ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance /

Transcription

1 Annual Report 2013

2 ANNUAL REPORT / 2013 / 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 to shareholders from the Company's Management Board Dear shareholders, Insurance industry in the end of 2013 was marked by the impact of several years long macro-economic uncertainty, which was contributed to by another great challenge which occurred in the form of deregularization of the insurance market and which, after inclusion in the EU market, initiated historical changes in the insurance sector. The wave of change which affected insurance companies has initiated numerous adaptations and changes in the insurance scene which will undoubtedly leave their mark on business in the upcoming years. The business results of Croatia osiguranje in 2013 are realistic and within planned parameters. At year end the company had a market share of 30.3 percent (together with Croatia zdravstveno osiguranje). We have kept the leading position in non-life insurance with a share of 34.7 percent, and in life insurance we hold the second position with 14 percent market share. Written premium amounts to HRK 2.63 billion, of which HRK 2.27 billion in non-life insurance, and HRK million in life insurance. Gross settled claims amount to HRK 1.63 billion, which represents an increase by 1.6 percent compared to Due to a large number of regular expirations of life insurance policies gross settled claims are 33.8 percent higher, and Croatia osiguranje is the only company in Croatia which paid out as much as HRK 349 million to holders of life insurance policies. The satisfaction of our policyholders is most evident from the fact that as many as 40 percent have renewed their life insurance policies upon their expiration in the previous year. Total revenue of the Company was HRK 2.64 billion, and gross profit amounted to HRK 12.6 million. The realized profit suffered a significant and unplanned impact from one-off real estate value impairment, which was performed in 2013 for the first time consistently for the entire real estate portfolio. Had the mentioned impairment not been performed, the profit of Croatia osiguranje from the primary activity would be far above the planned parameters. Throughout the entire year the Company operated with a satisfactory liquidity ratio, which was 3.56 on December 31, Non-life insurance assets increased by 13.3 percent to HRK 1.16 billion and life insurance assets increased by 14.9 percent to HRK million. A high capital adequacy ratio was realized and nonlife insurance capital increased by percent, while life insurance capital increased by 64.7 percent of the legal minimum (solvency margin). 3

4 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Croatia osiguranje Group, which comprises 13 subsidiaries, realized gross written premium of HRK 3.1 billion, of which non-life insurance gross written premium amounted to HRK 2.7 billion and life insurance gross written premium amounted to HRK million, exhibiting growth by 0.7 percent. Total Group assets at year end amounted to HRK 9.2 billion. In 2013 we started a business restructuring process on all key levels of the Company, with the aim of modernizing business operations, reducing non-productive costs and implementing a more efficient performance of business processes. With this project we plan to speed up business processes, successively centralize back office processes and strengthen the front office. One of the strategically most significant guidelines is still socially responsible business. Throughout the year we have intensified projects of humanitarian character and encouraged educational and culture and arts programs. We were the first insurance company in the Country which had the honour of insuring the exhibition and transportation of Pablo Picasso s artwork with an insured sum of as much as EUR 670 million and that of Caravaggio which was insured at EUR 60 million. These are projects the demands of which can only be met by the largest insurance companies in Europe and in the world, which speaks volumes of the reputation of Croatia osiguranje even beyond the borders of our country. The end of 2013 was characterized by another significant moment which will remain recorded in the history of our company the privatisation process. On 18 December 2013 the Government of the Republic of Croatia issued a decision on the selection of Adris Grupa as the best investor for the purchase of portion of the equity share in Croatia osiguranje and for recapitalization of the Company. It is expected that through the privatisation process Croatia osiguranje will fully realize all of its potential and ambitions, which involve significant expansion and strengthening in the region, together with the formation of a financial conglomerate which will provide our clients with a fully modern financial service. Dear shareholders, Croatia osiguranje remains a stable and profitable company. We are the oldest and biggest insurance company in this part of Europe which in 2014 is about to celebrate 130 years of successful business. May tradition, strength and security remain the epithets associated with the Company by future generations to come. Sincerely, Krešimir Starčević, Chairman of the Management Board 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 / 2013 / 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 19 Performance indicators 23 Analysis of premiums and claims in The Company s investments as at 31 december Statement on implementation of the Corporate Governance Code 33 Risk report 36 Description of all significant business events after the end of the fiscal year 42 Expected future development of the Company 43 INDEPENDENT AUDITOR S REPORT Independent Auditor s Report 45 Responsibility for financial statements 48 ANNUAL FINANCIAL STATEMENTS FOR 2013 Financial statements 51 Notes to Financial Statements 55 Supplementary statements prescribed by the Ordinance of the Croatian Financial Services Supervisory Agency 135 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 2013 CROATIA osiguranje Group 149 Description and review of the Group members business activities 151 Gross result of CROATIA osiguranje Group Jan Dec Insurance companies 153 Non-insurance companies 160 Management Board s Report on business result of the Group 166 Expected future development of consolidated companies as a whole 169 Activities of companies-members of the Group as a whole in the field of research and development (R&D) 170 Main characteristics of subsidiaries internal control and risk management systems 171 INDEPENDENT AUDITOR S REPORT Independent Auditor s Report 173 Responsibility for consolidated financial statements 176 CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR 2013 Consolidated financial statements 179 Notes to consolidated financial statements 184 Supplementary statements prescribed by the Ordinance of the Croatian Financial Services Supervisory Agency 213 7

8 ANNUAL REPORT / 2013 / 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 In this, very demanding, fiscal year CROATIA osiguranje d.d. has confirmed its character and warranted the trust its clients have given it for 129 years. The Company has remained a stable and profitable business and special emphasis was put on its sales network, in order to increase efficiency and the quality of service offered to its clients. In the period from January to December 2013, the market share of CROATIA osiguranje d.d. in the total written premium of all insurance companies amounted to 28.9% (without Croatia zdravstveno osiguranje d.d., which registers a share of 1.4%). The Company still holds the leading position in non-life insurance with a share of 34.7% and it holds the second position in life insurance with 14.0% market share. In 2013 CROATIA osiguranje d.d. realized total written premium in the amount of HRK 2,625.1 million, which fulfilled the annual plan. Written premium for non-life insurance decreased by 3.2%, while in the segment of life insurance the Company recorded a decrease by 2.1% compared to the same period in the previous year. Gross settled claims in the period from January to December 2013 amount to HRK 1,627.3 million, which is 1.6%, i.e. HRK 25.9 million more than in the same period in the previous year. Non-life insurance exhibits a decrease in gross settled claims by 4.6%, while settled claims in life insurance increased by 33.8% in relation to the same period in the previous year, as a consequence of the regular expiration of life insurance policies. The total revenue of CROATIA osiguranje d.d. amounts to HRK 2,637.6 million (100.2% of the annual plan) and is by 5.7% or nominally HRK million less than in the same period in the previous year. The total expenditure amounts to HRK 2,625.0 million (105.4% of the annual plan) and is by 1.2% or nominally HRK 30.7 million less than in the same period in the previous year. The realized gross profit of the Company amounted to HRK 12.6 million. The realized profit was heavily influenced by real estate value impairment. At the time of increasing insurance market instability and stronger competition, the Company has, through its tradition, reputation and quality, managed to stay at the very top, taking into account the needs of its clients, both existing as well as future ones. Work on improvement of current products and the creation of new products has been continuous, so as to achieve and maintain the high level of satisfaction of policyholders was marked by the production, testing and implementation of a new tariff for motor liability insurance, which will help CROATIA osiguranje d.d. maintain its market leader position. Working to support culture, 9

10 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / as one of the strategic objectives of the Company, we are proud to point out our support to the Picasso and Caravaggio exhibits, as well as to Dubrovnik Summer Festival. A series of humanitarian donations was granted, of which donations to help associations caring for children suffering from malignant diseases (Krijesnica and Hrabro Dijete), children s association Dječja Udruga Hrabrost DUH and Caritas are to be pointed out. This year a project to restructure business in the Head Office and in the branch offices with the goal of further service refinement, modernization of business, cutting down unproductive expenses and finding more efficient ways of conducting business processes (centralization of procurement, legal and general affairs, IT, accounting, finance and part of claims processing). Croatia's accession to the EU has made the Croatian insurance market part of the EU common financial services market, which is the largest market in the world when it comes to insurance. The Company was ready to meet this transition and will ensure the standard of business and services at EU level to all of its current and future policyholders. The most significant business event in the reporting period ended with a Decision by the Government of the Republic of Croatia choosing the best bidding partner and investor for the purchase of equity share of the Republic of Croatia and for the recapitalization of CROATIA osiguranje d.d. The accepted bid was that of Adris grupa d.d., which offered HRK million for 39.05% of ordinary shares, i.e. EUR per share and a recapitalization of EUR million. Adris grupa d.d. was granted the necessary approval from the Croatian Financial Services Supervisory Agency (HANFA) to join the ownership structure and to perform recapitalization, while Croatian Competition Agency approved the intent to concentrate Adris grupa d.d. and CROATIA osiguranje d.d., which led to the realization of all the preconditions for the final sale and purchase process. CROATIA osiguranje d.d. is ready to meet the final process and, in expectation of changes in ownership of the Company, welcomes the strengthening of capital which will surely have a positive influence on the Company's business and full development of its potential. This Statement was made pursuant to Article 250 of the Companies Act and the Management Board submits it to the Supervisory Board. 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 about 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. 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, Other types of property insurance, Motor liability insurance, Aircraft liability insurance, 11

12 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 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, 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. 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 13 branch offices which cover the whole area of the Republic of Croatia. In 2013, the small branch offices Čakovec and Koprivnica were merged with branch office Varaždin; Gospić and Šibenik were merged with Zadar; Bjelovar and Virovitica were merged with Kutina; Vinkovci was merged with Osijek; Karlovac and Sisak were merged with the greater Zagreb area Velika Gorica, and Požega was merged with Slavonski Brod. 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 October 2013 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. 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 Management and organization of management Pursuant to the Companies Act, the Insurance Act and the Company s Articles of Association the bodies of the Company are: the Supervisory Board, the Management Board and the General Assembly. Duties and responsibilities of members of these bodies are prescribed by the acts mentioned above. The Company s Supervisory Board Members of the Supervisory Board are: 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, Member employees' representative The Company s Management Board Members of the Management Board are: Mr. Krešimir Starčević, Chairman and Mr. Ivan Fabijančić, Member Activities of the Company s bodies In the period from 1 January to 31 December 2013 there were 62 meetings of the Company's Management Board, out of a total of 79 meetings held during the term of office of the Management Board comprising Mr. Krešimir Starčević, Chairman of the Management Board and Mr. Ivan Fabijančić, Member of the 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 its 65 th meeting held on 10 October 2013, the Company s Management Board issued the Rules of Procedure of the Management Board of CROATIA osiguranje d.d., which have been effective as of 10 October In the observed period, the Supervisory Board held 15 meetings out of a total of 25 meetings during the term of office of the current Supervisory Board (seven of which were held by electronic means). During these meeting the Supervisory Board, in accordance with the provisions of the Company's Articles of Association and the Rules of Procedure of the Supervisory Board, monitored and supervised the work of the Management Board and made Decisions within its competence. In its 15 th meeting held on 6 May 2013, the Supervisory Board gave its consent for the Decision on the convocation of the 38 th General Assembly of CROATIA osiguranje d.d. to be held on 27 June 2013 at 11 a.m. In the 20 th meeting held on 30 July 2013, the Supervisory Board issued the Rules on 3 rd Amendments to the Rules of Procedure of the Supervisory Board of CROATIA osiguranje d.d., which have been effective as of 30 July

14 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Human resources Human resource development in CROATIA osiguranje d.d. is a business process which requires continuous effort and investment with the aim of further improvement of the employees' specific skills and knowledge as the fundamental values of the Company as a whole. Since the Company has, for many years now, paid special attention to human resource development, this was also continued in 2013, when several projects with the aim to strengthen this segment were implemented, especially: Improvement of the performance monitoring and employee excellence reward system through corporate and individual performance indicators; Implementation of employee development interviews; Introduction of a talent management system; Leadership development; Development of an innovation reward system; Development of so called e-learning system; Program for reducing the number of the Company's employees Redundancy Program. During 2013 there was a decrease in the number of the Company's employees and so, as at 31 December 2013 CROATIA osiguranje d.d. employed 2,715 employees, 112 less than on 31 December 2012, 1,606 of whom were women, and 1,109 were men. The Company Restructuring Program is being implemented in all business segments and at all organizational levels, based on which an organizational structure which will generate business efficiency, prosperity and full compliance with the Company s mission will be created. The consequence of the overall restructuring process is a decrease in the number of employees and making of the Redundancy Program, which was made in 2013 with five amendments thereto. The Program was made in accordance with the currently applicable Labour Act and the Collective Bargaining Agreement. 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 Equity and shares Equity of the Company amounts to HRK 442,887,200, and it is divided into 316,348 shares with the par value of HRK 1,400. All shares are initial public offering shares and they are marked as follows: 307,598 ordinary shares with the code CROS-R-A 8,750 preference shares with the code CROS-P-A.. Each share, both ordinary and preference share, 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 listed in the first listing of the Zagreb Stock Exchange, at which time trading started with the shares of the Company as the first joint stock company in the Republic of Croatia in majority ownership of the state. Movements in the prices of shares of CROATIA osiguranje d.d. In HRK Last price 31 Dec Mar Jun Sep Dec 2013 CROS-P-A 6, , , , , CROS-R-A 6, , , , , The highest price of preference shares of CROATIA osiguranje d.d., in the period from January to December 2013 amounted to HRK 7, and the lowest was HRK 6, The highest price of ordinary shares of CROATIA osiguranje d.d., in the period from January to December 2013, amounted to HRK 7, and the lowest was HRK 5, The price of preference shares of CROATIA osiguranje d.d. as at 31 December 2013 amounted to HRK 7,100.98, while on the same day in 2012 it amounted to HRK 6, The price of ordinary shares of CROATIA osiguranje d.d. as at 31 December 2013 amounted to HRK 7,100.01, while on the same day in 2012 it amounted to HRK 6, Movement in the prices of shares of CROATIA osiguranje d.d. 6, , , , , , , , , , In HRK CROS-P-A CROS-R-A 31 Dec Mar Jun Sep Dec

16 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Ownership structure of CROATIA osiguranje d.d. as at 31 Dec 2013 SHAREHOLDER NUMBER OF SHARES 31 Dec 2013 AMOUNT IN HRK % STAKE IN EQUITY 1. State Office for the Administration of Government Property/Republic of Croatia 253, ,175, Raiffeisenbank Austria d.d. custody account 19,745 27,643, Societe Generale Splitska banka d.d. custody account Erste & Steiermarkische Bank d.d. basic and custody account 6,802 9,522, ,904 5,465, Hrvatska poštanska banka d.d. basic and custody account 3,672 5,140, HPB nekretnine d.o.o. 2,957 4,139, PBZ d.d. custody account 2,032 2,844, Kraš d.d. 1,400 1,960, Auto Hrvatska d.d. 1,004 1,405, Komercijalna banka Zagreb d.d. in bankruptcy , Hypo Alpe-Adria-Bank d.d. custody account , Bahovec Srečko , Škaro Miroslav , Adriacommerce , Radić Antun , Tankerska plovidba d.d , Fran Mihaljević Infectious Diseases Clinic , Cemex Hrvatska d.d , Končar Elektroindustrija d.d , Kotoraš Marino , Other shareholders 16,300 22,820, TOTAL 316, ,887,

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 Stakes of the largest shareholders as at 31 December % 1.16% 1.23% 2.15% 6.24% 80.20% State Office for the Administration of Government Property/Republic of Croatia 80.20% Raiffeisenbank Austria d.d. custody account 6.24% Societe Generale Splitska banka d.d. custody account 2.15% Erste & Steiermarkische Bank d.d. basic and custody account 1.23% Hrvatska poštanska banka d.d. basic and custody account 1.16% Others 9.02% 17

18 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht /

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 Market position of the Company Total written premiums of all insurance companies in the Republic of Croatia in the period from January to December 2013 amounted to HRK 9,076.6 million, which represents an increase of 0.4% in comparison to the same period in the previous year. Written premiums by insurance companies INSURANCE COMPANY JAN-DEC 2012 JAN-DEC 2013 INDEX 2013/2012 In HRK STAKE IN % CROATIA osiguranje d.d. 2,707,693,805 2,625,085, Allianz Zagreb d.d 1,089,353,535 1,179,481, Euroherc osiguranje d.d. 976,512, ,271, Jadransko osiguranje d.d. 627,318, ,094, Wiener osiguranje Vienna Insurance Group d.d 591,961, ,316, Basler osiguranje Zagreb d.d. 404,041, ,884, Grawe Hrvatska d.d 391,703, ,632, Generali osiguranje d.d. 340,451, ,744, Triglav osiguranje d.d. 347,861, ,807, Uniqa osiguranje d.d. 226,088, ,030, Merkur osiguranje d.d. 285,302, ,394, Agram životno osiguranje d.d. 203,282, ,597, HOK osiguranje d.d. 185,724, ,874, Erste osiguranje VIG d.d. 115,725, ,301, CROATIA zdrastveno osiguranje d.d. 98,752, ,918, Sunce osiguranje d.d. 168,233, ,834, Velebit osiguranje d.d. 65,240,629 68,418, BNP Paribas Cardif osiguranje d.d 75,630,359 52,097, Societe Generale osiguranje d.d. 42,063,416 41,341, Izvor osiguranje d.d. 32,115,606 34,481, Velebit životno osiguranje d.d. 11,124,199 16,085, Wüstenrot životno osiguranje d.d. 6,818,243 15,281, KD Life osiguranje d.d. 15,849,456 14,862, Ergo životno osiguranje d.d. 20,767,107 14,335, Hrvatsko kreditno osiguranje d.d. 7,678,445 9,003, Ergo osiguranje d.d. 1,179,450 2,422, Total 9,038,475,262 9,076,600, Source: Croatian Insurance Bureau (HUO) In the period from Jan-Dec 2013 the market share of CROATIA osiguranje d.d. in the total written premium of all insurance companies amounted to 28.9% (without Croatia zdravstveno osiguranje, which has a share of 1.4%). 19

20 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Stakes of 5 largest insurance companies in the Croatian insurance market Ostali 34.4% Wiener osiguranje VIG 6.1% Jadransko 6.9% CROATIA osiguranje 28.9% Euroherc 10.7% Allianz Zagreb 13.0% Source: Croatian Insurance Bureau (HUO) 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 Written premiums by types of insurance TYPE OF INSURANCE MARKET Jan-Dec 2012 Jan-Dec 2013 CROATIA OSIGURANJE MARKET CROATIA OSIGURANJE INDEX 2013/2012 MARKET CROATIA OSIGURANJE Share of CO in the insurance market Accident insurance 504,047, ,708, ,223, ,116, Health insurance 238,667,629 15,257, ,438,469 18,680, Road motor vehicles insurance 720,518, ,133, ,759, ,480, Railroad rolling stock insurance 4,346,005 3,957,146 6,704,557 6,608, Aircraft insurance 7,536,388 6,997,118 8,947,251 8,639, Vessel insurance 181,426, ,616, ,886, ,107, Insurance for goods in transit 51,616,254 36,547,367 55,530,217 34,763, Insurance against fire and natural disasters 586,510, ,744, ,918, ,582, Other property insurance 709,204, ,309, ,498, ,804, Motor vehicles liability insurance 2,939,903, ,292,567 2,978,146, ,927, Aircraft liability insurance 6,045,653 5,063,032 5,826,260 5,242, Vessel liability insurance 35,890,419 20,104,559 37,844,311 21,324, Other liability insurance 288,439, ,745, ,904, ,694, Credit insurance 147,360,164 60,220, ,949,593 78,015, Surety insurance 8,050, ,321 6,245, , Insurance against miscellaneous financial 89,670,837 45,776,345 93,604,536 37,304, losses Legal protection insurance 2,844,768 2,743, Travel insurance 55,240,702 8,752,662 50,015,911 9,222, Life insurance 2,134,691, ,650,035 2,231,681, ,064, Annuity insurance 8,225,471 2,625,139 11,093,227 3,022, Supplemental insurance with life insurance 165,224,227 19,490, ,537,348 17,914, Wedding or birth insurance 8,243,703 7,600, Life or annuity insurance where the policyholder 144,769,527 53, ,500,837 49, bears the investment risk Tontine Insurance with capitalized payments TOTAL non-life insurance 6,577,321,316 2,343,874,377 6,538,186,057 2,269,034, TOTAL life insurance 2,461,153, ,819,427 2,538,414, ,051, GRANDTOTAL 9,038,475,262 2,707,693,805 9,076,600,061 2,625,085, Source: Croatian Insurance Bureau (HUO) In HRK 21

22 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Gross settled claims by types of insurance TYPE OF INSURANCE MARKET Jan-Dec 2012 Jan-Dec 2013 CROATIA OSIGURANJE MARKET CROATIA OSIGURANJE INDEX 2013/2012 MARKET CROATIA OSIGURANJE Share of CO in the insurance market Accident insurance 131,384,637 64,152, ,269,513 60,868, Health insurance 184,062,844 17,404, ,044,335 15,323, Road motor vehicles insurance 621,634, ,302, ,385, ,913, Railroad rolling stock insurance 1,205,222 1,118,465 1,449,871 1,276, Aircraft insurance 561, ,988 4,879,423 2,942, Vessel insurance 115,252,133 55,518,186 83,433,201 37,544, Insurance for goods in transit 20,627,809 14,671,354 14,324,619 7,955, Insurance against fire and natural disasters 300,439, ,096, ,086, ,629, Other property insurance 488,711, ,542, ,654, ,137, Motor vehicles liability insurance 1,112,076, ,065,346 1,085,247, ,732, Aircraft liability insurance 1,244,213 3,231 65,729 45, Vessel liability insurance 6,307,739 4,564,303 5,476,601 3,177, Other liability insurance 130,808,948 78,062, ,989,585 81,546, Credit insurance 69,131,058 50,047,204 43,995,810 31,647, Surety insurance 2,591,623 1,304,834 2,087,851 77, Insurance against miscellaneous financial 16,507,967 7,666,072 71,646,412 65,191, losses Legal protection insurance 104,532 75, Travel insurance 11,553,125 2,293,236 16,777,688 3,095, Life insurance 1,292,210, ,059,257 1,427,076, ,949, Annuity insurance 14,888,599 1,337,794 8,993,790 1,935, Supplemental insurance with life insurance 32,752,131 5,029,828 27,993,294 4,777, Wedding or birth insurance 5,999,299 5,967, Life or annuity insurance where the policyholder 74,780,117 4,937,390 94,253,399 3,661, bears the investment risk Tontine In HRK Insurance with capitalized payments TOTAL non-life insurance 3,214,205,683 1,340,982,733 3,115,890,824 1,278,949, TOTAL life insurance 1,420,630, ,364,269 1,564,284, ,324, GRANDTOTAL 4,634,836,340 1,601,347,002 4,680,175,676 1,627,273, Source: Croatian Insurance Bureau (HUO) The total amount of gross settled claims in the market of the Republic of Croatia experienced an increase of 1.0%, whereas CROATIA osiguranje d.d. is showing an increase of gross settled claims by 1.6%. 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 Performance indicators Performance indicators PLAN 2013 Jan-Dec 2012 Jan-Dec 2013 INDEX 4 : 2 INDEX 4 : PROFIT AND LOSS ACCOUNT DATA Total income (without deferred tax expenditure) 2,632,208,367 2,796,057,422 2,637,624, Gross premiums written 2,624,581,367 2,707,693,805 2,625,085, Total expenditure (without current tax expenditure) 2,490,127,860 2,655,713,578 2,625,010, Settled claims, gross 1,686,730,000 1,601,347,002 1,627,273, Income before tax (gross income) 142,080, ,343,844 12,614, Income after tax (net income) 113,664, ,425,061 17,268, BALANCE SHEET DATA Total assets 7,953,292,928 8,154,969,994 7,978,394, Capital and reserves 1,790,524,878 1,751,600,522 1,466,576, Technical provisions 5,686,737,624 5,720,743,463 5,630,618, Special provision for life insurance where the policyholder bears the investment risk 15,000,000 11,425,214 8,388, Investments 5,657,803,680 5,625,259,913 5,699,298, PROFITABILITY INDICATORS ROA (return on assets %) (net income / assets) ROE (return on equity %) (net income / capital and reserves) Gross profit margin (%) (gross income / total income) INSURANCE INDICATORS (NON-LIFE) Claims ratio Expense ratio Combined ratio INDICATORS OF EFFICIENCY Efficiency of total business operations (total revenue/total expenditure %) OTHER INDICATORS Number of employees 2,827 2, Total revenue per employee 989, , Total assets per employee 2,884,673 2,938, Written premium per employee 957, , Income (before tax) per employee 49,644 4, In HRK 23

24 ANNUAL REPORT / 2013 / 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 2013 Written premium Written premium in the period from January to December 2013 amounted to HRK 2,625.1 million and is showing a decrease of 3.1% compared to the same period in the previous year. The plan for written premium in 2013 was realized, except for property insurance and motor vehicle insurance. Written premium INTERNAL CLASSIFICATION PLAN INDEXES Jan-Dec 2012 Jan-Dec 2013 OF INSURANCE : 2 4 : Property ,1 94,0 Transport and credit ,8 103,7 Motor vehicles ,5 97,6 Personal non-life insurance ,3 94,0 Non-life insurance ,8 96,8 Life insurance ,5 97,9 TOTAL ,0 96,9 In HRK 000 Structure of gross written premium Jan-Dec % Jan-Dec % Jan-Dec % Plan 13.4% Plan 6.9% Plan 29.3% Property Transport and credit Motor vehicles Jan-Dec % Plan 40.7% Plan 9.8% Jan-Dec % Personal non-life insurance Life insurance 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 Movements in gross written premium Jan-Dec 2012 Jan-Dec 2013 In HRK 000 1,067,989 1,041, , , , , , , , ,051 Property Transport and credit Motor vehicles Personal Life insurance Realization of plan for gross written premium Life insurance 101.5% Plan 2013 Jan-Dec 2013 Personal non-life insurance 103.3% Motor vehicles 97.5% Transport and credit 114.8% Property 97.1% 25

26 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Premium collected In the accounting period from Jan-Dec 2013 a total of HRK 2,578.3 million in premiums was collected, which is 4.4% less than in the same period in the previous year. The plan was realized at 101.7%. Premium collected INTERNAL CLASSIFICATION INDEXES PLAN 2013 Jan-Dec 2012 Jan-Dec 2013 OF INSURANCE 4 : 2 4 : Property 723, , , Transport and credit 252, , , Motor vehicles 1,035,419 1,057,732 1,038, Personal non-life insurance 173, , , Non-life insurance 2,184,229 2,332,436 2,222, Life insurance 350, , , TOTAL 2,534,870 2,696,255 2,578, In HRK 000 Structure of premium collected Jan-Dec % Jan-Dec % Jan-Dec % Plan 13.8% Plan 6.8% Plan 28.5% Property Transport and credit Motor vehicles Jan-Dec % Plan 40.8% Plan 10.0% Jan-Dec % Personal non-life insurance Life insurance 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 Movements in premium collected Jan-Dec 2012 Jan-Dec 2013 In HRK 000 1,057,732 1,038, , , , , , , , ,051 Property Transport and credit Motor vehicles Personal Life insurance Settled claims In the period from Jan-Dec 2013 gross settled claims amounted to HRK 1,627.3 million, which represents an increase of 1.6% or HRK 25.9 million compared to the same period in the previous year. Overview of gross settled claims In HRK 000 INTERNAL CLASSIFICATION INDEX Jan-Dec 2012 Jan-Dec 2013 OF INSURANCE 3 : Property 551, , Transport and credit 139, , Motor vehicles 566, , Personal non-life insurance 82,846 77, Non-life insurance 1,340,983 1,278, Life insurance 260, , TOTAL 1,601,347 1,627, Efficiency in claims settlement In the period from Jan-Dec 2013 there were 261,656 claims handled, which is 3.8% more than in the same period in the previous year. 220,524 claims were settled, which is 84.3% of total reported claims. 27

28 ANNUAL REPORT / 2013 / 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 efficiency in claims settlement No. Jan-Dec 2012 Jan-Dec 2013 INDEX 4 : I CLAIMS FROM PROVISIONS 1 Number of claims in provisions 36,122 38, Number of claims settled from provisions 17,789 19, Number of claims settled at no cost 4,541 4, Number of handled claims 22,330 24, Number of unsettled claims 13,792 13, Percentage of settled claims from provisions (4/1) II CURRENT PERIOD CLAIMS 7 Number of claims reported in the current period 215, , Number of settled claims in the current period 171, , Number of claims settled at no cost 20,159 18, Number of handled claims 191, , Number of unsettled claims 24,219 27, Percentage of claims settled in the current year (10/7) III TOTAL CLAIMS BEING PROCESSED 13 Number of claims being processed (1+7) 252, , Number of settled claims (2+8) 189, , Number of claims settled at no cost (3+9) 24,700 22, Number of handled claims(4+10) 214, , Number of unsettled claims (5+11) 38,011 41, Percentage of settled claims (16/13)

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 The Company s investments as at 31 December 2013 Total assets investment by categories In HRK 000 TYPE OF INVESTMENT 31 Dec Dec 2013 INDEX DIFFERENCE AMOUNT % AMOUNT % 4 : Debt securities 2,418, ,820, ,982 State bonds 2,240, ,695, ,009 Corporate bonds 178, , ,027 Equity securities 573, , ,211 Shares and stakes 159, , ,408 Subsidiaries and associates 413, , ,197 Investment funds 543, , ,716 Loans and receivables 1,236, ,203, ,176 Deposits in banks 1,035, , ,684 Loans 200, , ,508 Receivables , N/A 50,000 Real estate 853, , ,263 TOTAL 5,625, ,699, ,038 Total investment comparison for 31 December December Dec Dec 2013 In HRK 000 2,820,517 2,418,535 1,236,566 1,203, , , , , , ,118 Debt securities Equity securities Investment funds Loans and receivables Real estate The value of total investments at the end of 2013 amounted to HRK 5,699.3 million and compared to the end of 2012 it has increased by HRK 74.0 million, or 1.3%. 29

30 ANNUAL REPORT / 2013 / 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 structure of total investments is still dominated by debt securities, with a portion of 49.5%, wherein the largest portion pertains to state bonds issued by the Ministry of Finance of the Republic of Croatia. During 2013 the portion of debt securities was increased by 6.5%. In the structure of the Company s total investments loans and receivables follow with 21.1%, mostly comprising bank deposits. Equity securities, as well as real estate, make up 11.5% of the total structure. The smallest relative share pertains to investments in investment funds. Debt securities Debt securities make up the most significant category in the total investment structure, with 49.5%. The largest share in debt security structure, pertains to securities issued by the Ministry of Finance of the Republic of Croatia, specifically state bonds and treasury bills (HRK 2,695.5 million) while HRK million pertains to investments in corporate bonds issued by domestic issuers. The total value of investments in debt securities in relation to the same period in the previous year was increased by HRK million, i.e. 16.6%. The reason for the increase is further aversion towards risk, maturity harmonization of the investment portfolio and a relatively larger yield on state bonds compared to other financial instruments with shorter maturity. Equity securities The total value of investments in equity securities was HRK million, which makes for 11.5% in the total investment structure. The increase of investments in equity securities compared to the previous year amounted to 14.2%. Investments in shares and stakes were significantly increased primarily due to investing in the shares of the company Pozavarovalnica Sava d.d., Ljubljana. The total value of investments in shares and stakes amounted to HRK million at the end of 2013, which represents an increase of 62.2%. Investments in subsidiaries and associates at the end of 2013 amounted to HRK million and were decreased by 4.4%, i.e. HRK 18.2 million. This was the result of the value adjustment process. Investment funds Investments in investment funds mostly pertain to investments into cash funds. They make up for 6.4% of the Company s total investments. The value of investments in investment funds was decreased in relation to the same period in the previous year due to reallocation of funds to financial instruments with higher yield. Loans and receivables Investments in loans and receivables are mostly made up of investments in bank deposits and, to lesser extent, receivables on repurchase agreements. Deposits are the second largest investment category of the Company and make up for 15.3% of the total investments. The deposit value was decreased in 2013 in relation to the previous year for reasons of continued decrease in interest rates in the financial market. Interest rates in the financial markets in 2013 were at a record low, which is why part of the funds was reallocated into other financial instruments with higher yield. 30

