMF 40,17 % Raiffeisen OMF 30,09 % Source: HANFA, monthly reports Share in membership of compulsory pension funds at 31 Dec 2012 Erste OMF 15,41 % PBZ CO 17,82 % AZ OMF 35,96 % Raiffeisen OMF 30,81 % Source: HANFA, monthly reports Risk management Use of financial instruments relevant for the assessment of the balance of assets, liabilities and the financial position of the Company as loss-prevention measures In 2012 the Company was exposed to market risks and so it introduced greater risk monitoring measures. One of such measures was the adoption of the Rules for determining objective proof for impairment of financial assets and implementation of impairment. These Rules determine the method for valuating financial assets of the Fund in case there is objective proof indicating the need to impair the financial assets. The Company s assets are kept exclusively in cash in the business account of the Company, in deposits in the largest Croatian banks or in debt securities issued by the Republic of Croatia (bonds, treasury bills). 152

153 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo All mentioned investments are low-risk investments. The Company has no need to enter into debt, and the assets are kept in the highest quality instruments (in terms of risk) which are available in the Croatian market. Interest rate risk is monitored by dispersion of investments, according to types of securities and their maturities, and there is currently no liquidity risk. Current inflow of cash enables regular settlement of all liabilities as well as accumulation of the amount necessary to pay dividends to shareholders. Main characteristics of internal control of the Company and the risk management system in terms of procedure of preparing and making financial statements PBZ CROATIA OSIGURANJE d.d. za upravljanje obveznim mirovinskim fondom, in conducting its regular business operations monitors and manages various types of risks to which the Company and the Fund are exposed. Internal controls of the Company periodically inspect the Company s and the Fund s business operations. The Auditing Committee is a joint body of both shareholders which convenes regularly (five times a year) with the primary function of controlling the Company s financial business operations. In its meetings the Board examines the system of risk control and management, and the Board regularly receives a Report on Market Risk of the Fund and the Operational Risk of the Company. Internal Control of Privredna Banka Zagreb and the Internal Control of CROATIA osiguranje d.d. also occasionally inspect the Company s and the Fund s business operations. Sine 2012 appropriate bodies of Privredna banka Zagreb perform an audit of the part of operational risk management system. The work and business operations of the Company are regulated by the Compulsory and Voluntary Pensions Funds Act (ZODMF), which prescribes the risk monitoring system. In its work the Company uses complex tools in implementing several types of control in order to avoid harmful events. The Company s Middle Office constantly monitors the Fund s investments, and additional verification of soundness of investment is performed in the Front Office, and especially in the Back Office. The Middle Office makes sure that the laws are regulations are observed, and that operational risks are monitored. The Company s operational risks are monitored on several levels, and shareholders are regularly informed accordingly. Special attention is paid to compliance with regulations, risks pertaining to internal fraud, external fraud, reputation risk, risks pertaining to damage of assets, termination in business operations as a result of external factors, and the Company also regularly updates its Business Continuity Plan. Assets management and investments The Company keeps all its assets exclusively in cash (on the Company s business account), in deposits with the biggest Croatian banks or in debt securities issued by the Republic of Croatia or the Ministry of Finance (bonds and treasury bills). All the mentioned investments are low-risk investments. The Company has no need to enter into debt, and the assets are kept in the most quality instruments (in terms of risk) which are available in the Croatian financial market. Business events after fiscal year end and expected company development in 2013 In 2013 fiscal year the Company expects a higher financial result than in 2012, due to more assets in the Fund with the same rate of management fee of 0,45 %. It also expects a positive shift in the development of pension industry, primarily caused by amendments to the ZODMF which are planned for adoption by the end of These amendments should introduce sub-portfolios, new principles of member distribution in funds, changes of investment limit and other changes. 153

154 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 3. CROATIA LEASING d.o.o., Zagreb Savska cesta 41/XXII, p.p. 22, Zagreb The Company was founded in 2004 for the performance of financial and operating leasing. In 2009, due to losses, the equity was reduced from HRK ,00 to HRK ,00, and a decision was made for the Company to start operating under an exit strategy. In 2012 the equity was reduced by an additional amount of HRK ,00. Management Board 1. Miroslav Marketić, Chairman 2. Zoran Šangut, Member Supervisory Board 1. Silvana Ivančić, Chairwoman 2. Marin Palada, Member 3. Igor Vidović, Member Ownership structure CROATIA osiguranje d.d. owns a 100 % stake. Business result summary In 2012 the Company realized loss in the amount of HRK 9,0 mil. In mid 2012 the Supervisory Board and the Management Board of the owner, acting together with the Management Board of CROATIA osiguranje d.d., with the aim of minimizing losses, changed the business strategy. The change pertains to shortening of the term of the Company s business activities by mid Also, this strategy prescribes the termination of leasing activities as soon as possible in order to reduce costs and enable more quality management of assets in stock. P&L ACCOUNT, BALANCE SHEET IN 000 HRK PLAN FOR 2012 REALIZED 2011 / 4 th Q REALIZED 2012 / 4 th Q CHANGE in % 2012 / 2011 CHANGE in % 2012 / PLAN 4 : 3 4 : Total income ,84 14,93 Total expenditure ,23 19,53 Profit/loss before taxation ,89 29,97 Equity ,99-58,99 Capital and reserves ,95-10,28 Total Assets / Liabilities ,74 196,74 Equity in the currency HRK Stake of CO / total number of shares 1 stake (100 %) Par value of share / stake HRK Number of employees 2011 / / 12 Source: Report Package (collection of reports) for consolidation of financial reports of Croatia osiguranje Group as of 31 Dec 2011 and 31 Dec