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 Real estate Investments in real estate amount to HRK million and make up 11.5% of the total structure. In relation to the same period of the previous year, the total real estate value was decreased by HRK million, i.e. 23.1%, which mostly pertains to value adjustment. Investments of non-life insurance In HRK 000 TYPE OF INVESTMENT 31 Dec Dec 2013 INDEX DIFFERENCE AMOUNT % AMOUNT % 4 : Debt securities 997, ,166, ,112 State bonds 870, ,091, ,892 Corporate bonds 126, , ,780 Equity securities 538, , ,844 Shares and stakes 124, , ,041 Subsidiaries and associates 413, , ,197 Investment funds 362, , ,227 Loans and receivables 825, , ,984 Deposits in banks 691, , ,294 Loans 133, , ,310 Real estate 853, , ,263 TOTAL 3,576, ,577, ,482 Investment structure for non-life insurance 23.9% 23.1% 10.1% 15.1% 18.3% 22.1% 9.6% 17.3% Debt securities Equity securities Investment funds Loans and receivables Real estate 27.9% 32.6% 31 Dec Dec

32 ANNUAL REPORT / 2013 / 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 of life insurance In HRK 000 TYPE OF INVESTMENT 31 Dec Dec 2013 INDEX DIFFERENCE AMOUNT % AMOUNT % 4 : Debt securities 1,421, ,654, ,870 State bonds 1,370, ,604, ,117 Corporate bonds 51, , ,247 Equity securities 34, , Shares and stakes 34, , Investment funds 181, , ,489 Loans and receivables 411, , Deposits in banks 343, , ,390 Loans 67, , ,802 Receivables , N/A 50,000 TOTAL 2,048, ,121, ,556 Investment structure for life insurance 20.1% 19.4% 8.9% 1.7% 1.0% 1.6% Debt securities Equity securities Investment funds Loans and receivables 69.4% 78.0% 31 Dec Dec

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 Statement on implementation of the Corporate Governance Code pursuant to the Companies Act, article 272p The Company voluntarily implements the Corporate Governance Code prescribed by, the Croatian Financial Services Supervisory Agency (HANFA) and the Zagreb Stock Exchange. In 2013 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 2013, 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 this 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. Based on the risk assessment results, audit priorities in the internal audit department s work plans for a given period were established. Based on the identified business and audit risks, an Internal Audit Work Program for 2013 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. Pursuant to the work program adopted, and in accordance with the Ordinance on Internal Audit, International Internal Auditing Standards and the Code of Professional Ethics of Internal Auditors, audits of business operations in 2013 were performed. 33

34 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Pursuant to the Ordinance on Internal Audit, internal audit reports are delivered to the Management Board, and the Board discusses such reports in its regular meetings. Apart from that, according to the Insurance Act, Article 149 and the Ordinance on Internal Audit, Article 13, the Internal Audit Department delivers to the Management Board and the Supervisory Board a report on the activities of the Internal Audit Department at least twice a year. This report contains the list of performed audits, evaluation of adequacy and the performance of the internal control system and recommendations for their improvement, any irregularities or illegalities if they were discovered during the performance of the audit, and recommendations for the removal of such irregularities and illegalities, together with 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. The Company has established risk management and control functions through the Risk Management Sector, as an independent organizational unit responsible directly to the Management Board. Furthermore, a risk management system consisting of various internal acts, procedures and methodologies was established, with the goal of identifying, evaluating, i.e. measuring, controlling and reporting on risks. The risk management system is regularly updated in accordance with good market practices and external regulatory demands. Of special importance are the current regulatory trends based on the demands listed in EU Directive 2009/138/ EC, known as Solvency II, as well as the series of activities and guidelines by EIOPE as the European insurance industry regulatory body. During the reporting period, the Company worked intensely on implementing the relevant regulatory demands and will, according to the deadlines defined at the EU level, continue to pursue ways to establish a risk management system based not only on the minimum regulatory demands, but also on best market practices. More detailed information on risk management is included in the Notes to the Financial Statements. The State Office for the Administration of Government Property/Republic of Croatia (DUUDI) is the most significant holder of shares of the Company, and it owns the number of shares as presented in the following table. 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 Ownership structure of the State Office for the Administration of Government Property/Republic of Croatia as at 31 December 2013 STATE OFFICE FOR THE ADMINISTRATION OF GOVERNMENT PROPERTY (DUUDI) / REPUBLIC OF CROATIA NUMBER OF SHARES % STAKE IN EQUITY State Office for the Administration of Government Property/Republic of Croatia (DUUDI) / CROS-P-A / State Office for the Administration of Government Property/Republic of Croatia (DUUDI) /CROS-R-A / 242, State Office for the Administration of Government Property/Republic of Croatia (DUUDI)/ State Agency for Deposit Insurance and Bank Rehabilitation / CROS-R-A / 11, TOTAL 253, 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, the State Office for the Administration of Government Property/Republic of Croatia (DUUDI) appoints one (1) member of the Supervisory Board, and it is entitled to do so 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. 35

36 ANNUAL REPORT / 2013 / 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 report Introduction The company has established a risk management system consisting of the organizational structure, various internal acts, procedures and methodologies, with the goal of identifying, evaluating, i.e. measuring, controlling and reporting on risks as a response to a whole spectrum of risks to which the Company is exposed in its day-. to-day business activities. The risk management system is regularly updated in accordance with good market practice and external regulatory trends based on the demands listed in EU Directive 2009/138/EC (known as Solvency II), as well as a series of activities and guidelines by EIOPE as the European insurance industry regulatory body. The principal goal of the Company in managing financial, underwriting, operational and other risks is maintaining asset capital adequacy necessary for the scope and kinds of business that the Company conducts, maintaining business safety and sustainability, just damage compensation to the insured parties, realizing an adequate profit level, all the while satisfying regulatory provisions. 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. The following contains a short overview of the most significant risks to which the Company is exposed. 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 book value 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. 36

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 Non-life insurance sales 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 sales risk includes 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 sales, procedures for approval of transactions which involve new products or which exceed defined limits, through tariff determination, product design and reinsurance management. 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 (loss) ratio. The following tables present claims ratios, expense ratios and combined ratios as well as claims ratio net of reinsurance. Comparison of claims ratio for 2012 and NON-LIFE INSURANCE % % Claims ratio Expense ratio Combined ratio Net claims ratio 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. Below is the mathematical provision according to guaranteed interest rates. 37

38 ANNUAL REPORT / 2013 / 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 mathematical provisions according to guaranteed interest rate INTEREST RATE INCLUDED IN THE TARIFF IS IN THE INTERVAL MATHEMATICAL PROVISIONS* 31 DEC 2012 SHARE IN % MATHEMATICAL PROVISIONS* 31 DEC 2013 SHARE IN % [ 1, 3 > 149,232, ,559, [ 3, 4 > 895,393, ,442, [ 4, 5 > 821,202, ,529, [ 5, 6 ] 3,010, , TOTAL 1,868,839, ,899,908, * Mathematical provisions are mathematical provisions of contractually agreed amounts and mathematical provision of additional amounts Yield on investment for life insurance is presented in the following table and it is sufficient for coverage of guaranteed interest rates for the life insurance portfolio. Yield on mathematical provisions Prinos na matematičku pričuvu Average balance of mathematical provisions 1,793,730,053 1,868,421,491 1,937,765,732 Yield from investment in mathematical provisions 103,025, ,793, ,297,579 YIELD 5.7 % 6.0 % 6.0 % Average yield 5.9 % Capital adequacy The current regulatory framework prescribes the manner of calculating the solvency margin of insurance companies based on the larger of the two criteria: premium criterion or claim criterion. Solvency indicator Solvency indicator for life insurance 138,2 % 164,7 % Solvency indicator for non-life insurance 163,4 % 225,6 % The Company maintains the solvency margin in accordance with the legal provisions, as presented in the table above. Market risk Market risk pertains to risk resulting directly or indirectly from fluctuations and/or volatility of market prices of assets and it includes currency risk, interest rate risk, position risk of investing in equity securities and real estate risk. The Company is exposed to market risk resulting from various types of investments, i.e. exposure under financial instruments such as shares and stakes in companies, units in investment funds, investment in real estate and investments in debt securities exposed to interest rate risk. The Company is also exposed to currency risk based on open currency position. 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 The Company assesses, monitors and controls exposure to market risk by monitoring exposure of investments, establishing limits and authorizations for investments and by applying a series of statistical and other quantitative risk measures. The comprehensive system of market risk management is prescribed by a series of internal acts of the Company, primarily the Market Risk Management Policy as an umbrella document. Exposure to market risk / 2012 Exposure to market risk 2,884,995,427 3,713,554, % The total exposure of the Company to credit risk on 31 December 2013 was increased, but the increase largely pertains to investments in state-issued debt securities, as the least risky investment instruments available to the Company in light of the current macroeconomic circumstances. 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. 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 secure receivables in accordance with legal regulations, or when it assesses that there is increased credit risk of debtors. The Company pays due attention to timely collection of receivables, with continuous improvement of the process and technology of collection. 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. Framework for credit risk management is prescribed by a series of internal acts, primarily the Credit Risk Management Policy as the umbrella document. Izloženost kreditnom riziku / 2012 Exposure to credit risk 4,829,982,085 4,481,312, % The total exposure of the Company to credit risk on 31 December 2013 was increased, but the increase largely pertains to investments in state-issued debt securities, as the least risky investment instruments available to the Company in light of the current macroeconomic circumstances. 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. This includes legal risk, IT systems risk, as well as the risk of loss due to non-compliance with regulations, and it is closely related to other risks to which the Company is exposed. 39

40 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Operational risk correlates with the size of the business entity and is present in all stages of the business process. Given the size and complexity of the organizational structure of the Company, the number of employees, the size of the IT system, the very nature of business, as well as the embranchment of the sales network, operational risk is by definition present in the Company. The operational risk management system is established through several aspects and levels, depending on origin and the sub-type of operational risk. As a rule, the management, control and monitoring of operational risks is based on the established efficient control mechanisms, i.e. on the prescribed internal acts, rules and work procedures which clearly regulate processes and business activities. The Company pays special attention to managing operational risks in the IT domain, as well as in claim procedures. The Company continually works on advancing the operational risk management system, which is primarily based on raising the level of operational risk management culture with all the employees of the Company, as well as further work on advancing the internal audit system. 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. In 2013 this indicator was never lower than the minimum prescribed indicator. The Company has also developed a system of internal liquidity indicators, which are constantly monitored and their values were within the prescribed limits during 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. The structural liquidity of the Company is favourable given the asset maturity and an especially high amount of liquid assets, i.e. assets which can quickly be converted to money. The Company has adopted the Liquidity Risk Management Policy which, as an umbrella document, defines basic guidelines and procedures for liquidity risk management. 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 always occurs and is always analyzed in relation with some other (related) risk, and only the possible existence of concentration can have an additional effect on the Company in light of a connected risk being materialized. 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 In continuation, the concentration risk management system implies incorporating concentration risk in the system for managing the related risk through which the concentration is analyzed, and not as a separate, i.e. detached whole. Accordingly, apart from the existing system for limiting individual risks, extra limits are enforced which pertain to concentration risk related to basic risk. 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, from which the Company protects itself with an adequate reinsurance program. 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. Other risks The Company continuously analyzes exposure to all other risks to which the Company is exposed or might be exposed in the upcoming period. Other risks which the Company identifies as materially significant are strategic risk, reputation risk and external risk factors: political risk, macroeconomic environment risk and legislative change risk. Though strategic risk and reputation risk can come about as individual risks, they are as a rule materialized or are the consequence of the materialization of some other risk in the Company or are a direct consequence of external risk actuators (the influence of unfavourable surroundings or a third party). Other identified risks are by their nature hard to measure with quantitative methods and this is why the Company evaluates them through qualitative measures, continuously monitoring and analysing the corresponding risk factors and attempting, through timely and adequate measures, to prevent or mitigate the negative effect arising from their possible materialization. An analysis of the observed exogenous risk factors makes apparent that the Company still operates in an unfavourable macroeconomic environment, which amplifies the significance of all other risks to which the Company is exposed. 41

42 ANNUAL REPORT / 2013 / 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 the fiscal year The second half of 2013 was marked by two significant changes which will in the long term significantly impact the business direction of CROATIA osiguranje, and these are Croatia's accession to the EU and the beginning of the privatization process of the Company. On December 18, 2013 the Government of the Republic of Croatia issued a decision to choose Adris Grupa as the best investor for the purchase of the equity stake of CROATIA osiguranje and the recapitalization of the Company. The Ministry of Finance of the Republic of Croatia has commenced negotiations with the chosen investor, with a 60 day deadline for concluding the agreement on sale and purchase of shares and the shareholders agreement. The due diligence process of the Company which was conducted as part of this process helped to consider the strengths and weaknesses within the Company even better, and we expect that the change in ownership and the capital strengthening of the Company will positively impact further business, as soon as in 2014, and that with the new business structure CROATIA osiguranje will realize all of its potential and ambitions in full. Even before the accession to the EU, CROATIA osiguranje met all the conditions for business under European standards and we welcome the new market conditions which already provide our policyholders with even more favourable insurance conditions. According to EU deadlines for implementing the Solvency II regulation, in 2014 we plan to commence projects related to implementing the part of the regulation relating to regulatory reporting and projects relating to the treatment of policyholder groups in the regulation, as well as the upgrading of transaction applications which will strengthen the risk management aspect. According to relevant market research CROATIA osiguranje is still perceived as a company with the highest level of brand recognition and a reliable partner that settles its obligations in time. In 2014 the Company celebrates 130 years of business, which gives it the status of the oldest insurance company in the country and a unique position of success and tradition in the Croatian market. 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 Expected future development of the Company According to all indicators, the Croatian insurance market faces another challenging year in The impact of the recession is felt across the economy, and the announced positive effects of EU membership are coming about slowly, given the fact that Croatia became a member in an economically unfavourable moment. CROATIA osiguranje d.d. monitors activities in the insurance market, which is not immune to movements in the real sector. Clients mostly insure only that which is most necessary, the reason being first and foremost saving. This is why, when planning the premium for 2014, the Company focused most on the conditions in the domestic insurance market. The primary goal is still maintaining the high level of policyholders loyalty. The company plans further development of insurance products in all segments, with an emphasis on maintaining the current high level of new product design dynamics. In order to adequately manage client relations there will be further development in implementing the CRM system and the KAM program with the client in the centre of attention. In 2014 we expect to continue implementing a new tariff in motor vehicle liability insurance and there is expectation of greater interest in liability and property insurance segments connected to natural persons: fire insurance, home insurance and personal liability insurance. The centralization of business processes that commenced in 2013 will continue in 2014 as well. The process of annexing small and medium business units to large business units, with the goal of establishing a new organizational structure, will strengthen and speed up the insurance service and facilitate the business processes to the employees of the Company. After publishing of a new website in the previous year, with the goal of further development of digital sales channels, we plan to implement a mobile application for smart phones and tablet computers, which will bring the users even closer to the process of purchasing insurance and settling claims. Ivan Fabijančić, Member of the Management Board Krešimir Starčević, Chairman of the Management Board 43

44 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht /

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 Independent Auditor s Report To the shareholders of the company CROATIA osiguranje d.d., Zagreb 1. We have audited the accompanying financial statements of the company CROATIA osiguranje d.d., Zagreb, Miramarska 22, (hereinafter: the Company ) for the year ended on 31 December 2013, which comprise the Statement of Financial Position as at 31 December 2013, Statement of Comprehensive Income, Statement of Changes in Equity and Cash Flow Statement for the year then ending, as well as the related Notes to the Financial Statements that give a summary of significant accounting policies and other explanatory information. Responsibility of the Company s Management Board 2. The 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 European Union 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 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 financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement in 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 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. 45

46 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Basis for expressing a qualified opinion 4. In 2013 the Company recognized (according to the estimate made by a court expert) a value impairment of investments in real estate measured at fair value in the amount HRK 272,992 thousand, of which HRK 67,589 thousand was recognized as expenditure, and HRK 205,403 thousand, which pertains to Kneza Borne real estate, was recognized as other comprehensive income. Apart from that, based on the assessment made by the same appraiser, the Company recognized value impairment of real estate used by the Company and measured at revaluated amounts, by ana mount of HRK 244,268 thousand. Of that, thousand (up to the revaluation reserve amount) the Company recognized as comprehensive income, and the remainder in the amount of HRK 16,278 thousand as expenditure. In our opinion, the mentioned estimates are not in accordance with the requirements of IFRS 13 when it comes to the hierarchy of estimating fair value, input data use and sensitivity to input variables in the estimate techniques. Apart from that, it is our opinion that the relevant value impairment does not reflect only the changes in the real estate market in Total value of court disputes currently being litigated against the Company amounts to HRK 131,044 thousand. Don the Balance Sheet date the Company recognized provisioning in the amount of HRK 14,835 thousand. Based on available statements from the Company s legal representatives regarding expected outcomes of those disputes, were have not been able to determine the effects of corrections to the consolidated financial statements based on their estimates of court dispute outcomes. Qualified opinion 6. In our opinion, apart from the issue explained in item 4 above and apart from potential corrections which may result from the facts given under items 5 above, the enclosed financial statements give a true and fair view of the financial position of the Company, in all materially significant aspects, as at December , as well as of business results and cash flows of the Company for 2013 in accordance with the Accounting Act and the International Financial Reporting Standards applicable in the European Union. Pointing out of an issue 7. Notwithstanding our opinion given under item 7 above, we would like to point out Note 33 to the Financial Statements for 2013, which describes the procedure initiated by the Croatian Competition Agency on December 19, 2013 against the Croatian Insurance Bureau, Croatia osiguranje and 11 more insurance and reinsurance companies in the Republic of Croatia regarding determining whether there had been distortion of competition by concluding a prohibited agreement. Opinion regarding harmonization with other legal and regulatory requirements 8. The Company s Management Board is responsible for the preparation of annual financial statements for the Company for the year ending on December 31, 2013 in the form prescribed by the Ordinance on the structure and contents of financial statements of insurance and reinsurance companies (Official Gazette No. 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 132/10) and the Ordinance on amendments to the Ordinance on the structure and contents of financial statements of insurance and reinsurance companies (Official Gazette No. 39/12) issued by the Croatian Financial Services Supervisory Agency in accordance with the Insurance Act and the Accounting Act and in accordance with other regulations regulating the business operations of the Company ( Standard annual financial statements '). The Company s Management Board has made forms which are provided on pages 89 to 100 ( Forms ) which comprise an alternative presentation of the Statement of Financial Position as at December 31, 2013, Statement of Comprehensive Income, Statement of Changes in Equity and Cash Flow Statement for 2013, as well as the harmonization of the Forms ( Harmonization ), presented on pages 101 to 110, with financial statements presented on pages 5 to 88. Opinion on harmonization with the Annual Report 9. The Company s Management Board is responsible for preparation of the Company s Annual Report. As a result of the provisions of Article 17 of the Accounting Act we have an obligation to express an opinion regarding the harmonization of the Company s Annual Report with Annual Financial Statements of the Company. In our opinion, based on the performed audit of the Company s Annual Financial Statements and comparison with the Company s Annual Report for the year ended on December 31, 2013, the financial information provided in the Company s Annual Report, which were approved for publication by the Company s Management Board on April 3, 2014, were derived from the financial information provided in the Company s Annual Consolidated Financial Statements presented on pages 5 to 88, for which we have given our opinion as stated in the section Qualified opinion above. In Zagreb, 4 April 2014 BDO Croatia d.o.o. Trg J. F. Kennedy 6b Zagreb Ines Rožić, Certified Auditor Zdenko Balen, Member of the Management Board 47

48 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 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 2013 are prepared pursuant to the Accounting Act (Official Gazette no. 109/07, 54/13) and the International Financial Reporting Standards applicable in the European Union, 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 the 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 financial statements; and 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 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, 54/13) and the International Financial Reporting Standards applicable in the European Union. 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 Krešimir Starčević, Chairman of the Management Board CROATIA osiguranje d.d. Miramarska 22, Zagreb, Republic of Croatia 3 April

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 Annual Financial Statements for 2013

50 ANNUAL REPORT / 2013 / 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 Financial statements Statement of Comprehensive Income for 2013 ITEM NOTE In HRK 000 Gross written premiums 2,584,290 2,655,520 Premiums ceded to reinsurance and coinsurance (354,958) (377,966) Premiums ceded to coinsurance 0 (3,951) Written premiums, net of reinsurance 2,229,332 2,273,603 Change in gross provisions for unearned premiums (18,957) 33,237 Change in provisions for unearned premiums, reinsurance share 301 1,009 Earned premiums, net of reinsurance 3 2,210,676 2,307,849 Net income from investment 4 110, ,326 Income from commissions and fees 5 22,849 25,361 Other insurance-technical income, net of reinsurance 6 10,785 14,139 Other income 7 49,473 39,595 Total net operating income 2,404,521 2,615,270 Incurred losses (1,514,496) (1,644,143) Reinsurance share 185, ,920 Incurred losses, net of reinsurance 8 (1,328,613) (1,498,223) Sales costs 9 (243,996) (237,413) Managing costs (administrative costs) 10 (736,690) (666,870) Total operating expenditure (expenditure for business operations ), net (980,686) (904,283) Other technical expenses, net of reinsurance 11 (78,028) (71,944) Other expenses, including value adjustments (4,579) (476) Total other expenditure (82,608) (72,420) Profit before taxation 12, ,344 Corporate income tax 12 4,654 (21,919) Current year profit 17, ,425 Other comprehensive income/loss Items which will not be reclassified to profit or loss Value impairment of revaluated real estate (432,794) 1,338 Corporate income tax for items which will not be reclassified to profit or loss 86,964 0 Items which will not be reclassified to profit or loss, total (345,830) 1,338 Items which will subsequently be reclassified to profit or loss Profit/(Loss) from change of fair value of financial assets available for sale 45,661 (7,685) Corporate income tax on items which will be reclassified to profit or loss (2,318) 0 Items which will be reclassified to profit or loss, total 43,343 (7,685) Total other comprehensive income/loss for the year (302,487) (6,347) Total comprehensive income/loss (285,219) 112,078 Earnings per share belonging to shareholders of the Parent Company Basic and diluted earnings per share in HRK Notes given on pages 51 to 134 comprise an integral part of these Financial Statements. 51

52 ANNUAL REPORT / 2013 / 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 Financial Position as at 31 December 2013 ITEM NOTE 31 Dec Dec 2012 In HRK 000 Assets Intangible assets 14 14,771 11,486 Real estate, plants and equipment ,997 1,173,893 Investments in real estate , ,381 Investments in subsidiaries and associates and participation in joint ventures , ,345 Held-to-maturity investments 18 2,638,864 2,167,298 Financial assets available for sale , ,827 Financial assets at fair value through P&L Account , ,269 Loans and receivables 18 1,085,976 1,011,977 Reinsurance share in technical provisions , ,294 Deferred tax assets 20 46,270 16,615 Receivables arising from insurance contract , ,838 Other receivables , ,492 Cash and cash equivalents , ,255 Total assets 7,978,395 8,154,970 Off-balance sheet items 1,195,118 1,050,375 Capital and reserves Subscribed capital 442, ,887 Reserves 508, ,084 Revaluation reserves 137, ,056 Retained profit 359, ,148 Current year profit 17, ,425 Total capital and reserves 24 1,466,576 1,751,600 Liabilities Technical provisions 25 5,639,008 5,732,169 Provisioning , ,649 Deferred tax liability 27 34, ,452 Financial liabilities ,057 50,085 Liabilities arising from insurance contract , ,688 Other liabilities , ,327 Total liabilities 6,511,819 6,403,370 Total capital and reserves, and liabilities 7,978,395 8,154,970 Off-balance sheet items 31 1,195,118 1,050,375 Notes given on pages 51 to 134 comprise an integral part of these Financial Statements. 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 Statement of Changes in Equity in 2013 SHARE CAPITAL ISSUED REVALUATION RESERVES LEGAL RESERVES STATUTORY RESERVES OTHER RESERVES RETAINED PROFIT CURRENT YEAR PROFIT TOTAL CAPITAL AND RESERVES In HRK 000 Balance as at 1 January , ,091 19,642 94, , ,973 78,667 1,641,085 Correction of errors from previous period (583) 0 (583) Payment of dividend (980) (980) Distribution of profit 0 0 3,933 18, ,070 (77,687) 0 Transfer to retained profit 0 (6,688) , Current year comprehensive income 0 (6,347) , ,078 Balance as at 31 December , ,056 23, , , , ,425 1,751,600 Correction of errors from previous period , ,175 Payment of dividend (980) (980) Distribution of profit , ,839 (117,445) 0 Transfer to retained profit 0 (6,715) , Current year comprehensive loss 0 (302,487) ,268 (285,219) Balance as at 31 December , ,854 23, , , ,877 17,268 1,466,576 Cash Flow Statement for 2013 indirect method ITEM In HRK 000 CASH FLOW FROM OPERATING ACTIVITIES Profit before tax 12, ,344 Depreciation of real estate and equipment 41,219 44,218 Amortization of intangible assets 4,872 3,595 Value impairment and profit/loss from reduction to fair value 106,775 80,563 Net exchange rate differences (21,459) (6,936) Interest expense Interest income (207,790) (220,369) Share in profit of associates (46,159) (61,986) Profit/loss from sale of tangible assets (including land and buildings) (5,257) (26,728) Cash flows before changes in operating assets and liabilities (114,956) (47,271) Financial assets at fair value through P&L Account 134,875 (350,875) Loans and receivables 0 10,416 Reinsurance share in technical provisions 22,308 62,641 Receivables arising from insurance contract (11,331) 52,613 Other receivables 57,683 (164,210) Technical provisions (93,161) 9,610 Provisioning 6,587 18,155 Liabilities arising from insurance contract 2,764 (2,023) Other liabilities (62,206) 176,628 Collected interest 207, ,369 Paid interest (229) (28) Paid corporate income tax (37,146) (28,168) Net cash flow from operating activities 227,934 5,128 Notes given on pages 51 to 134 comprise an integral part of these Financial Statements. 53

54 ANNUAL REPORT / 2013 / 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 In HRK 000 CASH FLOW FROM INVESTMENT ACTIVITIES Receipts from sale of tangible assets 7,836 38,968 Expenditure for purchase of tangible assets (41,219) (44,218) Expenditure for purchase of intangible assets (8,157) (7,965) Expenditure for purchase of land and buildings not used for the company's business operations (39,238) Receipts from disposal of assets available for sale ,136 Receipts from disposal of investments in subsidiaries and associates and participation in joint ventures 64,356 0 Expenditure for held-to-maturity investments (471,566) (158,091) Receipts from dividends and share in profit 71,435 61,999 Receipts from repayment of given short-term and long-term loans 231, ,522 Expenditure for given short-term and long-term loans (313,796) (195,313) Net cash flow from investment activities (459,405) 81,800 CASH FLOW FROM FINANCIAL ACTIVITIES Cash receipts from received short-term and long-term loans 470,234 50,031 Cash expenditure for repayment of received short term and long term loans (170,492) (79) Cash expenditure for payment of share in profit (dividend) (1,000) (990) Net cash flow from financial activities 298,742 48,962 NET CASH FLOW (47,685) 88,619 EFFECTS OF FOREIGN CURRENCY EXCHANGE RATE FLUCTUATIONS ON CASH AND CASH EQUIVALENTS (21,450) (6,936) NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS (69,135) 81,683 Cash and cash equivalents in the beginning of period 290, ,572 Cash and cash equivalents at the end of period 221, ,255 NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS (69,135) 81,683 Significant non-cash transactions during the year pertain to the acquisition of real estate amounting to HRK 74,334 thousand (2012: HRK 147 thousand) in exchange for uncollected receivables from loans and premium. Notes given on pages 51 to 134 comprise an integral part of these Financial Statements. 54

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 Notes to financial statements for the year ended on 31 December General information about the Company 1.1. Legal framework, business activities and employees CROATIA osiguranje d.d., Zagreb, Miramarska 22 (the Company) is entered in the Court Register at the Commercial Court in Zagreb under the Company Registration Number ( MBS ) , and PIN The primary business activity of the Company is non-life and life insurance. The Company s equity is HRK 442,887,200.00, and it is divided into 316,348 shares of par value of HRK 1, All shares are initial public offering shares and they are marked as follows: 307,598 are ordinary shares marked CROS-R-A 8,750 are preference shares marked CROS-P-A. Each share, ordinary or preference, entitles to 1 (one) vote in the Company s 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 Inc. Since 2004 the Company s shares have been listed in the first listing of the Zagreb Stock Exchange, Zagreb, and the trading started with the shares of the Company as the first joint stock company in the Republic of Croatia in majority ownership of the state. On 31 December 2013 the Company had 2,715 employees (as at 31 December 2012 there were 2,827 employees). STRUCTURE 31 Dec Dec 2012 PhD or MS/MA degree University qualifications Two-year college degree Secondary school education 1,348 1,448 Lower education TOTAL 2,715 2,827 55

56 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 1.2. 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 13 branch offices which cover the entire territory of the Republic of Croatia. 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. In 2013 small branch offices in Čakovec and Koprivnica were annexed to the office in Varaždin; Gospić and Šibenik branch offices were annexed to Zadar office; Bjelovar and Virovitica to Kutina, Vinkovci to Osijek, Požega to Slavonski Brod, and Karlovac and Sisak branch offices were annexed to greater Zagreb area Velika Gorica. The branch offices of the Company operate under the name branch office with the town of the branch office indicated Company's Bodies The Company's bodies are the General Assembly, the Supervisory Board and the Management Board. Supervisory Board Mladen Blažević Vesna Trnokop Tanta Josip Tica, PhD Đurđa Hunjet Petar Miladin, PhD Miroslav Hrašćanec Management Board Krešimir Starčević Ivan Fabijančić Chairman of the Supervisory Board Deputy Chairwoman of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Chairman of the Management Board Member of the Management Board The amount of remuneration to members of the Management Board and Supervisory Board are given in Note 32. /i/ to the Financial Statements. 56

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 2. Summary of significant 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 Statement of Compliance and basis of presentation Financial statements for the Company for 2013 have been prepared in accordance with the Accounting Act (Official Gazette No. 109/07, 54/13) and the International Financial Reporting Standards (IFRS) which are effective in the European Union and in accordance with the Ordinance on structure and content of financial statements for insurance companies and reinsurance companies (Official Gazette No. 132/10, 39/2012). IFRS published by the Financial Reporting Standards Board appointed by the Government of the Republic of Croatia (Official Gazette 136/09, 8/10, 18/10, 27/10, 65/10, 120/10, 58/11, 140/11, 15/12, 118/12, 45/13, 69/13), which were effective prior to the Croatian accession to the European Union, comply with the applicable IFRS in the European Union. As a parent company, the Company also prepares consolidated financial statements, which are presented and audited separately. The present financial statements of the Company are financial statements of the Company viewed as a separate entity. These separate financial statements have been prepared in accordance with the legal obligation of the Company to do so. However, in order to fully understand the company's business operations, the separate statements should be read in conjunction with the consolidated financial statements Preparation basis Financial statements have been prepared by applying the fundamental accountancy assumption under which the effects of transactions are recognized at the moment of occurring and they are presented in the financial statements for the relevant period to which they pertain, and under the going concern principle. Financial statements have been prepared on the basis of historical or amortized cost, except for the following assets and liabilities which are presented at fair value: financial assets initially set out at fair value through Profit and Loss Account, financial assets available for sale and investments into real estate Adoption of 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, which were adopted in the Republic of Croatia, are effective for the current period: IFRS 13 Fair Value Measurement, published in May 2011 (effective for periods beginning on or after 1 January 2013), 57

58 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 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 January 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 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 postemployment benefits (effective for periods beginning on or after 1 January 2013); IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine (effective for periods starting on or after 1 January 2013); 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 adoption of IFRS 13 Fair Value Measurement has led to the disclosure of information in financial statements in more detail. The International Financial Reporting Standard 13 Fair Value Measurement (IFRS 13) improves consistency and reduces complexity by accurately defining fair value and representing a unique source of guidelines for fair value measurement, which are currently parts of different IFRSs. With certain limited exceptions, IFRS 13 is used whenever fair value measurement or fair value disclosure is required or permitted in accordance with other IFRSs. This Standard allows the entities to use average prices or pricing conventions used by other market participants. The adoption of other above-mentioned amendments to the existing standards and interpretations has not led to significant changes in the Company's accounting policies. Issued but still not adopted standards and interpretations On the date of publication of these financial statements, the following standards, revisions and interpretations were issued, but not yet effective: 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 2014), IFRS 11 Joint Arrangements, published in May 2011 and amended in 2012, it replaces prior version of IAS 31 Interests in Joint Ventures (effective for periods beginning on or after 1 January, 2014), 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, 2014), 58

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 IFRS 9 Financial Instruments (effective for periods beginning on or after 1 January 2015), 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 IFRS 1 First-time Adoption of IFRS published in March 2012, regulating exclusion of reclassification demands required by IRFS 9 (effective simultaneously with IFRS 9), Amendments to IFRS 10 Consolidated Financial Statements, published in October 2012, which allow exclusion from preparing consolidated financial statements for entities that meet the requirements of investment entities (effective for periods beginning on or after 1 January 2014), IAS 27 Non-consolidated 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 2014), 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 2014), 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), Amendments to IAS 36 Impairment of Assets published in May 2013, removing uncertainties resulting after the entry into force of IFRS 13, regarding recoverable amount disclosures for nonfinancial assets (effective for annual periods beginning on or after 1 January 2014). Amendments to IAS 39 Financial instruments: Recognition and Measurement published in June 2013, prescribing the options for recognition and measurement of novation of derivatives within hedge accounting (effective for annual periods beginning on or after January 2014). IFRIC 21 Levies published in May 2013, (effective for annual periods beginning on or after January IFRS 9 Financial Instruments replace parts of IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 is obligatory for financial statements prepared for periods beginning on 1 January, 2015, but may be applied before that date. The Standard brings significant changes as regards the classification and measurement of financial assets. The Company has not specified the date for the first application of IFRS 9 Financial Instruments: Classification and Measurement yet Key estimates and uncertainty of estimates In the preparing of the 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. 59

60 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 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 business environment. Key estimates used in the application of accounting policies during preparation of the financial statements pertain to calculation of amortization of long-term intangible assets and depreciation of fixed assets, calculation of premiums and technical provisions, determining fair value of investments in real estate, and presentation of contingent liabilities. Information about the assessments of the Management regarding the application of IFRS, which have a significant impact on the financial statements, and the information about the estimates with a high risk of likely significant adjustment in the next year, is presented in Note Reporting currency The Company s financial statements have been drawn up in Croatian Kuna (HRK) as the Company s reporting currency Foreign currency transactions Foreign currency transactions are converted into functional currency using the exchange rate effective on the transaction day. Monetary assets and liabilities denominated in foreign currency are converted in the functional currency using the exchange rate effective at the reporting day. Non-monetary assets and liabilities denominated in foreign currency and measured at fair value are converted into functional currency using the exchange rate effective on the date on which their fair value is determined. Changes in fair value of monetary securities denominated in or linked to foreign currency that are classified as available for sale, are divided into exchange rate differences arising from changes in amortized cost of securities and other changes in book value of securities. Exchange rate differences resulting from conversion of monetary assets and liabilities are recognized through profit or loss, and are presented within financial income or financial expenses. On 31 December 2013 the official exchange rate of the Croatian Kuna was 7.64 for one EUR (7.55 as at 31 December 2012) and 5.55 for one USD (5.73 as at 31 December 2012) Gross written premium /i/ /ii/ 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. Non-life insurance gross written premiums include all gross premiums written in the accounting period, whose beginning of insurance year falls within the accounting period, irrespective of the fact whether they pertain in whole or in part to later accounting periods. The premiums are presented 60

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 in gross amounts, that is, they include brokers commissions, but exclude taxes and charges levied with premiums. Written premiums include the adjustment of the premium written in the prior accounting periods as well as estimates of premiums written at the end of the period. Written premiums, that is, gross written premiums and unearned premiums include adjustments for the write-off of receivables from policyholder as a result of insurance termination. Net impairment losses on receivables for premium of the insured party are recognized as a deduction. The earned portion of received premiums is recognized as income. Premiums are earned from the date of the risk occurrence during the insurance period, based on the assumption of risk patterns. /iii/ Life insurance gross written premiums include all amounts of premiums collected until the end of the accounting period. In accordance with the exception permitted by IFRS 4, life insurance premiums are recorded in books on a cash basis. Supplemental insurance premiums are also recorded on a cash basis Investment income and expenses /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 sales of investment, 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. Interest income 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 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 financial income is described in Note 3.7 Financial assets. /ii/ Investment expenses include interest expenses, investment value adjustment (impairment) costs, losses realized on the sale of investments, net negative exchange rate differences and other investment expenses Incurred claims Incurred claims include all settled amounts for claims in the accounting period, irrespective of the accounting period in which they were incurred, net of the reinsurance portion in claims, collected recourses, sold and saved portions and gross of claims provisions at the end of the accounting period but net of claims provisions at the beginning of the accounting period. In addition to net settled claims, gross settled claims amounts include the costs related to claims settlement (appraisals, attorneys fees and alike), surrenders and recourse claims expenditures. 61

62 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 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 material and non-material costs Intangible assets Long-term intangible 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 bringing them in an operating condition for their intended use. The long-term intangible 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 3,500. After the initial recognition, assets are presented at their purchase cost less accumulated amortization and accumulated impairment losses. Amortization of assets starts when the assets are ready for use, i.e., situated at the location and in adequate necessary conditions for use. Amortization of assets ceases when the assets are fully amortized or classified as the assets intended for sale. Amortization is calculated by writing off the purchasing cost of each particular asset during the estimated useful life of the asset, by applying the straight-line method. The estimated useful life of intangible assets is 4 years Real estate, plants and equipment Real estate, plants and equipment are initially presented at purchase costs that comprise the purchase price, including import fees and non-refundable taxes after deducting trade discounts and rebates, as well as all costs directly related to transfer of the assets to the location and bringing them to an operating condition for their intended use. Real estate, plants and equipment 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 the individual asset purchase value exceeds HRK 3,500. 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 recognized directly to comprehensive income. The revaluation is performed regularly, so the booking amount does not differ significantly from the amount arrived at by determining fair 62

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 value on the date of the balance sheet. In 2013 the company carried out the fair value assessment of these assets. Previous such assessment was carried out in After the initial recognition, plant and equipment are measured at their purchase cost less accumulated depreciation and accumulated impairment losses. 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 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., when they are situation at the location and in adequate necessary conditions for use. Depreciation of assets ceases when the assets are fully depreciated or classified as the assets intended for sale. Depreciation is calculated by writing off the purchasing cost of each particular asset, apart from land and tangible assets in preparation, during the estimated useful life of the asset, by applying the straight-line method as follows: Buildings Furniture and equipment Computer equipment Vehicle Estimated useful life 40 years 4 10 years 3 years 5 years Investment in real estate Investment in real estate (land, buildings) not intended for business activities that are owned by the Company or under a finance lease and that are kept in order for the Company to earn rental income and/ or because of the increase in the market value of assets, are measured at fair value through the Profit and Loss Account. The Company measures the fair value of its investment in real estate at the end of each accounting period, and such measurement is based on the appraisal by a hired appraiser. Due to a significant value impairment based on the appraisal of the real estate at the location in Kneza Borne street, for which revaluation reserves existed at the time of its classification as investment in real estate, the Company recognized the established impairment within the comprehensive income. Subsequent expenditure is capitalized only when it is likely that the Company will gain economic benefit from it and if the cost can be measured reliably. All other repair and maintenance costs are recognized as profit or loss at the time of their occurrence. If the Company itself begins to utilize the abovementioned real estate, it will be reclassified as property and equipment, and its book value on the date of reclassification will become the assumed cost amount to be amortized subsequently. 63

64 ANNUAL REPORT / 2013 / 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 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 Long-term assets intended for sale Long-term (fixed) assets held for sale and assets of disposal group (which can include long-term and shortterm assets) are classified in the Statement of Financial Position as Fixed assets intended for sale if their book value is expected to be recovered through sale rather than continuing use over the period of 12 months from the date of the Balance Sheet. The assets are reclassified when all requirements from IFRS 5 Long-term Assets Held for Sale and Discontinued Operations have been met. Long-term assets held for sale or a group of assets intended for disposal as a whole are measured at the book value or at fair value less costs to sell, whichever is lower Financial instruments /i/ Classification and recognition The Company classifies its financial instruments in the following categories: financial assets at fair value through profit or loss, loans and receivables, financial assets available for sale, held-to-maturity investments and other financial liabilities. The classification depends on the purpose for which the financial assets and liabilities have been acquired. The management determines the classification of financial assets and financial liabilities at initial recognition and, where appropriate, re-assesses it on each reporting date. Financial assets and financial liabilities at fair value through profit or loss Financial assets and financial liabilities at fair value through profit or loss are those that are classified as assets and liabilities held for trading or those that the Company initially classified at fair value through profit or loss. Assets and liabilities held for trading include assets and liabilities acquired by the Company or existing primarily for trading or re-purchasing in a short period of time, or held as a part of portfolio managed for the purpose of a short-term acquisition of profit or item. The Company classifies financial assets and liabilities in the category at fair value through profit or loss when: assets and liabilities are managed, assessed and reported internally at fair value; the classification removes or significantly reduces the accounting discrepancies that would otherwise arise; or 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 assets and liabilities include an embedded derivative that significantly affects cash flows that would otherwise arise from the contract. Financial assets at fair value through profit or loss include state bonds, investments in funds, shares and commercial bills. Derivatives are classified as assets held for trading. On the day of reporting, the Company s derivative financial instruments amounted to HRK 50,000. The Company does not use hedge accounting. Loans and receivables Loans and receivables include non-derivative financial assets with fixed and determinable payments which are not listed in an active market, except those: that the entity intends to sell immediately or in a short period of time and that will be classified as financial assets held for trading, and that which the Management classifies at initial recognition as assets at fair value through profit or loss; that the entity, upon initial recognition, classifies as available for sale; or for which it is unlikely that the entity will recover the larger portion of the initial investment value, except in the case of credit rating deterioration, and which will be classified as available for sale. Loans and receivables are created when the Company approves financial resources to clients without the intention to trade in such receivables, and they include deposits with credit institutions, mortgage loans and advances given to the insured parties from mathematical provisions for life insurance. Accounting of receivables arising from insurance contracts is carried out in accordance with IFRS 4 Insurance Contracts. Held-to-maturity financial assets Held-to-maturity financial assets 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. Held-to-maturity investments include state and corporate bonds with fixed income. Financial assets available for sale Financial assets available for sale are those non-derivative financial assets that are classified in this category or those not classified in any other category. Financial assets classified as available for sale are intended to be held for an indefinite period. However, they may be sold so as to maintain liquidity or in the event of changes in interest rates, exchange rates or prices of equity instruments. Other financial liabilities Other financial liabilities include all financial liabilities that are not classified in the category at fair value through profit or loss. On the reporting date the Company had no financial liabilities at fair value through profit or loss, except for liabilities for unit-linked products. Accounting of liabilities arising from insurance contracts is carried out in accordance with IFRS 4 Insurance Contracts. 65

66 ANNUAL REPORT / 2013 / 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/ Recognition and cessation of recognition Regular purchases and sales of financial assets at fair value through profit or loss, held-to-maturity investments and investments available for sale are recognized on the trading date, that is, the date on which the Company commits to purchasing or selling the instrument in question. Loans and receivables as well as financial liabilities are initially recognized on the date of occurrence, that is, on the day they are advanced to borrowers or received from lenders. The Company ceases to recognize financial assets (in whole or in part) when the rights to cash flows from the financial assets expire or when it loses control over contractual rights to such financial assets. This occurs when the Company essentially transfers all equity risks and benefits to another business entity, or when the rights are exercised, surrendered or expired. The Company ceases to recognize financial liabilities only when they cease to exist, that is, when they are met, cancelled or expired, or when they are transferred. Should the terms of financial liabilities change, the Company shall cease to recognize that particular liability and at the same time recognize a new financial liability, with new terms. Initial and subsequent measurement Financial assets and liabilities are recognized initially at fair value gross of, in the case of financial assets and financial liabilities that are not recognized at fair value through profit or loss, transaction costs directly attributable to the acquisition or issue of financial assets or liabilities. After initial recognition, the Company measures financial instruments at fair value through profit or loss, and financial assets available for sale are measured at their current fair value, without deducing sales costs. Equity securities classified as available for sale without a quoted market price in an active market, and with a fair value that cannot be reliably determined, are measured at the sales cost less value impairment. Investments in the shares of the company Uljanik d.d. is measured at the sales cost less value impairment, which is calculated using the discounted cash flow method. Loans and receivables and held-to-maturity investments are measured at amortized cost net of value impairment. Financial liabilities not classified at fair value through profit or loss are measured at amortized cost. Premiums and discounts, including initial transaction costs, are included in the carrying amount of the associated instrument and amortized using the effective interest rate of that instrument. Profits and losses Profits and losses resulting from change of fair value of financial assets or financial liabilities at fair value through profit or loss are recognized through profit or loss. Profits and losses resulting from change of fair value of financial assets available for sale are recognized within other comprehensive income. Impairment losses, foreign exchange differences, interest income, which include amortization of premium or discount using the effective interest method, are recognized in either profit or loss for the monetary assets available for sale. Exchange rate differences resulting from revaluation of non-monetary financial assets denominated in or linked to foreign currency that are classified as available for sale are recognized within other comprehensive income, along with all other changes in 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 their fair value, whereas income earned from dividends is recognized through profit or loss. Upon sale or any other cessation of recognition of financial assets available for sale, any cumulative profits or losses are transferred from other comprehensive income to profit or loss. Profits and losses resulting from financial instruments measured at amortized cost may also result from the cessation of recognition or from financial instrument value impairment and are recognized through profit or loss. In addition to profits and losses resulting from changes of fair value of assets available for sale, which are recognized within other comprehensive income, as described above, all other profits and losses as well as interest are recognized through profit or loss under Financial income and Financial expenses. Fair value measurement principles The fair value of financial assets and liabilities at fair value through profit or loss and financial assets available for sale is their quoted market price at the reporting date without deducing sale costs. If the financial assets market (including the unlisted securities market) is not active, or if, for any other reason the fair value cannot be reliably measured on the basis of the market price, the Company determines the fair value based on observed prices (prices of similar or identical items), and when this is not available, it applies various estimation techniques that use all relevant information and inputs that can help in estimating the fair value. This includes the use of prices attained in recent transactions between informed and willing parties, reference to other essentially similar instruments, discounted cash flow analysis and option pricing models, making maximum use of market information and relying on the specific characteristics of the entity as little as possible. Where discounted cash flow techniques are used, estimated future cash flows are based on management's best estimates and the discount rate is the market rate effective at the reporting date and used for financial instruments with similar conditions. Where pricing model is used, the market related rates effective at the reporting date are used. /iii/ Value impairment of financial assets The Company checks on each reporting date whether there is objective evidence indicating the value impairment of financial assets not classified as financial assets at fair value through profit or loss. The value impairment of financial assets is carried out if there is objective evidence indicating an occurrence of the event that caused value impairment after the initial recognition of the assets, and if such event may affect future cash flows from the assets which can be reliably estimated. The Company takes into account the evidence of impairment for both a specific asset and at group level. All individually significant financial assets are checked for value impairment. All individually significant financial assets where value impairment has not been identified are included in the basis for checking value impairment at group level for impairment that has occurred but has yet to be identified. Assets that are not individually significant are assessed for value impairment by grouping together financial assets (presented at amortized cost) on the basis of similar risks. Objective evidence of impairment of financial assets (including equity securities) includes default or delinquency by a borrower, restructuring of loans or advances by the Company on terms that the Company would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the 67

68 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / disappearance of an active market for the security, or other available data relating to a group of assets, such as adverse changes in the payment status of borrowers or issuers within the group, or economic conditions that are connected with defaults within the group. For the purposes of assessing value impairment at group level, the Company relies on historical experience in terms of loss rates, periods of loss recognition, adjusted for the purposes of the Management's assessment as to whether current economic and credit conditions are such that the actual losses may be higher or lower than before. Loss rates and the expected recognition period are reviewed regularly. The loss incurred by impairment of assets which are presented at amortized cost is calculated as the difference between the book value of those financial assets and the current value of expected cash flows discounted by applying the original effective interest rate for those assets. Losses are recognized through profit or loss and reflected in impairment provisions. Interest on impaired assets is recognized as discount amortization and at collection of payment. In the case of equity investments classified as available for sale, a significant or prolonged fair value impairment of the investment that is below the sales cost is taken into account for the establishment of value impairment. If any such evidence exists for financial assets available for sale, the cumulative loss, calculated as the difference between the sales cost and fair value, less any loss from value impairment of that financial asset that was previously recognized in profit or loss, is transferred from other comprehensive income and recognized in profit or loss. Losses resulting from value impairment that are recognized in profit or loss in equity securities are not cancelled through profit or loss, but all value improvements up to the final sale are recognized in other comprehensive income. If a subsequent event results in the decrease in the amount of value impairment loss for financial assets that are presented at amortized cost and for debt securities available for sale, the previously recognized impairment loss is reversed and recognized through profit or loss. Changes in the amount of value adjustment of impairment related to the time value of money are recognized as a component of interest income. /iv/ Specific instruments Debt securities Debt securities are classified as held-to-maturity investments or financial assets at fair value through profit or loss, depending on the purpose for which the debt security has been acquired. Loans and receivables from banks Deposits with banks are classified as loans and receivables and valued at amortized cost less value impairment losses. Equity securities Equity securities are classified as assets at fair value through profit or loss or as financial assets available for sale and measured at fair value, unless it is impossible to reliably establish the fair value (as described above) when they are measured at sales cost less any value impairment. 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 Loans and receivables from policyholders Loans and receivables from policyholders are presented in the net amount less the loss resulting from value impairment to reflect the estimated recoverable amounts. Investments in funds Investments in open-end funds are classified as financial assets at fair value through profit or loss or as financial assets available for sale and they are measured at current fair value. Investments for the account and risk of life insurance policyholders Investments for the account and risk of life insurance policyholders include investments in unit-linked products and are classified as financial assets at fair value through Profit and Loss Account. Receivables from insurance and other receivables Receivables from direct insurance and other receivables are recognized initially at fair value and subsequently at amortized cost less value impairment. Liabilities towards suppliers and other liabilities Liabilities towards suppliers and other liabilities are recognized initially at fair value and subsequently at amortized cost. Embedded derivatives within insurance contracts and investment contracts Sometimes, derivatives may be a component of a hybrid (combined) financial instrument or insurance contract that includes both the derivative and the host contract with the effect that some of the cash flows of the hybrid instrument vary analogously to a stand-alone derivative. Such derivatives are sometimes referred to as embedded derivatives. Embedded derivatives are separated from the host contract and measured at fair value, whereas the changes in the value of embedded derivatives are included in profit or loss, provided that the following conditions are met: the economic characteristics and risks of embedded derivatives are not closely connected with the economic characteristics and risks of the host contract, a separate instrument with the same characteristics as those of the embedded derivative would satisfy the definition of a derivative, the hybrid instrument is not measured at fair value and the changes in its fair value are not recognized in the Profit and Loss Account. Embedded derivatives that meet the definition of an insurance contract need not be separated from the host contract. Furthermore, the Company has used the exemption provided in IFRS 4, "Insurance Contracts": it does not separate or measure at fair value the option of the policyholder to repurchase the insurance contract at a fixed price (or the amount based on the fixed amount and interest rate), even if the price is different from the book value of insurance liability in the host contract, it does not separate or measure at fair value the option of the policyholder to repurchase the contract with discretionary participation features. 69

70 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Offsetting of financial instruments Financial assets and liabilities are offset and presented in the financial statement on a net basis when there is a legally enforceable right to offset the recognized amounts and an intention to settle on a net basis, or the acquisition of assets and settlement of liabilities take place simultaneously 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 2.7 Gross written premiums. /ii/ /iii/ /iv/ 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 the due date of which was 180 days prior to the balance sheet date. Value adjustment can be decreased for receivables which are used as basis for payment of claim to the debtor (provision for claims). 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 where 180 days passed from 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 Cash and cash equivalents and short-term deposits Cash refers to balances at banks. Cash equivalents are short-term, high-liquidity investments that can be converted at any time into known amounts of cash and are not exposed to significant changes in value. The carrying amounts of cash and cash equivalents generally approximate their fair value. For the purposes of reporting on cash flow, cash and cash equivalents refer to money at bank and in hand, as well as deposits with maturity up to three months Corporate income tax Tax expenditure for corporate income tax comprises current and deferred tax liability. Current tax Currently tax liability is based on taxable profit for the year. The taxable profit differs from the profit for the period that is reported in the comprehensive income statement as it excludes both the income and expenses items that are taxable or deductible in other years, and items that are never taxable or 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 deductible. The current tax liability of the Company is calculated using effective tax rates or those that will become effective by the end of the reporting period. Deferred tax ODeferred tax is the amount which represents an expected liability or return based on the difference between carrying value of assets and liabilities in financial statements and accompanying tax basis which is used for calculation of taxable profit. Deferred tax liability is calculated by using the balance sheet method. Deferred tax liabilities are generally recognized for all taxable temporary differences, whereas deferred tax assets are recognized to the extent that taxable profit is likely to be available, on the basis of which it is possible to take advantage of the temporary deductible differences. Deferred tax liabilities and tax assets are not recognized if the temporary difference arises from goodwill or from the initial recognition of other assets and liabilities, except in case of a business merger, in transactions that affect neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognized on the basis of revaluation of land and buildings and of financial assets available for sale. The book amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent where it is no longer likely that a sufficient amount of taxable profit will be available for the return of tax assets in whole or in part. Deferred tax is calculated at tax rates that are expected to be applicable in the period in which the settlement of liability or the realisation of funds will occur, based on effective tax laws or those that will become effective by the end of the reporting period. The calculation of deferred tax liabilities and assets reflects the amount that is expected to be recovered or settled at the reporting date. Deferred tax assets and liabilities are not discounted and they are classified as long-term assets and/or liabilities. Current and deferred tax for the period Current and deferred tax is debited or credited to the Profit and Loss Account, except when it pertains to items directly debited or credited to the principal, in which case the deferred tax is also presented within the principal 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 profit and current year profit. /i/ /ii/ Subscribed capital represents the indivisible share capital of the Company, paid in full. Revaluation reserve Revaluation reserve includes profits from the revaluation of real estate, net of taxes. Revaluation reserve is transferred directly to retained profit in proportion to the depreciation of the asset. Revaluation reserves from financial assets available for sale include unrealized profits and losses resulting from changes in fair value of financial assets available for sale, net of tax. /iii/ Allocations to statutory reserves, legal reserves, other reserves and retained profit are regulated by the Decisions of the Company s General Assembly. 71

72 ANNUAL REPORT / 2013 / 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/ Current financial year income is presented according to the balance as at 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, fluctuation provisions and other insurance-technical provisions. They are formed in accordance with the Ordinance on minimum standards, methods of calculating and guidelines for calculating technical provisions in insurance. 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 by using the prospective net method in accordance with legal regulations and Ordinances of HANFA. /iii/ Claims provisions Claims provisions contain provisions for reported claims, provisions for incurred but not reported claims, provisions for costs of processing claims, and the share of reinsurance in such provisions. Provisions for reported claims are determined by individual assessment. Actuarial methods are applied upon determining provisions for the costs of processing claims and for incurred but unreported claims. The reinsurance share in provisions is determined in accordance with reinsurance contracts. /iv/ Fluctuation provisions Fluctuation provisions shall be calculated for credit insurance business. For other insurance types the forming of fluctuation provisions is not mandatory. /v/ Other insurance-technical provisions Other insurance-technical provisions are created for the risk of earthquake and risks which have not expired. Provisions for earthquake risk are created in consideration of foreseeable future liabilities and risks of major claims resulting from earthquake insurance. 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 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 insurance. On the basis of liability adequacy test the company has identified the need to create reserves for unexpired risks of non-life insurance in the amount of HRK 25.2 million 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 Reinsurance The Company cedes premiums to reinsurance in the regular course of business for the purpose of limiting its net loss potential through risk diversification. Reinsurance contracts do not relieve the Company from its direct obligations to policyholders. Premiums ceded and recoverable amounts are presented through profit or loss on a gross basis. Only the contracts that give rise to a significant transfer of insurance risk are accounted for as reinsurance contracts. Amounts recoverable under such contracts are recognized in the same year as the corresponding claim. Contracts, through which significant insurance risk (financial reinsurance) is not transferred, are recorded in the books as deposits. During 2013 and 2012, the Company did not conclude any such contracts. Reinsurance assets include amounts receivable from reinsurance companies for ceded insurance liabilities. Receivables from reinsurers are estimated in a manner consistent with the provisions for unpaid claims and claims paid by reinsured policies. Reinsurance assets include the actual or estimated receivables from reinsurers in respect of technical provisions. Reinsurance assets relating to technical provisions are created on the basis of the terms of reinsurance contracts and measured on the same basis as the corresponding reinsured liabilities. Reinsurance receivables are assessed for value impairment on each reporting date Liabilities and related assets under liability adequacy test IFRS 4 provides for the implementation of mandatory liability adequacy test under the insurance contract. On each reporting date the Company estimates whether its reported insurance liabilities are adequate, using current estimates of future cash flows for all its insurance contracts. Should the above assessment show that the book value of insurance liabilities is insufficient in relation to the estimated future cash flows, the shortage is recognized either as debited or credited in its entirety. Estimates of future cash flows are based on realistic actuarial assumptions, taking into account historical experience of the occurrence of claims Other liabilities /i/ /ii/ 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. 73

74 ANNUAL REPORT / 2013 / 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 liabilities pertain to liabilities toward domestic suppliers, liabilities under received advance payments, liabilities towards employees, commission liabilities and alike Employees' earnings and pensions plans Salaries, taxes and contributions from salaries and to salaries are accrued as the costs of the period in which an employee worked. The Company has no pension arrangements other than those in the pension system of the Republic of Croatia. The Company is required to pay contributions in accordance with applicable laws. These costs are part of operating costs in the Profit and Loss Account 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) and stimulation severance pays within the redundancy plan. 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 Value impairment The net book value of the Company's assets, other than financial assets (see accounting policy 2.16) and corporate income tax (see accounting policy 2.19), are reviewed on each reporting date to determine whether there is any indication of value impairment. If any such indication exists, the recoverable amount of the asset is assessed. For intangible assets with no finite useful life (the Company had no such assets on the date of reporting) and intangible assets not yet in use, the recoverable amount is estimated on each reporting date. Value impairment loss is recognized whenever the book value of an asset or a cash-generating unit exceeds its recoverable amount. The cash generating unit is the smallest recognized group of assets that generates cash flows that can be identified separately from those for other assets and groups of assets. Value impairment loss is recognized in profit or loss. Exceptionally, the impairment of real estate measured by using the revaluation model is debited to revaluation reserves, if any, and the remaining amount of the impairment after these reserves have been exhausted is recognized in profit or loss for the period. The recoverable amount of assets and of cash-generating unit is the value of the asset in use or fair value less costs to sell, whichever is higher. The value in use is estimated by discounting the expected future cash flows to their present value, using a discount rate before taxes, which reflects current market assessments of the time value of money and the risks specific to the asset. 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 The value impairment loss recognized in prior periods is assessed on each reporting date in order to establish whether the loss has decreased or no longer exists. The value impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. The value impairment loss is reversed only to the book amounts of assets, net of accumulated depreciation that would have been calculated if the value impairment loss had not been recognized 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. 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 preference shares divided by the weighted average of ordinary shares (without treasury shares) Classification of contracts Contracts through which the Company undertakes significant underwriting risk on behalf of the other party (policyholder) by accepting to indemnify the policyholder or another insurance beneficiary, if a particular future event occurs (insured event) which has a negative effect on the policyholder 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 policyholder to the Company is not significant are classified as investment contracts Segment reporting A business segment is an integral part of the Company that carries out business activities from which it can earn income or have expenses incurred, including income and expenses relating to transactions with other constituents of the Company, whose business results are regularly reviewed by the chief operating decision maker. The review is carried out in order to make decisions about resources to be allocated to a particular segment and to assess its performance, and for which there is separate financial information. The primary 75

76 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / format of the Company for segment reporting is business segments that include life insurance and non-life insurance segments. The distribution of costs between life and non-life insurance segments Investment income, realized and unrealized profits and losses, expenses and compensations arising from nonlife insurance, are distributed to the non-life segment. Investment income, realized and unrealized profits and losses, expenses and compensations related to life insurance are included directly in the life insurance segment. Income and expenses from investments, realized and unrealized profits and losses, expenses and compensations arising from the investment of capital and reserves are distributed to life and non-life segments depending on the allocation of the related assets. Throughout the year, direct administrative costs are directly debited to life and non-life insurance segments. For administrative expenses that cannot be directly distributed, the cost by apportionment formula (based on gross written premiums) is distributed between the life and non-life insurance segments. Advertising and marketing costs are directly distributed to either the life or non-life insurance segment, depending on the insurance product that they refer to. Commissions are recorded separately to the life and non-life insurance segments. A significant portion of personnel costs is distributed directly to life and non-life insurance segments. If personnel costs cannot be directly distributed to a particular segment, the apportionment formula is used. Allocation of capital, reserves and assets Real estate and equipment, intangible assets and investment in real property are allocated to the non-life segment. Financial investments are allocated in accordance with sources of funding. Capital and reserves are allocated in the manner that the subscribed share capital is allocated in accordance with the statutory requirements pertaining to minimum capital, whereas the surplus is allocated to the non-life segment. Provisions are allocated according to the source of related financial assets while the legal and other provisions are allocated to each segment based on the results of the related segment. Other receivables and liabilities are allocated to those segments from which they arise 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 2.16./iii/ impairment of financial assets. 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 independently approve a recovery strategy and assessment of realizable cash flows. 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 /ii/ Determining fair value For certain debt and equity securities the Company applies weighted average prices as prescribed by the supervisory body. 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. In the forming of provisions the Company 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. The Company forms provisions for unexpired risks arising from non-life insurance where it is expected that the claims and administrative expenses likely to arise upon the expiry of the financial year for contracts concluded before that date will exceed the unearned premium from such contracts. Expected cash flows relating to claims and expenses are estimated on the basis of experience of the previous contract term and adjusted for significant individual losses which are not expected to recur. The liability adequacy test was performed on all types of insurance. The Management believes that the current amount of provisions is sufficient. Insurance risk management is described in detail in Note 2.36, while the provisions for insurance contracts are analyzed in Note /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 with 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 (as well as all other participants in the motor liability insurance market) 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. 77

78 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / This applies to claims for uninsured vehicles within the Green Card Insurance System. All such claims are paid through the Croatian Insurance Bureau and all Croatian insurance companies fund this institution by market share in the segment of motor liability insurance. The Croatian Insurance Bureau supplies the Company with the provisions for reported claims and a lower boundary for IBNR calculation. An authorized actuary estimates additional amount of IBNR, which refers to a certain liability to be paid from the Guarantee Fund which was not initially included in the recommended minimum amount of IBNR Key accounting estimates in the application of the Company s accounting policies /i/ Classification of financial assets and liabilities Accounting policies of the Company are a framework for initial classification of (under certain conditions) into different accounting categories. When classifying the financial assets and liabilities, the Company establishes that certain instruments are in accordance with the criteria for actual classification provided with accounting policy 2.16 /i/. /ii/ Product classification The Company's accounting policy on the classification of contracts as insurance or investment contracts is provided under Note 2.32 on classification. On the day of reporting, the Company had no insurance products that should have been classified as investment contracts. /iii/ Valuation of financial assets The accounting policies related to the fair value measurement are shown in the accounting policy The Company measures the financial assets using the fair value hierarchy, which is explained in Note Financial risk management. /iv/ Classification and valuation of real estate, investment in real estate Real estate and investments in real estate taken in exchange for uncollectible receivables are initially measured at fair value based on the assessment of the court appointed expert. The management believes that the net book value of real estate and investment in real estate as at 31 December 2013 is recoverable. /v/ Estimated useful life of tangible and intangible assets Depreciation/amortization rates are initially determined according to the best assessment of the useful life of such assets. The Company believes that the applied depreciation/amortization rates reflect the useful life of tangible and intangible assets. /vi/ Decrease of investments in subsidiaries Decrease of investments in subsidiaries is based on management's best estimates on the collection of investment. The recoverable amount is the fair value of the investment less the cost of sales or the value amount of assets in use, whichever is higher. /vii/ Allocation of indirect costs between life and non-life insurance segments Allocation of costs between life and non-life segments is described in Note

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 Underwriting risk management Underwriting risk pertains to the risk that may arise if actual payment of claims and compensations exceed the net book 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 absolute amount of technical provisions wrongly assessed or of having the actual losses vary around the statistical mean value. Non-life insurance sales 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 sales risk includes 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 sales, procedures for approval of transactions which involve new products or which exceed defined limits, through tariff determination, product design and reinsurance management. 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 policyholders 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. Underwriting risk in the Company is monitored by the actuaries within the scope of their tasks and the Risk Management Department, in agreement with them, takes the indicators in order to include the risks in the risk management process at the level of the entire Company. A report on the adequacy of provisions, insurance premium and retention is submitted by the appointed certified actuary. A key aspect of underwriting risk that the Company is exposed to is the degree of underwriting risk concentration which determines the extent to which a particular event or a series of events may affect the Company's liabilities. Such concentration may arise from a single insurance contract or from a number of contracts. An important aspect of the insurance risk concentration is that it may arise from the accumulation of risk through different types of insurance. Non-life insurance The basic indicator of underwriting risk is the relevant claims (loss) ratio. The following tables present claims ratios, cost ratios and combined ratios as well as claims ratio net of reinsurance. 79