155 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Risk management In order to manage financial risks the Company monitors current and future cash flows (on a weekly, monthly and quarterly basis) and thus enables more logical allocation of resources. In 2012 the Company was exposed to credit risk, but less so than in the previous years. In 2012 the presented net profit of provisioning was presented at 126 thousand Kuna. By reducing the portfolio this risk reduces as well. In order to manage credit risk, the Company analyzes the clients creditworthiness. The Company collects good-standing information on the clients and uses it to decide on actions to ensure collection of the Company s receivables. Also, special attention is paid to the quality of the subjects of lease which is owned by the Company until the lease contract is paid off and the subsequent possibility to re-sell it. A high level of bad (uncollectible) receivables from previous years, as well as inability to sell a portion of stock of substantial value (Fairline vessel) resulted in increased liquidity risk, which was especially pronounced in September and October The Company s liquidity was improved by additional borrowing from CROATIA osiguranja d.d. of HRK 10 million. Currency risk is always present in leasing companies which place assets in operating lease, and are re-financed by foreign currency assets or with a currency clause, considering the fact that the assets placed in operating lease is considered a non-monetary item. Managing this risk is based on the intention of offsetting these receivables against loans obtained in the same currency. Since there was a significant reduction in the financial and operating lease portfolio in 2012, significant effect of this risk is expected in 2013 as well. The Company is not significantly exposed to interest rate risk, considering that the placement conditions are related to refinancing conditions. With its annual business plan the Company prescribes the implementation of an internal audit at least twice a year, with the primary objective to conduct business activities in accordance with the applicable legal and internal acts, to monitor and improve internal control systems and evaluate internal processes and the efficiency in implementing internal control, as well as to define the areas of business which are a priority in terms of risk assessment. In accordance with that, internal control is manifested as an application of the internal control system, by controlling the implementation of rules on internal procedures and by controlling that the procedures are compliant with legal, sub-legal and other regulatory acts. Internal control, as well as the risk management system, were implemented on the level of the controlling sector, Management Board, internal audit and if necessary, by including the auditing and supervisory board. An internal audit was performed in 2012 in accordance with the plan. During the audit procedure no deviations from the procedures prescribed by law or internal rules of the Company were found. Assets management and investments In evaluating its financial position and success the Company uses financial instruments defined by IAS 39. Since it has been operating with a loss and practically not completing any new lease contracts for almost four years, the Company has completely lost the ability to invest. Managing of existing assets is performed in accordance with the Exit Strategy. Company development and significant events which took place in the beginning of 2013 During the first two months of 2013 the Company continued its business activities in accordance with the Exit Strategy. On 28 February 2013, the General Assembly of Croatia leasing d.o.o. was held, in which the subject of business of the Company was changed, as well as the company name. The Company definitely ceases with the performance of leasing, and the new company (after its registration) should operate under the name Razne usluge d.o.o. (Various Services Ltd). It is expected that the changes will be entered in the Register of the Commercial Court in Zagreb by 31 March,

156 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 4. CROATIA Tehnički pregledi d.o.o., Zagreb Savska cesta 41/XVIII, Zagreb CROATIA osiguranje d.d. purchased in August % stake in the company Čazmatrans tehnički pregledi d.o.o. Čazma from the company Čazmatrans d.d. which was in bankruptcy. In April 2004 recapitalization of the company Čazmatrans tehnički pregledi d.o.o. was performed by merging it with the companies Pločetrans d.o.o., Ploče, Jadrantrans d.o.o., Knin and MOT Zaprešić d.o.o., Zaprešić. In June 2005, by virtue of a Decision of the Company s General Assembly, the name of the Company was changed and since then it has operated under the name CROATIA TEHNIČKI PREGLEDI d.o.o. In October 2005 significant recapitalization of the Company was performed by the sole stakeholder CROATIA osiguranje d.d. Today the Company comprises (manages) 44 motor vehicle inspection stations, which is its primary business activity. Management Board 1. Bernard Mršo, predsjednik Chairman before 28 Sep 2012, and Managing Director since 28 Sep Staško Adlešić, Member before 28 Sep David Sopta, Member before 28 Sep 2012 Supervisory Board 1. Krešimir Starčević, Chairman since 16 Nov Ivan Fabijančić, Deputy Chairman since 16 Nov Boris Rozić, Member since 16 Nov position not filled 5. employees representative has not been elected Supervisory Board before 16 Nov Silvana Ivančić, Chairwoman 2. Zoran Šangut, Deputy Chairman 3. Hrvoje Parlov 4. Željko Serdar 5. employees representative has not been elected Ownership structure CROATIA osiguranje d.d. owns one stake (100 %). The Company has following stakes in other companies: 1. MOT Pitomača d.o.o. 100 % 2. AGROSERVIS-STP d.o.o., Virovitica, Stjepana Radića % Business result summary In 2012 the Company realized increase of total income by 0,45 % in comparison to the plan and an increase of 7,68 % compared to Total expenditures in 2012 were 1,59 % lower than planned and in comparison to 2011 it increased by 9,67 %. Gross profit realized in 2012 was 14,01 % higher than planned, but it was 2,51 % lower than in