80 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Comparison of claims ratio and costs for 2013 and 2012 Life insurance NON-LIFE INSURANCE Relevant claims ratio 50.3% 53.5% Cost ratio 38.3% 33.2% Combined ratio 88.6% 86.7% Relevant claims ratio, net 49.9% 56.6% 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 INCLUDED IN THE TARIFF IS IN THE RANGE OF MATHEMATICAL PROVISIONS* AS AT 31 DEC 2013 in HRK 000 SHARE % MATHEMATICAL PROVISIONS* AS AT 31 DEC 2012 in HRK 000 SHARE % [ 1, 3 > 262, , [ 3, 4 > 988, , [ 4, 5 > 648, , [ 5, 6 ] , TOTAL 1,899, ,868, * Mathematical provision is the mathematical provision for agreed sums and mathematical provision for additional sums The table above 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. Yield on mathematical provision In HRK 000 Average balance of mathematical provision 1,793,730 1,868,421 1,937,766 Yield from investment in mathematical provision 103, , ,297,578 Yield 5.7% 6.0% 6.0% Average yield 5.91% Capital adequacy The current regulatory frame prescribes the manner of calculating the margin of insurance companies solvency based on the larger one of the two criteria: premium or claim criterion Solvency indicator for life insurance % % Solvency indicator for non-life insurance % % 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 The Company maintains the solvency margin in accordance with the legal provisions, as presented in the table above 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 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: a) 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. b) 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 81

82 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 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 6%, depending on the tariff. In case of death and survival, policyholders 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. The Company uses tables on mortality rates for Croatia for the period 2000 to 2002 for the calculation of mathematical reserves. For insurance contracts concluded before 2010 an interest rate of 3.25%, or 3% was used (maximum rate prescribed by HANFA is 3.3%), for insurance contracts concluded in 2010 the interest rate used was 3% or 2.75%, and the rate of 2.75% was used for those concluded after Profit or loss and equity sensitivity to changes in significant variables Profit or loss and insurance liabilities are mainly sensitive to changes in the rate of investment and the rate of costs estimated for the calculation of the liability adequacy. The terms and conditions of insurance contracts that have a significant effect on the amount, duration, and uncertainty of future cash flows The company offers different types of non-life insurance, mainly motor vehicles, property, liability insurance, marine insurance, transport insurance, and accident insurance. The main source of uncertainty affecting the amount and timing of future cash flows arises from the uncertainty of the occurrence of future insured events as well as the uncertainty associated with their amounts. The amount payable under individual claims is limited by the insured amount as established in the insurance policy. Other significant sources of uncertainty related to non-life insurance result from legislation that entitles policyholders to report a claim before the statute of limitation, which occurs three years from the first notification of the claim, but not later than five years from the beginning of the year after the year of occurrence. This stipulation is particularly important in cases of permanent disability under accident insurance, due to difficulties in estimating the period between the occurrence of the accident and the confirmation of permanent consequences thereof. The portfolio of non-life insurance does not include products that warrant unlimited coverage, while the maximum amount for which the insurer may be held liable per each policy due to the occurrence of one loss event is always limited by the contractually agreed insured sum. The exception to this rule is motor vehicles liability insurance in the Green Card Insurance System member states that have unlimited coverage. Since legal provisions in motor vehicles liability insurance prescribe the application of insured sums in the state where the damage occurred, this risk cannot be completely avoided, but it can be transferred through appropriate reinsurance contracts. 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 Features of certain types of insurance, if they are significantly different from those mentioned above, are described below. Motor vehicle insurance The Company s portfolio of motor vehicle insurance includes the compulsory motor vehicles insurance and motor hull insurance. Compulsory insurance covers bodily injury and property damage in Croatia, as well as damage caused abroad by insured drivers who are part of the Green Card Insurance System. Property damage claims and motor hull insurance claims are generally reported and settled within a short period of occurrence of an accident. Reporting and payments relating to bodily injury take longer to complete and are more difficult to assess. Such claims may be paid in full at once or in instalments. The amount of claims relating to bodily injury and related losses of earning are subject to decisions and directives of the Supreme Court that impact judicial practice. Compulsory motor liability insurance is regulated by the Compulsory Traffic Insurance Act. The tariff and minimum insured sums are regulated by the Act. Policyholders are entitled to a bonus in case of nonoccurrence of damages arising from their policies when the requirements are met. All-risk insurance is a standard insurance against damage; compensation of damages is restricted by the insured amount. Property insurance Property insurance is roughly divided into industrial, commercial and personal risks. For industrial risks the Company applies risk management techniques to identify risks and analyze losses and to this end it cooperates with reinsurers. Personal property risks include standard insurance of buildings and their content. Incurred damage is usually reported quickly and can be settled without delay. Liability insurance Liability insurance covers all types of liability and includes public liability, liability towards employees, professional responsibility, which is required by law, and personal liability. Damages incurred within all types of liability insurance are paid on a "loss occurrence principle. Accident insurance Accident insurance is usually sold as a collective insurance and as an additional product of motor liability or motor hull insurance 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. 83

84 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 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 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 resulting directly or indirectly from fluctuations and/or volatility of market prices of property, and it includes currency risk, interest rate risk, position risk of investment in equity securities and the risk of investment in real estate. Market risk is the fluctuation risk of future cash flows fair value of financial instruments resulting from changes in market prices. The Company is exposed to market risk arising from investments or exposure to financial instruments: shares and stakes in companies, units in investment funds, real estate investments, and investments in debt securities that are exposed to interest rate risk. The Company is also exposed to foreign exchange risk arising from open currency positions. The Company is exposed to market risk arising from the following: a) Currency risk 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 investments in debt securities, deposits, loans and other investments, and through premiums, claims and technical provisions 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. The decrease or increase in the rate by 50 bps on financial assets at the reporting date would affect the loss for the period by an increase/decrease in the amount of HRK 9,879 thousand (in 2012: HRK 8,466 thousand). The following analysis shows potential actual developments in key indicators, along with other variables held constant, and the impact on profit and other comprehensive income arising from financial investments. IMPACT ON PROFIT/LOSS AFTER TAX IMPACT ON COMPREHENSIVE INCOME IMPACT ON PROFIT/LOSS AFTER TAX IMPACT ON COMPREHENSIVE INCOME In HRK 000 In HRK 000 Change of exchange rate by +/- 50 bps 9, , Change of exchange rate by +/- 100 bps 18,732 1,027 16,

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 b) Interest rate risk: risk of fluctuation in fair value or cash flows under financial instruments resulting from changes in interest rates in the market. The Company is exposed to the risk of change in interest rates if assets and liabilities fall due in different periods or if interest rate per asset varies throughout different periods in relation to the interest rate per liabilities. The Company s exposure to the market risk of changes in interest rates is concentrated in its investment portfolio. However, this risk is limited because most of the Company s interest-bearing investments on the balance sheet date have either fixed interest rates or interest rates adequate for the Company's liabilities. The Company monitors this exposure by examining the balance of its assets and liabilities. The Company intends to harmonize future earnings from such assets with liabilities under insurance by purchasing state bonds. However, considering the relatively short duration of such bonds and longer period of duration of liabilities under life insurance, the Company is exposed to interest rate risk. The increase in interest rates by 100 bps would result in the change in value of the bond portfolio of financial assets at fair value through Profit and Loss Account by 4.68% and the value of the bond portfolio of investments held-to-maturity by 3.93%, although the method of treatment measuring would not affect the comprehensive income statement. c) Other price-related risks equity securities risk is caused by 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 this risk. The Company's portfolio comprises securities of various issuers, and the concentration risk in any individual company is monitored and limited by legal requirements and the adopted limits. There is a system of quantitative measures based on statistical methods used for the assessment of market risk, which reflect expected losses that may occur under 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 and implemented the VaR value, which it regularly monitors. The Company assesses, or measures, and controls the exposure to market risk by monitoring exposure to investment, establishing the limits and powers of investment, and through a series of statistical and other quantitative risk measures. The comprehensive system of market risk management is prescribed by a series of internal acts of the Company, primarily the Market Risk Management Policy as umbrella document. The following analysis shows potential actual developments in key indicators, along with other variables held constant, and the impact on profit and other comprehensive income arising from financial investments. IMPACT ON PROFIT/LOSS AFTER TAX IMPACT ON COMPREHENSIVE INCOME IMPACT ON PROFIT/LOSS AFTER TAX IMPACT ON COMPREHENSIVE INCOME In HRK 000 In HRK 000 Change in price by +/- 3 15,800 8,200 23,000 5,600 Change in price by +/- 5 26,400 13,800 38,300 9,300 85

86 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 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 fulfil its obligations. The Company is exposed to credit risk through the following property items: reinsurance portion in claims provisions receivables from reinsurance under settled claims receivables from policyholders deposits and given loans debt securities (bonds and commercial bills) receivables from insurance brokers and other receivables cash at bank This risk is defined as potential decrease in the market value as a result of negative changes in the debtor s ability to pay off the debt. The Company manages this risk by a rigorous up-front analysis of credit risk and exposure monitoring, regular reviews carried out by the Management and regular meetings held to monitor the credit risk development. The Management has adopted a credit policy and continuously monitors exposure to credit risk. Assessments of creditworthiness of all policyholders are made, and collaterals are collected prior to payment of granted loans or renewal of such loans. Collaterals 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. 31 Dec Dec 2012 in HRK 000 Republic of Croatia bonds 2,195,699 1,819,719 Bonds of other state institutions 114,178 70,841 Treasury bills 392, ,677 Undue interest on bonds 31,765 45,168 Total 2,733,711 2,289,405 Total exposure towards the Republic of Croatia is 34.54% of the Company's total assets (28.07% in 2012). 86

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 The maximum exposure to credit risk at the reporting date without taking into account the collateral is as follows: TYPE OF EXPOSURE / 2012 In HRK 000 % Investments in debt securities 2,870,518 2,418, Investments in bank deposits 869,884 1,035, Investments in loans to policyholders 283, , Receivables under insurance premium from policyholders 550, , Other receivables 255, , Total 4,829,982 4,481, 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. The Finance Department monitors the inflows and outflows on a daily basis, and develops daily, weekly and monthly plans as well as scenarios of deteriorated liquidity. Liquidity risk is taken into account in the assessment of matching assets and liabilities. Note 18./i/ discloses the review of investments of property for coverage and the analysis of financial assets maturity at the reporting date. Note discloses the analysis of maturity of provisions for insurance contracts of the Company. Fair value Fair value is the price that should be received for the assets sold or paid to settle the liabilities in the usual transaction between market participants at the value measurement date. Fair value is based on quoted market prices, where available. If market prices are not available, fair value is estimated by using discounted cash flow models or other appropriate pricing techniques. Changes in assumptions on which the estimates are based, including discount rates and estimated future cash flows, significantly affect the estimates. For that reason, at this point the estimated fair value cannot be achieved from the sale of a financial instrument. Methods of assessment or assumptions in determining fair value For measuring the fair value the Company takes into account the IFRS fair value hierarchy rules that reflect the significance of inputs used in the assessment process. Each instrument is assessed individually and in detail. The levels of the fair value hierarchy are determined on the basis of the lowest level and the input data that are important for determining the fair value of the instrument. 87

88 ANNUAL REPORT / 2013 / 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 Balance Sheet items measured at fair value are categorized into three levels of the IFRS fair value hierarchy as follows: 1 st level of available indicators fair value measurements have been derived from (unadjusted) prices in active markets for identical assets and identical liabilities 2 nd level of available indicators fair value measurements have been derived from data other than quoted prices included within level 1, and refer to the observed asset or liability (that is, their observed prices) or indirectly (they are derived from prices), and 3 rd level of indicators indicators derived from valuation techniques that use data on assets or liabilities as input data that are not based on available market data (unavailable input data). The Company's assets measured at fair value on December 31, 2013 are shown as follows: LEVEL 1 LEVEL 2 LEVEL 3 TOTAL In HRK 000 Land and buildings , ,714 Investments in real estate , ,118 Financial assets available for sale Equity securities 204, , ,576 Investment funds 2, ,370 26, , , ,548 Financial assets at fair value through profit or loss Debt securities 179, , ,654 Equity securities 9, ,686 Investment funds 346, , , , ,619 Total assets at fair value 742, ,622,517 2,364,999 The Company's assets measured at fair value on December 31, 2012 are shown as follows: LEVEL 1 LEVEL 2 LEVEL 3 TOTAL In HRK 000 Land and buildings 0 0 1,143,938 1,143,938 Investments in real estate , ,381 Financial assets available for sale Equity securities 105, , ,734 Investment funds ,093 40, , , ,827 Financial assets at fair value through profit or loss Debt securities 248, , ,236 Equity securities 13, ,120 Investment funds 514, , , , ,268 Total assets at fair value 881, ,081,780 2,963,414 The Company has adopted IFRS 13, pursuant to which it is required to disclose the fair value hierarchy of financial assets that are not measured at fair value as well as a description of valuation techniques and inputs used. 88

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 Loans and receivables (including bank deposits) have been reported at amortized cost, less value adjustment. Although they have been obtained on the basis of a fixed interest rate, the Management believes that, due to their specific features, the book value of these instruments is not significantly different from their fair value, under the assumption that all payments arising from exposures without impaired value will be collected as agreed and without taking into account any future losses. Fair value of loans is estimated on the basis of inputs that are not commercially available rates and would therefore be classified as level 2 in the fair value hierarchy. Investments with available market prices that are classified in the portfolio of held-to-maturity investments would be classified as level Capital management The main objectives of the Company in managing capital are as follows: Compliance with laws and subordinate legislation, regulations and instructions of the regulatory body governing the capital management Ensuring continuity of operations of the Company Facilitating the generation of profit for further investment in the development of the Company The Company complies with laws and subordinate legislation that regulate capital, liable capital, capital adequacy and solvency margin. On 31 December 2013 and 31 December 2012, liable capital (insurance assets) of the Company were higher than the minimum equity capital as prescribed in Article 19 of the Insurance Act, as well as the solvency margin calculated in accordance with Article 98 of the Insurance Act, as shown in the following table: 31 Dec Dec 2012 LIFE NON-LIFE LIFE NON-LIFE u 000 HRK Core capital Share capital 44, ,348 44, ,348 Reserve 81, ,943 79, ,432 Retained profit 13, ,290 7, ,846 Intangible assets 0 (14,771) 0 (11,486) 139,623 1,144, ,242 1,031,140 Supplementary capital Preference shares 0 12, ,250 Mathematical provisions differences 9, ,621 0 Fair value reserves 0 0 (12,270) (21,799) 9,278 12,250 (1,649) (9,549) Liable capital (LC) 148,901 1,157, ,593 1,021,591 Deductible items Stakes in associates 0 (289,106) 0 (307,302) Investments in subordinate instruments 0 (50,000) 0 (50,000) Non-liquid assets 0 (38,742) (5,000) (70,329) 0 (377,848) (5,000) (427,631) Capital 148, , , ,960 Solvency margin 90, ,468 90, ,430 Minimum equity (Article 19 of the Insurance Act 27,750 27,750 22,500 22,500 LC >= min. equity Yes Yes Yes Yes Capital >= Solvency margin Yes Yes Yes Yes 89

90 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Pursuant to the Decision of the Croatian Financial Services Supervisory Agency of 7 May, 2009, Class: UP/I /09-31/04, File No: CROATIA osiguranje d.d. was given consent to include into the calculation of supplementary capital for life insurance group the value of the mathematical reserve that does not take into account the actual cost of sales in the calculation, or part of the actual cost of sales less the value of the mathematical provision that takes into account the actual cost of insurance sales in calculation, whereby the actual costs of insurance sales in calculating mathematical provision may not exceed 3.5% of the insured sum for Special Tariff for life insurance in case of life or death. 3. Earned premiums (recognized in income) LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 GROSS WRITTEN PREMIUM Insurance premium gross 356,051 2,269,034 2,625, ,819 2,343,874 2,707,693 Value adjustment and charged premium adjustment 0 (40,795) (40,795) 0 (52,174) (52,174) Total 356,051 2,228,239 2,584, ,819 2,291,700 2,655,519 PREMIUMS CEDED TO REINSURANCE Reinsurance premium in the country (125) (343,230) (343,355) (222) (365,610) (365,832) Reinsurance premium abroad 0 (11,603) (11,603) 0 (12,134) (12,134) Total (125) (354,833) (354,958) (222) (377,744) (377,966) PREMIUMS CEDED TO CO-INSURANCE Premiums ceded to co-insurance (3,950) (3,950) Total (3,950) (3,950) Written premiums, net of reinsurance 355,926 1,873,406 2,229, ,597 1,910,006 2,273,603 CHANGE IN PROVISIONS FOR UNEARNED PREMIUMS Gross provisions for unearned premiums 277 (19,234) (18,957) ,907 33,237 Provisions for unearned premiums, reinsurer's share ,006 1,009 Total 277 (18,933) (18,656) ,913 34,246 Earned premiums, net of reinsurance 356,203 1,854,473 2,210, ,930 1,943,919 2,307,849 /i/ Analysis by insurance type Analysis of written premium and claims incurred by type of insurance is shown in the following tables. Gross written premiums have been adjusted by the net increase of value adjustment for the premium and corresponding write-offs. 90

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 2013 GROSS WRITTEN PREMIUM PREMIUM CEDED TO REINSURANCE GROSS INCURRED CLAIMS REINSURANCE SHARE IN INCURRED CLAIMS In HRK 000 Accident insurance 159,480 (7,967) (57,092) 4,041 Health insurance 17,845 (12,368) (77) Road motor vehicles insurance 246,265 (276) (221,137) 5 Railroad rolling stock insurance 6,860 (107) (2,472) Aircraft insurance 8,374 (5,890) (10,570) 9,888 Vessel insurance 102,490 (70,696) (52,548) 25,530 Insurance for goods in transit 35,002 (6,848) (3,966) 476 Insurance against fire and natural disasters 233,756 (99,986) (122,975) 71,499 Other types of property insurance 365,625 (51,009) (324,425) 33,168 Motor liability insurance 786,459 (11,873) (202,739) (2,226) Aircraft liability insurance 5,147 (4,908) (1,011) (128) Boat liability insurance 21,796 (11,775) (5,296) 2,808 Other types of liability insurance 114,333 (49,020) (66,192) 17,662 Loan insurance/credit insurance 77,997 (15,600) (24,605) 11,967 Surety insurance (472) Miscellaneous financial loss insurance 37,131 (18,878) (20,867) 11,216 Travel insurance 9,161 0 (3,471) 0 Total non-life insurance 2,228,239 (354,833) (1,132,206) 185,829 Life insurance 335,065 (35) (332,884) 0 Annuity insurance 3,022 0 (1,941) 0 Additional insurance with life insurance 17,914 (90) (4,602) 0 Life or annuity insurance where the policyholder bears the investment risk 50 0 (3,704) 0 Total life insurance 356,051 (125) (343,131) 0 Total 2,584,290 (354,958) (1,475,337) 185, GROSS WRITTEN PREMIUM PREMIUM CEDED TO REINSURANCE GROSS INCURRED CLAIMS REINSURANCE SHARE IN INCURRED CLAIMS In HRK 000 Accident insurance 174,085 (10,644) (55,360) 3,141 Health insurance 15,083 0 (16,299) 13 Road motor vehicles insurance 265,091 (367) (248,960) 0 Railroad rolling stock insurance 3,930 0 (981) 0 Aircraft insurance 6,031 (5,975) 246 (138) Vessel insurance 118,550 (74,487) (65,868) 31,505 Insurance for goods in transit 35,811 (5,412) (9,579) 1,151 Insurance against fire and natural disasters 232,333 (100,928) (120,669) 29,678 Other types of property insurance 405,876 (69,731) (324,807) 39,176 Motor liability insurance 783,743 (8,962) (271,606) (4,378) Aircraft liability insurance 4,931 (4,671) (88) 40 Boat liability insurance 19,252 (11,690) 4,655 (4,626) Other types of liability insurance 112,159 (40,543) (116,120) 33,017 Loan insurance/credit insurance 60,226 (19,196) (33,993) 16,940 Surety insurance 613 (1,307) Miscellaneous financial loss insurance 45,273 (25,138) (9,511) 336 Travel insurance 8,713 (2,220) Total non-life insurance 2,291,700 (377,744) (1,272,467) 145,855 Life insurance 341,650 (131) (246,270) 0 Annuity insurance 2,625 (1,335) 0 Additional insurance with life insurance 19,491 (91) (4,091) 0 Life or annuity insurance where the policyholder bears the investment risk 53 0 (5,123) 0 Total life insurance 363,819 (222) (256,819) 0 Total 2,655,519 (377,966) (1,529,286) 145,855 91

92 ANNUAL REPORT / 2013 / 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. Net income from investment LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Income from dividend 74 46,085 46, ,986 61,986 Income from investment in real estate 0 (42,779) (42,779) 0 18,905 18,905 Interest income 103, , , , , ,341 Value impairment from investment (288) (124,852) (125,140) (23,815) (112,086) (135,901) Unrealized loss/profit from investments at fair value through P&L (1,941) (3,308) (5,249) 18,286 17,004 35,290 Net profit/loss realized from investment sale (realization) (668) (2,742) (3,410) 4,049 5,487 9,536 Net positive exchange rate differences 15,189 6,270 21,459 3,907 3,029 6,936 Other income/costs from investments 4 12,133 12,137 (439) 11,672 11,233 TOTAL 116,358 (5,620) 110, , , ,326 /i/ Income from dividends and shares in profit amounting to HRK 46,159 thousand (HRK 61,986 thousand in 2012) pertains to dividends or shares in profit received from subsidiaries and associated companies, joint ventures and other equity investments. /ii/ Income from investments in real estate LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Losses from change of fair value of real estate 0 (67,589) (67,589) 0 (4,276) (4,276) Income from rental 0 24,771 24, ,089 23,089 Income from sales TOTAL 0 (42,779) (42,779) 0 18,905 18,905 The Company owns 20 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 15,000,000 for said use. /iii/ Interest income LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Held-to-maturity investments 81,239 49, ,681 74,211 45, ,578 Investments at fair value through P&L 5,870 7,054 12,924 6,449 7,413 13,862 Given deposits 13,074 24,553 37,627 18,582 32,408 50,990 Given loans and other placements 3,804 22,525 26,329 3,967 31,944 35,911 TOTAL 103, , , , , ,341 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 /iv/ Value impairment from investment LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Investments in associates 0 (36,805) (36,805) 0 (18,152) (18,152) Held-to-maturity investments 0 (15,631) (15,631) (13,190) (39,254) (52,444) Investments available for sale (288) (48,802) (49,090) (10,625) (32,637) (43,262) Loans and deposits 0 (23,614) (23,614) 0 (22,043) (22,043) TOTAL (288) (124,852) (125,140) (23,815) (112,086) (135,901) /v/ Net profit/loss from investment sale (realization) LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Investments available for sale (1,914) 1,540 (374) Investments at fair value through P&L Account (668) (3,161) (3,829) 5,963 3,947 9,910 TOTAL (668) (2,742) (3,410) 4,049 5,487 9,536 /vi/ Other investment income LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Income from collected loans that had been written off 0 21,697 21, ,748 28,748 Value impairment of interest 0 (3,301) (3,301) 0 (6,240) (6,240) Other income/costs 4 (6,263) (6,259) (439) (10,836) (11,275) TOTAL 4 12,133 12,137 (439) 11,672 11, Income from commissions and fees Income from commissions and fees in the amount of HRK 22,849 thousand (in 2012 in the amount of HRK 25,361 thousand) pertain to commissions from reinsurance companies under reinsurance contracts. 6. Other insurance-technical income, net of reinsurance LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Income from claims incurred abroad 0 3,373 3, ,737 3,737 Income from interest on premium 41 3,039 3, ,612 2,651 Income from guarantee fund 0 2,388 2, ,039 4,039 Other income 13 1,931 1, ,571 3,712 TOTAL 54 10,731 10, ,959 14,139 93

94 ANNUAL REPORT / 2013 / 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. Other income LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Recognizing as income of calculated costs for unused days of vacation 1,803 15,846 17, ,270 20,270 Income from sale of assets 0 7,836 7, Income from assessment services 2 5,657 5, ,526 5,526 Income from recognizing provisions as income 0 4,472 4, ,435 4,435 Income from collected claims 0 3,086 3, ,624 2,624 Other income ,436 10, ,013 6,641 TOTAL 2,140 47,333 49, ,967 39, Incurred claims, net of reinsurance LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Settled claims Gross amount 348,324 1,278,949 1,627, ,364 1,340,983 1,601,347 Reinsurer's share 0 (208,492) (208,492) 0 (209,569) (209,569) 348,324 1,070,457 1,418, ,364 1,131,414 1,391,778 Change of provisions for reported but not settled claims Gross amount (5,193) (114,187) (119,380) (3,545) (44,127) (47,672) Reinsurer's share 0 21,405 21, ,273 60,273 (5,193) (92,782) (97,975) (3,545) 16,146 12,601 Change of provisions for incurred, but not reported claims Gross amount 0 (32,556) (32,556) 0 (24,390) (24,390) Reinsurer's share 0 1,259 1, ,441 3,441 0 (31,298) (31,298) 0 (20,948) (20,948) Change of mathematical insurance provision Gross amount 35, , , ,679 Reinsurer's share (54) 0 (54) (65) 0 (65) 34, , , ,614 Change of other technical provisions 0 7,846 7, ,126 16,126 Change of technical provisions for life insurance where the policyholder bears the risk (3,696) 0 (3,696) (4,947) 0 (4,947) Total gross incurred claims 374,444 1,140,052 1,514, ,551 1,288,592 1,644,143 Reinsurer's share in claims (54) (185,829) (185,883) (65) (145,855) (145,920) Total incurred claims, net of reinsurance 374, ,223 1,328, ,486 1,142,737 1,498,223 94

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 9. Sales costs LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Commission 13, , ,987 15, , ,078 Other sales costs 6,676 50,333 57,009 5,911 49,424 55,335 TOTAL 20, , ,996 21, , ,413 /i/ Commission LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Commission for banks, agencies and brokers 5,546 76,213 81,759 6,439 75,190 81,629 Commission for employees 3,547 48,130 51,677 4,312 47,912 52,224 Commission of credit card companies ,487 17, ,111 16,751 Insurance commissioner's commission 1,098 8,747 9,845 1,597 9,650 11,247 Commission of MOT stations 0 6,576 6, ,463 7,463 Other commissions 3,210 16,843 20,053 2,560 10,204 12,764 TOTAL 13, , ,987 15, , ,078 /ii/ Other sales costs LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Costs of promotion 5,983 43,915 49,898 5,319 40,266 45,585 Costs of policy issuance ,100 1,212 Other direct sales costs 604 5,729 6, ,058 8,538 TOTAL 6,676 50,333 57,009 5,911 49,424 55,335 95

96 ANNUAL REPORT / 2013 / 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/ Breakdown of Company's sales costs by segments of operation COMMISSION OTHER SALES COSTS SALES COSTS COMMISSION OTHER SALES COSTS SALES COSTS In HRK 000 In HRK 000 NON-LIFE INSURANCE Accident insurance 15,263 3,577 18,840 15,913 3,332 19,245 Health insurance 1, , ,376 Road motor vehicle insurance 25,876 7,644 33,520 26,450 7,641 34,091 Railroad rolling stock insurance Aircraft insurance Vessel insurance 3,248 2,272 5,520 3,559 2,141 5,700 Insurance for goods in transit , Insurance against fire and natural disasters 20,558 4,794 25,352 20,876 4,776 25,652 Other types of property insurance 28,160 8,816 36,976 28,135 8,986 37,121 Motor liability insurance 53,514 17,408 70,922 52,649 17,003 69,652 Aircraft liability insurance Boat liability insurance Other types of liability insurance 6,858 2,343 9,201 6,107 2,504 8,611 Loan insurance/credit insurance 13, ,493 7, ,448 Surety insurance Miscellaneous financial loss insurance , ,238 Legal protection costs insurance Travel insurance 2, ,233 1, ,162 Total non-life insurance 172,995 50, , ,530 49, ,955 LIFE INSURANCE Life insurance 12,993 6,282 19,275 14,253 5,541 19,794 Annuity insurance Additional life insurance Life or annuity insurance where the policyholder bears the investment risk Total life insurance 13,992 6,676 20,668 15,548 5,910 21,458 TOTAL 186,987 57, , ,078 55, , Costs of management (administrative costs) LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Depreciation/amortization 1,682 44,409 46,091 1,699 46,115 47,814 Salaries, taxes and contributions from and to salaries 43, , ,197 41, , ,224 Other costs of management 23, , ,402 36, , ,832 TOTAL 69, , ,690 79, , ,870 96

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/ Depreciation/amortization LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Amortization of intangible assets 0 4,872 4, ,595 3,595 Depreciation of tangible assets 1,682 39,537 41,219 1,699 42,520 44,219 TOTAL 1,682 44,409 46,091 1,699 46,115 47,814 /ii/ Salaries, taxes and contributions from and to salaries LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Net salaries and remunerations 24, , ,956 23, , ,112 Taxes and contributions from salaries 12,901 96, ,491 11,733 89, ,218 Contributions to salaries 5,772 43,978 49,750 5,630 43,264 48,894 TOTAL 43, , ,197 41, , ,224 /iii/ Other costs of management (administration) LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Material costs 3,354 25,497 28,851 3,057 24,809 27,866 Transportation and telecommunication services 2,262 16,941 19,203 2,587 20,337 22,924 Maintenance services 1,989 19,761 21,750 1,917 20,407 22,324 Rental services 2,664 25,569 28,233 2,133 18,947 21,080 Utility services 394 1,974 2, ,322 2,660 Intellectual services 1,244 9,897 11, ,730 9,533 Other services 1,319 10,548 11,867 1,330 10,948 12,278 Services 9,872 84,690 94,562 9,108 81,691 90,799 Provisioning for severance payments and jubilee awards (1,962) 17,780 15,818 12,500 (4,987) 7,513 Provisioning for court disputers 0 (178) (178) 0 17,147 17,147 Provisioning (1,962) 17,602 15,640 12,500 12,160 24,660 Vacation allowances, severance payments and jubilee awards 6,784 65,879 72,663 4,553 36,526 41,079 Costs for unused days of vacation 0 18,914 18,914 1,803 15,846 17,649 Costs of daily wages 168 2,105 2, ,887 2,141 Reimbursement of employees' expenses 1,702 13,477 15,179 1,774 13,936 15,710 Other material rights of employees 8, , ,029 8,384 68,195 76,579 Expenditure for business entertainment 539 5,707 6, ,979 5,521 Insurance premiums 1,740 14,504 16,244 1,666 14,373 16,039 Other operating costs 1,534 42,296 43,830 1,459 18,909 20,368 Other costs 3,813 62,507 66,320 3,667 38,261 41,928 TOTAL 23, , ,402 36, , ,832 97

98 ANNUAL REPORT / 2013 / 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/ Breakdown of management costs (administration costs) by segments of operation DEPRECIATION OF TANGIBLE ASSETS SALARIES, TAXES AND CONTRIBUTIONS TO AND FROM SALARIES OTHER COSTS OF MANAGEMENT COSTS OF MANAGEMENT DEPRECIATION OF TANGIBLE ASSETS SALARIES, TAXES AND CONTRIBUTIONS TO AND FROM SALARIES OTHER COSTS OF MANAGEMENT COSTS OF MANAGEMENT In HRK 000 In HRK 000 NON-LIFE INSURANCE Accident insurance 3,461 25,784 21,237 50,482 3,568 24,125 16,742 44,435 Health insurance 255 1,968 1,595 3, ,501 1,674 4,521 Road motor vehicle insurance 5,326 40,083 35,633 81,042 5,439 37,816 28,414 71,669 Railroad rolling stock insurance , ,088 Aircraft insurance , , ,723 Vessel insurance 2,204 15,734 13,906 31,844 2,397 15,929 9,901 28,227 Insurance for goods in transit 559 4,312 4,141 9, ,852 2,893 8,382 Insurance against fire and natural disasters 4,561 33,997 28,871 67,429 5,008 33,989 23,466 62,463 Other types of property insurance 7,948 59,371 51, ,794 8,837 59,950 40, ,676 Motor liability insurance 15, , , ,541 15, ,778 81, ,279 Aircraft liability insurance , Boat liability insurance 394 2,834 2,479 5, ,622 1,772 4,791 Other types of liability insurance 2,282 16,891 13,614 32,787 2,375 15,944 10,659 28,978 Loan insurance/credit insurance 707 6,184 5,986 12, ,399 2,362 7,270 Surety insurance Miscellaneous financial loss insurance 757 5,616 4,650 11, ,739 2,897 8,347 Travel insurance 180 1,352 1,138 2, , ,183 Total non-life insurance 44, , , ,645 46, , , ,409 LIFE INSURANCE Life insurance 1,581 40,973 22,291 64,844 1,585 38,276 34,257 74,118 Annuity insurance Additional life insurance 90 2,323 1,265 3, ,464 2,210 4,777 Life or annuity insurance where the policyholder bears the investment risk Total life insurance 1,682 43,632 23,731 69,045 1,699 41,046 36,716 79,461 TOTAL 46, , , ,690 47, , , ,870 98

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 11. Other technical expenses, net of reinsurance LIFE NON-LIFE LIFE NON-LIFE TOTAL UKUPNO In HRK 000 In HRK 000 Insurance-technical expenses for premium 40 31,300 31, ,039 9,087 Contributions for health insurance out of motor liability premium 0 27,785 27, ,419 45,419 Guarantee fund fee 0 7,315 7, ,573 6,573 Contribution to Fire Department 0 6,680 6, ,107 7,107 Fee to Croatian Insurance Bureau 0 1,796 1, ,129 2,129 Fee to Croatian Financial Services Supervisory Agency 214 1,361 1, ,406 1,624 Other costs 32 1,505 1, TOTAL ,742 78, ,677 71, Corporate income tax The Company is subject to tax liability in accordance with tax laws and regulations of the Republic of Croatia. The tax base is calculated as the difference between income and expense of the period and is increased by expenses that are non-deductible. The income tax rate is 20% In HRK 000 Deferred tax income pertaining to forming and cancelling temporary differences (see Note 20) 29,655 11,449 Corporate income tax liability (25,001) (33,368) Current year tax expenditure 4,654 (21,919) Effective tax rate (36,89%) 15,61% Harmonization of income tax and income reported in the Profit and Loss Account is shown below: In HRK 000 Income before tax 12, ,344 Non-deductible expenses 220, ,832 Tax reliefs (107,925) (110,335) Tax base 125, ,841 Tax rate 20% 20% Corporate income tax liability 25,001 33, Earnings per share In HRK 000 Net profit in the period in thousand HRK 17, ,425 Less: dividends on preference shares (980) (980) Net profit in the period per ordinary share in thousand HRK 16, ,445 Weighted average of ordinary shares except own shares 307, ,598 Basic and diluted earnings per share (in HRK) 52,95 381,81 99

100 ANNUAL REPORT / 2013 / 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 calculate earnings per share, earnings are calculated as the profit for the period attributable to shareholders of the Company. The number of ordinary shares is the weighted average number of ordinary shares in circulation during the year. The weighted average number of ordinary shares used for the calculation of basic earnings per share was 307,598 (307,598 in 2012). In addition, since there is no effect of options, convertible bonds or similar effects, the weighted average number of ordinary shares used to calculate diluted earnings per share was the same as that used to calculate basic earnings per share, and amounts to 307,598 (307,598 in 2012). 14. Intangible assets INTANGIBLE ASSETS SOFTWARE OTHER RIGHTS IN PREPARATION TOTAL In HRK 000 Purchase value Balance as at 1 January ,171 15, ,423 Increase 0 0 3,684 3,684 Transfer to utilization 4, (4,660) 0 Transfer from tangible assets 0 4, ,280 Write-off 0 (501) 0 (501) Balance as at 31 December ,447 19, ,886 Increase 7, ,157 Write-off (2,289) 0 0 (2,289) Balance as at 31 December ,046 19, ,754 Accumulated amortization and value impairment Balance as at 1 January ,948 13,358 65,306 Amortization during ,056 1, ,595 Write-off 0 (501) 0 (501) Balance as at 31 December ,004 14, ,400 Amortization during ,350 1, ,872 Write-off (2,289) 0 0 (2,289) Balance as at 31 December ,065 15, ,983 Current book value 1 January ,223 1, , December ,443 5, , December ,981 3, ,

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 15. Real estate, plants and equipment PURCHASE VALUE LAND BUILDINGS PLANTS AND EQUIPMENT VEHICLES In HRK 000 OTHER TANGIBLE ASSETS ASSETS IN PREPARATION GIVEN ADVANCES Balance as at 1 January ,351 1,215, ,716 18,355 3,306 6,846 1,077 1,641,333 Newly purchased assets 0 0 4, , ,764 Transfer from preparation 46 5, (6,113) (486) 0 Transfer to intangible assets (3,203) (1,077) (4,280) Transfer from investments in real estate Transfer to investments in real estate 0 (588) (588) Write-off or sale (140) (118) (11,204) (106) (11,568) Balance as at 31 December ,375 1,221, ,856 19,128 3,306 1, ,635,325 Revaluation (102,244) (167,311) (269,555) Value impairment (563) (15,715) (16,278) Newly purchased assets 0 2,691 8, , ,200 Transfer from preparation 0 2, (3,890) 0 0 Transfer from investments in real estate 0 7, ,683 Transfer to investments in real estate (3,381) 0 (3,381) Write-off or sale (67) (98) (7,445) (18,848) (4) 0 0 (26,462) Balance as at 31 December ,501 1,051, , ,214 14, ,360,532 ACCUMULATED DEPRECIATION AND VALUE IMPAIRMENT Balance as at 1 January , ,465 13, ,752 Depreciation from revaluation 0 6, ,697 Depreciation during ,690 10,318 2, ,522 Transfer to investments in real estate 0 (137) (137) Write-off or sale 0 (99) (11,197) (106) (11,402) Balance as at 31 December , ,586 15, ,432 Value impairment 0 (41,566) (41,566) Depreciation from revaluation 0 6, ,714 Depreciation during ,811 8,589 1, ,505 Write-off or sale 0 (58) (8,108) (16,380) (4) 0 0 (24,550) Balance as at 31 December , , ,535 CURRENT BOOK VALUE Balance as at 1 January , ,906 28,251 5,119 3,031 6,846 1,077 1,212,581 Balance as at 31 December , ,378 23,270 3,538 2,977 1, ,173,893 Balance as at 31 December , ,658 25, ,835 14, ,997 TOTAL The Company hired an independent appraiser who performed the appraisal of the value of land and buildings by using a combination of the cost, sales comparison and income approach. The result of the appraisal i.e. the impairment loss in the amount of HRK 227,990 thousand has been debited to revaluation reserve to the amount of revaluation surplus for related property. Value impairment loss in excess of the amount of revaluation reserves, amounting to HRK 16,278 thousand has been debited to the Statement of Comprehensive Income. 101

102 ANNUAL REPORT / 2013 / 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 land and buildings had been presented in the books at historical cost, their book value would be as follows: In HRK 000 LAND Cost of purchase 76,163 76,169 76,163 76,169 BUILDINGS Cost of purchase 939, ,988 Depreciation (287,578) (278,516) 652, ,474 TOTAL 728, , Investments in real estate INVESTMENTS In HRK 000 Balance as at 1 January ,143 Transfer to land and buildings used for the company's business operations (664) Transfer from land and buildings used for the company s business operations 450 Fair value increase credited to profit and loss account (4,276) Newly purchased during the year 45,776 Assets in preparation 48 Sold during the year (2,096) Balance as at 31 December ,381 Transfer to land and buildings used for the company's business operations (7,683) Transfer from land and buildings used for the company s business operations 3,381 Fair value decrease debited to profit and loss account (67,589) Decrease debited to revaluation reserve (205,403) Newly purchased during the year 76,157 Assets in preparation 7,647 Sold during the year (3,773) Balance as at 31 December ,118 The Company measures investment into real estate in accordance with IAS 40 Investment Property, by using the fair value model. Accordingly, the Company recognizes profit or loss arising from changes in investment property fair value as profit or loss for the period in which it occurred, based on the appraisal by independent appraisers. The most important item of real estate pertains to land at the location Kneza Borne in Zagreb. The Company previously classified it as property used to carry out business operations and in accordance with the requirements of IAS 16, at revalued amount. After the intended use of the property had changed, this investment was reclassified as investment property. Pursuant to the requirements of IAS 40 at the date of transition, the difference between the existing book value of the property, as determined in accordance with IAS 16 at the time of transition, and its fair value has been recognized as revaluation reserve. 102

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 The appraisal of value in 2013 showed a value impairment amounting to HRK 205,403 thousand that was debited directly to the revaluation reserve (within other comprehensive income). For other properties of this group the change in fair value has been included in profit or loss. 17. Investments in subsidiaries, associates and participation in joint investments 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Investments in subsidiaries 0 362, , , ,085 Investments in joint ventures 0 28,000 28, ,000 28,000 Investments in associates 0 4,260 4, ,260 4,260 TOTAL 0 395, , , ,345 /i/ Investment in subsidiaries, associates and joint ventures occurred as follows: ACTIVITY COUNTRY OWNERSHIP PERCENTAGE 31 Dec Dec 2012 AMOUNT OF INVESTMENT OWNERSHIP PERCENTAGE AMOUNT OF INVESTMENT % In HRK 000 % In HRK 000 SUBSIDIARIES Croatia Lloyd d.d., Zagreb Reinsurance Croatia , ,839 Croatia zdravstveno osiguranje d.d., Zagreb Insurance Croatia , ,363 Milenijum osiguranje a.d., Beograd Insurance Serbia , ,557 Croatia Sigurimi sh.a., Priština Insurance Kosovo , ,637 Croatia osiguranje d.d., Ljubuški Insurance Bosnia and Herzegovina , ,102 Croatia osiguranje život a.d (life), Skopje Insurance Macedonia , ,484 Croatia osiguranje neživot a.d. (non-life), Skopje Insurance Macedonia , ,524 Croatia-Tehnički pregledi d.o.o., Zagreb Technical inspections Croatia , ,767 Herz d.d., Požega Technical inspections Croatia , ,000 Slavonijatrans tehnički pregledi d.o.o., Slavonski Brod Technical inspections Croatia Croatia osiguranje, mirovinsko društvo d.o.o., Zagreb Razne usluge d.o.o., currently being wound up, Zagreb JOINT VENTURES PBZ Croatia osiguranje d.d., Zagreb ASSOCIATES Pension fund management Croatia , ,797 Services Croatia Pension fund management 362, ,085 Croatia 50 28, ,000 Brioni d.d., Pula Transport Croatia , ,260 Autoprijevoz d.d., Otočac Transport Croatia ,260 4,260 TOTAL 395, ,

104 ANNUAL REPORT / 2013 / 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/ The investment dynamic was as follows: In HRK 000 Balance as at 1 January 413, ,373 Increase of investment 18, Value impairment (36,805) (18,152) Balance as at 31 December 395, , Financial investments 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Held-to-maturity investments 1,574,485 1,064,379 2,638,864 1,298, ,542 2,167,298 Financial assets available for sale 36, , ,548 36, , ,827 Financial assets at fair value through P&L Account 107, , , , , ,269 Deposits, loans and receivables 411, ,080 1,085, , ,122 1,011,977 TOTAL 2,129,828 2,409,179 4,539,007 2,046,076 2,099,295 4,145,371 Financial assets at fair value in the Profit and Loss Account also include investments for the account and risk of life insurance policyholders in the amount of HRK 8,389 thousand (HRK 11,425 thousand in 2012), that is, the products that combine insurance and investment components for policyholders through the investment of premiums in investment funds in the name and for the account of policyholders. The Company recognized impairment losses of investments held-to-maturity in the amount of HRK 15,631 thousand as debited to the Comprehensive Income Statement for 2013, along with financial assets available for sale in the amount of HRK 49,089 thousand and loans and receivables in the amount of HRK 23,614 thousand. 104

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 /i/ Overview of investment On 31 December 2013 the investment structure was as follows: SHARES HELD-TO-MATURITY INVESTMENTS FINANCIAL ASSETS AVAILABLE F OR SALE FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS ACCOUNT In HRK 000 LOANS AND RECEIVABLES Shares listed in the exchange market 0 204,863 9, ,549 Shares not listed in the exchange market 0 44, , ,576 9, ,262 DEBT SECURITIES Republic of Croatia bonds 2,031, , ,195,699 Bonds of other state institutions 114, ,178 Domestic corporate bonds 114, , ,447 Treasury bills 377, , ,069 Commercial bills 1, ,125 2,638, , ,820,518 INVESTMENT FUNDS Open-end investment funds 0 2, , ,103 Open-end investment funds assets for coverage of unit-linked products 0 0 8, ,389 Open-end investment funds, private bid 0 24, , , , ,251 LOANS AND RECEIVABLES Deposits with credit institutions , ,471 Loans to policyholders ,621 51,621 Mortgage loans , ,309 Loans collateralized by guarantees Other loans ,575 1,575 Receivables from repurchase agreements ,000 50, ,085,976 1,085,976 TOTAL 2,638, , ,619 1,085,976 4,539,007 TOTAL 105

106 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / On 31 December 2012 the investment structure was as follows: SHARES HELD-TO-MATURITY INVESTMENTS FINANCIAL ASSETS AVAILABLE FOR SALE FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS ACCOUNT In HRK 000 LOANS AND RECEIVABLES Shares listed in the exchange market 0 105,384 13, ,504 Shares not listed in the exchange market 0 41, , ,734 13, ,854 DEBT SECURITIES Republic of Croatia bonds 1,571, , ,819,719 Bonds of other state institutions 70, ,841 Domestic corporate bonds 167, , ,409 Treasury bills 353, ,677 Commercial bills 3, ,889 2,167, , ,418,535 INVESTMENT FUNDS Open-end investment funds , ,487 Open-end investment funds assets for coverage of unit-linked products , ,425 Open-end investment funds, private bid 0 40, , , , ,005 LOANS AND RECEIVABLES Deposits with credit institutions , ,979 Loans to policyholders ,423 47,423 Mortgage loans , ,595 Loans collateralized by guarantees ,784 5,784 Other loans ,196 20,196 Receivables from repurchase agreements ,011,977 1,011,977 TOTAL 2,167, , ,269 1,011,977 4,145,371 TOTAL /ii/ Maturity adjustment of assets covering mathematical provisions with insurance liabilities The maturity of financial assets and liabilities of the Company within the scope of IAS 39, as at December 2013 and 31 December 2012, shown in the tables below is based on the remaining contractual maturity, with the following exceptions: maturity of investments into funds classified at fair value through profit or loss and available for sale are shown within the maturity up to one year in accordance with their secondary liquidity, while shares are in the same category due to the maturity of 1 to 3 years. 106

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 Maturity adjustment of assets covering mathematical provisions with insurance liabilities as at 31 December 2013 was as shown below: MORE THAN 10 UP TO 1 YEAR 1-3 YEARS 3-5 YEARS 5-10 YEARS YEARS TOTAL In HRK 000 Held-to-maturity investments Bonds 228, , , , ,404,415 Treasury bills 163, ,961 Financial assets available for sale Shares 0 12, ,429 Units in funds 2, ,212 Financial assets at fair value through P&L Account Bonds ,330 28, ,040 Treasury bills Units in funds 18, ,727 Loans and deposits Deposits in banks 225,275 85, ,275 Loans to policyholders 42,662 7,867 1, ,621 Cash and cash equivalents 9, ,866 Total assets for mathematical provisions coverage 691, , , , ,038,546 Mathematical provisions (160,152) (353,442) (454,656) (529,048) (457,688) (1,954,986) Provisions for claims based on risk types which require the forming of mathematical provisions 19, (19,911) Required mathematical provisions coverage, net of reinsurance (180,063) (353,442) (454,656) (529,048) (457,688) (1,974,897) Difference in maturity 511,085 (66,145) (201,667) 278,064 (457,688) 63,649 Maturity adjustment of assets covering mathematical provisions with insurance liabilities as at 31 December 2012 was as shown below: MORE THAN 10 UP TO 1 YEAR 1-3 YEARS 3-5 YEARS 5-10 YEARS YEARS UKUPNO In HRK 000 Held-to-maturity investments Bonds 9, , , , ,121,649 Other securities 124,107 37, ,862 Financial assets available for sale Shares 0 3,716 10, ,716 Units in funds Financial assets at fair value through P&L Account Bonds 0 16,098 16,389 90, ,745 Shares Units in funds 150, ,482 Loans and deposits Deposits in banks 343, ,665 Loans to policyholders 39,446 6,875 1, ,423 Cash and cash equivalents 12, ,616 Total assets for mathematical provisions coverage 680, , , , ,974,158 Mathematical provisions (234,317) (283,590) (386,123) (561,762) (454,240) (1,920,032) Provisions for claims based on risk types which require the forming of mathematical provisions (24,902) ,902 Required mathematical provisions coverage, net of reinsurance (259,219) (283,590) (386,123) (561,762) (454,240) (1,944,934) Difference in maturity 421, ,124 (219,002) 119,247 (454,240) 29,

108 ANNUAL REPORT / 2013 / 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/ Maturity adjustment of assets covering technical provisions except mathematical provisions with the insurance liabilities Maturity adjustment of assets covering technical provisions except mathematical provisions with the insurance liabilities as at 31 December 2013 was as follows: 20 AND MORE UP TO 1 YEAR 1-3 YEARS 3-5 YEARS 5-10 YEARS YEARS YEARS YEARS TOTAL In HRK 000 Held-to-maturity investments Bonds 156, , , ,204 72, ,514 Other securities 208, ,277 Financial assets available for sale Bonds Shares 17,319 63,200 3, , ,793 Units in funds , ,759 Financial assets at fair value through P&L Account Bonds 0 13,631 34,929 53, ,768 Shares 3, , ,686 Units in funds 319, ,163 Loans and deposits Loans 162,086 38,080 25,895 1, ,309 Deposits in banks 434,609 75, ,609 Real estate , ,167 Cash and cash equivalents 86, ,004 Investments with consent of supervisory body 474, ,615 Assets for covering technical provisions 1,862, , , ,660 97, , ,167 3,456,664 Provisions for unearned premiums (805,681) (36,773) (19,833) (19,199) (2,755) (1,825) (1,411) (887,477) Claims provisions (689,121) (474,753) (272,732) (457,107) (205,986) (160,622) (133,540) (2,393,861) Fluctuation provisions (3,465) (107) (3,572) Other technical insurance provisions (3,559) (2,867) (1,618) (1,566) (225) (150) (33,842) (43,827) Required coverage for technical provisions except mathematical provisions, net of reinsurance (1,501,826) (514,500) (294,183) (477,872) (208,966) (162,597) (168,793) (3,328,737) Difference in maturity 360,988 (120,522) 51,199 (304,212) (111,896) (60,004) 312, ,

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 Maturity adjustment of assets covering technical provisions except mathematical provisions with the insurance liabilities as on 31 December 2012 was as follows: 20 AND MORE UP TO 1 YEAR 1-3 YEARS 3-5 YEARS 5-10 YEARS YEARS YEARS YEARS TOTAL In HRK 000 Held-to-maturity investments Bonds 118, , ,982 92, ,720 Other securities 162,115 28, ,460 Financial assets available for sale Shares 21,955 43,910 21,955 14, ,521 Units in funds 0 30, , ,993 Stakes in companies 0 12, ,813 Financial assets at fair value through P&L Account Bonds 0 16,098 52,673 59, ,492 Shares 13, ,120 Units in funds 324, ,157 Loans and deposits Deposits in banks 621,903 20, ,903 Loans to policyholders 39,772 39,822 15,956 2, ,378 Real estate , ,417 Cash and cash equivalents 49, ,203 Investments with the consent of the supervisory body 488, ,348 Total assets for covering technical provisions 1,839, , , , ,417 3,397,525 Provisions for unearned premiums (816,451) (28,397) (11,673) (7,237) (2,401) (1,469) (1,193) (868,821) Claims provisions (701,891) (503,998) (291,672) (482,261) (221,749) (172,958) (143,614) (2,518,143) Other technical insurance provisions (5,963) (3,233) (1,144) (736) (274) (151) (28,052) (39,553) Required coverage for technical provisions except mathematical provisions, net of reinsurance (1,524,305) (535,628) (304,489) (490,234) (224,424) (174,578) (172,859) (3,426,517) Difference in maturity 315,156 (141,701) 26,077 (313,080) (224,424) (174,578) 483,558 (28,992) 109

110 ANNUAL REPORT / 2013 / 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/ Currency adjustment of assets covering mathematical provisions with insurance contract liabilities Currency adjustment of assets covering mathematical provisions with insurance contract liabilities as at 31 December 2013 was as shown below: INVESTMENTS IN HRK INVESTMENTS IN FOREIGN CURRENCY (EUR) In HRK 000 Bonds 207,540 1,196,875 1,404,415 Treasury bills 163, ,961 Held-to-maturity investments 371,501 1,196,875 1,568,376 Shares 12, ,429 Units in funds 2, ,212 Investments available for sale 14, ,641 Bonds 15,795 49,245 65,040 Units in funds 18, ,727 Investments at fair value through P&L Account 34,522 49,245 83,767 Deposits in banks 295,000 15, ,275 Loans to policyholders 13,175 38,446 51,621 Deposits, loans and receivables 308,175 53, ,896 Cash and cash equivalents 9, ,866 Total assets for covering mathematical provisions 738,480 1,300,066 2,038,546 Mathematical provisions 0 (1,954,986) (1,954,986) Provisions for claims based on risk types which require the forming of mathematical provisions 0 (19,911) (19,911) Required mathematical provisions coverage, net of reinsurance 0 (1,974,897) (1,974,897) Excess/shortage of coverage 738,480 (674,831) 63,649 TOTAL Of the total presented mathematical provisions in life insurance 32.4% are liabilities from life insurance policies with exchange rate protection clause. As these are future liabilities under exchange rate protection, on the basis of which the minimum amount due in Croatian Kuna per above policies is fixed, the investment of assets was carried out in Croatian Kuna. 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 Currency adjustment of assets covering mathematical provisions with insurance contract liabilities as at 31 December 2012 was as shown below: INVESTMENTS IN HRK INVESTMENTS IN FOREIGN CURRENCY (EUR) In HRK 000 Bonds 195, ,734 1,121,649 Commercial bills Treasury bills 146,488 14, ,112 Held-to-maturity investments 343, ,358 1,283,511 Shares 13, ,716 Units in funds 2, ,099 Financial assets available for sale 15, ,815 Bonds 16, , ,745 Units in funds 148, ,383 Financial assets at fair value through P&L Account 164, , ,128 Deposits in banks 330,000 13, ,665 Loans to policyholders 9,276 38,147 47,423 Loans and receivables 339,276 51, ,088 Cash and cash equivalents 12, ,616 Total assets for covering mathematical provisions 875,632 1,098,526 1,974,158 Mathematical provisions (8,264) (1,911,768) (1,920,032) Provisions for claims based on risk types which require the forming of mathematical provisions (12,056) (12,846) (24,902) Required mathematical provisions coverage, net of reinsurance (20,320) (1,924,614) (1,944,934) Excess/shortage of coverage 856,062 (826,088) 29,975 TOTAL 111

112 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / /v/ Currency adjustment of assets covering technical provisions, except mathematical provisions with insurance contract liabilities Currency adjustment of assets covering technical provisions, except mathematical provisions with insurance contract liabilities as at 31 December 2013 was as shown below: INVESTMENTS IN HRK INVESTMENTS IN EUR AND OTHER CURRENCIES In HRK 000 Bonds 423, , ,514 Treasury bills 208, ,277 Held-to-maturity investments 631, ,206 1,041,791 Shares 84,102 96, ,793 Units in funds 24, ,759 Investments available for sale 108,861 96, ,552 Bonds 47,652 54, ,768 Shares 3,965 5,721 9,686 Units in funds 319, ,163 Investments at fair value through P&L Account 370,780 59, ,617 Deposits in banks 403, , ,609 Loans to policyholders 227, ,309 Loans and receivables 630, , ,918 Investments in real estate 481, ,167 Cash and cash equivalents 82,919 3,085 86,004 Investments with the consent of the supervisory body 474, ,615 Total assets for covering technical provisions 2,780, ,128 3,456,664 Provisions for unearned premiums (833,162) (54,315) (887,477) Claims provisions (2,313,163) (80,698) (2,393,861) Other technical insurance provisions (47,399) 0 (47,399) Required coverage for technical provisions except mathematical provisions, net of reinsurance (3,193,724) (135,013) (3,328,737) Excess/shortage of coverage (413,188) 541,115 (127,927) 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 Currency adjustment of assets covering technical provisions, except mathematical provisions with insurance contract liabilities as at 31 December 2012 was as shown below: INVESTMENTS IN HRK INVESTMENTS IN INVESTMENT IN EUR OTHER CURRENCIES In HRK 000 Shares and stakes in subsidiaries and associates 14, ,702 Bonds 361, , ,720 Commercial bills 2, ,764 Treasury bills 187, ,696 Held-to-maturity investments 551, , ,180 Shares 87, ,819 Units in funds 37, ,993 Stakes in companies 12, ,813 Financial assets available for sale 138, ,625 Bonds 66,830 61, ,492 Shares 8,069 5, ,120 Units in funds 324, ,157 Financial assets at fair value through P&L Account 399,056 66, ,769 Deposits in banks 536, ,696 3, ,903 Loans to policyholders 98, ,378 Loans and receivables 634, ,696 3, ,281 Real estate 656, ,417 Cash and cash equivalents 49, ,203 Investments with the consent of the supervisory body 488, ,348 Total assets for covering technical provisions 2,932, ,986 3,207 3,397,525 Provisions for unearned premiums (831,245) (27,647) (9,929) (868,821) Claims provisions (2,442,915) (28,229) (46,999) (2,518,143) Other technical insurance provisions (39,553) 0 0 (39,553) Required coverage for technical provisions except mathematical provisions, net of reinsurance (3,313,713) (55,876) (56,928) 3,426,517 Excess/shortage of coverage (381,381) 406,110 (53,721) (28,992) TOTAL 19. Reinsurance share in technical provisions 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Unearned premiums 3 48,010 48, ,709 47,712 Mathematical provisions Claims provisions 0 278, , , ,352 TOTAL , , , , Deferred tax assets 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Deferred tax assets 1,259 45,011 46,270 2,638 13,977 16,615 TOTAL 1,259 45,011 46,270 2,638 13,977 16,

114 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Changes in deferred tax assets are shown below: VALUE IMPAIRMENT OF UNIT FINANCIAL ASSETS AT FAIR VALUE THROUGH P&L ACCOUNT VALUE IMPAIRMENT OF FINANCIAL ASSETS AVAILABLE FOR SALE VALUE IMPAIRMENT OF HELD-TO- MATURITY INVESTMENT VALUE IMPAIRMENT OF LOANS AND DEPOSITS LOSSES FROM REDUCING TO FAIR VALUE OF INVESTMENTS IN REAL ESTATE In HRK 000 As at 1 January , ,165 Cancelling deferred tax assets 0 0 (4,923) (4,923) Recognized deferred tax assets 5, ,638 8, ,373 As at 31 December , ,638 8, ,615 Cancelling deferred tax assets (39) 0 (4,564) 0 (4,324) 0 (8,927) Recognized deferred tax assets 14,069 1,484 3,110 3,126 2,610 14,183 38,582 As at 31 December ,352 1,620 1,184 11,280 (1,349) 14,183 46,270 TOTAL 21. Receivables from insurance contracts 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Receivables from direct insurance 0 549, , , ,889 Receivables from agents and brokers in insurance 109 1,624 1, ,262 1,357 Receivables from co-insurance and reinsurance 0 12,350 12, ,592 6,592 TOTAL , , , , Receivables from direct insurance 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Receivables from premiums in the country 0 822, , , ,035 Receivables from premiums abroad 0 23,531 23, ,475 21,475 Value impairment 0 (296,853) (296,853) 0 (308,621) (308,621) TOTAL 0 549, , , ,889 Impairment movements in 2013 and 2012 are shown below: In HRK 000 Balance as at 1 January (308,621) (290,121) Increase in value impairment (226,972) (254,978) Collection of previously impaired amounts 186, ,315 Losses from value impairment (40,795) (54,663) Write-offs 52,563 36,163 Balance as at 31 December 2013 (296,853) (308,621) 114

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 Receivables from co-insurance and reinsurance 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Receivables from reinsurance for claims 0 12,328 12, ,592 6,592 Receivables from co-insurance TOTAL 0 12,350 12, ,592 6, Other receivables 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Receivables from other insurance 0 133, , , ,980 Receivables for return on investment 1,129 4,250 5,379 1,452 2,489 3,941 Prepayments and accrued income 32,454 33,809 66,263 27,317 33,527 60,844 Other receivables 2,838 83,936 86,774 8,897 97, ,727 TOTAL 36, , ,809 37, , , Receivables from other insurance 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Receivables with recourse 0 158, , , ,788 Value impairment 0 (35,043) (35,043) 0 (36,806) (36,806) 0 123, , , ,982 Receivables under claims abroad 0 10,731 10, ,440 12,440 Value impairment (516) (516) (442) (442) 0 10,215 10, ,998 11,998 TOTAL 0 133, , , ,980 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 at 31 December 2013 in the amount of HRK 122,564 thousand (31 December 2012 the amount was HRK 161,975 thousand), and due to uncertainty of collection they are presented as deferred income until the moment the settlement is concluded with the recourse debtor (see Note 30). 115

116 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Receivables for returns on investment 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Receivables for regular interest on given loans ,056 10, ,724 9,534 Value impairment 0 (6,894) (6,894) 0 (7,666) (7,666) 604 3,162 3, ,058 1,868 Receivables for regular interest on given deposits 347 1,193 1, ,566 2,201 Value impairment 0 (180) (180) 0 (180) (180) 347 1,013 1, ,386 2,021 Receivables for interest due on investments until due date 167 4,434 4, ,514 1,514 Value impairment 0 (4,434) (4,434) 0 (1,514) (1,514) Receivables for default interest 11 22,018 22, ,432 20,439 Value impairment 0 (22,018) (22,018) 0 (20,431) (20,431) Other receivables for interest TOTAL 1,129 4,250 5,379 1,452 2,489 3, Prepayments and accrued income 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Accrued interest 32,410 21,613 54,023 27,258 17,910 45,168 Other accrued income Prepayments 44 11,874 11, ,396 15,454 Total 32,454 33,809 66,263 27,316 33,528 60,

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 Other receivables 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Receivables from credit card companies 2,828 23,986 26,814 4,141 34,670 38,811 Value impairment 0 (692) (692) ,828 23,294 26,122 4,141 34,670 38,811 Receivables from the state and state institutions 0 11,798 11, Receivables for sold flats 0 11,704 11, ,017 13,017 Value impairment 0 (1,346) (1,346) 0 (1,288) (1,288) 0 10,358 10, ,729 11,729 Receivables from buyers 0 10,253 10, ,192 8,192 Receivables obtained through cession 0 8,127 8, ,742 13,742 Value impairment 0 (3,754) (3,754) 0 (3,766) (3,766) 0 4,373 4, ,976 9,976 Receivables for bills of exchange and cheques 10 5,267 5, ,057 12,123 Receivables for given advances 0 2,507 2, Other receivables 0 42,937 42,937 4,691 46,091 50,782 Value impairment 0 (26,851) (26,851) 0 (26,671) (26,671) 0 16,086 16, ,420 24,111 TOTAL 2,838 83,936 86,774 8,897 97, ,727 Receivables for sold flats represent sales of apartments on the mortgage loans basis, which the Company sold to its employees in previous years in accordance with Croatian laws. Receivables from sales with an interest rate lower than the market rate are repayable monthly over a period of 20 to 35 years. The receivables are secured by mortgages on flats purchased. 23. Cash and cash equivalents 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Cash in HRK accounts 9,641 82,919 92,560 12,612 36,419 49,031 Cash in foreign currency accounts ,830 11, ,501 16,505 Cash in hand Deposits with maturity up to three months 0 117, ,413 14, , ,587 TOTAL 9, , ,120 26, , ,

118 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 24. Capital and reserves Subscribed capital Equity of the Company is determined in the nominal amount of HRK 442,887 thousand (31 December 2012 in the same amount) and it comprises 316,348 shares with the par value of HRK 1,400, which have been paid entirely in cash, registered at the register of the Commercial Court in Zagreb. All shares are initial public offering shares and they are marked as follows: 307,598 are ordinary shares with the code CROS-R-A 8,750 are preference shares with the code CROS-P-A. Ownership structure as at 31 December 2013 and 31 December 2012 was as follows: SHAREHOLDER NUMBER OF SHARES 31 Dec Dec 2012 NOMINAL AMOUNT IN HRK 000 EQUITY SHARE % NUMBER OF SHARES NOMINAL AMOUNT IN HRK 000 State Office for the Administration of Government Property/RC 253, , , , Raiffeisenbank Austria d.d. custody account 19,745 27, ,774 27, Societe Generale Splitska banka d.d. custody account 6,802 9, ,550 9, Erste & Steiermärkische Bank d.d. basic and custody account 3,904 5, Hrvatska poštanska banka d.d. basic and custody account 3,672 5, ,579 9, HPB Nekretnine d.o.o. 2,957 4, PBZ d.d. custody account 2,032 2, ,800 2, Kraš d.d., Zagreb 1,400 1, ,400 1, Auto Hrvatska d.d., Zagreb 1,004 1, ,004 1, Komercijalna banka d.d., in bankruptcy Hypo Alpe-Adria-Bank d.d custody account ,595 5, Other shareholders 19,802 27, ,430 28, TOTAL 316, , , , EQUITY SHARE % On 18 July 2013 the Government of the Republic of Croatia adopted a Decision on special method of disposal with shares of CROATIA osiguranje d.d. Zagreb from the portfolio of the Republic of Croatia, that is, on the sale of a portion of the existing equity shares of the Republic of Croatia, so that at least 25 % plus one share of the Company remains state-owned after the privatization and recapitalization. On 18 December 2013 the Government of the Republic of Croatia adopted a Decision on the selection of the best investor for the purchase of a portion of equity share of the Republic of Croatia and recapitalization of CROATIA osiguranje d.d. Zagreb, pursuant to which Adris Grupa d.d. Rovinj was chosen as the preferred investor based on the binding bid of 16 December 2013 to purchase 122,110 shares, or 38.59% stake in the Company, for the amount of HRK 905,106 thousand and recapitalization in the amount of HRK 840,171 thousand by issuing 113,349 new ordinary shares of par value of HRK 1, Revaluation reserves Revaluation reserves in the amount of HRK 137,854 thousand (31 December 2012 in the amount of HRK 447,056 thousand) are presented as follows: 118