157 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Capital and reserves in 2012 record a reduction of 22,22 % compared to Assets and liabilities are 5,41 % lower than planned, but their realization in 2012 was the same as in P&L ACCOUNT, BALANCE SHEET IN 000 HRK Share in technical inspection market PLAN FOR 2012 REALIZED 2011 / 4 th Q REALIZED 2012 / 4 th Q CHANGE in % 2012 / 2011 CHANGE in % 2012 / PLAN 4 : 3 4 : Total income ,68 0,45 Total expenditure ,67-1,59 Profit/loss before taxation ,51 14,01 Equity Capital and reserves ,22-28,37 Total Assets / Liabilities ,01-5,41 Equity in the currency HRK Stake of CO / total number of shares 1 stake (100 %) Par value of share / stake HRK Number of employees 2011 / / 67 Source: Report Package (collection of reports) for consolidation of financial reports of Croatia osiguranje Group as of 31 Dec 2011 and 31 Dec 2012 In all the motor vehicle inspection stations owned, co-owned or leased in 2012 a total of technical inspections were performed, which compared to 2011 represents an increase by 3,84 %. Market share in the motor vehicle technical inspections market increased to 19,46%. 20,00 19,00 18,80 18,99 19,46 18,00 %17,00 17,17 16,00 16,18 15,00 14, Source: Vehicle Center of Croatia, annual statistical reports 2008, 2009, 2010, 2011 and

158 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Risk management In 2012 the Company was potentially exposed to liquidity risk and strategic risk. The Company settles its liabilities in due time and there are no due but unsettled debts to third parties, even though it is in strong investment expansion. Exposure to strategic risk pertains to the possibility of a change in legislation and it is permanent in character, which would definitely have an effect on the financial position of the Company in current but also in future business operations. In the performance of its business the Company is exposed mostly to currency risk and credit risk, while other risks are not significant. Currency risk is increased because loans are denominated in foreign currency, mostly in EUR. Currency risk is present because of potential change in the exchange rate of EUR against HRK. The Company is exposed to interest rate risk since it uses significant loan assets for development which are subject to potential change of the contractual interest rate. Price risk pertains to the influence of the Ministry of the Interior because it determines the prices of technical inspections, and this is something that the Company has no way of influencing. The Company is not subject to legal regulations pertaining to placement of free cash assets. Free cash assets are placed for a short term, in order to realize return which is bigger than the return on vista assets. Business events after fiscal year end and expected company development in 2013 At the beginning of 2013 the Company opened MOT stations STP Karlovac and STP Korčula, and the beginning of operation of STP Rijeka and STP Sinj is expected. STP Čazma is undergoing change of address. 5. SLAVONIJATRANS TEHNIČKI PREGLEDI d.o.o., Slavonski Brod Vinogradska 17, Slavonski Brod The Company was founded in July 2004 and is registered to perform technical inspections of motor vehicles, vehicle registration and other activities pertaining to inspecting the technical correctness of vehicles in accordance with the Road Traffic Safety Act. Management Board Franjo Stanić, Managing Director Supervisory Board 1. Nenad Pehnec, Chairman 2. Marija Furlan, Member since 7 July Mika Mimica, Member Stjepan Furlan, Member until 7 July 2012 Ownership structure 1. CROATIA osiguranje d.d. owns one stake 76,00 % 2. Marija Furlan 24,00 % Business result summary In 2012 the Company realized total income which exceeded the plan by 8,86 %, but which was 5,72 % lower than realized in Total expenditure was 10,49 % higher than planned, and 0,52 % higher 158

159 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo than in Gross profit was 11,00 % lower than planned, but also 51,42 % lower than the gross profit realized in Capital and reserves were 41,14 % lower than planned, but they were also 44,84 % lower compared to the same period in the previous year. Assets and liabilities were 47,64 % lower than planned, but also 12,80 % lower than in the same period in the previous year. P&L ACCOUNT, BALANCE SHEET IN 000 HRK PLAN FOR 2012 REALIZED 2011 / 4 th Q REALIZED 2012 / 4 th Q CHANGE in % 2012 / 2011 CHANGE in % 2012 / PLAN 4 : 3 4 : Total income ,72 8,86 Total expenditure ,52 10,49 Profit/loss before taxation ,42-11,00 Equity Capital and reserves ,84-41,14 Total Assets / Liabilities ,80-47,64 Equity in the currency HRK Stake of CO / total number of shares 1 stake (76 %) Par value of share / stake HRK Number of employees 2011 / / 15 Source: Report Package (collection of reports) for consolidation of financial reports of Croatia osiguranje Group as of 31 Dec 2011 and 31 Dec 2012 Starting of operation of a new technical inspection station owned by CROATIA osiguranje d.d. in the territory of Brodsko-posavska County has affected a reduction in the market share of the Company in the technical inspections market in Brodsko-posavska County, which is now 28,43 %. Together with the market share of the new station, also owned by CROATIA osiguranje d.d., the market share in Brodskoposavska County is over 54 %. Share in vehicle technical inspection market of Brodsko-Posavska County 31,50 31,00 35,00 30,00 29,50 % 29,00 30,10 30,16 30,78 29,78 28,50 28,00 28,43 27,50 27, Source: Vehicle Center of Croatia, annual statistical reports 2008, 2009, 2010, 2011 and