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 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Land and buildings 0 128, , , ,126 Financial assets available for sale 1,998 7,276 9,274 (12,270) (21,800) (34,070) TOTAL 1, , ,854 (12,270) 459, ,056 /i/ Revaluation reserve for land and buildings In HRK 000 Balance as at 1 January ,477 Release of revaluation reserve, net of deferred tax (5,351) Balance as at 31 December ,126 Release of revaluation reserve, net of deferred tax (6,715) Revaluation reserve decrease (345,831) Balance as at 31 December ,580 /ii/ Revaluation reserve for financial assets available for sale In HRK January 2012 (26,385) Change of fair value of financial assets available for sale (49,138) Value impairment of financial assets 41,827 Realized losses from financial assets available for sale / net (374) 31 December 2012 (34,070) Change of fair value of financial assets available for sale 14,357 Value impairment of financial assets 29,406 Realized losses from financial assets available for sale / net (419) 31 December , Reserves Reserves in the amount of HRK 508,690 thousand (31 December 2012 in the amount of HRK 479,083 thousand were formed, based on Decisions of the Company's General Assembly, out of profit realized in previous years, as follows: 31 Dec Dec 2012 In HRK 000 Legal reserves 23,575 23,575 Statutory reserves (Note 24.5) 142, ,298 Other reserves 342, ,211 TOTAL 508, ,084 Pursuant to the Companies Act, 5% of profit for the year is allocated to the legal reserve until it reaches 5% of the equity. Statutory reserves amounting to HRK 142,904 thousand (HRK 113,298 thousand as at 31 December 2012) were established by profit distribution. Other reserves in the amount of HRK 342,211 thousand (same amount as at 31 December 2012) were established by the distribution of profits from previous years. 119

120 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Retained profit In HRK January ,973 Correction of errors from previous periods (583) Distribution of profit from ,070 Release of revaluation reserve, net of tax 6, December ,148 Correction of errors from previous periods 1,175 Distribution of profit from 2012 (Note 24.5) 87,839 Release of revaluation reserve, net of deferred tax 6, December , Current year profit Current year profit was realized in the amount HRK 17,268 thousand (as at 31 December 2012 in the amount of HRK 118,425 thousand). Profit realized from the Company s business operations in 2012 in the amount of HRK 118,425 thousand was allocated as decided by the Company s General Assembly. In HRK 000 Statutory reserves 29,606 Retained profit (see Note 24.4) 87,839 Liability for dividend payment 980 Total 118, Technical provisions 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Unearned premiums, gross 2, , ,489 3, , ,533 Mathematical provisions, gross 1,955, ,955,270 1,920, ,920,261 Claims provisions, gross 27,299 2,665,162 2,692,461 32,492 2,811,905 2,844,397 Fluctuation provisions, gross 0 3,572 3, ,726 1,726 Other insurance-technical provisions, gross 0 43,827 43, ,827 37,827 Technical provisions for life insurance where the policyholder bears the risk 8, ,389 11, ,425 TOTAL 1,993,711 3,645,297 5,639,008 1,955,788 3,764,961 5,732,

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 Movements in provisions for unearned premiums OPIS GROSS REINSURANCE NET GROSS REINSURANCE NET In HRK 000 In HRK 000 LIFE Balance as at 1 January 3,030 (3) 3,027 3, ,360 Written premiums during the year 356, , ,820 (223) 363,597 Less: Earned premiums during the year (356,328) (125) (356,203) (364,150) 220 (363,930) Balance as at 31 December 2,753 (3) 2,750 3,030 (3) 3,027 NON-LIFE Balance as at 1 January 913,502 (47,709) 865, ,410 (46,703) 899,706 Written premiums during the year 2,269,034 (354,834) 1,914,200 2,343, ,744 1,966,130 Less: Earned premiums during the year (2,249,800) 354,533 (1,895,267) (2,376,781) (376,738) (2,000,043) Balance as at 31 December 932,736 (48,010) 884, ,502 (47,709) 865, Claims provisions, gross 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Provisions for reported but not settled claims 21,839 1,552,265 1,574,104 27,641 1,662,539 1,690,180 Provisions for incurred, but not reported claims 4,410 1,010,391 1,014,801 4,410 1,042,947 1,047,357 Provisions for costs of claims handlings 1, , , , ,860 TOTAL 27,299 2,665,162 2,692,461 32,492 2,811,905 2,844,397 /i/ Movements in reported but not settled claims, gross In HRK 000 LIFE Balance as at 1 January 27,641 31,214 Claims incurred in the current year 10,323 7,710 Transfer from provisions for incurred, but not reported claims Change in claims from the previous year (16,631) (12,048) Balance as at 31 December 21,839 27,641 NON-LIFE Balance as at 1 January 1,662,539 1,732,189 Claims incurred in the current year 288, ,081 Transfer from provisions for incurred, but not reported claims 85, ,799 Change in claims from the previous year (484,562) (420,530) Balance as at 31 December 1,552,265 1,662,

122 ANNUAL REPORT / 2013 / 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/ Movements in incurred but not reported claims, gross In HRK 000 LIFE Balance as at 1 January 4,410 4,410 Increases recognized during the year 2,254 2,731 Decreased by transfer to provisions for reported claims (506) (765) Decreased by settled claims (1,748) (1,966) Balance as at 31 December 4,410 4,410 NON-LIFE Balance as at 1 January 1,042,947 1,067,337 Increases recognized during the year 218, ,127 Decreased by transfer to provisions for reported claims (85,515) (114,798) Decreased by settled claims (165,062) (170,719) Balance as at 31 December 1,010,391 1,042, Movements in special provisions for life insurance where policyholder bears the investment risk, gross In HRK 000 Balance as at 1 January 11,425 16,321 Claims incurred in the current year 1 3 Change in claims from the previous year (3,037) (4,900) Balance as at 31 December 8,389 11, Analysis of movements in claims provisions (RBNS and IBNR) of non-life insurance BEFORE TOTAL In HRK 000 Assessment of cumulative claims at the end of the year of the 0 1,799,888 1,971,380 1,884,799 1,640,970 1,664,541 1,508,133 1,406,799 accident One year later 0 1,726,174 1,940,346 1,778,822 1,559,387 1,552,089 1,420,694 0 Two years later 0 1,724,710 1,915,364 1,749,738 1,529,789 1,525, Three years later 0 1,710,893 1,900,023 1,738,631 1,500, Four years later 0 1,729,512 1,896,289 1,755, Five years later 0 1,730,703 1,913, Six years later 0 1,721, Assessment of cumulative claims 0 1,721,695 1,913,094 1,755,911 1,500,217 1,525,995 1,420,694 1,406,799 11,244,405 Cumulative payments 0 1,577,204 1,759,692 1,613,619 1,370,712 1,378,181 1,194, ,790 9,721,155 Provision for previous years 1,039,406 1,039,406 Costs of claims handling 41,576 5,780 6,136 5,692 5,180 5,913 9,029 23, ,506 Value recognized in the statement of financial position 1,080, , , , , , , ,209 2,665,

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 Maturity of gross technical provisions LESS THAN ONE YEAR BETWEEN 1 AND 5 YEARS BETWEEN 5 AND 10 YEARS In HRK 000 MORE THAN 10 YEARS 2013 Unearned premiums, gross 829,002 73,539 25,109 7, ,489 Mathematical provisions for insurance, gross 160, , , ,697 1,955,270 Claims provisions, gross 824, , , ,974 2,692,461 Fluctuation provisions, gross 3, ,572 Other insurance-technical provisions, gross 3,560 4,485 1,566 34,216 43,827 Special provisions for life insurance where the policyholder bears the investment risk 3,154 4, ,389 TOTAL 1,823,370 1,721,168 1,067,585 1,026,885 5,639,008 TOTAL 2012 Unearned premiums, gross 841,298 57,321 10,545 7, ,533 Mathematical provisions for insurance, gross 234, , , ,252 1,920,261 Claims provisions, gross 861, , , ,217 2,844,397 Fluctuation provisions, gross 1, ,726 Other insurance-technical provisions, gross 4,289 4, ,476 37,827 Special provisions for life insurance where the policyholder bears the investment risk 1,299 8,607 1, ,425 TOTAL 1,944,599 1,613,221 1,106,026 1,068,323 5,732, Analysis of claim (loss) ratios, cost ratios and combined ratios TYPES OF NON-LIFE INSURANCE CLAIMS RATIO COST RATIO COMBINED RATIO CLAIMS RATIO COST RATIO COMBINED RATIO % Accident insurance Health insurance Road vehicle insurance Railroad rolling stock insurance Aircraft insurance Vessel insurance Insurance for goods in transit Insurance against fire and natural disaster Other types of property insurance Motor liability insurance Aircraft liability insurance Boat liability insurance Other liability insurance Loan insurance/credit insurance Surety insurance Miscellaneous financial loss insurance Legal protection costs insurance Travel insurance Total non-life insurance

124 ANNUAL REPORT / 2013 / 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 above ratios are calculated in accordance with the Ordinance on the structure and contents of financial statements of insurance and reinsurance companies (Official Gazette No. 132/10, 39/2012) adopted by the Croatian Financial Services Supervisory Agency. Claims ratio, cost ratio and combined ratio by types of non-life insurance are calculated in the following way: Claims ratio = (settled claims, gross + change in claims provisions, gross) / (gross written premium + change in gross provisions for unearned premiums) Cost ratio = (administrative costs income from commissions and fees + sales costs change in deferred sales costs) / gross written premium Combined ratio = claims ratio + cost ratio Review of adjustment of assets covering mathematical provisions with liabilities under insurance contracts: TYPE OF FINANCIAL INSTRUMENT BALANCE AS AT 31 DEC 2013 BALANCE AS AT 31 DEC 2012 In HRK 000 ASSETS FOR COVERING MATHEMATICAL PROVISIONS Securities issued by the Republic of Croatia and Croatian Bank for Reconstruction and Development 1,584,401 1,365,245 Bonds and other debt securities issued by a local and regional self government unit in the Republic of Croatia 6,490 3,791 Bonds and other debt securities traded in the regulated securities market in the Republic of Croatia 42,524 37,220 Shares traded in the regulated securities market in the Republic of Croatia 12,429 13,716 Units and shares in investment funds registered in the Republic of Croatia 20, ,482 Advances and loans in the amount of total surrender value under life insurance contract 51,621 47,423 Deposits in banks with registered office in Republic of Croatia 310, ,665 Assets in the insurance company's business account 9,866 12,616 Total assets for covering mathematical provisions 2,038,546 1,974,158 Mathematical provisions 1,954,986 1,920,032 Provisions for claims based on risk types which require the forming of mathematical provisions 19,911 24,902 Required mathematical provision coverage 1,974,897 1,944,934 Coverage excess 63,649 29,224 Movements in annual return on mathematical provision Pursuant to the Ordinance on minimum standards, methods of calculating and guidelines for calculating technical provisions in insurance (Official Gazette Nos. 97/09, 135/09, 150/09) the maximum interest rate for the calculation of mathematical provision is 3.3% for insurance contracts concluded before 2010, 3% for insurance contracts concluded during 2010, and 2.75% for insurance contracts concluded after 2010, where the interest rate shall not be higher than the average return that the Company realized through investment of mathematical provision in the last three years. The average return is calculated as a weighted average return on the mathematical provision in the last three years, where the weights represent the average value of mathematical provision during the year. 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 The average return is calculated as the sum of returns multiplied by the average value of mathematical provision for the last three full financial years (whereby the year for which mathematical provision is calculated is included in the annual financial statements) divided by the sum of the average values of mathematical provision. The following table shows movements in the annual return realized from investment of assets covering mathematical provisions for 2013, 2012 and 2011; In HRK 000 Average balance of the mathematical provisions 1,793,730 1,868,421 1,937,766 Return on investment from mathematical provisions 103, , ,298 Rate of annual return on mathematical provisions 5.74% 6.04% 5.95% Average return on mathematical provisions 5.56% 5.70% 5.91% Review of adjustment of assets covering technical provisions other than mathematical provisions with insurance liabilities: TYPE OF FINANCIAL INSTRUMENT 31 Dec Dec 2012 In HRK 000 Securities issued by the Republic of Croatia 1,079, ,331 Securities issued by the Croatian Bank for Reconstruction and Development 11,399 0 Bonds and other debt securities traded in the regulated securities market in the Republic of Croatia 52,335 79,322 Bonds and other debt securities not traded in the regulated securities market in the Republic of Croatia if their issuer is a legal entity with registered office in the Republic of Croatia 0 23,018 Shares traded in the regulated securities market in the Republic of Croatia 87,887 80,888 Shares issued by a foreign joint stock company which are traded in regulated capital markets of member states or countries members of OECD 102,592 5,051 Shares not traded in the regulated securities market, if their issuer is a legal entity with registered seat in the Republic of Croatia 0 29,702 Stakes in companies with registered office in the Republic of Croatia 0 12,813 Units and shares in investment funds which are registered in the Republic of Croatia 343, ,150 Loans collateralized with lien on real estate or transfer of right of ownership 227,309 92,595 Deposits in banks with registered office in the Republic of Croatia 509, ,903 Loans collateralized with bank guarantee issued by a bank with registered office in the Republic of Croatia 0 5,784 Ownership of real estate and other property rights over real estate 481, ,417 Assets in insurance company's business account 86,004 49,203 Investments with the consent of the supervisory body 474, ,348 Total assets for covering technical provisions 3,456,664 3,397,525 Provisions for unearned premiums 887, ,821 Claims provisions 2,393,861 2,518,143 Fluctuation provisions 3,572 1,726 Other insurance technical provisions 43,827 37,827 Required coverage of technical provisions except mathematical provisions 3,328,737 3,426,517 Excess/shortage of coverage 127,927 (28,992) On 31 December 2013 the assets covering technical provisions amounted to 103.2% of the required coverage of technical provisions (on 31 December 2012 the assets covering technical provisions amounted to 99.15% of the required coverage for technical provisions) so the Company met the requirements of the supervisory body regarding the level of technical provisions. 125

126 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 26. Provisioning Movements in provisions for pensions and court procedures in 2013 and 2012 are shown in the table below: COSTS OF COURT PROCEDURES COSTS OF JUBILEE AWARDS AND SEVERANCE PAYMENTS COSTS OF POTENTIAL SEVERANCE PAYMENTS In HRK 000 Balance as at 1 January ,638 71, ,614 Additional provisioning 17,322 7, ,835 Cancellation of provisioning (4,433) (367) 0 (4,800) Balance as at 31 December ,527 79, ,649 Additional provisioning 5,875 3,065 10,214 19,155 Cancellation of provisioning (12,567) 0 0 (12,567) Balance as at 31 December ,835 82,187 10, ,236 The following assumptions were used for calculation: Employment termination rate is 4.91% Assumed annual rate of increase in salaries: 0% Average tax rate of 25% was applied to the calculation of severance payments. The current liability was established by applying a discount rate of 5%. 27. Deferred tax liability In HRK 000 Balance as at 1 January 120, ,789 Utilization (1,343) (1,337) Change of fair value of investments available for sale forming of tax liability 2,318 0 Value impairment of investments in real estate cancellation of tax liability (86,964) 0 Balance as at 31 December 34, ,452 TOTAL Deferred tax liability was recognized by reduction to fair value of land and buildings which are used for business operations, and part of land and buildings which are not used for business operations. In each accounting period it is reduced by 20% of the amount of depreciation resulting from revaluation of land and buildings used for business operations. 28. Financial liabilities 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Hrvatska poštanska banka d.d., Zagreb 0 350, , ,000 50,000 Other financial liabilities TOTAL 0 350, , ,085 50,085 On 30 December 2013 Hrvatska poštanska banka d.d. Zagreb and the Company entered into a short-term loan contract in the amount of HRK 350,000 thousand for current assets with maturity on 3 January The interest rate is 5.90% per annum. As a means of securing payment the Company gave one promissory note in the amount of HRK 350,000 thousand. The loan was repaid by the date of adoption of financial reports for

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 29. Liabilities under insurance contracts 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Liabilities from direct insurance 2,547 84,698 87,245 2,100 81,632 83,732 Liabilities from co-insurance and reinsurance 2 17,205 17, ,953 17,956 TOTAL 2, , ,452 2,103 99, ,688 /i/ Liabilities arising from direct insurance 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Liabilities for guarantee fund 0 47,566 47, ,782 48,782 Liability under settled claims 1,855 26,582 28, ,480 23,991 Liabilities under motor liability premium 0 2,268 2, ,075 2,075 Liabilities for contribution to the Fire Department 0 1,500 1, ,477 1,477 Other liabilities 692 6,782 7,474 1,589 5,818 7,407 TOTAL 2,547 84,698 87,245 2,100 81,632 83,732 /ii/ Liabilities arising from coinsurance and reinsurance 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Liabilities under reinsurance premium transportation and loans 0 12,139 12, ,197 14,197 Liabilities under reinsurance premium stop loss 0 3,995 3, Liabilities under reinsurance premium ship owners clubs 0 1,071 1, Liabilities under reinsurance premium facultative insurance ,296 1,296 Other liabilities ,439 1,442 TOTAL 2 17,205 17, ,953 17, Other liabilities 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Accruals and deferred income 9, , ,454 1, , ,021 Other liabilities 11,980 88, , ,203 99,306 TOTAL 20, , ,603 1, , ,

128 ANNUAL REPORT / 2013 / 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/ Accruals and deferred income 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 ACCRUALS Accrued costs for unused vacations 2,374 19,078 21,452 1,803 15,846 17,649 Deferred payment of financial assets 0 18,760 18, ,720 13,720 Other accrued costs 1 3,011 3, ,427 2,427 Total accruals 2,375 40,849 43,224 1,803 31,993 33,796 DEFERRED INCOME Deferred recognition of income from recourses due to uncertainty of collection 0 122, , , ,975 Accrued premium 6, , Other deferred income 183 4,022 4, ,207 3,250 Total deferred income 6, , , , ,225 TOTAL 9, , ,454 1, , ,021 Deferred recognition of income from recourses due to uncertainty of collection presented in the amount of HRK 122,564 thousand (on 31 December 2012 in the amount of HRK 161,975 thousand) pertains to deferred recognition of income from recourses for which no payment settlement has been made or which are not recourse receivables from other insurance companies (see Note 22.1). /ii/ Other liabilities 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL In HRK 000 In HRK 000 Liabilities toward suppliers 37 34,024 34, ,182 31,226 Liabilities for net salaries 0 20,426 20, ,682 20,682 Liabilities for taxes and contributions 0 13,873 13, ,836 13,836 Liabilities for tax on motor liability and motor hull insurance 0 10,275 10, ,585 9,585 Liabilities to the state for sold flats 0 4,655 4, ,328 5,328 Liabilities for corporate income tax ,982 10,982 Other liabilities 11,943 4,916 16, ,608 7,667 TOTAL 11,980 88, , ,203 99,

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 31. Off-balance sheet items 31 Dec 2012 INCREASE DECREASE 31 Dec 2013 In HRK 000 Premium from companies in bankruptcy 148,176 33,239 (13,371) 168,044 Shares and stakes in companies in bankruptcy 20,694 85,092 (581) 105,205 Placements and interest of companies in bankruptcy 49, (3) 49,551 Other 10,500 66,500 (77,000) 0 Default interest on placements 8, ,084 Receivables for companies in bankruptcy 237, ,281 (90,955) 331,884 Recourse receivables 812,817 77,969 (27,552) 863,234 TOTAL 1,050, ,250 (118,507) 1,195, Transactions with related parties The Company believes that it has a direct related party relationship with the majority owner - the Republic of Croatia - and with largely state-owned companies, companies under control, under joint control or under significant influence of the key management and their close family members as well as members of the Management Board and the Supervisory Board ("key management"), key management's close family members in accordance with the definitions contained in International Accounting Standard 24 "Related Party Disclosures" (IAS 24). Relations with subsidiaries, joint ventures and associated companies within the CROATIA osiguranje Group and other companies that have a significant impact on the Company, and companies with majority state ownership are shown in the following tables for 2013 and

130 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 2013 GIVEN LOANS REINSURANCE SHARE IN TECHNICAL PROVISIONS RECEIVABLES FROM INSURANCE TRANSAC- TIONS OTHER RECEIVABLES LIABILITIES FROM INSURANCE TRANSAC- TIONS OTHER LIABILITIES WRITTEN PREMIUMS In HRK 000 PREMIUMS NET FINANCIAL CEDED TO INCOME REINSURANCE OTHER INCOME INCURRED CLAIMS REINSURANCE SHARE IN CLAIMS OPERATING EXPENDITURE Croatia Lloyd d.d ,986 12, , (354,958) 15,862 22,842 (43) 185,829 0 Croatia zdravstveno osiguranje d.d , (34) 0 (3,367) Milenijum osiguranje a.d., Beograd Croatia Sigurimi sh.a., Priština Croatia osiguranje d.d., Ljubuški , (1,004) 0 (5) Croatia osiguranje život a.d (life), Skopje Croatia osiguranje neživot a.d. (non-life), Skopje Croatia Tehnički pregledi d.o.o. 14, , ,604 1 (149) 0 (2,276) Herz d.d., Požega ,599 0 (23) 0 (33) Slavonijatrans-tehnički pregledi d.o.o Croatia osiguranje, mirovinsko društvo d.o.o., Zageb (16) 0 (257) Razne usluge d.o.o. currently being wound up (4,915) 0 (1) 0 (65) PBZ Croatia osiguranje d.d., Zagreb ,000 (1) (3) 0 0 TOTAL 14, ,986 12,462 7,621 17,207 3,875 29,971 (354,958) 58,313 23,339 (1,273) 185,829 (5,980) 2012 GIVEN LOANS REINSURANCE SHARE IN TECHNICAL PROVISIONS RECEIVABLES FROM INSURANCE TRANSAC- TIONS OTHER RECEIVABLES LIABILITIES FROM INSURANCE TRANSAC- TIONS OTHER LIABILITIES WRITTEN PREMIUMS In HRK 000 PREMIUMS NET FINANCIAL CEDED TO INCOME REINSURANCE OTHER INCOME INCURRED CLAIMS REINSURANCE SHARE IN CLAIMS OPERATING EXPENDITURE Croatia Lloyd d.d ,294 6, , (377,966) 20,595 25,335 (9) 145,855 0 Croatia zdravstveno osiguranje d.d , (40) 0 (4,390) Milenijum osiguranje a.d., Beograd Croatia Sigurimi sh.a., Priština Croatia osiguranje d.d., Ljubuški , (1,022) 0 0 Croatia osiguranje život a.d (life), Skopje Croatia osiguranje neživot a.d. (non-life), Skopje Croatia Tehnički pregledi d.o.o. 18, , ,578 1 (712) 0 (2,506) Herz d.d., Požega ,737 0 (41) 0 (35) Slavonijatrans-tehnički pregledi d.o.o Croatia osiguranje, mirovinsko društvo d.o.o., Zageb (20) 0 13 Razne usluge d.o.o. currently being wound up 35, ,729 0 (12) 0 (369) PBZ Croatia osiguranje d.d., Zagreb (2) 0 0 TOTAL 53, ,294 6,675 5,532 17,956 1,016 9,044 (377,966) 80,217 25,612 (1,858) 145,855 (7,271) 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 2013 BONDS LOANS AND RECEIVABLES RECEIVABLES FROM INSURANCE TRANSAC- TIONS OTHER RECEIVABLES LIABILITIES FROM INSURANCE TRANSAC- TIONS OTHER LIABILITIES INCOME FROM INSURANCE OTHER INCOME EXPENDITURE FROM INSURANCE OTHER EXPENDITURE In HRK 000 Croatian Bank for Reconstruction and Development 107, Petrokemija d.d. Kutina 0 15, , ,547 0 Ministry of Defence of the Republic of Croatia , ,006 0 Jadrolinija d.d. 0 32, , ,537 0 Ministry of the Interior of the Republic of Croatia , , Ministry of Finance of the Republic of Croatia , , Hrvatska elektroprivreda group 0 0 3, , , Hrvatske šume d.o.o , , , Crosco naftni servisi d.o.o , Croatia airlines d.d , , Luka Rijeka d.d. 0 5, , ,340 0 Hrvatska pošta d.o.o. 21, ,002 2,577 2,755 9,106 Uljanik Brodogradište d.d , , ,241 1 Brodogradilište Viktor Lenac d.d , ,446 0 HEP-operator distribucijskog sustava d.o.o , ,665 Tankerska plovidba d.d , Hrvatska radiotelevizija 0 0 1, , , Auto cesta Rijeka Zagreb d.d , , , Jadranski naftovod d.d , ,045 0 Plinacro d.o.o , Odašiljači i veze d.o.o , , Fina d.d , Odašiljači i veze d.o.o. 9, , ,011 0 Hrvatska poštanska banka d.d , , Narodne novine d.d ,616 Uljanik d.d Hrvatske autoceste d.o.o , Vjesnik d.d HŽ Putnički prijevoz d.o.o Ministry of Foreign Affairs of the Republic of Croatia HŽ Infrastruktura d.o.o HEP Opskrba d.o.o ,298 Hrvatska lutrija d.o.o Hrvatske vode TOTAL 139, ,521 15, , ,396 3,236 66,505 24,

132 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 2012 BONDS LOANS AND RECEIVABLES RECEIVABLES FROM INSURANCE TRANSAC- TIONS OTHER RECEIVABLES LIABILITIES FROM INSURANCE TRANSAC- TIONS OTHER LIABILITIES INCOME FROM INSURANCE INTEREST INCOME OTHER INCOME EXPENDITURE FROM INSURANCE In HRK 000 Croatian Bank for Reconstruction and Development 67, , Ministry of Defence of the Republic of Croatia , ,240 Crosco naftni servisi d.o.o , Petrokemija d.d. Kutina , ,138 Ministry of the Interior of the Republic of Croatia , ,309 Jadrolinija d.d , ,105 Hrvatske šume d.o.o , ,229 Hrvatska elektroprivreda group 39, ,998 1, ,198 Ministry of Finance of the Republic of Croatia , ,581 Croatia airlines d.d , Hrvatska pošta d.o.o. 16, , ,605 2,309 Luka Rijeka d.d , ,603 Hrvatska radiotelevizija , HEP-ODS d.o.o , ,692 Brodogradilište Viktor Lenac d.d , Tankerska plovidba d.d , Uljanik brodogradište d.d , ,905 Hrvatske autoceste d.o.o , ,301 Auto cesta Rijeka Zagreb d.d , ,660 Jadranski naftovod d.d , Croatian Chamber of Economy , Hrvatska poštanska banka d.d , , , Fina d.d , Odašiljači i veze d.o.o. 9, , Narodne novine d.d Hrvatske vode Vjesnik d.d Ministry of Foreign Affairs of the Republic of Croatia Hrvatska lutrija d.o.o ,665 Plinacro d.o.o Uljanik d.d HŽ Infrastruktura d.o.o Hrvatske ceste d.o.o TOTAL 132, ,000 1,854 10,863-1, ,973 6,958 3,459 58,

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 /i/ Earnings of Management Board and Supervisory Board members 31 Dec Dec 2012 In HRK 000 Gross salaries of Management Board members Remuneration to Supervisory Board members TOTAL Contingent liabilities /i/ The Company has contingent liabilities in terms of payment instruments issued as part of its operating activities. It is unlikely that any significant liabilities could arise from such activities On account of its main business, the company is subject to court procedures initiated by the injured parties. It is unlikely that such activities would affect the Company's liabilities. Provisions for court proceedings arising from claims incurred were provided for in the framework of claims provisions. The Management Board believes that these provisions are sufficient. Other types of disputes have been initiated against the Company. On 31 December 2013 provisions for costs for such disputes were secured within contingent liabilities in the amount of HRK 14,835 thousand (as at 31 December 2012 they amounted to HRK 21,527 thousand) (see Note 26). /ii/ On 19 December 2013 the Croatian Competition Agency initiated court proceedings against the Croatian Insurance Bureau and 12 insurance companies in the Republic of Croatia in order to determine whether there was distortion of market competition by entering into a prohibited agreement. Should such intention to conclude a prohibited agreement be proven, the maximum fine may amount to 10% of total revenue. 34. Contractual liabilities undertaken As at 31 December 2013 the Company's contractual liabilities for future investments amount to HRK 39,056 thousand based on binding bids for investments in venture capital funds. 35. Events after the Balance Sheet date Based on the Decision of the Croatian Government of 18 December 2013 on selecting Adris Grupa d.d. Rovinj as the preferred investor to buy a portion of equity share of the Republic of Croatia and recapitalize CROATIA osiguranje d.d. Zagreb, on 6 March 2014 the Republic of Croatia and Adris Grupa d.d. Rovinj concluded a contract on the purchase of shares of the company CROATIA osiguranje d.d. Zagreb as well as a shareholders' contract by virtue of which Adris Grupa d.d. Rovinj acquired ownership of 38.6 % of the Company s shares. As a result of assumed responsibilities and the sale and purchase contract, an increase in the Company s share capital is in preparation. By issuing 113,349 new ordinary shares with a nominal value of HRK 1,

134 ANNUAL REPORT / 2013 / 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's share capital will be increased by adding HRK 158,688 thousand to the initial amount of HRK 442,887 thousand, which will consequently result in the amount of HRK 601,576 thousand. The shares will be issued at a price of HRK 7, For the purposes of share capital increase, Adris Grupa d.d. will pay HRK 840,171 thousand for the acquisition of 113,349 new ordinary shares in accordance with the sale and purchase contract. 36. Financial Statements audit The audit of the Company's Financial Statements for 2013 was performed by audit company BDO Croatia d.o.o., Zagreb for an agreed fee in the amount of HRK 340,000 plus VAT. 37. Approval of Financial Statements The Financial Statements were adopted by the Management Board and approved for publication on 3 April For CROATIA osiguranje d.d. Zagreb Ivan Fabijančić, Member of the Management Board Krešimir Starčević, Chairman of the Management Board 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 Supplementary statements prescribed by the Ordinance of the Croatian Financial Services Supervisory Agency Pursuant to the Ordinance on structure and content of the financial statements of insurance and reinsurance companies (Official Gazette No. 132/10) adopted by the Croatian Financial Services Supervisory Agency on the basis of the Insurance Act and the Accounting Act, below are financial statements for the company CROATIA osiguranje d.d., Zagreb, prepared in the form prescribed by the said Ordinance. The harmonization of financial statements on pages 136 to 141, which are prescribed by the Ordinance on structure and content of the financial statements of insurance and reinsurance companies and annual financial statements prepared in accordance with IFRS framework, is shown on pages 142 to 146 under the title Harmonization of financial statements. 135

136 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Profit and Loss Account/Statement of Comprehensive Income for ITEM LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL HRK HRK EARNED PREMIUMS (INCOME) Gross written premiums 356,051,053 2,269,034,358 2,625,085, ,819,427 2,343,874,378 2,707,693,805 Co-insurance premiums Value adjustment and charged value adjustment of insurance premium 0 (40,795,113) (40,795,113) 0 (52,173,832) (52,173,832) Premiums ceded to reinsurance (124,520) (354,833,709) (354,958,229) (222,024) (377,743,981) (377,966,005) Premiums ceded to co-insurance (3,950,576) (3,950,576) Change in gross provisions for unearned premiums 277,364 (19,233,950) (18,956,586) 330,352 32,907,106 33,237,458 Change in provisions for unearned premiums, reinsurance share , ,230 2,516 1,005,634 1,008,150 Total earned premiums (income) 356,204,389 1,854,472,324 2,210,676, ,930,271 1,943,918,729 2,307,849,000 INCOME FROM INVESTMENT Income from subsidiaries, associates and joint ventures 73,750 46,084,983 46,158, ,986,202 61,986,202 Income from investment in land and buildings 0 36,279,941 36,279, ,282,145 40,282,145 Income from interest 103,986, ,803, ,790, ,208, ,159, ,368,751 Unrealized income from investment at fair value through P&L Account 1,502,186 1,444,078 2,946,264 19,173,222 17,682,021 36,855,243 Income from sale of financial investments 1,657,526 2,898,353 4,555,879 7,126,149 5,690,301 12,816,450 Net positive exchange rate differences 15,189,498 6,269,134 21,458,632 3,906,397 3,029,264 6,935,661 Other income from investment 516,597 24,134,227 24,650, ,520 29,707,320 29,868,840 Total income from investment 122,926, ,914, ,840, ,576, ,537, ,113,292 OTHER INCOME Income from commissions and fees 16,344 22,832,715 22,849,059 25,901 25,335,080 25,360,981 Other insurance-technical income, net of reinsurance 54,332 10,730,926 10,785, ,377 13,958,518 14,138,895 Other income 2,139,617 47,333,149 49,472, ,517 38,967,738 39,595,255 Total other income 2,210,293 80,896,790 83,107, ,795 78,261,336 79,095,131 EXPENDITURE FOR INSURED EVENTS, NET Settled claims (348,324,323) (1,070,457,023) (1,418,781,346) (260,364,269) (1,131,413,595) (1,391,777,864) Change in claims provisions 5,193, ,079, ,272,828 3,544,962 4,802,218 8,347,179 Total expenditure for insured events, net (343,131,167) (946,377,351) (1,289,508,518) (256,819,307) (1,126,611,377) (1,383,430,685) CHANGE IN OTHER TECHNICAL PROVISIONS, NET OF REINSURANCE Change in insurance mathematical provisions (34,954,626) 0 (34,954,626) (103,613,599) 0 (103,613,599) Change in other technical provisions, net of reinsurance 0 (7,846,035) (7,846,035) 0 (16,125,600) (16,125,600) Total change in other technical provisions, net of reinsurance (34,954,626) (7,846,035) (42,800,661) (103,613,599) (16,125,600) (119,739,199) CHANGE IN TECHNICAL PROVISIONS FOR LIFE INSURANCE WHERE THE POLICYHOLDER BEARS THE RISK Change in technical provisions for life insurance where the policyholder bears the risk Total change in technical provisions for life insurance where the policyholder bears the risk 3,696, ,696,021 4,947, ,947,345 3,696, ,696,021 4,947, ,947,

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 ITEM LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL HRK HRK OPERATING EXPENDITURE (EXPENDITURE FOR PERFORMANCE OF BUSINESS ACTIVITIES), NET Costs of sales (20,667,603) (223,328,653) (243,996,256) (21,458,321) (215,954,950) (237,413,271) Costs of managing (administrative costs) (69,045,011) (667,644,955) (736,689,966) (79,460,763) (587,408,918) (666,869,681) Total operating expenditure (expenditure for performance of business activities),net (89,712,614) (890,973,608) (980,686,222) (100,919,084) (803,363,868) (904,282,952) INVESTMENT COSTS Interest 0 (229,317) (229,317) 0 (27,665) (27,665) Value impairment of investment (287,507) (101,238,301) (101,525,808) (23,815,096) (92,037,974) (115,853,070) Losses from sale (realization) of investment (2,325,542) (5,640,415) (7,965,957) (3,076,766) (204,056) (3,280,822) Adjustment of financial assets at fair value through P&L Account (3,442,992) (4,752,535) (8,195,527) (887,183) (677,844) (1,565,027) Net negative exchange rate differences Other investment costs (512,557) (114,674,231) (115,186,788) (600,303) (59,460,385) (60,060,688) Total investment costs (6,568,598) (226,534,799) (233,103,397) (28,379,348) (152,407,924) (180,787,272) OTHER EXPENSES Other technical expenses, net of reinsurance (285,921) (77,742,351) (78,028,272) (267,483) (71,677,740) (71,945,223) Other expenses, including value adjustments 0 (4,579,485) (4,579,485) 0 (475,596) (475,596) Total other expenses (285,921) (82,321,836) (82,607,757) (267,483) (72,153,336) (72,420,819) TOTAL INCOME 479,962,164 2,187,317,689 2,667,279, ,569,516 2,308,937,351 2,807,506,868 TOTAL EXPENSES (471,733,837) (2,178,277,621) (2,650,011,458) (490,188,485) (2,198,893,322) (2,689,081,806) PROFIT BEFORE TAXATION 10,384,120 2,229,908 12,614,028 13,288, ,055, ,343,844 Corporate income tax (2,155,793) 6,810,160 4,654,367 (4,907,655) (17,011,127) (21,918,782) CURRENT YEAR PROFIT 8,228,327 9,040,068 17,268,395 8,381, ,044, ,425,061 Other comprehensive income 14,268,036 (316,755,377) (302,487,341) 3,383,613 (9,730,911) (6,347,298) TOTAL COMPREHENSIVE INCOME 22,496,363 (307,715,309) (285,218,946) 11,764, ,313, ,077,765 Investment income and expenditure by source is given below: 31 Dec Dec 2012 ITEM LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL HRK HRK Income from capital investment 1,066,152 46,655,882 47,722,034 1,706,496 68,645,680 70,352,186 Income from mathematical provisions investment 121,860, ,860, ,869, ,869,603 Income from other technical provisions investment 0 174,258, ,258, ,891, ,891,513 Total income from investment 122,926, ,914, ,840, ,576, ,537, ,113,291 Expenses from capital investment 5,986 10,682,602 10,688,588 9,303,225 41,318,175 50,621,400 Expenses from mathematical provisions investment 6,562, ,562,612 19,076, ,076,123 Expenses from other technical provisions investment 0 215,852, ,852, ,089, ,089,748 Total investment expenses 6,568, ,534, ,103,397 28,379, ,407, ,787,

138 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Balance Sheet/Statement of Financial Position as at 31 December Dec Dec 2012 ITEM LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL HRK HRK INTANGIBLE ASSETS Other intangible assets 0 14,770,503 14,770, ,486,212 11,486,212 Total intangible assets 0 14,770,503 14,770, ,486,212 11,486,212 TANGIBLE ASSETS Land and buildings used for the company s business operations 0 894,713, ,713, ,143,937,615 1,143,937,615 Equipment 0 25,380,438 25,380, ,978,763 26,978,763 Other tangible assets 0 5,475,382 5,475, ,128,086 5,128,086 Total tangible assets 0 925,569, ,569, ,176,044,464 1,176,044,464 INVESTMENTS Investments in land and buildings not used for the company s business operations 0 656,118, ,118, ,380, ,380,926 Investments in subsidiaries, associates and joint ventures 0 395,148, ,148, ,344, ,344,809 Other financial investments 2,121,439,942 2,526,592,208 4,648,032,150 2,048,883,896 2,309,650,282 4,358,534,178 Total investments 2,121,439,942 3,577,858,430 5,699,298,372 2,048,883,896 3,576,376,017 5,625,259,913 INVESTMENTS FOR THE ACCOUNT AND RISK OF THE LIFE INSURANCE POLICY HOLDER Investments for the account and risk of the life insurance policy holder 8,388, ,388,857 11,425, ,425,214 Total investments for the account and risk of the life insurance policy holder 8,388, ,388,857 11,425, ,425,214 REINSURANCE SHARE IN TECHNICAL PROVISIONS Unearned premiums, reinsurance share 3,146 48,009,776 48,012,922 2,655 47,709,039 47,711,694 Mathematical provisions, reinsurance share 284, , , ,049 Claims provisions, reinsurance share 0 278,688, ,688, ,352, ,352,027 Total reinsurance in technical provisions 287, ,697, ,985, , ,061, ,293,770 DEFERRED AND CURRENT TAX ASSETS Deferred and current tax assets 1,259,199 53,693,672 54,952,871 2,638,059 13,976,486 16,614,545 Total deferred and current tax assets 1,259,199 53,693,672 54,952,871 2,638,059 13,976,486 16,614,545 RECEIVABLES Receivables from direct insurance 0 549,085, ,085, ,888, ,888,617 Receivables from agents and brokers in insurance 109,449 1,623,595 1,733,044 95,048 1,262,260 1,357,308 Receivables from co-insurance and reinsurance 0 12,349,998 12,349, ,592,015 6,592,015 Total other receivables 3,956, ,056, ,013,393 10,284, ,090, ,374,340 Total receivables 4,066, ,115, ,181,992 10,379, ,832, ,212,280 OTHER ASSETS Cash at bank and in hand 9,866,925 93,839, ,706,404 12,616,602 53,050,337 65,666,939 Other 10,082 5,266,973 5,277,055 65,395 12,057,391 12,122,786 Total other assets 9,877,007 99,106, ,983,459 12,681,997 65,107,728 77,789,725 PREPAYMENTS AND ACCRUED INCOME Prepayments and accrued income 32,454,170 33,809,231 66,263,401 27,316,541 33,527,329 60,843,870 Total prepayments and accrued income 32,454,170 33,809,231 66,263,401 27,316,541 33,527,329 60,843,

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 ITEM 31 Dec Dec 2012 LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL HRK HRK TOTAL ASSETS 2,177,773,093 5,800,621,514 7,978,394,607 2,113,557,714 6,041,412,279 8,154,969,993 OFF-BALANCE SHEET ITEMS 82,647,220 1,112,471,075 1,195,118, ,050,374,591 1,050,374,591 CAPITAL AND RESERVES Subscribed capital 44,288, ,598, ,887,200 44,288, ,598, ,887,200 Revaluation reserves 1,997, ,855, ,853,531 (12,270,123) 459,326, ,056,364 Reserves 81,746, ,943, ,689,733 79,651, ,432, ,083,467 Transferred (retained) profit or loss 13,587, ,289, ,877,437 7,302, ,846, ,148,429 Current year profit 8,228,327 9,040,068 17,268,395 8,381, ,044, ,425,062 Total capital and reserves 149,849,087 1,316,727,209 1,466,576, ,352,724 1,624,247,798 1,751,600,522 TECHNICAL PROVISIONS Unearned premiums, gross amount 2,752, ,736, ,489,075 3,030, ,502, ,532,489 Insurance mathematical provisions, gross amount 1,955,270, ,955,270,395 1,920,261, ,920,261,070 Claims provisions, gross amount 27,298,983 2,665,161,560 2,692,460,543 32,492,139 2,811,905,165 2,844,397,304 Fluctuation provisions 0 3,571,635 3,571, ,725,600 1,725,600 Other insurance-technical provisions, gross amount 0 43,827,000 43,827, ,827,000 37,827,000 Total technical provisions 1,985,322,093 3,645,296,555 5,630,618,648 1,955,783,288 3,764,960,175 5,720,743,463 TECHNICAL PROVISIONS FOR LIFE INSURANCE WHEN THE POLICYHOLDER BEARS THE RISK Technical provisions for life insurance when the policyholder bears the risk Total technical provisions for life insurance when the policyholder bears the risk 8,388, ,388,857 11,425, ,425,214 8,388, ,388,857 11,425, ,425,214 OTHER PROVISIONS Other provisions 10,165,273 98,950, ,115,907 14,943,980 87,584, ,528,736 Total other provisions 10,165,273 98,950, ,115,907 14,943,980 87,584, ,528,736 DEFERRED AND CURRENT TAX LIABILITIES Deferred and current tax liability 499,478 33,963,904 34,463, ,432, ,432,737 Total deferred and current tax liability 499,478 33,963,904 34,463, ,432, ,432,737 FINANCIAL LIABILITIES Financial liabilities 0 350,056, ,056, ,085,478 50,085,478 Total financial liabilities 0 350,056, ,056, ,085,478 50,085,478 OTHER LIABILITIES Liabilities arising from direct insurance 2,547,239 84,698,307 87,245,546 2,099,551 81,632,589 83,732,140 Liabilities arising from co-insurance and reinsurance 1,725 17,205,005 17,206,730 3,197 17,952,945 17,956,142 Other liabilities 11,980,198 86,288,588 98,268, ,349 86,340,954 86,444,303 Total other liabilities 14,529, ,191, ,721,062 2,206, ,926, ,132,585 ACCRUALS AND DEFERRED INCOME Accruals and deferred income 9,019, ,434, ,453,880 1,846, ,174, ,021,258 Total accruals and deferred income 9,019, ,434, ,453,880 1,846, ,174, ,021,258 TOTAL LIABILITIES 2,177,773,093 5,800,621,514 7,978,394,607 2,113,557,714 6,041,412,279 8,154,969,993 OFF-BALANCE SHEET ITEMS 82,647,220 1,112,471,075 1,195,118, ,050,374,591 1,050,374,

140 ANNUAL REPORT / 2013 / 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 2013 REVALUATION RESERVES RESERVES (LEGAL, STATUTORY, OTHER) RETAINED PROFIT OR TRANSFERRED LOSS PROFIT/LOSS IN THE CURRENT YEAR TOTAL CAPITAL AND RESERVES PAID UP CAPITAL HRK Balance as at 1 January in the current year 442,887, ,091, ,466, ,973,854 78,666,745 1,641,086,136 Correction of errors from previous periods (583,379) 0 (583,379) Balance as at 1 January in the current year (corrected) 442,887, ,091, ,466, ,390,475 78,666,745 1,640,502,757 Comprehensive income or loss in the current year 0 (13,035,195) 0 6,687, ,425, ,077,765 Profit or loss in the period ,425, ,425,062 Other comprehensive income or loss in the current year 0 (13,035,195) 0 6,687,898 0 (6,347,297) Unrealized profit or loss from tangible assets 0 (5,350,317) 0 6,687, ,337,581 Unrealized profit or loss from financial assets available for sale 0 (7,310,533) (7,310,533) Realized profit or loss from financial assets available for sale 0 (374,345) (374,345) Transactions with owners (current period) ,616,689 55,070,056 (78,666,745) (980,000) Payment of share in profit/dividend (980,000) (980,000) Other transactions with owners ,616,689 55,070,056 (77,686,745) 0 Balance on the last day of the reporting period in the current year Balance on the last day of the reporting period in the previous year 442,887, ,056, ,083, ,148, ,425,061 1,751,600,522 Balance as at 1 January in the current year 442,887, ,056, ,083, ,148, ,425,061 1,751,600,522 Correction of errors from previous periods 1,174,720 1,174,720 Balance as at 1 January in the current year (corrected) 442,887, ,056, ,083, ,323, ,425,061 1,752,775,242 Comprehensive income or loss in the current year (309,202,833) 6,715,492 17,268,395 (285,218,946) Profit or loss in the period 17,268,395 17,268,395 Other comprehensive income or loss in the current year (309,202,833) 6,715,492 (302,487,342) Unrealized profit or loss from tangible assets (352,545,956) 6,715,492 (345,830,464) (345,830,464) Unrealized profit or loss from financial assets available for sale 42,924,196 42,924,196 Realized profit or loss from financial assets available for sale 418, ,926 Transactions with owners (current period) 29,606,265 87,838,796 (118,425,061) (980,000) Payment of share in profit/dividend (980,000) (980,000) Other transactions with owners 29,606,265 87,838,796 (117,445,061) 0 Balance on the last day of the reporting period in the current year 442,887, ,853, ,689, ,877,437 17,268,395 1,466,576,

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 Cash Flow Statement for 2013 indirect method ITEM HRK CASH FLOW FROM OPERATING ACTIVITIES Profit/loss before tax 12,614, ,343,844 Depreciation of real estate and equipment 41,218,625 44,218,441 Amortization of intangible assets 4,872,686 3,594,757 Value impairment and profit/loss from adjusting to fair value 106,775,070 80,562,854 Interest expenses 229,317 27,664 Interest income (207,790,492) (220,368,751) Shares in profit of associates (46,158,733) (61,986,202) Profit/loss from sale of tangible assets (including land and buildings) (8,098,370) (26,728,286) Other adjustments (306,946,988) 14,008,107 Cash flow before change in operating assets and liabilities (403,284,857) (26,327,572) Increase/decrease of investments available for sale (89,721,069) 66,136,481 Increase/decrease of investments valuated at fair value through P&L Account 149,925,302 (419,770,481) Increase/decrease of deposits, loans and receivables 115,683,923 10,416,461 Increase/decrease of investments for the account and risk of life insurance policy holder 3,036,357 4,895,412 Increase/decrease of reinsurance share in technical provisions 22,308,005 62,640,573 Increase/decrease of tax assets (38,338,326) (11,449,446) Increase/decrease of receivables 189,385,859 53,581,411 Increase/decrease of prepayments and accrued income (5,419,532) (7,817,070) Increase/decrease of technical provisions (90,124,816) 14,505,839 Increase/decrease of technical provisions for life insurance when the policyholder bears the investment risk (3,036,357) (4,895,412) Increase/decrease of tax liabilities (96,969,354) 3,227,987 Increase/decrease of financial liabilities 26,829,771 (3,464,012) Increase/decrease of other liabilities (22,567,378) 164,418,858 Increase/decrease in operating assets and liabilities 160,992,384 (67,573,400) Paid corporate income tax 4,654,367 (21,918,782) Net cash flow from operating activities (237,638,106) (115,819,754) CASH FLOW FROM INVESTMENT ACTIVITIES Receipts from sale of tangible assets 250,475,078 38,967,965 Expenditure for purchase of tangible assets (41,218,625) (44,218,441) Expenditure for purchase of intangible assets (8,156,977) (7,964,530) Expenditure for purchase of land and buildings not used for the company s business operations 208,732,775 (22,136,795) Increase/decrease of investment in subsidiaries, associates and participation in joint ventures 64,355,514 80,014,148 Expenditure for held-to-maturity investments (471,566,072) (158,090,652) Receipts from dividend and share in profit 71,434,922 61,998,554 Receipts from repayment of granted short-term and long-term loans 231,287, ,521,875 Expenditure for granted short-term and long-term loans (313,796,019) (195,313,420) Net cash flow from investment activities (8,451,552) 112,778,704 CASH FLOW FROM FINANCIAL ACTIVITIES Cash receipts from received short-term and long-term loans 470,234,193 50,031,466 Cash expenditure for repayment of received short-term and long-term loans (170,492,413) (78,845) Cash expenditure for payment of share in profit (dividend) (999,756) (990,080) Net cash flow from financial activities 298,742,024 48,962,541 NET CASH FLOW 52,652,366 45,921,491 EFFECTS OF FOREIGN CURRENCY EXCHANGE RATE FLUCTUATION ON CASH AND CASH EQUIVALENTS (21,458,632) (6,935,661) NET INCREASE/DECREASE OF CASH AND CASH EQUIVALENTS 31,193,734 38,985,830 Cash and cash equivalents at the beginning of the period 77,789,725 38,803,895 Cash and cash equivalents at the end of the period 108,983,459 77,789,725 NET INCRESE/DECREASE OF CASH AND CASH EQUIVALENTS 31,193,734 38,985,830 For CROATIA osiguranje d.d. Zagreb Ivan Fabijančić, Member of the Management Board Krešimir Starčević, Chairman of the Management Board 141

142 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Harmonization of Financial Statements and supplementary statements prescribed by the Croatian Financial Services Supervisory Agency Harmonization of financial statements shown on pages 136 to 141, which are prescribed by the Ordinance on structure and content of the financial statements of insurance and reinsurance companies, and annual financial statements prepared in accordance with IFRS framework, is shown on pages 142 to 146. ITEM SUPPLEMENTARY STATEMENTS PRESCRIBED BY THE ORDINANCE OF CROATIAN FINANCIAL SERVICES SUPERVISORY AGENCY OTHER TANGIBLE ASSETS AND INVENTORY TRANSFERRED TO OTHER RECEIVABLES TRANSFER OF INVESTMENTS FOR THE ACCOUNT AND RISK OF LIFE INSURANCE POLICYHOLDERS TO FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS TRANSFER OF DEPOSITS WITH AGREED MATURITY OF UP TO 3 MONTHS FROM DEPOSITS TO CASH AND CASH EQUIVALENTS TRANSFER OF CURRENT TAX ASSETS TO OTHER RECEIVABLES TRANSFER OF PREPAYMENTS AND ACCRUED INCOME TO OTHER RECEIVABLES TRANSFER OF RECEIVED CHEQUES AND BILLS OF EXCHANGE FROM CASH TO OTHER RECEIVABLES BASIC FINANCIAL STATEMENTS In HRK 000 INTANGIBLE ASSETS Other intangible assets 14,771 14,771 Total intangible assets 14,771 14,771 TANGIBLE ASSETS Land and buildings used for the company s business operations 894, ,714 Equipment 25,380 25,380 Other tangible assets 5,475 (1,572) 3,903 Total tangible assets 925,569 (1,572) 923,997 INVESTMENTS Investments in land and buildings not used for the company s business operations 656, ,118 Investments in subsidiaries, associates and joint ventures 395, ,148 Held-to-maturity investments 2,638,864 2,638,864 Financial assets available for sales 276, ,548 Financial assets at fair value through P&L Account 529,230 8, ,619 Loans and receivables 1,203,390 (117,414) 1,085,976 Total investments 5,699,298 8,389 (117,414) 5,590,274 INVESTMENTS FOR THE ACCOUNT AND RISK OF LIFE INSURANCE POLICY HOLDER Investments for the account and risk of life insurance policy holder 8,389 (8,398) 0 REINSURANCE SHARE IN TECHNICAL PROVISIONS Unearned premiums, reinsurance share 48,013 48,013 Mathematical provisions, reinsurance share Claims provisions, reinsurance share 278, ,688 Total reinsurance share in technical provisions 326, ,986 DEFERRED AND CURRENT TAX ASSETS Total deferred and current tax assets 54,953 (8,683) 46,270 RECEIVABLES Receivables from direct insurance 549, ,086 Receivables from agents or brokers in insurance 1,733 1,733 Receivables from co-insurance and reinsurance 12,350 12,350 Total other receivables 210,013 81, ,809 Total receivables 773,182 81, ,978 OTHER ASSETS Cash at bank and in hand 103, , ,120 Other 5,277 (5,277) 0 Total other assets 108, ,414 (5,277) 221,

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 ITEM SUPPLEMENTARY STATEMENTS PRESCRIBED BY THE ORDINANCE OF CROATIAN FINANCIAL SERVICES SUPERVISORY AGENCY OTHER TANGIBLE ASSETS AND INVENTORY TRANSFERRED TO OTHER RECEIVABLES TRANSFER OF INVESTMENTS FOR THE ACCOUNT AND RISK OF LIFE INSURANCE POLICYHOLDERS TO FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS TRANSFER OF DEPOSITS WITH AGREED MATURITY OF UP TO 3 MONTHS FROM DEPOSITS TO CASH AND CASH EQUIVALENTS TRANSFER OF CURRENT TAX ASSETS TO OTHER RECEIVABLES TRANSFER OF PREPAYMENTS AND ACCRUED INCOME TO OTHER RECEIVABLES TRANSFER OF RECEIVED CHEQUES AND BILLS OF EXCHANGE FROM CASH TO OTHER RECEIVABLES BASIC FINANCIAL STATEMENTS In HRK 000 PREPAYMENTS AND ACCRUED INCOME Total prepayments and accrued income 66,263 (66,263) 0 TOTAL ASSETS 7,978,395 7,978,395 ITEM SUPPLEMENTARY STATEMENTS PRESCRIBED BY THE ORDINANCE OF CROATIAN FINANCIAL SERVICES SUPERVISORY AGENCY TRANSFER OF SPECIAL PROVISIONS FOR LIFE INSURANCE WHERE THE POLICYHOLDER BEARS THE RISK TO TECHNICAL PROVISIONS TRANSFER OF LIABILITIES FOR HOUSING FUND FROM OTHER PROVISIONS TO OTHER LIABILITIES TRANSFER OF ACCRUALS AND DEFERRED INCOME TO OTHER LIABILITIES BASIC FINANCIAL STATEMENTS In HRK 000 CAPITAL AND RESERVES Subscribed capital 442, ,887 Subscribed capital Revaluation reserves 137, ,854 Revaluation reserves Reserves 508, ,690 Reserves Transferred (retained) profit or loss 359, ,877 Retained profit Current year profit 17,268 17,268 Current year profit Total capital and reserves 1,466,576 1,466,576 TECHNICAL PROVISIONS Unearned premiums, gross 935, ,489 Mathematical provisions, gross amount 1,955,270 1,955,270 Claims provisions, gross amount 2,692,461 2,692,461 Fluctuation provisions 3,572 3,572 Other insurance-technical provisions, gross amount 43,827 8,389 52,216 Total technical provisions 5,630,619 8,389 5,639,008 Technical provisions TECHNICAL PROVISIONS FOR LIFE INSURANCE WHEN THE POLICYHOLDER BEARS THE RISK Technical provisions for life insurance when the policyholder bears the risk Total technical provisions for life insurance when the policyholder bears the risk OTHER PROVISIONS 8,389 (8,389) 0 8,389 (8,389) 0 Other provisions 109,116 (1,880) 107,236 Provisioning Total other provisions 109,116 (1,880) 107,236 DEFERRED AND CURRENT TAX LIABILITY Deferred and current tax liability 34,463 34,463 Deferred tax assets Total deferred and current tax liability 34,463 34,463 FINANCIAL LIABILITIES Financial liabilities 350, ,057 Total financial liabilities 350, ,057 OTHER LIABILITIES Liabilities arising from direct insurance 87,246 87,246 Liabilities arising from insurance contracts Liabilities arising from co-insurance and reinsurance 17,206 17,206 Liabilities arising from insurance contracts Other liabilities 98,269 1, , ,603 Other liabilities Total other liabilities 202,721 1, , ,055 ACCRUALS AND DEFERRED INCOME Accruals and deferred income 176,454 (176,454) 0 TOTAL LIABILITIES 7,978,395 7,978,

144 ANNUAL REPORT / 2013 / 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 Comprehensive Income (Profit and Loss Account) for the period 1 January December 2013 EARNED PREMIUMS (RECOGNIZED IN INCOME) ITEM SUPPLEMENTARY STATEMENTS PRESCRIBED BY THE ORDINANCE OF CROATIAN FINANCIAL SERVICES SUPERVISORY AGENCY TRANSFER OF VALUE IMPAIRMENT OF RECEIVABLES FOR PREMIUM TO GROSS WRITTEN PREMIUM TRANSFER OF CHANGES OF PROVISIONS TO INCURRED CLAIMS In HRK 000 OFFSETTING FINANCIAL INCOME AND EXPENDITURE BASIC FINANCIAL STATEMENTS Gross written premiums 2,625,085 (40,795) 2,584,290 Value adjustment and charged value adjustment of insurance premium (40,795) 40,795 0 Premiums ceded to reinsurance (354,958) (354,958) Change of gross provisions for unearned premiums (18,957) (18,957) Change of provisions for unearned premiums, reinsurance share Total earned premiums (recognized in income) 2,210,676 2,210,676 INCOME FROM INVESTMENT Income from subsidiaries, associates and joint ventures 46, ,159 Income from investments in land and buildings 36,280 (79,059) (42,779) Income from interest 207,790 (229) 207,561 Unrealized profit from investment at fair value through P&L Account 2,946 (8,195) (5,249) Profit from sale of financial investments 4,556 (7,966) (3,410) Net positive exchange rate differences 21,459 21,459 Value impairment of investment 0 (125,140) (125,140) Other income from investment 24,651 (12,514) 12,137 Total income from investment 343,841 (233,103) 110,738 OTHER INCOME Income from commissions and fees 22,849 22,849 Other insurance-technical income, net of reinsurance 10,785 10,785 Other income 49,473 49,473 Total other income 83,107 83,107 EXPENDITURE FOR INSURED EVENTS, NET Settled claims, gross (1,627,273) 112,777 (1,514,496) Reinsurance share 208,492 (22,609) 185,883 Change of claims provisions, gross 151,937 (151,937) Reinsurance share (22,664) 22,665 Total expenditure for insured events, net (1,289,508) (39,105) (1,328,613) CHANGE OF MATHEMATICAL PROVISIONS, NET OF REINSURANCE Change of insurance mathematical provisions (35,009) 35,009 0 Reinsurance share 55 (55) 0 Change of other technical provisions, net of reinsurance (7,846) 7,846 0 Reinsurance share CHANGE OF TECHNICAL PROVISIONS FOR LIFE INSURANCE WHEN THE POLICYHOLDER BEARS THE RISK Change of technical provisions for life insurance when the policyholder bears the risk 3,696 (3,696) 0 Total change of technical provisions for life insurance when the policyholder bears the risk 3,696 (3,696) 0 OPERATING EXPENDITURE (EXPENDITURE FOR PERFORMANCE OF BUSINESS ACTIVITIES), NET Sales costs (243,996) (243,996) Costs of managing (administrative costs) (736,690) (736,690) Total operating expenditure (expenditure for performance of business activities),net (980,686) (980,686) 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 INVESTMENT EXPENSES ITEM SUPPLEMENTARY STATEMENTS PRESCRIBED BY THE ORDINANCE OF CROATIAN FINANCIAL SERVICES SUPERVISORY AGENCY TRANSFER OF VALUE IMPAIRMENT OF RECEIVABLES FOR PREMIUM TO GROSS WRITTEN PREMIUM TRANSFER OF CHANGES OF PROVISIONS TO INCURRED CLAIMS In HRK 000 OFFSETTING FINANCIAL INCOME AND EXPENDITURE BASIC FINANCIAL STATEMENTS Interest (229) Value impairment of investment ( ) Losses from sale (realization) of investment (7.966) Value adjustment of financial assets at fair value through P&L Account (8.196) Net negative exchange rate differences Other investment expenses ( ) Total investment expenses ( ) 0 OTHER EXPENSES Other technical expenses, net of reinsurance (78.028) (78.028) Other expenses, including value adjustments (4.579) (4.579) Total other expenses (82.608) (82.608) PROFIT BEFORE TAXATION Corporate income tax CURRENT YEAR PROFIT Other comprehensive income ( ) ( ) TOTAL COMPREHENSIVE INCOME ( ) ( ) Differences between the items of the Statement of Financial Position as at 31 December 2013, disclosed in annual statements and in the supplementary financial statements prescribed by Ordinances adopted by the Croatian Financial Services Supervisory Agency (HANFA) refer to the following categories: Statement of Financial Position Assets The item Other tangible assets and inventory from financial statements for the requirements of HANFA is presented in the basic financial statements under the item Other receivables. Deposits with maturity of under 3 months are presented in the basic financial statements within the item Cash and cash equivalents, whereas in the financial statements for HANFA they are presented under the item Other investments. Investments for the account and risk of life insurance policyholders are presented in the basic financial statements within the item Financial assets at fair value through Profit and Loss Account, but these are presented separately in the statements for HANFA. The item Current tax assets is presented in the basic financial statements within the item Other receivables, but in the financial statements for HANFA it is presented under the item Deferred and current tax liability. The item Other assets is presented in the basic financial statements within the item Other receivables, whereas in the financial statements for HANFA it is presented separately. Accrued interest and rent and Other prepayments and accrued income are presented separately in the financial statements for HANFA, while in statements according to IFRS they are presented under the item Other receivables. 145

146 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Capital and liabilities The item Special provision for life insurance where the policyholder bears the investment risk is presented in the basic financial statements within the item Technical provisions, whereas in the financial statements for HANFA they are presented as a separate item. Accruals and deferred income are presented separately in the financial statements for HANFA, whereas in basic financial statements they are presented under the item Other liabilities. Provisions for housing fund are presented in the statements according to IFRS within the item Other liabilities, whereas in the financial statements for HANFA they are presented under the item Other provisions. Statement of Comprehensive Income Differences between the items of the Statement of Comprehensive Income (Profit and Loss Account), disclosed in the annual report in relation to the standard prescribed by the HANFA Ordinance refer to the following categories: Value adjustment and charged value adjustment of insurance premium is presented in the financial statements in accordance with IFRS within the item Written premium, while in the basic financial statements it is presented under the item Gross written premium. Investment income and expenses are offset in the basic financial statements, whereas in the financial statements for HANFA they are presented as separate items. Cash Flow Statement Cash Flow Statement prepared in accordance with the Ordinance on the structure and contents of financial statements of insurance and reinsurance companies, the production of which is described in detail in the Instructions for completing financial statements of insurance and reinsurance companies, differs significantly in terms of presentation from the Cash Flow Statement in the basic financial statements. The main differences are described below: 1. Under the item Adjustments in the Cash Flow Statement profit before tax is reduced by net financial income and increased by cash receipts from interest and net profit from sale of financial investments, thus isolating the non-cash effects (especially the effect of foreign exchange rate differences and unrealized profit) while adjustments for the Cash Flow Statement according to HANFA include interest income and expenses, value impairment and the effects of adjustment to fair value and other adjustments. 2. Discrepancies in items pertaining to increase or decrease in operating assets and liabilities presented in the Cash Flow Statement and the Cash Flow Statement according to HANFA can be ascribed in certain items to discrepancies within the items of assets and liabilities whose differences are taken into account, as a result of their different presentation in the basic financial statements in relation to the requirements as prescribed by HANFA Ordinance, which are described in detail and reported under adjustments of ASSETS and LIABILITIES. 3. In addition, for the purpose of preparing the Cash Flow Statement the net cash flow approach (sales and maturities net of purchase or acquisition of assets with the elimination of all non-cash items) was used for changes in the financial assets, while changes containing the effects of changes in the fair value and exchange rates, or non-cash items, were calculated and presented in HANFA forms. Statement of Changes in Equity Current period profit is presented in statements according to HANFA under the same item name, and in the following period, upon adoption of the Decision by the General Assembly and the Supervisory Board, the loss is transferred through Other non-owner changes in equity to Retained profit, while in the financial statements according to IFRS it is presented immediately under the item Current year profit. 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 Consolidated Annual Report of the Company for 2013