160 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Risk management Internal control and risk assessment are entirely performed by the Supervisory Board of the Company within its role as supervisor. When necessary, at the request of the Supervisory Board, an internal audit of CROATIA osiguranje d.d. is initiated. The Company is exposed to price risk due to greater competition and reduction in the purchasing power of the clientele. Since a new MOT station started operation in Slavonski Brod in 2012, also owned by CROATIA osiguranje d.d., the market share of the Company reduced in terms of the number of technical inspections, and consequently so did the income. By expanding the range of services (specialist testing) in addition to the motor vehicles technical inspection, the Company managed to compensate for a reduction in income and the lower purchasing power of its patrons. In its business activities the company uses only its own assets. Special attention is paid to collection of receivables. Liquidity risk is present, due to poorer collection, but is not significantly pronounced for now. The Company does borrow or lend, so it is not exposed to currency risk or the risk of change in interest rates. The company has no problems maintaining cash flow and this risk has been reduced to minimum. Assets management and investments The Company has a relatively small deposit in a bank, short-term, in order to realize income from interest. Company development In 2013 no innovations in the business activities are expected. The aim is to improve on the achieved business results in HERZ d.d., Požega Sv. Roka 2, Požega The Company HERZ d.d., Požega, has been 100 % owned by CROATIA osiguranje d.d. since July The Company s business activities include the performance of motor vehicles technical inspections and providing driving lessons for drivers of all category vehicles. Management Board Vladimir Hut, Managing Director Supervisory Board 1. Mika Mimica, Chairman 2. Bernard Mršo, Member since 30 Nov Željko Vinković, employees representative Marija Bajt, Member before 30 Nov 2012 Ownership structure CROATIA osiguranje d.d. 100 % of shares Business result summary In 2012 the Company was successful in its business operations and it realized an increase in total income of 4,54 % compared to the plan, and an increase of 1,78 % compared to Total expenditures 160

161 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo increased by 5,02 % compared to Gross profit was 41,70 % higher than planned and 7,93 % higher than realized in Capital and reserves were 2,78 % higher than planned, but 1,93 % lower than in the same period in Assets and liabilities were 2,85 % higher than planned and 0,33 % lower than realized in P&L ACCOUNT, BALANCE SHEET IN 000 HRK PLAN FOR 2012 REALIZED 2011 / 4 th Q REALIZED 2012 / 4 th Q CHANGE in % 2012 / 2011 CHANGE in % 2012 / PLAN 4 : 3 4 : Total income ,78 4,54 Total expenditure ,02-2,89 Profit/loss before taxation ,93 41,70 Equity Capital and reserves ,93 2,78 Total Assets / Liabilities ,33 2,85 Equity in the currency HRK Stake of CO / total number of shares (100 %) / Par value of share / stake 300 HRK Number of employees 2011 / / 27 Source: Report Package (collection of reports) for consolidation of financial reports of Croatia osiguranje Group as of 31 Dec 2011 and 31 Dec 2012 The share in the technical inspections market of Požeško-slavonska County increased in the observed period by 0,50 percentage points, and it reached a high 51,15 %. The Company operates successfully and it is safe to expect even better results in the future. Share in vehicle technical inspection market of Požeško-slavonska County 52,00 51,50 51,00 51,25 50,93 50,65 51,15 % 50,50 50,00 49,79 49,50 49, Source: Vehicle Center of Croatia, annual statistical reports 2008, 2009, 2010, 2011 and

162 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Risk management In terms of risks to which the Company was exposed in 2012, the most significant ones are orientation to the local market, the low purchasing power of its clients and price risk, as a result of price control. Being a service-providing company, its business results greatly depend on the citizens standard, employment rate and their clients earnings. There are seven driving schools in Požega and two technical inspection stations, so there is significant competition. The prices of services are prescribed by the competent organizations (CVH, HAK), and they cannot be influenced. Special attention is paid to collection of receivables, although this is becoming increasingly difficult. The Company does not use loans for its business operations so it is not exposed to credit risk or currency risk. The Company uses only its own assets in conducting its business. Liquidity risk is managed by long-term planning of demand and creation of provisions, and by monitoring cash flows. The Company has no way of influencing market risk because it does not independently determine prices. The only thing that can be done is to improve the quality of services, invest in maintenance and equipment and to offer new services. Assets management and investments The Company has a short-term deposit in two banks, and through them it realizes income from interest. It does not use other financial instruments. Company development There is no plan to introduce any innovations in 2013, nor is there expectation of a higher number of technical inspections. The objective is to use all the Company s potential to continue the trend of improving business results.< 162