148 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht /

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 CROATIA osiguranje Group Organization scheme of CROATIA osiguranje Group Croatia Lloyd d.d., Zagreb, % Croatia osiguranje a.d. life insurance company, Skopje, Macedonia, 95.00% Milenijum osiguranje a.d., Belgrade, Serbia, 99.78% Croatia osiguranje a.d. nonlife insurance company, Skopje, Macedonia, % Croatia osiguranje d.d. Ljubuški, Bosnia and Herzegovina, 52.05% Croatia Sigurimi sh.a., Pristina, Kosovo, % PBZ Croatia osiguranje d.d., Zagreb, 50.00% Croatia osiguranje dobrovoljno mirovinsko društvo d.o.o., Zagreb, % Razne usluge d.o.o. currently being wound up, Zagreb, % Croatia zdravstveno osiguranje d.d., Zagreb (66.19% CO i 33.81% Croatia Lloyd) Herz d.d., Požega, % Croatia tehnički pregledi d.o.o., Zagreb, % Slavonijatrans tehnički pregledi d.o.o., Slavonski brod, 76.00% Croatia mirovni dom d.o.o., Zagreb, % Plančić d.o.o., Vrbanj, 51.00% Histria Construct d.o.o., % Milenijum Auto d.o.o., Belgrade, Serbia, % Crotehna d.o.o., Ljubuški, Bosina and Herzegovina, % Croauto d.o.o., Mostar, Bosina and Herzegovina, 66.79% Croatia remont d.d., Čapljina, Bosina and Herzegovina, 69.79% Croatia Vitez d.o.o., Vitez, Bosina and Herzegovina, 90.04% Hotel Hum d.o.o., Ljubuški, Bosina and Herzegovina, (CO Ljubuški d.d. 80% and Crotehna d.o.o. 20%) Poliklinika Ars Medica, Pula, 74.00% Poliklinika Croatia zdravstveno osiguranje, Zagreb, % STP PITOMAČA, Pitomača, % Stanica za tehničke preglede vozila Blato d.o.o., % Ponte d.o.o., Mostar, Bosina and Herzegovina, (Crotehna and Croauto each 50.00%) 149

150 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht /

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 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 a.d. društvo za osiguranje života (life insurance company), Skopje and CROATIA osiguranje d.d. društvo za neživotno osiguranje (non-life insurance company), 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, Razne usluge d.o.o., currently being wound up, 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. 151

152 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Gross result of CROATIA osiguranje Group Jan Dec 2013 GROUP MEMBER RESULT OF CROATIA OSIGURANJE GROUP Jan Dec 2013 SHARE Jan-Dec 2012 Jan-Dec 2013 PLAN Jan-Dec 2013 CHANGE 2013 / PLAN (4 : 5) CHANGE 2013 / 2012 (4 : 3) % In HRK 000 % % CROATIA osiguranje d.d. 140,344 12, , CROATIA Lloyd d.d ,790 20,935 26, CROATIA zdravstveno osiguranje d.d ,312-14,161 4,000 CROATIA osiguranje d.d., Ljubuški ,584 3,984 4, MILENIJUM osiguranje a.d., Belgrade ,120-35,935 4,108 CROATIA Sigurimi sh.a., Pristina ,188 1, CROATIA osiguranje a.d., LIFE, Skopje ,434 2,737 2, CROATIA osiguranje a.d., NON-LIFE, Skopje ,435-14,837 2, CROATIA osiguranje mirovinsko društvo d.o.o PBZ CROATIA osiguranje d.d.* ,267 11,975 9, RAZNE USLUGE d.o.o ,030-5,386-6, CROATIA tehnički pregledi d.o.o ,003 6,918 8, SLAVONIJATRANS tehnički pregledi d.o.o HERZd.d ,998 2,360 1, Gross profit / loss of CO Group 201,830-10, ,577 * Proportionate consolidation. result below planned result equal to or above planned Source: Reporting package (collection of reports) for consolidation of financial reports of Croatia osiguranje Group as at 31 Dec 2012, 31 Dec 2013; Business plan for the period from 1 Jan 2013 to 31 Dec 2013 Summary CROATIA osiguranje Group did not realize the planned gross profit in 2013; Result of the Group is gross loss in the amount of HRK 10.5 mil.; 8 Group members, including CROATIA osiguranje d.d., did not realize the plan for 2013; 6 Group members realized the plan for 2013; Out of 8 insurance companies within the Group only CROATIA osiguranje Life a.d. Skopje realized the plan for 2013; 5 companies within the Group, three of which are insurance companies, realized a negative business result; Out of 6 non-insurance companies only CROATIA tehnički pregledi d.o.o. did not realize the plan for

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 Insurance companies 1. CROATIA LLOYD d.d., Zagreb Ulica grada Vukovara 62, Zagreb CROATIA Lloyd d.d. 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. The Company s Management Board 1. Kitica Mioč, Chairwoman 2. Tomislav Malenica, Member Ownership structure 1. CROATIA osiguranje d.d % The Company has stakes in other companies as follows 1. CROATIA Mirovni Dom d.o.o., Zagreb % 2. Histria Construct d.o.o % 3. Plančić d.o.o., Vrbanj 51.00% 4. Strmec projekt d.o.o., Zagreb 49.76% 5. CROATIA zdravstveno osiguranje d.d., Zagreb 33.81% Business results CHANGE % 2013 / 2012 CHANGE % 2013 / PLAN P&L ACCOUNT, BALANCE SHEET In HRK 000 REALIZED Q REALIZED Q PLAN Q 3 : 2 3 : Total income 243, , , Total expenditure 216, , , Profit/loss after taxation 26,601 13,280 20, Gross premium written 427, , , Equity 116, , , Capital and reserves 301, , , Total Assets/Liabilities 929, , , Technical provisions 525, , , Equity in the currency HRK 116,060,800 Stake of CO / total number of shares 145,076 (100.00%) / 145,076 Par value of share HRK Number of employees at end of period 2012 / / 34 Source: Reporting package (collection of reports) for consolidation of financial reports of Croatia osiguranje Group as at 31 Dec 2012, 31 Dec

154 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Business events after fiscal year end As of February 27, 2014 the new one-year term of office has been in effect for Chairwoman of the Management Board Kitica Mioč, while Mr. Vančo Balen has been given the position of Member of the Management Board and his one-year term of office has been in effect as of the same date. 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 15,000, 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%. The Company s Management Board 1. Damir Mihanović, Chairman 2. Mario Puljiz, Member Ownership structure CROATIA osiguranje d.d % Croatia Lloyd d.d % The Company has majority stakes in two polyclinics 1. Polyclinic Croatia zdravstveno osiguranje Ars Medica in Pula 74.00% 2. Polyclinic Croatia zdravstveno osiguranje in Zagreb % Business results CHANGE % 2013 / 2012 CHANGE % 2013 / PLAN P&L ACCOUNT, BALANCE SHEET In HRK 000 REALIZED Q REALIZED Q PLAN Q 3 : 2 3 : Total income 111, , , Total expenditure 108, ,704 98, Profit/loss after taxation 3,393-5,455 3,200 Gross premium written 98, ,847 98, Equity 44,363 44,363 44, Capital and reserves 61,974 50,867 64, Total Assets/Liabilities 130, , , Technical provisions 54,591 80,930 50, Equity in the currency HRK 44,363,000 Stake of CO / total number of shares 29,363 (66.19%) / 44,363 Par value of share HRK 1, Number of employees at end of period 2012 / / 168 Source: Reporting package (collection of reports) for consolidation of financial reports of Croatia osiguranje Group as at 31 Dec 2012, 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 3. CROATIA OSIGURANJE d.d., LJUBUŠKI, BiH Nikole Kordića bb, Ljubuški, BiH The Company s Management Board 1. Mladen Markotić, Managing Director 2. Viktor Zadro, Executive Director Ownership structure 1. CROATIA osiguranje d.d % 2. Ivan Luburić, Ljubuški 9.55% 3. Zdravko Petrović, Zagreb 8.24 % 4. Nedeljka Bilić, Ljubuški 2.69% 5. Bishop s Ordinariate, Mostar 2.39% 6. Others 25.08% The Company has stakes in other companies 1. Crotehna d.o.o., Ljubuški % 2. Croatia Vitez d.o.o., Vitez 90.04% 3. Croatia Remont d.d., Čapljina 69.79% 4. Croauto d.o.o., Mostar 66.80% 5. Hotel Hum d.o.o., Ljubuški 80.00% 6. 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). Business results CHANGE % 2013 / 2012 CHANGE % 2013 / PLAN P&L ACCOUNT, BALANCE SHEET In HRK 000 REALIZED Q REALIZED Q PLAN Q 3 : 2 3 : Total income 138, , , Total expenditure 134, , , Profit/loss after taxation 4,584 3,984 4, Gross premium written 140, , , Equity 30,869 31,245 30, Capital and reserves 96,089 96,611 89, Total Assets/Liabilities 306, , , Technical provisions 198, , , Equity in the currency BAM 8,018,304 (HRK 31,244,960) Stake of CO / total number of shares 15,690 (52.05%) / 30,144 Par value of share BAM 266 Number of employees at end of period 2012 / / 255 Source: Reporting package (collection of reports) for consolidation of financial reports of Croatia osiguranje Group as at 31 Dec 2012, 31 Dec

156 ANNUAL REPORT / 2013 / 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. MILENIJUM osiguranje a.d., Belgrade Milutina Milankovića br. 19 b, Novi Beograd, Republic of Serbia Director Aleksandar Marić Representatives 1. Pero Mijakić 2. Alen Šepec Ownership structure 1. CROATIA osiguranje d.d % 2. Ilija Crnomarković 0.12% 3. Veljko Knežević 0.10% The Company has stakes in other companies Milenijum Auto d.o.o. Beograd % Business results CHANGE % 2013 / 2012 CHANGE % 2013 / PLAN P&L ACCOUNT, BALANCE SHEET In HRK 000 REALIZED Q REALIZED Q PLAN Q 3 : 2 3 : Total income 97, , , Total expenditure 96, , , Profit/loss after taxation 1,142-34,527 3,697 Gross premium written 91, , , Equity 35,897 39,722 38, Capital and reserves 37,319 6,059 42, Total Assets/Liabilities 132, , , Technical provisions 84, ,176 91, Equity in the currency RSD 590,340,000 (HRK 39,721,603) Stake of CO / total number of shares 59,212 (99.78%) / 59,340 Par value of share RSD 10,000 Number of employees at end of period 2012 / / 366 Source: Reporting package (collection of reports) for consolidation of financial reports of Croatia osiguranje Group as at 31 Dec 2012, 31 Dec 2013 Business events after fiscal year ende In February 2014 the Company underwent capital increase in the total amount of RSD million. 156

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 5. CROATIA Sigurimi sh.a., Priština, Kosovo Rr. Luan Haradinaj 5/A, Priština, 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 2,500, to an amount of EUR 3,000,000.00, by 31 December The company made those changes. Director Gresa Shabani Ownership structure CROATIA osiguranje d.d % Business results CHANGE % 2013 / 2012 CHANGE % 2013 / PLAN P&L ACCOUNT, BALANCE SHEET In HRK 000 REALIZED Q REALIZED Q PLAN Q 3 : 2 3 : Total income 35,115 27,009 26, Total expenditure 36,981 31,686 25, Profit/loss after taxation -1,866-4, Gross premium written 27,100 29,783 28, Equity 22,637 22,913 22, Capital and reserves 30,738 26,397 32, Total Assets/Liabilities 59,008 55,426 55, Technical provisions 25,323 27,165 21, Equity in the currency EUR 3,000,000 (HRK 22,912,929) Stake of CO / total number of shares 30,000 (100.00%) / 30,000 Par value of share EUR 100 Number of employees at end of period 2012 / / 94 Source: Reporting package (collection of reports) for consolidation of financial reports of Croatia osiguranje Group as at 31 Dec 2012, 31 Dec

158 ANNUAL REPORT / 2013 / 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. CROATIA osiguranje a.d. društvo za osiguranje života ( life insurance company ), 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 by the amount of EUR 2,250, and the stake of CROATIA osiguranje d.d. in the company increased from 70 % to 92.50%. The Company changed its name to CROATIA osiguranje a.d. društvo za osiguranje života ( life insurance company ), Skopje. Director Vilma Učeta Duzlevska Ownership structure 1. CROATIA osiguranje d.d % 2. CROATIA osiguranje a.d. društvo za osiguranje života ( life insurance company ), Skopje 5.00% Business results CHANGE % 2013 / 2012 CHANGE % 2013 / PLAN P&L ACCOUNT, BALANCE SHEET In HRK 000 REALIZED Q REALIZED Q PLAN Q 3 : 2 3 : Total income 33,585 43,682 34, Total expenditure 31,235 41,031 31, Profit/loss after taxation 2,351 2,651 2, Gross premium written 29,084 38,866 27, Equity 22,561 22,701 22, Capital and reserves 27,212 30,650 30, Total Assets/Liabilities 86, , , Technical provisions 57,051 76,854 70, Equity in the currency EUR 3,000,000 (HRK 22,700,867) Stake of CO / total number of shares 28,500 (95.00%) / 30,000 Par value of share EUR 100 Number of employees at end of period 2012 / / 35 Source: Reporting package (collection of reports) for consolidation of financial reports of Croatia osiguranje Group as at 31 Dec 2012, 31 Dec

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 7. CROATIA osiguranje a.d. društvo za osiguranje neživota ( non-life insurance company ), 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. Director Goce Vangelovski Ownership structure CROATIA osiguranje d.d % Business results CHANGE % 2013 / 2012 CHANGE % 2013 / PLAN P&L ACCOUNT, BALANCE SHEET In HRK 000 REALIZED Q REALIZED Q PLAN Q 3 : 2 3 : Total income 32,199 37,285 40, Total expenditure 33,753 52,336 38, Profit/loss after taxation -1,554-15,050 2, Gross premium written 40,388 43,276 52, Equity 24,456 24,607 24, Capital and reserves 23,299 8,331 25, Total Assets/Liabilities 58,106 55,482 83, Technical provisions 30,490 40,483 46, Equity in the currency EUR 3,250,000 (HRK 24,607,038) Stake of CO / total number of shares 32,500 (100.00%) / 32,500 Par value of share EUR 100 Number of employees at end of period 2012 / / 97 Source: Reporting package (collection of reports) for consolidation of financial reports of Croatia osiguranje Group as at 31 Dec 2012, 31 Dec

160 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Non-insurance companies 1. CROATIA OSIGURANJE MIROVINSKO DRUŠTVO 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). Director Veronika Šapina-Pezelj Ownership structure CROATIA osiguranje d.d % Business results CHANGE % 2013 / 2012 CHANGE % 2013 / PLAN P&L ACCOUNT, BALANCE SHEET In HRK 000 REALIZED Q REALIZED Q PLAN Q 3 : 2 3 : Total income 5,574 6,663 6, Total expenditure 5,070 5,865 5, Profit/loss after taxation Equity 15,000 15,000 15, Capital and reserves 14,379 15,260 14, Total Assets/Liabilities 14,989 16,124 15, Equity in the currency HRK 15,000,000 Stake of CO / total number of shares 1 stake (100.00%) Par value of share HRK 15,000,000 Number of employees at end of period 2012 / / 13 Source: Reporting package (collection of reports) for consolidation of financial reports of Croatia osiguranje Group as at 31 Dec 2012, 31 Dec

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 2. PBZ CROATIA OSIGURANJE d.d. Zagreb Radnička cesta 44, Zagreb The Company s Management Board 1. Dubravko Štimac, Chairman 2. Renata Kašnjar Putar, Member Ownership structure 1. CROATIA osiguranje d.d % 2. Privredna banka Zagreb d.d % Business results CHANGE % 2013 / 2012 CHANGE % 2013 / PLAN P&L ACCOUNT, BALANCE SHEET In HRK 000 REALIZED Q REALIZED Q PLAN Q 3 : 2 3 : Total income 48,550 53,259 51, Total expenditure 33,741 34,163 36, Profit/loss after taxation 14,809 19,095 15, Equity 56,000 56,000 56, Capital and reserves 147, , , Total Assets/Liabilities 160, , , Equity in the currency HRK 56,000,000 Stake of CO / total number of shares 28,000 (50.00%) / 56,000 Par value of share HRK 1,000 Number of employees at end of period 2012 / / 20 Source: Reporting package (collection of reports) for consolidation of financial reports of Croatia osiguranje Group as at 31 Dec 2012, 31 Dec

162 ANNUAL REPORT / 2013 / 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. RAZNE USLUGE d.o.o. currently being wound up Savska cesta 41/XXII, p.p. 22, Zagreb Liquidator Vlasta Baletić Ownership structure CROATIA osiguranje d.d % Business results CHANGE % 2013 / 2012 CHANGE % 2013 / PLAN P&L ACCOUNT, BALANCE SHEET In HRK 000 REALIZED Q REALIZED Q PLAN Q 3 : 2 3 : Total income 18,115 87,936 1, Total expenditure 27,145 93,326 7, Profit/loss after taxation -9,030-5,390-6, Equity 15,583 6,553 15, Capital and reserves 6,553 1, Total Assets/Liabilities 94,625 1, Equity in the currency HRK 6,533,000 Stake of CO / total number of shares 1 stake (100.00%) Par value of share HRK 6,533,000 Number of employees at end of period 2012 / / 1 Source: Reporting package (collection of reports) for consolidation of financial reports of Croatia osiguranje Group as at 31 Dec 2012, 31 Dec

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 4. CROATIA tehnički pregledi d.o.o., Zagreb Savska cesta 41/XVIII, Zagreb Director Josip Vuksanović Ownership structure CROATIA osiguranje d.d % The Company has the following stakes in other companies 1. STP Pitomača d.o.o % 2. STP Blato d.o.o % 3. AGROSERVIS-STP d.o.o., Virovitica, Stjepana Radića % Business results CHANGE % 2013 / 2012 CHANGE % 2013 / PLAN P&L ACCOUNT, BALANCE SHEET In HRK 000 REALIZED Q REALIZED Q PLAN Q 3 : 2 3 : Total income 74,395 75,918 76, Total expenditure 65,520 70,908 69, Profit/loss after taxation 8,875 5,011 7, Equity 71,767 71,767 71, Capital and reserves 97, , , Total Assets/Liabilities 165, , , Equity in the currency HRK 71,767,400 Stake of CO / total number of shares 1 stake (100.00%) Par value of share HRK 71,767,400 Number of employees at end of period 2012 / / 70 Source: Reporting package (collection of reports) for consolidation of financial reports of Croatia osiguranje Group as at 31 Dec 2012, 31 Dec

164 ANNUAL REPORT / 2013 / 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. SLAVONIJATRANS TEHNIČKI PREGLEDI d.o.o., Slavonski Brod Vinogradska 17, Slavonski Brod Director Franjo Stanić Ownership structure 1. CROATIA osiguranje d.d. owns 1 stake 76.00% 2. Marija Furlan 24.00% Business results CHANGE % 2013 / 2012 CHANGE % 2013 / PLAN P&L ACCOUNT, BALANCE SHEET In HRK 000 REALIZED Q REALIZED Q PLAN Q 3 : 2 3 : Total income 7,179 7,127 6, Total expenditure 6,823 6,610 6, Profit/loss after taxation Equity Capital and reserves Total Assets/Liabilities 1,288 1,448 2, Equity in the currency HRK 20,000 Stake of CO / total number of shares 1 stake (76.00%) Par value of share HRK 15,200 Number of employees at end of period 2012 / / 15 Source: Reporting package (collection of reports) for consolidation of financial reports of Croatia osiguranje Group as at 31 Dec 2012, 31 Dec

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 6. HERZ d.d., Požega Sv. Roka 2, Požega Director Ilija Šimunović Ownership structure CROATIA osiguranje d.d. owns 1 stake % Business results CHANGE % 2013 / 2012 CHANGE % 2013 / PLAN P&L ACCOUNT, BALANCE SHEET In HRK 000 REALIZED Q REALIZED Q PLAN Q 3 : 2 3 : Total income 8,843 8,877 8, Total expenditure 7,244 6,996 6, Profit/loss after taxation 1,599 1,880 1, Equity 3,409 3,409 3, Capital and reserves 7,014 7,294 6, Total Assets/Liabilities 7,663 8,080 7, Equity in the currency HRK 3,408,600 Stake of CO / total number of shares 8,970 (100.00%) / 8,970 Par value of share HRK 300 Number of employees at end of period 2012 / / 26 Source: Reporting package (collection of reports) for consolidation of financial reports of Croatia osiguranje Group as at 31 Dec 2012, 31 Dec

166 ANNUAL REPORT / 2013 / 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 Board s Report on business result of the Group Performance indicators for the Group PROFIT AND LOSS ACCOUNT GROUP Jan-Dec 2012 (corrected)* Jan-Dec 2013 INDEX (3 : 2) Total income 3,500,238 3,351, Total expenditures (without tax) 3,334,152 3,359, Gross premium written 3,159,511 3,131, non-life 2,744,605 2,713, life 414, , Settled claims (gross amount) 1,820,053 1,863, non-life 1,539,615 1,492, life 280, , Profit/loss before taxation 166,086-8,360 Profit/loss after taxation 131,758-11,942 Profit/loss after minority interest 127,716-10,214 BALANCE SHEET 31 Dec 2012 (corrected)* 31 Dec 2013 INDEX (3 : 2) Total assets 9,421,148 9,194, Capital and reserves 2,071,607 1,753, subscribed capital 442, , revaluation reserves 480, , legal reserves 23,788 23, statutory reserves 113, , other reserves 342, , retained profit 540, , current period profit/loss 127,716-10,214 Technical provisions 6,339,788 6,316, unearned premiums, gross 1,094,317 1,145, mathematical life insurance provisions 2,068,934 2,131, provision for claims 3,088,672 2,944, provision for premium returns dependent and non-dependent on results (bonuses and discounts), gross 4,313 4, fluctuation provision, gross 1,726 4, other insurance technical provisions, gross 81,827 84, Special provision for life insurance where policyholder bears the investment risk, gross 11,425 8, Investments 6,185,039 6,326, * corrections are detailed in Notes to the Financial Statements In HRK

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 The Group s business result Croatia osiguranje Group realized income in the amount of HRK 3,351.0 million, which represents a reduction of 4.3% compared to income realized in the same period in the previous year. Net loss after taxation and minority shareholders stake amounts to HRK 10.2 million. Gross written premiums at Group level in the period from Jan-Dec 2013 amounted to HRK 3,131.2 million, representing a decrease of 0.9%. Of that, gross written premiums of non-life insurance amounted to HRK 2,713.6 million, representing a decrease of 1.1%, while gross written premiums of life insurance amounted to HRK million, representing an increase of 0.7%. Through investments of assets from non-life and life insurance the Group realized income from investment in the amount of HRK million. The following is an overview of the Group s income by business segments: GROUP INCOME INDEX 3 : Income from insurance operations 3,339,998 3,173, Income from financial and operative leasing 16,845 16, Income from pension fund management 29,849 33, Income from vehicle technical inspections 85,473 87, Income from other activities 28,073 40, TOTAL 3,500,238 3,351, In HRK 000 Total expenditure of the Group amounted to HRK 3,359.4 million, representing an increase of 0.8%. The mentioned increase in total expenditure is the result of an increase in gross settled claims by 2.4%, in business expenditures by 8.8% and in investment expenses by 28.6% compared to the same period in the previous year. Total Group assets as at December 31, 2013 amounted to HRK 9,194.4 million, which represents a reduction by 2.4% compared to the balance as at December 31, The calculated technical provisions in the reporting period amounted to HRK 6,316.1 million and they are 0.4% lower than the calculated technical provisions as at December 31,

168 ANNUAL REPORT / 2013 / 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 share of individual Group members in the Group s business result is as follows: GROUP MEMBERS SHARE % PLAN 2013 PROFIT/ LOSS Jan-Dec 2012 PROFIT/ LOSS Jan-Dec 2013 INDEX 2013 / 2012 INDEX 2013 / PLAN : 3 4 : CROATIA osiguranje d.d. 142, ,344 12, CROATIA Lloyd d.d ,000 36,613 19, CROATIA zdravstveno osiguranje d.d ,000 4,312-8,180 CROATIA osiguranje d.d., Ljubuški ,494 4,584 3, MILENIJUM osiguranje a.d., Beograd ,108 1,120-35,935 CROATIA Sigurimi sh.a., Priština , ,188 CROATIA osiguranje a.d. for life insurance, Skopje ,492 2,434 2, CROATIA osiguranje a.d.., for non-life insurance, Skopje ,326-1,435-14,837 PBZ CROATIA osiguranje d.d.* ,614 9,267 11, CROATIA osiguranje mirovinsko društvo d.o.o RAZNE USLUGE d.o.o. currently being wound up ,262-9,030-5,390 CROATIA tehnički pregledi d.o.o ,920 11,003 6, SLAVONIJATRANS tehnički pregledi d.o.o HERZ d.d ,945 1,998 2, GROSS PROFIT OF THE GROUP BEFORE ELIMINATION 202, ,652-6,582 Consolidation elimination 25,458 35,566 1, Gross profit of the Group 177, ,086-8,360 Corporate income tax 41,030 34,327 3, Net profit before minority interests 136, ,758-11,942 Minority interests 3,329 4,042-1, NET PROFIT OF THE GROUP 132, ,716-10,214 * proportional consolidation Graphical presentation of movements in total income and written premiums for the Group in the period from 2009 to ,042,104 In HRK 000 In HRK 000 3,648,553 3,566,345 3,500,238 3,412,908 3,351,048 3,297,120 3,239,553 3,159,511 3,131,247 Total income Written premium

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 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. Such expectations pertain especially to companies operating abroad 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 invest in training and educating staff, especially younger ones, to expand the sales network, and to introduce new, modern methods of selling insurance. 169

170 ANNUAL REPORT / 2013 / 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 companies-members of the Group 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 target markets. The aim is maximum harmonization of supply and demand of insurance products in target markets. This way CROATIA osiguranje d.d. and companies-members of the Group will be fully responsive to the needs of the insured parties. 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 Main characteristics of 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 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 the Croatian Financial Services Supervisory Agency (HANFA) all relevant business reports for the Group of insurers, in order to calculate the capital, liable capital (insurance assets) 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 in insurance in 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 and motor vehicles technical 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. The business operations of motor vehicle inspection stations, MOT test stations ( STP ), are regulated by the Road Traffic Safety Act and the Ordinance on Technical Inspection of Vehicles. For CROATIA osiguranje d.d. Zagreb Ivan Fabijančić, Member of the Management Board Krešimir Starčević, Chairman of the Management Board 171

172 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht /

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 the company 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 on 31 December 2013, which comprise the Consolidated Statement of Financial Position as at 31 December 2013, Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Cash Flow Statement for the year then ending, as well as the related Notes to the Consolidated Financial Statements that give a summary of significant accounting policies and other explanatory information. Responsibility of the Company s Management Board 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 European Union 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 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 Board 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 / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / Basis for expressing a qualified opinion 4. In 2013 the Company recognized in its consolidated financial statements (according to the estimate made by court experts) a value impairment of investments in real estate measured at fair value by an amount of HRK 269,323 thousand, of which HRK 63,920 thousand was recognized as expenditure, and HRK 205,403 thousand, which pertain to Kneza Borne real estate, was recognized as other comprehensive income. Apart from that, based on the appraiser s assessment, the Company recognized value impairment of items of real estate used by the Company which are measured at revaluated amounts, by an amount of HRK 248,088 thousand. Of that, HRK 230,552 thousand (up to the revaluation reserve amount) the Company recognized as other comprehensive income, and the remainder in the amount of HRK 17,536 thousand as expenditure. In our opinion, the mentioned estimates are not in accordance with the requirements of IFRS 13 when it comes to the hierarchy of estimating fair value, input data use and sensitivity to input variables in the estimate techniques. Apart from that, it is our opinion that the relevant value impairment does not reflect only the changes in the real estate market in Total value of court disputes currently being litigated against the Group amounts to HRK 149,492 thousand. On the date of the Statement of Financial Position the Group recognized provisioning in the amount of HRK 17,955 thousand. Based on available statements from the Company s legal representatives regarding expected outcomes of those disputes, were have not been able to determine the effects of corrections to the consolidated financial statements based on their estimates of court dispute outcomes. 6. For the subsidiary Croatia Sigurimi SH.A the auditor reported not being able to determine the effects of potential corrections which may affect the Statement of Comprehensive Income for the year ending on December 31, 2013, and which pertain to the provisioning for claims provisions recognized on December 31, 2013 in the amount of HRK 18,340 thousand, (2012.: HRK 16,864 thou.). The previous auditor also pointed out to the provision in the mentioned amount in Consequently, we have not been able to determine any corrections in the consolidated financial statements. Qualified opinion 7. In our opinion, apart from the issue explained in item 4 above and apart from potential corrections which may result from the facts given under items 5 and 6 above, the enclosed consolidated financial statements give a true and fair view of the consolidated financial position of the Company, in all materially significant aspects, as at December 31, 2013 as well as of consolidated business results and consolidated cash flows of the Company for 2013 in accordance with the Accounting Act and the International Financial Reporting Standards applicable in the European Union. Pointing out of an issue 8. Notwithstanding our opinion given under item 7 above, we would like to point out Note 34./ii/ to the Consolidated Financial Statements for 2013, which describes the procedure initiated by the Croatian Competition Agency on December 19, 2013 against the Croatian Insurance Bureau, the Company and 11 more insurance and reinsurance companies in the Republic of Croatia regarding determining whether there had been distortion of competition by concluding a prohibited agreement. In addition to that, we would like to point out the fact that subsidiaries Milenijum osiguranje a.d.o. Belgrade and CROATIA osiguranje d.d. društvo za osiguranje neživota ( non-life insurance company ) 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 Skopje, as a result of a bad business result and the fact that their short term liabilities exceed current assets, cannot continue to operate without the support of the Company as the parent company. The Company s Management Board, together with Management Boards of the mentioned companies, plans to take all actions in order to continue business activities. In accordance with that, the enclosed consolidated financial statements were prepared on the going-concern basis for all parts of the Group. Opinion regarding harmonization with other legal and regulatory requirements 9. The Company s Management Board is responsible for the preparation of annual consolidated financial statements for the Company for the year ending on December 31, 2013 in the form prescribed by the Ordinance on the structure and contents of financial statements of insurance and reinsurance companies (Official Gazette No. 132/10) and the Ordinance on amendments to the Ordinance on the structure and contents of financial statements of insurance and reinsurance companies (Official Gazette No. 39/12) issued by the Croatian Financial Services Supervisory Agency in accordance with the Insurance Act and the Accounting Act and in accordance with other regulations regulating the business operations of the Company ( Standard annual financial statements '). The Company s Management Board has made forms which are provided on pages 78 to 90 ( Forms ) which comprise an alternative presentation of the Statement of Consolidated Financial Position as at December 31, 2013, Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Cash Flow Statement for 2013, as well as the harmonization of the Forms ( Harmonization ), presented on pages 91 to 100, with consolidated financial statements presented on pages 5 to 77. The Management Board is responsible for all forms and notes on harmonization and they do not represent an integral part of the financial statements provided on pages Opinion on harmonization with the Annual Report 10. The Company s Management Board is responsible for preparation of the Company s Annual Report. As a result of the provisions of Article 17 of the Accounting Act we have an obligation to express an opinion regarding the harmonization of the Company s Annual Report with Annual Consolidated Financial Statements of the Company. In our opinion, based on the performed audit of the Company s Annual Consolidated Financial Statements and comparison with the Company s Annual Report for the year ended on December 31, 2013, the financial information provided in the Company s Annual Report, which were approved for publication by the Company s Management Board on April 8, 2014, were derived from the financial information provided in the Company s Annual Consolidated Financial Statements presented on pages 5 to 77, for which we have given our opinion as stated in the section Qualified opinion above. In Zagreb, 9 April, 2014 BDO Croatia d.o.o. Trg J. F. Kennedy 6b Zagreb Ines Rožić, Certified Auditor Zdenko Balen, Member of the Management Board 175

176 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / 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 financial statements for 2013 are prepared pursuant to the Accounting Act (Official Gazette no. 109/07, 54/13) and the International Financial Reporting Standards applicable in the European Union, 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 the consolidated 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; and 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 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, 54/13) and the International Financial Reporting Standards applicable in the European Union. 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 Krešimir Starčević, Chairman of the Management Board CROATIA osiguranje d.d. Miramarska 22, Zagreb, Republic of Croatia 8 April,

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 2013

178 ANNUAL REPORT / 2013 / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht / osiguranje / insurance / assicurativo / versicherung / izvješće / report / rapporto / bericht /