163 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Management Board s Report on Business Result of the Group Key performance indicators for the Group in 000 HRK PROFIT AND LOSS ACCOUNT SELECTED ITEMS I - XII 2011 I - XII 2012 INDEX (3 : 2) Total income ,1 Total expenditures ,8 Gross premium written ,5 non-life ,2 life ,0 Settled claims (gross amount) ,6 non-life ,4 life ,0 Profit before taxation ,0 Profit after taxation ,0 Profit after the minority interest ,3 BALANCE SHEET SELECTED ITEMS I - XII 2011 I - XII 2012 INDEX (3 : 2) Total assets / liabilities ,0 Capital and reserves ,0 subscribed capital ,0 revaluation reserves ,3 legal reserves ,0 statutory reserves ,7 other reserves ,0 retained profit ,8 current period profit ,3 Technical provisions ,5 unearned premium, gross ,8 mathematical life insurance provisions ,3 provision for claims ,4 provision for premium returns dependent and non-dependent on results (bonuses and discounts), gross ,2 fluctuation provision, gross other insurance technical provisions, gross ,2 Special provision for life insurance where policyholder bears the investment risk, gross ,0 Investments ,3 PERFORMANCE INDICATORS I - XII 2011 I - XII 2012 INDEX (3 : 2) ROA (Return on Assets %) (net profit / assets) 1,2 1,3 108,3 ROE (Return on Equity %) (net profit / capital and reserves) 5,5 6,0 109,1 Gross profit margin (%) (gross profit / total income ) 4,4 4,8 109,1 163

164 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / The Group s business result CROATIA osiguranje Group realized income in the amount of HRK 3.500,2 mil., which represents a reduction of 1,9 % compared to income realized in the same period in the previous year. Net income after taxation and minority shareholders share in net profit amounts to HRK 112,7 mil., which represents an increase of 5,2 % compared to the same period in the previous year. Gross written premiums at the Group level in the period from Jan-Dec 2012 amounted to HRK 3.159,5 mil. and as a result of the global financial crisis in the last three years shows a decrease of 2,5 %. Of that, gross written premiums of non-life insurance amounted to HRK 2.744,6 mil., showing a decrease of 3,8 %, while the gross written premiums of life insurance amounted to HRK 414,9 mil., showing an increase of 7,0 %. Group income by business segments in HRK GROUP INCOME INDEX 3 : 2 Income from insurance operations ,6 Income from financial and operative leasing ,4 Income from pension fund management ,5 Income from vehicle technical inspection stations ,6 Income from other business ,3 TOTAL ,1 Total expenditure of the Group amounted to HRK 3.334,0 mil. and represents a decrease of 2,2 % compared to the same period in the previous year. The reduction in total expenditures is largely the consequence of a reduction in total expenses for insured events by 6,4 %. Total Group assets as of 31 Dec, 2012 amounted to HRK 9.410,7 mil., which represents an increase of 4,0 % compared to the balance as of 31 Dec, The calculated technical provisions in the reporting period amount to HRK 6.339,8 mil., and they are 0,5 % higher than the calculated technical provisions as of 31 Dec Individual subsidiary s share in the Group s business result Subsidiaries have had positive business results in 2012, apart from CROATIA leasing d.o.o. which has for some time been operating under the company s exit strategy, and which therefore realized a loss in the amount of HRK 9,0 mil; CROATIA osiguranje Neživot a.d. Skopje, with a loss of HRK 1,4 mil. and CROATIA Sigurimi sh.a Pristina with a loss of HRK 0,5 million. 164

165 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Result of CROATIA osiguranje Group in 2012 GROUP MEMBERS SHARE in % PLAN INDEX 2012 / PLAN 2012 INDEX 2012 / : 2 4: in 000 HRK CROATIA osiguranje d.d ,6 134,0 CROATIA Lloyd d.d. 94, ,1 86,3 CROATIA zdravstveno osiguranje d.d. 100, ,8 94,6 CROATIA osiguranje d.d., Ljubuški 52, ,8 232,1 MILENIJUM osiguranje a.d., Beograd 99, ,6 300,3 CROATIA Sigurimi sh.a., Priština 100, CROATIA osiguranje a.d., ŽIVOT, Skopje 92, ,8 133,4 CROATIA osiguranje a.d., NEŽIVOT, Skopje 100, CROATIA osiguranje mirovinsko društvo d.o.o. 100, ,0 59,7 PBZ CROATIA osiguranje d.d.* 50,00 ** ,4 51,0 CROATIA Leasing d.o.o. 100, ,0 139,9 CROATIA tehnički pregledi d.o.o. 100, ,0 97,5 SLAVONIJATRANS tehnički pregledi d.o.o. 76, ,8 48,4 HERZ d.d. 100, ,7 92,1 GROSS PROFIT OF THE GROUP BEFORE ELIMINATION ,7 108,6 Consolidation elimination ,7 128,8 Gross profit of the Group ,0 105,0 Corporate income tax ,4 80,4 Net profit before minority interests ,5 116,0 Minority interests ,7 143,6 NET PROFIT OF THE GROUP ,3 115,3 * Proportional consolidation. ** Supervisory Board of PBZ CROATIA osiguranje d.d. adopted a plan rebalance due to legal changes in the amount of fund management fee, which is the Company s main source of income, thus lowering the Company s income by about 30 %. 165

166 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Graphical presentation of total income and written premium of the Group in the period from 2008 to in 000 HRK Total income Written premium Graphical presentation of gross and net profit of the Group in the period from 2008 to in 000 HRK Gross profit Net profit

167 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Expected future development of consolidated companies as a whole CROATIA osiguranje d.d., as the parent company of thirteen subsidiaries, expects that the Group will continue to grow and achieve positive business results, apart from the company CROATIA leasing d.o.o., which according to its redefined Exit Strategy needs to close down its business activities by 31 March, Such expectations pertain especially to newly-founded companies operating abroad, which have successfully initiated their business operations, but whose share in the domestic markets is as of yet quite small. Therefore it is necessary for these companies to develop more quickly in order to become respectable competitors in their respective insurance markets. For that purpose it is necessary to further investment in training and educating staff, especially younger ones, to expand the sales network, and to introduce new, modern methods of selling insurance, especially online sales. Business partnerships with commercial banks will be strengthened with the aim of selling insurance products via bancassurance and to gradually expand its business to other segments of the financial industry, such as investment funds and compulsory and voluntary pension funds. An additional service which will be offered is health insurance, a new product in the region. The objective is that, in the mid-term period by 2015, no active company will be active abroad will have less than 5 % market share, and will attempt, depending on market conditions in its relative market, to achieve even larger market share than mentioned. Special attention will be paid to transfer of insurance technology and new products from the parent company to daughter companies, but also to the development of new insurance products by the subsidiaries as well. Considering that CROATIA osiguranje d.d. is undergoing preparations for privatization selling the majority share in the equity of CROATIA osiguranja d.d. which is currently owned by the Republic of Croatia, no extensive investments are expected in Croatia or in the region in this year. Further strengthening and growth of subsidiaries of CROATIA osiguranje d.d. can be expected once the privatization process has been finalized, since all the prerequisites for such development are already in place. 167

168 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Activities of subsidiaries as a whole in the field of research and development (R&D) Research and development (R&D), a particularly important segment of marketing, is mostly performed as a centralized business function and coordinated from one location. Subsidiaries are gradually beginning to learn how to implement this business function, and their independence in doing so will be further encouraged through development of new insurance products and new sales models harmonized with the demands of their respective markets. The aim is maximum harmonization of supply and demand of insurance products in a given market. This way CROATIA osiguranje d.d. and other Group members will be fully responsive to the needs of the insured parties. In Serbia, Bosnia and Herzegovina and Kosovo the trend of unfair competition is becoming increasingly pronounced, to the extent of a border-line illegal competition in the sales of all insurance types, especially motor liability insurance and collision insurance. This trend is evident in the unjustifiable growth and the amounts of commissions to insurance agents involved in the acquisition of insurance, which in some cases significantly exceed those legally prescribed. CROATIA osiguranje d.d. still refuses to accept this way of doing business, which results in a reduction in gross written premiums and income from the sale of insurance policies. This significantly slows down the growth of our subsidiaries, especially those in other countries in the region. Lately we have been witness to increased competition in property insurance as well, where foreign competitors fail to implement even the basic rules of the trade. In response to this increasingly significant and difficult competition in the market, special emphasis must be placed on developing a new organic growth strategy of all subsidiaries, especially those in the region. It is also possible that, should such trends continue, CROATIA osiguranje d.d. might reevaluate and redefine its strategy of expansion in the region, and to reexamine its business objectives in individual countries in the region, keeping in mind the development priorities and investment in countries where to do so is most profitable, primarily because the financial and economic crisis has significantly slowed down the Group s further expansion in the region. 168

169 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Main characteristics of the subsidiaries internal control and risk management systems The subsidiaries internal control is becoming more and more organized and there is systematic improvement by implementing new and existing legal regulations and practices. Special attention is paid to this business function, and in comparison to the previous year, additional effort has been made in all subsidiaries to further strengthen this business function. In the Head Office of CROATIA osiguranje d.d. in 2012 human resources were strengthened in the Internal Control and Auditing Department, which apart from controlling the business operations and business results of the parent company, also controls the business operations of all subsidiaries as well. The same was done in the Risk Department, which also strengthened its human resources to become the Risk Management Department. Furthermore, in all insurance companies organizational units were formed which are involved in internal control or audit (department, unit, licensed external consultant or certified auditor). The work scope of these organizational units has been defined in more detail by the Insurance Act, Auditing Act and other acts and regulations of each individual country, however, their scope, responsibilities and working methods do not differ significantly. Through the activities of these supervisory bodies, especially in insurance companies in the region, the position of internal audit and certified actuary has been strengthened. Pursuant to the Insurance Act of the Republic of Croatia, CROATIA osiguranje d.d. is obliged to deliver to HANFA all relevant business reports for the Group of insurers, in order to calculate the capital, liable capital and capital adequacy in insurance companies, as well as information on investments and associated affairs among certain associated business entities, at least four times a year. On that occasion all business reports of subsidiaries undergo additional verification pertaining to risks, and this is performed by professional departments of CROATIA osiguranje d.d. Since the regulations of insurance our companies respective countries prescribe that they must undergo systematic control by their supervisory bodies, it can be said that in practice all business reports and business events which are relevant for stability, solvency, liquidity and potential risks are controlled on several levels. For companies whose main activity is not insurance, these being the pension fund, leasing company and motor vehicles inspection companies, internal control and risk management are based on relevant legal regulations regulating the manner of founding, conducting business and evaluating internal risks, as well as supervision implemented by the supervisory agency. The business operations of companies which perform the stated activities in the Republic of Croatia are regulated by the Compulsory and Voluntary Pension Funds Act, and the supervisor is HANFA. Also, when it comes to the leasing company, pursuant 169

170 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / to the Leasing Act, control of leasing companies compliance with the law is performed by HANFA as well. The business operations of motor vehicle inspection stations, MOT test stations ( STP ), are regulated by the Road Traffic Safety Act and the Rules on Technical Inspection of Vehicles. The risk management system is still being upgraded, both in CROATIA osiguranje d.d. and in its subsidiaries. In 2012 significant improvements have been made in terms of organization and procedures in risk assessment, as well as in terms of actions to be taken should such risks occur, especially if they are not acceptable risks. The complete work of development and implementation of a risk management system is constantly improved and newly designed additions are regularly implemented. It should be pointed out that this business function is becoming increasingly significant in the light of adoption and implementation of EU Solvency II Directive, which will be mandatory for implementation as of 1 Jan, 2014, not only for CROATIA osiguranje d.d. as the parent company but also for the whole CROATIA osiguranje Group. In that respect, all subsidiaries have made significant effort regarding future implementation of Solvency II Directive. It is particularly important to point out that our subsidiaries in the region have also started performing this task, although their local legislation or even the competent government institutions have not even begun serious preparations for future implementation of Solvency II. 170

171 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Statement on Implementation of the Corporate Governance Code (Art. 272 p of the Companies Act) Of all the members of the CROATIA osiguranje Group, the only company (apart from the parent company) which is obliged to issue a Statement on Implementation of the Corporate Governance Code is Croatia Lloyd. Below is the full text of the Statement. Croatia Lloyd d.d. In the performance of its business operations the Company applies the Corporate Governance Code in accordance with Article 272.p of the Companies Act, as published on the Zagreb Stock Exchange web sites. In 2012, the Company implemented recommendations defined by the Code, making public all information the disclosure of which is defined by the Code, primarily in the interest of the Company's shareholders. In future operations in 2012 the Company also intends to make its business operations and business results available publicly. In 2012, the Supervisory Board of the Company adopted the Annual Internal Audit Work Program containing plans for particular audits to be performed in Following that program, the internal audit department performed the individual planned audits based on the defined business processes and business risks of the Company. In conducting the audits it implemented the positive legislation applicable to the profession and markets of the industry the Company is involved in. The internal audit department submitted to the Management Board and to the Supervisory Board reports on audits performed, containing the opinion and recommendations for further improvement of the Company's business operations. Being a member of the CROATIA osiguranje Group, the Company is involved in reinsurance business, and for many years it has realized continuous positive business results, which significantly contributes to the success and stability of CROATIA osiguranje d.d. as the parent company, and the whole CROATIA osiguranje Group. CROATIA osiguranje d.d. as the majority shareholder of the Company, submitted on 4 February 2013 a voluntary Tender Offer for the takeover of Croatia Lloyd d.d. The Tender Offer was published in the Official Gazette No. 15/2013 on 6 February, 2013, and in Večernji list on 5 February, The Tender Offer in question was approved by virtue of a Decision of the Croatian Financial Services Supervisory Agency dated 31 January, 2013, Class: UP/I /13-10/1, File No The offered price was HRK 2.050,00 (two thousand fifty Kuna) per share. The takeover procedure is currently under way and the Company is taking all steps as prescribed by the Act on the Takeover of Joint Stock Companies, and informs all the shareholders and competent institutions of its actions within the legally prescribed time. Regarding future business operations of the Company, CROATIA osiguranje d.d. will, as defined in the Tender Offer, be guided by the Company s interests, and through its participation in the Supervisory Board of the Company, support key strategic initiatives of the Management Board which pertain to the increase of operating potential and maintaining profitability of the Company s business, while at the same time fulfilling the requirements of positive legislation and conditions prescribed under the ISO 90001:2008 Certificate. 171

172 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / All of the above will serve to increase the value of the Company, with constant support to the Management Board which will be given to it in the realization of strategic plans. The strategic plan of CROATIA osiguranje d.d. is to acquire 100% share in the equity of the Company, which operates with positive business results. At the same time, as stated in the Tender Offer, it has no intention of changing the employment policy or the employment status of employees of the Company, which means that the number of permanently employed workers will be kept, as well as their substantial rights and negotiation policy which are part of the Collective Bargaining Agreement. Taking into consideration the year-long majority ownership of CROATIA osiguranje d.d. in the Company, we believe that the equal status of employees in the Company will remain the same and that it will further encourage the employment of new workers, as well as systematic and continuous investment in human resources development as a significant prerequisite for quality achieving of successful business results of the Company. The current situation in terms of share in the Company as of 31 December 2012 shows a share of CROATIA osiguranje d.d. in the amount of 94,64 %, followed by legal entities with a share of 3,19 % and natural persons and custody accounts with 2,17 %. In December 2012, the Company s General Assembly appointed new members of the Company s Supervisory Board (composition as stated under item 1. Basic information on the Company, subitem 1.2 Company Bodies, on page 3 of this report). Due to the sudden passing of a member of the Supervisory Board who was the employees representative, Mr. Ramis Šerifović, the procedure to elect a new employees representative to the Supervisory Board as the fifth member of the Board is currently under way. In accordance with the Companies Act and the Articles of Association, the company has a Management Board comprising two members, these being Mr. Robert Stude, Chairman of the Board, and Mrs. Kitica Mioč, Member of the Management Board. By virtue of a Decision of the Company s Supervisory Board made in December 2012, resulting from the fact that the mandate of the Management Board in the current composition expires on 25 February 2103, candidates for new members of the Management Board were nominated, these being Mrs. Kitica Mioč for Chairwoman of the Management Board, and Mr. Tomislav Malenica for Member of the Management Board. The procedure of granting approval for their performance of the said positions is pending a decision of the Croatian Financial Services Supervisory Agency. In Zagreb, 15 February 2013 The Company s Management Board Robert Stude, Chairman of the Board Kitica Mioč, Member of the Board Ivan Fabijančić, Member of the Board Krešimir Starčević, Chairman of the Board 172

173 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Independent auditor s report To the Shareholders of CROATIA osiguranje d.d., Zagreb 1. We have audited the accompanying consolidated financial statements of the company CROATIA osiguranje d.d., Zagreb, Miramarska 22, ( the Company ) for the year ended 31 December 2012, which comprise the consolidated Balance Sheet/ consolidated Statement of Financial Position as of 31 December 2012, the consolidated Profit & Loss Account / consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity and the consolidated Statement of Cash Flow for the year then ended, as well as the related Notes to the consolidated financial statements that give a summary of significant accounting policies and other explanatory information. Management Board s Responsibility 2. The Management Board of the Company is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards applicable in the Republic of Croatia, and for such internal control as the Management Board determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility 3. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from any material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement in the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the Company s preparation and fair presentation of consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Management of the Company, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 173

174 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Opinion 4. In our opinion, the enclosed consolidated financial statements give a true and fair view of the financial position of the insurance company CROATIA OSIGURANJE d.d., Zagreb, in all materially significant aspects, as of 31 December 2012, as well as of consolidated business results and consolidated cash flows of the Company for 2012 in accordance with the Accounting Act and the International Financial Reporting Standards applicable in the Republic of Croatia. Other legal and regulatory requirements 5. The Company s Management Board is responsible for preparation of the consolidated annual financial statements of the Company for the year ended 31 December 2012 in the prescribed form on the basis of the Rules on structure and content of the financial statements of insurance and reinsurance companies (Official Gazette no. 132/10, 39/2012) issued by the Croatian Financial Services Supervisory Agency on the basis of the Insurance Act and the Accounting Act, and is responsible for the information on compliance with the annual financial statements of the Company in accordance with the International Financial Reporting Standards. In Zagreb, 22 March 2013 BDO Croatia d.o.o. Trg J. F. Kennedy 6b Zagreb Ines Rožić, Certified Auditor Jeni Krstičević, Chairwoman of the Board 174

175 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Responsibility for consolidated financial statements The Management Board of the company CROATIA osiguranje d.d., Zagreb, (hereinafter: the Company) is responsible for ensuring that annual consolidated financial statements for 2012 are prepared pursuant to the Accounting Act (Official Gazette no. 109/07) and the International Financial Reporting Standards (Official Gazette no. 136/09, 8/10, 18/10, 27/10, 65/10, 120/10, 58/11, 140/11, 15/2012, 118/2012) as published by the Financial Reporting Standards Board, appointed by the Government of the Republic of Croatia, so that they give a true and fair view of the consolidated financial position, consolidated business results, changes in equity and cash flows of the Company for that period. After conducting appropriate analyses, the Management Board reasonably expects the Company to have adequate resources to continue its operations in the foreseeable future. For this reason, the Management Board adopted the going concern basis in preparing of the financial statements. In preparing those financial statements, the responsibilities of the Management Board include that: Suitable accounting policies are selected and then applied consistently; Judgments and estimates given are reasonable and prudent; Applicable financial reporting standards are followed and any material deviations are disclosed and explained in the consolidated financial statements; Consolidated financial statements are prepared on a going concern basis, unless it is inappropriate to presume so. The Management Board is responsible for keeping proper accounting records which, at any time disclose the consolidated financial position and consolidated business results of the Company with reasonable accuracy and it must also ensure that they comply with the Accounting Act (Official Gazette 109/07) and the International Financial Reporting Standards (Official Gazette 136/09, 8/10, 18/10, 27/10, 65/10, 120/10, 58/11, 140/11, 15/2012, 118/2012), as published by the Financial Reporting Standards Board. The Management Board is also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for prevention and detection of fraud and other irregularities. Signed on behalf of the Management Board Ivan Fabijančić, Member of the Board Krešimir Starčević, Chairman of the Board CROATIA osiguranje d.d. Miramarska 22, Zagreb, Republic of Croatia 21 March

176 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht /

177 osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo Consolidated Annual Financial Statements for 2012

178 ANNUAL REPORT / 2012 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht /