President's Report to the Shareholders

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3 Contents President's Report to the Shareholders Introduction Basic Data Market Position of CROATIA osiguranje d.d Major Business Events After Expiry of the Business Year Expected Future Development of the Company Financial Business Indicators Premium and Claim Analysis Comparative Analysis of Insurance Products Investment of Means Statement on Application of Corporate Management Code Independent Auditor's Report the Company Basic Financial Reports of the Company Profit and Loss Account Balance Sheet Report on Changes in Capital Cash Flow Statement Basic Accounting Policies' Summary Financial Risk Management (FRM) Notes to the Profit and Loss Account Notes to the Balance Sheet CROATIA osiguranje Group Description & Business Results of the Daughter Companies Management Board's Report on Business Results of the Group Independent Auditor's Report Group Basic Financial Reports Group Consolidated Profit and Loss Account Consolidated Balance Sheet Consolidated Report on Changes in Capital Consolidated Cash Flow Statement Notes to the Consolidated Financial Reports Croatia osiguranje d.d. Annual Report

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5 President's Report to the Shareholders Dear shareholders, We proudly emphasize that in 2009 CROATIA osiguranje d.d. celebrated 125 years of its existence, even though quietly and cutting down on expenses, yet with good business results. post offices network, especially in rural areas, provides an important infrastructure for our insureds, as well as for the development of the insurance market, while FINA is going to offer our insurance products as a part of the financial future planning program for Croatian citizans and their families. Since its foundation until today the oldest insurance company in Croatia has resisted great historical and market changes. Last year CROATIA osiguranje d.d. as well as the Group Croatia osiguranje faced the global economic crisis of almost historical proportions and by fighting it still managed to retain the leading position in our country and in the region. We also realized the planned gross profit and thereby justified the trust of our investors and clients. The credit given to the strength and quality of our Company is clearly reflected in the price of our common share that on the trading day in 2008 amounted to HRK 3,161.00, while on the same day 2009 despite the pessimism at the investor market it amounted to as much as HRK 5, In the year behind us we tried to expand our sales network, so for the first time our products became available in all post offices and FINA offices throughout Croatia. Here we were not primarily led by profit, but also took into consideration the social benefit, i.e the needs of our insureds, as well as the development of the insurance market as a whole. The Croatian In the previous year we showed ability and innovativeness by launching new insurance products such as Aktiv & Aktiv Plus Personal Accident Insurance Policy. Also, our transferable license plate insurance for plates used on unregistered vehicles is a unique product at the insurance market in Croatia. Furthermore, we expanded our travel insurance program with special terms and conditions, as well as offered the most comprehensive personal accident insurance package for pupil and student population. At the end of the year 2009 we also concluded the first cooperation agreement with Privredna banka Zagreb for the new line of loan repayment insurance covering the risk of death, unemployment and disability. We also continued the strategic expansion in the region. In Macedonia a total of EUR 3.25 million was invested to set up a new daughter company dealing in non-life business. The new corporate web site of CROATIA osiguranje d.d. represents our new profit center by providing our clients with fast and safe way of buying an insurance. By establishing the corporate data warehouse we have implemented a brand new business intelligence system. Croatia osiguranje d.d. Annual Report

6 We are aware that the year 2010 is not going to be easy. Stagnation in insurance industry as well as in the national economy is to be expected. However, our goal is to maintain the Company s stability and the corresponding growth, so that at the end of 2010 we will once again be able to share the satisfaction with good business results with you. We will do our utmost to increase sales, consolidate our insurance portfolio and increase efficient use of all Company s resources. We intend to bring the management of business process risk to the highest level. Also, we plan to include new sales channels in order to make our products even more available, as well as to optimize business processes and realize cost savings. In the following period we plan to prepair the Company for the European Union, since the oldest insurance company in Croatia should be ready to meet the strong competition at this great and united market. In order to achieve these goals it is of tremendous importance that CROATIA osiguranje d.d. has the support of all those it takes care of or depends upon, i.e. its owners, insureds, business partners and employees. That is why we immensely appreciate the support that we have so far enjoyed from you our respected shareholders. We sincerely thank you for the trust placed in us and strongly believe that we will continue to do business to the satisfaction of all parties involved, as well as to the advantage of the wider social community and the Croatian economy as a whole. Sincerely yours, Member of the Management Board President of the Management Board 006 Croatia osiguranje d.d. Annual Report 2009

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9 Introduction Despite the global recession affecting economy in general as well as insurance industry, in the year 2009 CROATIA osiguranje d.d. managed to keep the leading position in the Republic of Croatia and in the region. Due to the decrease in purchasing power in 2009 people were buying only necessities. Consequently, they only concluded obligatory insurance, which led to the most tough competition in the TPL insurance. The drastic fall in new cars sales in 2009 also played an important role in this line of insurance business. Insurance market did not grow in Due to the economic crisis small businesses disappear, and those that survive buy only the very basic insurance policies. Bigger, stronger companies handle the crisis more easily. However, due to the closed circle of insolvency they too, have a hard time paying off their liabilities, including, those for insurance premium. In the year 2009 CROATIA osiguranje d.d. realized written insurance premium in the amount of HRK 3,029.5 million which is a decrease of 6.6% or HRK million in comparison to the same period of the previous year. Non-life written premium amounted to HRK 2,673.1 million, which is by 7.2% less than at the end of At the same time life written premium amounted to HRK million, which is a decrease of 2.0%. Total income in 2009 amounted to HRK 3,233.9 million. It did not decrease significantly in comparison to 2008, as it is the case with premium, due to the increased investment in property as well as due to the increased income generated by financial investments. Total expenses of CROATIA osiguranje d.d. in 2009 amount to HRK 3,136.9 million. The single biggest expense in insurance business is represented by the paid claims amounting to HRK 2,073.9 million, which is an increase of 0.1% in comparison to During the whole previous year the Company managed to uphold a very high liquidity ratio that of 6.1% (as at December ). In accordance with the Insurance Act, the Company determines the capital adequacy ratio. The Company s capital in non-life business is by 20.7% above the solvency margin (Art. 98 of the Insurance Act), and in life business by 61.2%. The amount of the Company s equity capital is several times higher than the legally prescribed level of 1/3 of the solvency margin and the minimal capital stock. On June 4, 2009 CROATIA osiguranje d.d. celebrated its 125th anniversary. The Company s long presence and high reputation in the Republic of Croatia and in the region represent an advantage in comparison to other insurers at the market. Clients have, among other things, learned to trust the quality of our approach to business, quick claims payment and the adequate level of know-how on the part of our employees. Share price growth On December 31, 2009 the price of common shares of CROATIA osiguranje d.d. amounted to HRK 5,000.00, while it amounted to HRK 3, on that very day in On December 31, 2009 the price of preferred shares of CROATIA osiguranje d.d. amounted to HRK 6,000.00, while it amounted to HRK 4, on that very day in Croatia osiguranje d.d. Annual Report

10 Realized profit The gross profit of the Company in 2009 amounts to HRK 97.0 million and it is an increase of 41.7% in comparison to the previous year. The Company s profit after tax amounts to HRK 69.7 million and it is an increase of 19.6% in comparison to The gross profit of the Group amounts to HRK million. The profit of the Group intended for the Company s shareholders reduced for the profit of the minor shareholders amounts to HRK million. Written premium CROATIA osiguranje d.d. realized written insurance premium in the amount of HRK 3,029.5 million, which is a decrease of 6.6% or HRK million in comparison to the same period of the previous year. 92.5% of the plan for 2009 has been realized. CROATIA osiguranje d.d. makes up for 32.2% of the total written premium of all insurance companies operating in the Republic of Croatia, while together with the written premium of Croatia zdravstveno osiguranje d.d. it makes up for 33.3%. Claims settlement efficiency In 2009 paid claims amounted to HRK 2,073.9 million, which is an increase of 0.1%. In the period I-XII ,107 losses were reported, which is by 1.9% or 4,144 losses less than in the same period of the previous year. Including claims from the claims provision a total of 252,523 claims were in the process of handling, of which or 85.7% were settled. The efficiency of claims settlement was increased by 0.2% in comparison to the same period of the previous year. 010 Croatia osiguranje d.d. Annual Report 2009

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13 Basic Data

14 AVAILABILITY. from one generation to another

15 Basic Data on CROATIA Osiguranje d.d. CROATIA osiguranje was founded in 1884.The foundation and the beginning of the first Croatian insurer coincided with the historical period in which Croatian national and economic identity was looking for wider space as an answer to numerous attempts to suppress it. The enthusiasm and persistence of Gjuro Deželi, Ivan Von ina and August Šenoa, supported by other members of the political elite in Zagreb and at the time when not many European countries could pride themselves on having a national insurer, enabled the foundation of Croatia osiguranje Association on 4th June For the past 125 years i.e. during the great historical, economic and social changes, the First and Second World War and the Croatian National War CROATIA osiguranje d.d. has rightfully had the position of the biggest as well as the most successful insurance company in Croatia and even in the wider region. Registration and Company's activities CROATIA osiguranje d.d. (Company) with the seat in Zagreb, Miramarska 22 is entered into the court register of companies at the Commercial court in Zagreb under the company number (MBS): The Company's business activities are made up of almost all classes of life and non-life insurance business, as well as other closely connected activities. Company's business activities include writing insurance business which implies concluding life and non-life insurance contracts as well as fulfilling obligations arising out of them, and these, in particular, include the following: life insurance, annuity insurance, additional life insurance, other life insurance, unit-linked life and annuity insurance, personal accident insurance, health insurance, road motor vehicle insurance, rolling stock insurance, aircraft insurance, vessel insurance, goods in transit insurance, fire and natural disaster, other property insurance, third party motor liability insurance, aircraft liability insurance, vessel liability insurance, other liability insurance, credit insurance, guaranty insurance miscellaneous financial loss insurance, legal protection insurance, travel insurance. The Company also performs the following activities directly or indirectly related to the core insurance business: mediation during sale, i.e. sale of objects acquired by the Company in the course of insurance activities, taking measures aimed at prevention of and averting danger from insured persons and property, risk exposure estimation and loss assesment, other intelectual and technical services related to the insurance business. Croatia osiguranje d.d. Annual Report

16 Organization The Company's organization is determined by the Articles of Association, the Decision of the Supervisory Board and the Decision of the Management Board on organization of business. The Company's organizational structure consists of the Head Office and subsidiaries. Company's subsidiaries are called branch offices, i.e. each branch office is named after the town where its business activities are performed. The organization of the Head Office is determined by the Decision on coordination of business activities as well as the Decision on job classification in CROATIA osiguranje d.d. Head Office, defining organization forms and management hierarchy. Business functions in the Head Office are defined by groups of business activities coordinated by individual members of the Management Board in charge of a particular activity. Based on the Decision on coordination of regional managers dated June subsidiaries of CROATIA osiguranje d.d. are coordinated by regional managers appointed by the Company s Management Board. Branch office Zagreb and Branch office TIC (Transport and Credit) Zagreb coordinate their business activities directly with the Company s Management Board. All branch offices except the specialized Transport and credit Zagreb branch office share the same basic activity with the Company, i.e. writing all types of life and non-life business. Branch office Velika Gorica started its business activities on January , and changed its name into Branch office Zagreba ki Prsten Velika Gorica on January The subsidiaries (23) cover the whole territory of the Republic of Croatia and are grouped in five regions: REGION 1: Branch offices Dubrovnik, Split, Šibenik and Zadar REGION 2: Branch offices Gospi, Karlovac, Pula and Rijeka REGION 3: Branch offices akovec, Koprivnica, Varaždin and Zabok REGION 4: Branch offices Bjelovar, Kutina, Sisak and Zagreba ki Prsten- Velika Gorica REGION 5: Branch offices Osijek, Požega, Slavonski Brod, Vinkovci and Virovitica 016 Croatia osiguranje d.d. Annual Report 2009

17 Branch offices of Croatia osiguranje d.d. in the Republic of Croatia Velika Gorica Croatia osiguranje d.d. Annual Report

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19 Organization chart of CROATIA osiguranje d.d. MANAGEMENT BOARD Regional Managers' Office Management Board's Office Reinsurance Division Marketing Division FUNCTION UNITS PRODUCTION UNITS Corporate accounting, Controling and Risk Management Motor Vehicle Insurance Department Development and Improvement of Claims Handling Process Life Insurance Department Human resources, Quality and Education Management Transport and Credit Department Corporate Finance and Investment Personal Non-life Insurance Department IT Support Property Insurance Department Corporate Communications and Safety Development and Improvement of Distribution Channels Legal Business Real estate Management and Procurement Subsidiaries Development TERRITORIAL UNITS Region 1 Region 2 Region 3 Region 4 Region 5 Zagreb

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21 Management and organization According to the Law on Commercial Companies, Insurance Law and the Articles of Association the Company is governed by by the following bodies: Management Board, Supervisory Board and General Assembly. Obligations and responsibilities of the members of these bodies are determined by the above mentioned acts. Supervisory Board and Management Board Members of the Supervisory Board: Ivan Šuker, Chairman Ph. D. Sc. Andrija Hebrang, Deputy Chairman Miroslav Hraš anec, Member Stjepan Koži, Member Miljenko Boban, Member Dr. Gzim Redžepi, Member Members of the Management Board: Hrvoje Vojkovi, President from 16 July, 2004 until 17 March, 2010 Silvana Ivan i, Member from 10 December, 2009 Damir Mihanovi, Member from 1 January, 2006 until 1 March, 2010 Ljerka Šeparovi, Member from 16 July, 2004 until 16 July, 2009 General Assembly In the period from January 1 until December the General Assembly of CROATIA osiguranja d.d. had 2 meetings. Croatia osiguranje d.d. Annual Report

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23 Capital stock and shares The capital stock of the Company amounts to HRK 442,887, and is divided in 316,348 shares at par value of HRK 1, per share. All shares are shares of the I. issue and are marked as follows: 307,598 shares are common shares marked as CROS-R-A 8,750 shares are preferred shares marked as CROS-P-A. Each share, either common or preferred one, corresponds to one (1) vote at the General Assembly of the Company. All shares are paid in total, issued in non-materialized form, can be freely transferred and are recorded in the register of the Central Depository Agency. CROATIA osiguranje d.d.has no own shares in its ownership. Ownership structure of 20 major shareholders on December 31, /12/2009 No. of Amount % Capital shares HRK stake Hrvatski fond za privatizaciju ,00 80,28 Raiffeisenbank Austria d.d.- custodial account ,00 6,43 Hrvatska poštanska banka d.d.-basic and custodial account ,00 2,19 Societe Generale- Splitska banka d.d.- custodial account ,00 1,42 PBZ d.d.-custodial account ,00 0,77 Julius k.d.d ,00 0,67 Kraš d.d ,00 0,44 Hypo alpe-adria-bank d.d.- custodial account ,00 0,35 Auto Hrvatska d.d ,00 0,32 Erste&Steiermarkische b dd.- basic and custodial account ,00 0,28 Zagreba ka banka d.d.- custodial account ,00 0,23 Komercijalna banka d.d. in bankruptcy ,00 0,22 Bahovec Sre ko ,00 0,17 Adriacommerce ,00 0,16 Radi Antun ,00 0,13 Tankerska plovidba ,00 0,13 Škaro Miroslav ,00 0,12 Fran Mihaljevi - klinika za infekt. bolesti ,00 0,10 Dalmacijacement d.d ,00 0,08 Abanka d.d ,00 0,07 Other shareholders ,00 5,44 TOTAL ,00 100,00 Croatia osiguranje d.d. Annual Report

24 Since 2004 the shares of the Company are listed in the first quotation of the Zagreb Stock Exchange and so for the first time trading with the shares of one majority state-owned company in the Republic of Croatia started. In 2009 the highest price of common shares of CROATIA osiguranje d.d. amounted to HRK 6,000.00, while the lowest amounted to HRK 2, In 2009 the highest price of preferred shares of CROATIA osiguranje d.d. amounted to HRK 6,000.00, while the lowest amounted to HRK 2, On December 31, 2009 the price of common shares of CROATIA osiguranje d.d. amounted to HRK 5,000.00, while it amounted to HRK 3, on that very day in On December 31, 2009 the price of preferred shares of CROATIA osiguranje d.d. amounted to HRK 6,000.00, while it amounted to HRK 4, on that very day in Share Price Movement Chart in HRK , , , , , , , , , , /12/ /03/ /06/ /09/ /12/ Croatia osiguranje d.d. Annual Report 2009

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27 Human resources invaluable asset of CROATIA osiguranje d.d. Human resources represent the most important, dynamic and creative asset of our Company. They generate ideas, plan, start and complete certain actions in the Company. Human resources imply the knowledge, skills, and especially the ability to think and make quality decisions of not only the Company s employees, but also of all other parties participating in the business activities. In year 2009 the Company paid special attention to human resources and their development. Consequently, the project ''Optimization of organization structure of the Head Office has been completed and implemented as well as the opitimization project of CROATIA osiguranje Ljubuški in Bosnia and Herzegowina. The Company furthermore began the optimization project in the daughter company Milenijum Belgrade by establishing the new organization and employee remuneration system in line with the uniform methodology used at the level of the Group. Also, great efforts were made in order to establish a knowledge management system through centralized education of all employees of the Company. In addition to it we also started the project aimed at examining the organization climate in the Company subjected to the recession related government measures having great effect on the Company s employees. On December 31, 2009 the number of employees in CROATIA osiguranja was 2,853. During employees were retired. Croatia osiguranje d.d. Annual Report

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29 Market Position of the Company At present, 27 insurance companies and two reinsurance companies operate at the market of the Republic of Croatia. According to the insurance class the breakdown is as follows: 8 insurance companies in life business, 9 insurance companies in non-life and 10 companies in both life and non life business. The total gross written premium of all insurance and reinsurance companies for the accounting period January December 2009 amounted to HRK 9.4 billion which is a 2.8% decrease when compaired to the same period (Source: HANFA) Gross written premium per insurance class in the Republic of Croatia HRK 000 INSURANCE CROATIAN MARKET CROATIAN MARKET INDEX CLASS I-XII 2008 I-XII : Personal Accident ,9% Health ,5% Motor hull ,2% Motor TPL ,0% Property ,8% Transport and Credit ,5% Liability ,9% NON-LIFE INSURANCE ,0% LIFE INSURANCE ,8% TOTAL ,2% SOURCE: HANFA In the period I-XII 2009 the total written premium of CROATIA osiguranje d.d. makes up for 32.2% of the total written premium of all insurance companies operating in the Republic of Croatia, while together with the written premium of Croatia zdravstveno osiguranje d.d. it makes up for 33.3% of the total written premium of all insurance companies. (Source:HANFA) CROATIA osiguranje d.d. s share in the total written premium per insurance class HRK 000 INSURANCE CROATIAN MARKET Croatia osiguranje d.d. SHARE CLASS I-XII 2009 I-XII 2009* 3: PERSONAL ACCIDENT ,1% HEALTH** ,7% MOTOR HULL ,5% MOTOR TPL ,3% PROPERTY ,0% TRANSPORT AND CREDIT ,3% LIABILITY ,8% TOTAL INSURANCE ,7% LIFE INSURNCE ,3% TOTAL ,2% SOURCE: HANFA * Written premium with coinsurance premium ** Under health insurance coverage CROATIA osiguranje d.d. offers travel health insurance and other voluntary health insurance. Supplementary and additional health insurance is exclusively offered by the daughter company Croatia zdravstveno osiguranje. Croatia osiguranje d.d. Annual Report

30 Gross written premium of insurance companies in the Republic of Croatia HRK 000 GROSS WRITTEN PREMIUM OF TOTAL TOTAL TOTAL TOTAL INSURANCE COMPANIES I-XII 2008 I-XII 2009 I-XII 2008 I-XII 2009 AGRAM ŽIVOTNO ,4% 2,4% ALLIANZ ZAGREB ,6% 10,5% BASLER ,3% 0,3% BASLER ŽIVOTNO ,7% 0,5% CARDIF ,3% 0,4% COSMOPOLITAN LIFE VIG ,8% 0,9% CROATIA ,5% 32,2% CROATIA zdravstveno ,9% 1,0% ERSTE VIG ,8% 0,9% EUROHERC ,2% 11,1% GENERALI ,8% 2,9% GRAWE HRVATSKA ,4% 4,4% HELIOS VIG ,2% 1,1% HOK ,1% 1,5% JADRANSKO ,0% 7,0% KD LIFE ,0% 0,0% KVARNER VIG ,6% 5,7% MERKUR ,1% 3,1% SOCIETE GENERALE ,0% 0,2% SUNCE ,9% 1,9% TRIGLAV ,9% 4,3% UNIQA ,9% 2,5% VELEBIT ,4% 0,6% VELEBIT ŽIVOTNO ,1% 0,1% VICTORIA ,0% 0,0% VICTORIA ŽIVOTNO ,0% 0,3% BASLER OSIGURANJE ZAGREB ,1% 3,9% Total ,0% 100,0% Total written premium share of 8 biggest insurance companies in 2009 TRIGLAV KVARNER VIG OSIGURANJE BASLER ZAGREB BASLER ZAGREB 3,9% JADRANSKO OSIGURANJE ALLIANZ ZAGREB ALLIANZ ZAGREB 10,5% CROATIA OSIGURANJE 32,2% GRAWE HRVATSKA EUROHERC OSIGURANJE 11,1% GRAWE HRVATSKA 4,4% JADRANSKO OSIGURANJE 7,0% EUROHERC OSIGURANJE CROATIA OSIGURANJE KVARNER VIG 5,7% TRIGLAV OSIGURANJE 4,3% 030 Croatia osiguranje d.d. Annual Report 2009

31 Description of all Major Business Events Occurring After the End of the Business Year Despite the changed market conditions in 2010, CROATIA osiguranje d.d. continued to perform its business activities successfully, thereby confirming its reputation and leading position at the Croatian and regional insurance market. In line with its vision of expanding business activities beyond insurance industry, CROATIA osiguranje d.d. acquired 16.9% equity stake in Adriatica-Net d.o.o., Zagreb at the beginning of After the end of the business year 2009 the Company has continued to develop its corporate web site and its Internet presence. New items have been added to the webshop, so clients can now buy motor vehicle insurance, travel health and accident insurance as well as property insurance and it has been noticed that gradually more and more people decide to shop for their polices online. In February 2010 the FAQ section of our website (in which we daily receive dozens of different questions related to our products and services and answer them within 24 hours) finally started operating completely. The Company also intensified its presence on popular social networking sites (Facebook, Twitter, YouTube) aiming at interactive communication with younger population using those networking sites every day. Our goal is to offer them even more affordable services that meet even higher quality standards and in order to achieve this we should listen to their needs. It is important to be aware that these networking sites provide a new advertising channel and yet another possibility to make contact with our potential clienst. At the beginning of year 2010 there were changes in the Management Board of the Company. Damir Mihanovi was relieved of his post as Member of the Management Board on March 1, On March 17, 2010 Hrvoje Vojkovi was relieved of his duties as President of the Management Board. Zdravko Zrinuši was appointed President of the Management Board on March 18, Croatia osiguranje d.d. Annual Report

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33 Expected Future Development of the Company Although this year the crisis will, according to announcements, affect the insurance industry as well, CROATIA osiguranje d.d. has come up with a business strategy that will ensure further growth and positive business results in all lines of business. An important starting point and the essential prerequisite are the reduction of business costs and increase of sales activities. CROATIA osiguranje plans to continue its expansion in the region by opening new companies in Serbia and Montenegro, as well as to move on with the development of the already existent daughter companies. In 2010 the Company wants to stay in the leading position at the life insurance market in Croatia by continuous improvement of current and development of new products. The goal is to stabilize the portfolio by collecting the due premium, reducing the number of redemptions by introducing changes, loans on policies, grace period for premium payment of up to one year, and concluding new insurances at policy maturity date. Among new products the Company plans to launch a new type of classic life insurance covering death and survivorship. Changes and additions in the child saving insurance and collective life insurance, as well as the optimization of business process are under way. This year we also plan to introduce the new All Risk conditions prepared in line with the standards currently applied at the international market. We will continue to improve our offer of personal non-life insurance by introducing new risks, clauses and models of insurance. Croatia zdravstveno osiguranje plans to keep one of the leading positions at the voluntary health insurance market ensuring also that its market share continues to grow. The opening of a new polyclinic in Koprivnica is planned for April this year, while the next long-term strategic goal is opening of polyclinics in major regional centres, depending on the number of the insureds and the potential of the health insurance market. In motor insurance the Company continues to develop new products suited to the market conditions. In motor hull insurane these are MINI and FLEKSI products. The main feature characterizing these new products is individual approach to both current and new insureds, so that we also expect to keep the leading position in this line of business. This year a great emphasize is put on TPL and motor hull insurance sale over the Internet as the cheapest sales channel. Also the process of centralization and integration of data collected through TPL policies that have been sold at MOT test stations, predominantly owned by CROATIA osiguranje d.d., is being continued. The goal is to increase the number of motor TPL policies with the additional AO plus risk that has proved to be an extraordinary positive insurance. In cooperation with IT Support Department the project of motor hull insurance sale over the Internet will be finished by the end of This service will enable the insureds to renew car and motorcycle hull policies online. The Company plans further strengthening its presence in the Internet by regular refreshing of the web site and following the global standards in development of new services and products with the aim of even more transparent and faster information flow and relations improvement with potential customers. This year is certainly the year of geolocation services (services personalized according to the current location of a client that can be accessed by GPS device or mobile phone), so CROATIA osiguranje wishes to take that direction too, in order to stay innovative and up to date. Croatia osiguranje d.d. Annual Report

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35 Financial Indicators

36 SAFETY. from one generation to another

37 Financial Indicators PLAN FOR /12/ /12/2009 Index Index 4 : 2 4 : Total income (HRK 000) ,2 99,7 Total expense (HRK 000) ,2 98,6 Written premium (HRK 000) ,5 93,4 - non-life ,9 92,8 - life ,0 98,0 Paid claims (HRK 000)* ,0 100,1 - non-life ,9 100,5 - life ,0 96,6 Profit before tax (HRK 000) ,4 141,7 Profit after tax (HRK 000) ,0 107,4 Total assets (HRK 000) ,8 106,9 Capital and provisions (HRK 000) ,8 132,0 - capital stock ,0 100,0 - revaluation provision ,2 451,4 - legal reserves ,8 130,2 - statutory provision ,8 129,5 - other provision ,0 100,0 - retained profit ,5 92,6 - current accounting period profit ,0 107,4 Technical provisions (HRK 000) ,0 99,0 - unearned premium ,8 90,0 - life insurance mathematical provision ,9 109,3 - claims provision ,9 97,4 - other insurance-technical provisions ,7 101,4 Life insurance technical provison when policyholder bears the investment risk (HRK 000) ,9 163,1 Investments (HRK 000) ,8 103,6 ROA (return on assets %) 0,9 0,9 100,0 (net profit / assets) ROE (return on equity %) 5,6 4,5 81,3 (net profit / capital and provision) Gross profit margin (%) 2,1 3,0 142,1 (gross profit / total income ) Number of employees ,3 * Not including recoveries Croatia osiguranje d.d. Annual Report

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39 Premium and Claims Analysis

40 Premium and Claims Analysis Written premium Written premium for the reporting period I-XII 2009 totals: non-life insurance HRK 2,673.1 million life insurance HRK 356,4 million Total HRK 3,029.5 million There is a decrease of 6.6% (HRK million) in the total written premium when compared to the same period of the previous year, yet 92.5% of the plan for 2009 has been realized. Written premium HRK 000 INSURANCE CLASS PLAN FOR 2009 REALIZED I-XII 2008 REALIZED I-XII 2009 INDEKS 4 : PERSONAL ACCIDENT ,2 100,9 HEALTH INSURANCE ,0 80,6 MOTOR HULL ,2 81,8 MOTOR TPL ,4 95,8 PROPERTY INSURANCE ,3 99,4 TRANSPORT AND CREDIT ,8 79,4 LIABILITY INSURANCE ,4 96,9 TOTAL NON-LIFE INS ,9 92,8 LIFE INSURANCE ,0 98,0 TOTAL ,5 93,4 INDEX 4 : 3 An increase in premium in comparison to the same period of the previous year is realized only in the segment of personal accident insurance (0.9%). Graphic presentation of the gross written premium development HRK 000 REALIZED I - XII 2009 REALIZED I - XII 2008 PERSONAL ACCIDENT HEALTH MOTOR HULL MOTOR TPL PROPERTY TRANSPORT & CREDIT LIABILITY LIFE INSURANCE 040 Croatia osiguranje d.d. Annual Report 2009

41 Graphic presentation of the gross written premium s share in the plan for 2009 PERSONAL ACCIDENT HEALTH INSURANCE MOTOR HULL MOTOR TPL PROPERTY TRANSPORT & CREDIT LIABILITY INSURANCE LIFE INSURANCE 96,2% 76,0% 84,2% 85,8% 92,4% 97,0% 96,3% 93,4% PLAN FOR 2009 REALIZED I - XII 2009 Gross written premium - structure LIFE INSURANCE LIABILITY INSURANCE TRANSPORT & CREDIT PERSONAL ACCIDENT HEALTH INSURANCE MOTOR HULL PERSONAL ACCIDENT 7,1% HEALTH INSURANCE 1,0% MOTOR HULL 12,1% MOTOR TPL 27,8% PROPERTY INSURANCE 25,6% TRANSPORT & CREDIT 9,3% PROPERTY INSURANCE MOTOR TPL LIABILITY INSURANCE 5,3% LIFE INSURANCE 11,8% Croatia osiguranje d.d. Annual Report

42 Invoiced premium Invoiced premium for the accounting period I-XII 2009 has been realized in the amount of HRK 3,065.8 million, which is a decrease of 4.0% or HRK million less than for the same period of the previous year. Consequently, 94.5% of the plan for 2009 has been realized. Invoiced premium INSURANCE CLASS PLAN FOR 2009 REALIZED I-XII 2008 REALIZED I-XII 2009 INDEX HRK 000 4:2 4: PERSONAL ACCIDENT ,7 102,2 HEALTH INSURANCE ,8 104,8 MOTOR HULL ,0 92,9 MOTOR TPL ,3 96,0 PROPERTY INSURANCE ,1 101,6 TRANSPORT AND CREDIT ,6 78,3 LIABILITY INSURANCE ,2 103,6 TOTAL NON-LIFE INS ,3 95,8 LIFE INSURANCE ,7 97,6 TOTAL ,5 96,0 Graphic presentation of the invoiced premium development HRK 000 I-XII 2009 PERSONAL ACCIDENT HEALTH MOTOR HULL MOTOR TPL PROPERTY TRANSPORT & CREDIT LIABILITY LIFE INSURANCE I-XII Croatia osiguranje d.d. Annual Report 2009

43 Invoiced premium share in the plan for 2009 PERSONAL ACCIDENT HEALTH INSURANCE MOTOR HULL MOTOR TPL PROPERTY TRANSPORT & CREDIT LIABILITY INSURANCE LIFE INSURANCE 98,7% 96,8% 91,0% 86,6% 99,2% 95,7% 93,3% 98,1% PLAN FOR 2009 REALIZED I-XII 2009 Invoiced premium - structure LIFE INSURANCE LIABILITY INSURANCE TRANSPORT & CREDIT PROPERTY INSURANCE PERSONAL ACCIDENT HEALTH INSURANCE MOTOR HULL MOTOR TPL PERSONAL ACCIDENT 7,0% HEALTH INSURANCE 1,2% MOTOR HULL 12,9% MOTOR TPL 27,2% PROPERTY INSURANCE 25,3% TRANSPORT & CREDIT 9,1% LIABILITY INSURANCE 5,4% LIFE INSURANCE 11,7% Croatia osiguranje d.d. Annual Report

44 Premium received For the accounting period I-XII 2009 the total of HRK 2,972.6 million has been received, which is 5.8% or HRK182.2 million less than for the same period of the previous year. Consequenty, 93.0% of the plan has been realized. Premium received INSURANCE CLASS PLAN FOR 2009 REALIZED I-XII 2008 REALIZED I-XII 2009 INDEX HRK 000 4:2 4: PERSONAL ACCIDENT ,8 100,6 HEALTH INSURANCE ,8 99,8 MOTOR HULL ,8 91,2 MOTOR TPL ,1 95,7 PROPERTY INSURANCE ,7 97,0 TRANSPORT & CREDIT ,3 78,0 LIABILITY INSURANCE ,8 99,8 TOTAL NON-LIFE INS ,5 93,7 LIFE INSURANCE ,0 98,0 TOTAL ,0 94,2 Graphic presentation of the premium received and its development HRK 000 I-XII 2008 I-XII 2009 PERSONAL ACCIDENT HEALTH INSURANCE MOTOR HULL MOTOR TPL PROPERTY INSURANCE TRANSPORT & CREDIT LIABILITY INSURANCE LIFE INSURANCE 044 Croatia osiguranje d.d. Annual Report 2009

45 Premium received for 2009 plan and its realization PERSONAL ACCIDENT HEALTH INSURANCE MOTOR HULL MOTOR TPL PROPERTY INSURANCE TRANSPORT & CREDIT LIABILITY INSURANCE LIFE INSURANCE 97,8% 101,8% 90,8% 86,3% 95,8% 97,0% 92,7% 93,1% PLAN FOR 2009 REALIZED I-XII 2009 Premium received - structure LIFE INSURANCE LIABILITY INSURANCE TRANSPORT & CREDIT PROPERTY INSURANCE PERSONAL ACCIDENT HEALTH INSURANCE MOTOR HULL MOTOR TPL PERSONAL ACCIDENT 7,0% HEALTH INSURANCE 1,2% MOTOR HULL 13,1% MOTOR TPL 29,1% PROPERTY INSURANCE 24,1% TRANSPORT & CREDIT 9,4% LIABILITY INSURANCE 5,2% LIFE INSURANCE 12,0% Croatia osiguranje d.d. Annual Report

46 Premium receivables on 31/12/2009 INSURANCE CLASS Premium receivables Invoiced premium Written-off premium Total prem. receivab. Premium received Premium receivables % of total prem. re. collection Prem. receiv. index % premium collection 31/12/2008 I-XII 2009 I-XII 2009 I-XII 2009 I-XII /12/2009 6:5 7:2 6: PERSONAL ACCIDENT ,7 115,3 97,6 HEALTH INSURANCE ,2 98,4 100,1 MOTOR HULL ,3 99,4 98,7 MOTOR TPL ,3 104,1 99,3 PROPERTY INSUR ,0 125,8 92,3 TRANSPOT & CREDIT ,9 100,5 99,7 LIABILITY INSURANCE ,7 128,3 92,0 TOTAL NON-LIFE INSUR ,4 114,1 96,7 LIFE INSUR ,8 107,6 99,1 TOTAL ,2 113,6 97,0 Together with the transferred premium receivables from year 2008 in the amount of HRK million the total premium receivables in the period I-XII 2009 amounted to HRK 3,615.7 million, of which HRK 2,972.6 million or 82.2% has been collected. Total premium receivables on 31 December, 2009 amounted to HRK million, which is an increase of 16.6% in comparison to 31 December, Total non-life premium receivables on 31 December 2009 amounted to HRK millon, while total life premium receivables on December 31, 2009 amounted to HRK 45.1 million. Value adjustment to the total non-life premium receivables on December 31, 2009 HKR 000 NO. INSURANCE Total premium receivables Value adjustment INDEX CLASS 31/12/ /12/2009 4: PERSONAL ACCIDENT ,1 2 HEALTH INSURANCE ,9 3 MOTOR HULL ,7 4 MOTOR TPL ,7 5 PROPERTY INSURANCE ,2 6 TRANSPORT & CREDIT ,6 7 LIABILITY INSURANCE ,0 8 TOTAL NON-LIFE INSUR ,5 Value adjustment as reduction in the premium receivables is made on all uncollected receivables that have been due 180 days or more. In the period I-XII 2009 value adjustments to the premium receivables amounted to HRK million or 37.5% of the due uncollected premium receivables. 046 Croatia osiguranje d.d. Annual Report 2009

47 Paid claims In the period I-XII 2009 the total of HRK 2,073.9 million was spent on paid claims, which is an increase of 0.1%. Paid claims HRK 000 INSURANCE PAID CLAIMS PAID CLAIMS INDEX CLASS I-XII 2008 I-XII : PERSONAL ACCIDENT ,5 HEALTH INSURANCE ,8 MOTOR HULL ,9 MOTOR TPL ,6 PROPERTY INSURANCE ,0 TRANSPORT & CREDIT ,9 LIABILITY INSURANCE ,3 TOTAL NON-LIFE INSURANCE ,5 LIFE INSURANCE ,6 TOTAL ,1 Croatia osiguranje d.d. Annual Report

48 Graphic presentation of the paid claims development PERSONAL ACCIDENT HEALTH INSURANCE MOTOR HULL MOTOR TPL PROPERTY TRANSPORT & CREDIT LIABILITY INSURANCE LIFE INSUR. I-XII 2008 I-XII 2009 Paid claims - structure LIFE INSURANCE LIABILITY INSURANCE TRANSPORT & CREDIT PROPERTY INSURANCE PERSONAL ACCIDENT HEALTH INSURANCE MOTOR HULL MOTOR TPL PERSONAL ACCIDENT 4,2% HEALTH INSURANCE 1,5% MOTOR HULL 15,3% MOTOR TPL 24,7% PROPERTY INSURANCE 27,0% TRANSPORT & CREDIT 14,9% LIABILITY INSURANCE 3,9% LIFE INSURANCE 8,5% 048 Croatia osiguranje d.d. Annual Report 2009

49 Participation of paid claims in the net premium At Company level, paid claims take up 84.6% of the net premium. The portion of paid claims in the net premium is biggest in the following insurance classes: health (118.8%), motor hull (102.6%) and transport and credit (133.6%). Participation of paid claims in the net premium HRK 000 INSURANCE PAID CLAIMS NET PREMIUM PORTION CLASS I-XII 2009 I-XII : PERSONAL ACCIDENT ,9 HEALTH INSURANCE ,8 MOTOR HULL ,6 MOTOR TPL ,6 PROPERTY INSURANCE ,3 TRANSPORT & CREDIT ,6 LIABILITY INSURANCE ,2 TOTAL NON-LIFE INSUR ,1 LIFE INSURANCE ,6 TOTAL ,6 Graphic presentation of the portion of paid claims in the net premium HRK PERSONAL ACIDENT HEALTH INSURANCE MOTOR HULL MOTOR TPL PROPERTY INSURANCE TRANSPORT & CREDIT LIABILITY INSURANCE LIFE INSURANCE PAID CLAIMS I-XII 2009 NET PREMIUM I-XII 2009 Croatia osiguranje d.d. Annual Report

50 Efficiency in claims settlement In the period I-XII ,107 losses were reported, which is 1.9% or 4,144 losses less than in the same period of the previous year. Including claims from the claims provision a total of 252,523 claims were in the process of handling, of which or 85.7% were settled. The efficiency of claims settlement was increased by 0.2% in comparison to the same period of the previous year. Efficiency in claims settlement NO. DESCRIPTION I-XII I-XII INDEX : I CLAIMS FROM CLAIMS PROVISION 1 Number of claims in the provision ,6 2 Number of paid claims from the provision ,5 3 Number of claims settled at no cost ,7 4 Number of settled claims ,6 5 Number of unsettled claims ,8 6 Percentage of settled claims from the claims prov. (4/1) 64,3 61,6 95,7 II CURRENT PERIOD CLAIMS 7 No. of claims reported in the current period ,1 8 No. of claims paid in the current period ,8 9 Number of claims settled at no cost ,2 10 Number of settled claims ,6 11 Number of unsettled claims ,1 12 Percentage of claims settled in the current period (10/7) 89,5 89,9 100,5 III TOTAL CLAIMS IN THE PROCESS OF HANDLING 13 Number of claims being handled (1+7) ,3 14 Number of paid claims (2+8) ,2 15 Number of claims settled at no cost (3+9) ,0 16 Number of settled claims (4+10) ,4 17 Number of unsettled claims (5+11) ,3 18 Percentage of settled claims (16/13) 85,6 85,7 100,2 050 Croatia osiguranje d.d. Annual Report 2009

51 Analysis of Insurance Per Groups and Types Personal non-life insurance CROATIA osiguranje d.d holds 39.1% insurance market share in the segment of accident insurance. The accident insurance premium of CROATIA osiguranje increased during 2009 more than the total growth of the accident insurance market and at the same time it achieved a very good technical result. Having analyzed the possibility of the expansion of insurance cover as well as the needs of the market in the field of insurance of persons during their journey and stay abroad, an expanded product of travel insurance was prepared for the insurance of foreign citizens. Apart from the extension of cover for the insurance of foreigners traveling to Croatia, some additional expansions have also been prepared and they will be introduced to the market during 2010 through Atlas Airtours (former adriatica.net) in whose ownership structure CROATIA osiguranje entered at the end of Through the new tariff of the travel health insurance a possibility to conclude one-day premiums has been introduced. Likewise, in the A Program certain restrictions of the insurance cover are being introduced, protecting that way the technical result in the travel health insurance and observing the offer of competitive companies. Continuing the expansion of offer and better risk management through variable scopes of insurance cover, the disability table Klasik started being used and one more reduced disability table was prepared, namely Basic. The disability table Basic was prepared for the bank insurance, tenders and bids in which the only criterion for the choice of an offer is the price, i.e. the premium amount. In order to manage better the technical result of other voluntary health insurance types, in the insurance risk of sick-leave payment three new clauses have been prepared, which when applied in combination make possible discounts of up to 20.0% on the insurance tariff, while the technical result is being protected at the same time. In 2009 the Company offered also the widest market accident insurance package for pupils and students with six accident risks included, and at very affordable prices at that, already starting at HRK10.0 for annual premium for the accident insurance of children 24 hours a day without any territorial restrictions. With the new offer of insurance of pupils and students the Company adapted its prices to the market conditions and made possible the insurance for everyone at an affordable price, and with the scope of insurance cover this product was brought to the positive technical result, too. In the cooperation with the owner of the recognizable brand My doctor the sale of accident and travel health insurance is about to start within the My doctor package thus entering the family segment with the accident insurance. Beside the family accident insurance, two packages of travel health insurance can additionally be contracted for: one of them includes a travel insurance policy NORMA I with 30 days cover abroad for Europe, for all members insured by the package My doctor and another package including the annual policy MAKSIMA for the bearers of the package My doctor (implying 365 day cover, i.e. the whole year for the whole world) and the NORMA II policy that includes 10 days cover abroad for Europe, for the whole family insured by the My doctor package. The sale is realized through the web service data exchange. Motor vehicle insurance The market share of CROATIA osiguranje d.d. in the insurance of motor vehicles in the Republic of Croatia amounts to 30.9%. The share of CROATIA osiguranje d.d. in the motor TPL insurance market amounts to 29.1%. CROATIA osiguranje d.d. holds 36.3% market share in the motor hull insurance, while the market share in the motor hull insurance of railed vehicles amounts to 98.4%. In 2009 the motor hull insurance market share decreased by 13.0% in relation to the year Unfavourable economic situation on the market brought about a decline in sales of cars. Consequently, in 2009 there were 44,918 new passenger cars registered, which represents a decrease of 49.1% compared to the year Croatia osiguranje d.d. Annual Report

52 During 2009 special attention was given to negotiations with major leasing companies and licensed dealers and auto repair shops for particular car makes. As regards the cooperation with the leasing companies, an agreement on a uniform approach to motor hull insurance risks in leasing was reached. The afore-mentioned agreement represents a prerequisite for the stabilization of the motor hull insurance market for leased vehicles, which will lead to the stabilization of motor hull insurance and stop the decline in the insurance premium for leased vehicles. A new product was introduced in the motor TPL insurance for TRANSFERABLE CAR PLATES that were introduced under the new Road Traffic Safety Law. This product is intended for car salons and auto repair shops and all those dealing with vehicles. Beside this product, car salons are offered also a package of products including motor TPL insurance plus, motor hull insurance of vehicles in storehouse and motor hull insurance of other people's vehicles in auto repair shops and car wash. During this year the second phase of the implementation of the motor vehicles loss assessment program Audatex in ISCROATIA OSIGURANJE D.D. system has been carried out. The basic implementation, i.e. computer-assisted connection of two independent systems has been made, and the next step is working out possibilities of obtaining reports from the IT system on the work of motor vehicle loss assessor. Pursuant to the Agreement on use of Guarantee fund of the Croatian Insurance Bureau, the Management Board of the Croatian Insurance Bureau made a Decision on the account of residual losses from the unknown and uninsured vehicles which were paid by CROATIA osiguranje from 01/01/2000 to 31/12/2007. Under that account HRK24.1 million were remitted to Croatia osiguranje, which was allocated to branch-offices according to earlier paid losses for the above-stated time period. Property insurance In 2009 CROATIA osiguranje d.d. holds 58.4% market share in the property insurance. In 2009, a powerful competitiveness was present among the insurers in the property insurance, which was reflected in fall of prices of insurance policies for all classes. With reference to insurance classes, an increase was noted in fire insurance, crop, plantation and animal insurance, and a high competitiveness is visible in the liability insurance as well. In the insurance of machinery breakdown, construction and installation we have noted a minor decline in premium, which is a consequence of a decline in number of investment projects in comparison to the previous year. As far as property insurance development is concerned, the insurance terms and conditions have been changed and improved for the following: extra-contractual liability, contractual liability, private liability, product liability, management liability, public commissioner liability, receiver liability, package arrangement organizers liability, liability for private security activities and real estate agents liability. A new tariff has also been made for the earthquake insurance and subsidizing of crop, plantation and animal insurance premium by the local self-government has been developed. Transport and credit insurance In the insurance market CROATIA osiguranje d.d. has a 63.6% share in the segment of transport and credit insurance. Transport and credit insurance is an insurance group that has been directly affected by unfavourable movements of capital and goods on the international markets, which resulted in lower levels of the realized premium income in comparison with the previous year. The cooperation with the leasing companies financing the purchase of boats and yachts is still a very important sales channel. Review of present agreements with the leasing companies planned for 2009 has been partly finished, which after long negotiations resulted in the conclusion of the Agreement on cooperation with two most significant leasing companies in the field of financing vessels. Thereby a big step was made towards achieving the planned equalization of conditions and prices of cover for leasing companies. Owing to the efforts made in 2009, the contract of insurance of the only significant national air operator that was not insured by CROATIA osiguranje, namely TRADE AIR, was concluded. An increase in the number of operators of smaller aircrafts oriented at providing renting services and air-taxi, in that way activities related to this insurance group direct at contacts and providing competitive offers 052 Croatia osiguranje d.d. Annual Report 2009

53 for this part of the Croatian air fleet. Designing of the application for the sale of hull and TPL insurance for light aviation has been completed. There are 9 airports in the Republic of Croatia, out of which 7 are insured by CROATIA osiguranje d.d. It is very important to point out here that during 2009 in a tender for the insurance of the Zagreb airport CROATIA osiguranje d.d. concluded a framework agreement for a term of four years. The liability insurance of owners of ports for tourist and sport vessels marina owners - shows continuing increase. CROATIA osiguranje covers about 80.0% of the total number of licensed marinas in Croatia. Most of them offer permanent berths. As the number of vessels increases every year, so does the need for permanent annual berths as well as for temporary berths in the summer due to an increased number of tourists. The future of this insurance is unquestionable. Life insurance Despite unfavourable trends on the insurance market in 2009, CROATIA osiguranje d.d. kept the leading position, by which it fulfilled its vision to be and remain the leader on the life insurance market in Croatia. Croatia osiguranje d.d. has noted an increase of the market share for the third subsequent year, from 13.6% in 2007 to 14.3% in A new system of classic life insurance for the case of death and survival was introduced within the new life insurance products, whereby we took into account changes on the market, business expenses and interest changes. During the whole 2009 measures were taken for the stabilization of the whole life insurance portfolio through the regular activities concerning the collection of due premium and the reduction of the number of repurchases by offering various changes under the policy or by taking a loan. Very good results were also achieved in the conclusion of new insurance after the expiry of an insurance policy. Croatia osiguranje d.d. Annual Report

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55 Investment of Means Review of the financial market in the Republic of Croatia At the end of 2009 the domestic economy is still in recession, whereas the situation in the most developed world economies, according to the statistics, is somewhat better. The most developed world economies are showing slight signs of recovery, which was to be expected due to the enormous amounts of financial means that were injected in their economies through various forms, from the reduction of interest rates to various kinds of direct incentives. Croatia is still marked by high insolvency among all economic subjects, having reached the amount of HRK25.0billion at the beginning of 2010 according to some statements. Survey of general features of the market in 2009 in relation to 2008 Market capitalization 31/12/ /12/2009 % changes Shares (in mil. HRK) ,71 Bonds (in mil. HRK) ,87 Total ,02 CROBEX-Official index of the Zagreb Stock Exchange points 1722, ,06 16,36 CROBIS-Official bond index of the Zagreb Stock Exchange points 90,62 95,84 5,76 Assets of banks 30/09/2009* *no data at 31/12 Bank rates for short-term investments varied depending of the keeping of obligatory bank reserves with the Croatian National Bank. During 2009 average monthly interest rates on the financial market ranged from 0.9% to 18.6%. In the fourth quarter of 2009 the interest rate for overnight deposits fell under 1.0%. Croatia osiguranje d.d. Annual Report

56 Treasury bills of the Ministry of Finance In 2009 the Ministry of Finance issued about HRK10.8billion of treasury bills, out of which HRK4.3 billion with the time limit of 91 days at an average interest rate of 6.7%, HRK1.4billion with the time limit of 182 days at an average interest rate of 7.1% and HRK5.1billion with the time limit of 364 days at an average interest rate of 7.4%. Commercial bills The year 2009 was also marked by the issue and reissue of commercial bills in view of great needs for the solvency of business subjects. The issuers of commercial bills are respectable companies whose strength and credibility is recognized by the investors on the market. In 2009, unlike several previous years, the currency structure of issued commercial bills was beginning to change for the reason of financial and economic crisis, i.e. the currency risk of the local currency. Most bills issued in 2009 were denominated in EUR currency. Since the reference rate on issuing the commercial bills was the interest rate on treasury bills of the Ministry of Finance the issuers had to offer relatively high returns in order to draw investors. Open investment funds with public and private offer According to the data of the Croatian Financial Services Supervisory Agency a total of 130 open investment funds are transacting business in the Republic of Croatia at the end of Total net assets of open investment funds amounted to HRK12.0billion at the end of 2009, out of which 11.4 account for the funds with public offer, while a smaller part, i.e. HRK628.1million, accounts for the funds with private offer. In comparison with the same period of 2008 total assets achieved an increase of 21.7%. 056 Croatia osiguranje d.d. Annual Report 2009

57 Investment of the Company s Means In consistence with the legal provisions CROATIA osiguranje d.d. kept already invested means and invested new free means into available financial instruments in 2009 as well, while observing primarily the principles of safety and solvency aiming at realizing highest possible returns on invested means. Total investments at 31/12/2008 and 31/12/2009 TYPE OF INVESTMENT 31/12/ /12/2009 INDEX DIFFERENCE 4: STATE BONDS AND TREAS. BILLS ,2% ,0% 95, MUNICIPAL AND CORP. BONDS AND COM. BONDS ,8% ,0% 137, TOTAL BONDS AND BILLS ,9% ,0% 100, REAL ESTATE ,6% ,1% 117, TOTAL DEPOSITS ,2% ,8% 90, NET - LOANS ,1% ,2% 86, SHARES AND STAKES ,0% ,5% 99, INVESTMENT FUNDS ,2% ,4% 232, TOTAL ,0% ,0% 103, HRK 000 Graphical presentation of total investments HRK /12/ /12/ STATE BONDS AND TREASURY BILLS MUNICIPAL AND CORP. BONDS AND COM. BILLS REAL ESTATE TOTAL DEPOSITS NET - LOANS SHARES AND STAKES INVESTMENT FUNDS Croatia osiguranje d.d. Annual Report

58 At the end of 2009 the value of total investments increased by HRK171.3million, i.e. by 3.6% in comparison with the total investment value at the end of Compared to 31/12/2008 the investments in investment funds increased most, whereas the investments in loans and deposits in business banks were decreased. On grounds of low interest rates on short-term time deposits, free financial means were more directed into money investment funds. Within the structure of total investments the state securities hold the biggest share with 27.0%, and the corporate securities the smallest one with 5.0%. Investment of assets for covering technical provision, capital and non-life insurance provisions in HRK 000 TYPE OF INVESTMENT 31/12/ /12/2009 INDEX DIFFERENCE AMOUNT % AMOUNT % 4: STATE BONDS ,3% ,9% 88, MUNICIPAL AND CORP. BONDS AND COM. BILLS ,0% ,8% 160, TOTAL BONDS AND BILLS ,3% ,7% 101, REAL ESTATE ,3% ,6% 117, TOTAL DEPOSITS ,9% ,0% 77, NET - LOANS ,3% ,8% 82, SHARES AND STAKES ,5% ,9% 95, INVESTMENT FUNDS ,7% ,8% 233, TOTAL ,0% ,0% 98, Graphical presentation of assets investments for covering technical provisions, capital and non-life insurance provisions HRK /12/ /12/ STATE BONDS MUNICIPAL AND CORP. BONDS AND COM. BILLS REAL ESTATE TOTAL DEPOSITS NET - LOANS SHARES AND STAKES IINVEST- MENT FUNDS 058 Croatia osiguranje d.d. Annual Report 2009

59 STRUCTURE OF ASSETS INVESTMENTS FOR COVERING TECHNICAL PROVISION, CAPITAL AND NON-LIFE INSURANCE PROVISIONS Compared 31/12/ /12/ /12/ /12/ /12/ /12/2009 INVESTMENT FUNDS 3,7% INVESTMENT FUNDS 8,8% SHARES AND STAKES 19,5% SHARES AND STAKES 18,9% NET - LOANS 15,3% NET - LOANS 12,8% TOTAL DEPOSITS 26,9% TOTAL DEPOSITS 21,0% REAL ESTATE 17,3% REAL ESTATE 20,6% MUNICIPAL AND CORP. BONDS AND COM. BILLS 3,0% MUNICIPAL AND CORP. BONDS AND COM. BILLS 4,8% STATE BONDS 14,3% STATE BONDS 12,9% Investments of assets for covering technical provisions, capital and nonlife insurance provisions amounted to HRK3.2billion at 31/12/2009, having decreased by HRK43.6million, i.e. by 1.4%, in comparison to 31/12/2008. In relation to 31/12/2008 the investments in deposits decreased most, namely by HRK195.9million, i.e. by 22.7%, and in loans by HRK86million, i.e. 17.4%, whereas the investments in investment funds increased significantly, namely by HRK159.9million, i.e. by 133.8%. In order to retain good solvency a significant part of non-life insurance means should be invested for a short term and because of low interest rates for short-term deposits in banks, especially in the third quarter, non-life insurance means that should be invested for a short term were invested for the most part in money investment funds. Value of investments in corporate securities at the end of 2009 compared to the same period of the previous year increased by HRK57.7million, i.e. by 60.4%, and the value of investments in real estate increased by HRK97.0million, i.e. by 17.4%. Investments in state securities were increased by HRK50.9million, i.e. by 11.1%, and the value of investments in shares and stakes was reduced by HRK25.5million, i.e. by 4.1%. In 2009 the EURO 2009 bonds matured to the amount of HRK6.3million. In the structure of investments the biggest share is still held by deposits, amounting to 21.0%, and the smallest one by corporate securities with 4.8%. Croatia osiguranje d.d. Annual Report

60 Investments of assets for covering mathematical provision, capital and life insurance provisions in HRK 000 TYPE OF INVESTMENT 31/12/ /12/2009 INDEX DIFFERENCE AMOUNT % AMOUNT % 4: STATE BONDS AND TREAS. BILLS ,1% ,7% 99, MUNICIPAL AND CORP. BONDS AND COM. BILLS ,4% ,3% 111, TOTAL BONDS AND BILLS ,5% ,9% 100, DEPOSITS ,8% ,8% 118, LOANS ,5% ,8% 129, SHARES AND STAKES ,0% ,9% 149, INVESTMENT FUNDS ,2% ,5% 229, TOTAL ,0% ,0% 113, Graphical presentation of assets investments for covering mathematical provisions, capital and life insurance provisions /12/ /12/2009 STATE BONDS AND TREASURY BILLS MUNICIPAL AND CORP. BONDS AND COM. BILLS DEPOSITS LOANS SHARES AND STAKES INVESTMENT FUNDS 060 Croatia osiguranje d.d. Annual Report 2009

61 STRUCTURE OF ASSETS INVESTMENTS FOR COVERING MATHEMATICAL PROVISION, CAPITAL AND LIFE INSURANCE PROVISIONS 31/12/ /12/ /12/ /12/2009 INVESTMENT FUNDS 5,2% INVESTMENT FUNDS 10,5% SHARES AND STAKES 3,0% SHARES AND STAKES 3,9% LOANS 2,5% LOANS 2,8% DEPOSITS 24,8% DEPOSITS 25,8% MUNICIPAL AND CORP. BONDS AND COM. BILLS 5,4% MUNICIPAL AND CORP. BONDS AND COM. BILLS 5,3% STATE BONDS AND TREASURY BILLS 59,1% STATE BONDS AND TREASURY BILLS 51,7% Investments of assets for covering mathematical provision, capital and life insurance provisions amounted to HRK1.8billion at 31/12/2009, representing an increase of HRK214.9million, i.e. 13.5%, when compared to 31/12/2008. The value of investments in state securities at the end of 2009 is almost the same as at the end of 2008, whereas the values of all other investments were increased. Within the life insurance means the investments in investment funds increased most, namely by HRK107.3million, i.e. by 129.5%, because of the redirection of means in money investment funds that were achieving higher returns in relation to the short-term time deposits in banks. In the structure of investments of life insurance means the biggest share is held by state securities with a share of 51.7%, and the smallest one by loans with a share of 2.8%. During 2009 in the investment activities CROATIA osiguranje d.d. achieved a positive result amounting HRK331.6million, which represents an increase of HRK223.6million, i.e %, in comparison to the year 2008 when investments produced a positive result amounting to HRK108.0million. Croatia osiguranje d.d. Annual Report

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63 Statement on Application of Corporate Management Code Under the Law on Commercial Companies, Article 272 p. During 2007 the Company voluntarily started applying the principles described in the Corporate Management Code that was drawn up by the Zagreb Stock Exchange and the Croatian Financial Services Supervisory Agency. In the interest of the application of the Code, the Company undertook a whole range of activities, among which we would like to point out organized courses for the certification of members of the supervisory boards, that were attended by all members of the Management Board, managers and members of the supervisory and managing boards of the companies of CROATIA Group as well as by 38 managerial employees of the Company, all of them having successfully passed final exam. The goal of this training primarily was to improve the corporate culture of the Company and to introduce the corporate management as a good practice into the companies of the CROATIA Group as well with the aim to maximally unify the business processes and to achieve optimal business results in the whole CROATIA Group. During 2009 the Company made its business activities and business results completely transparent and accessible to the public, pursuant to the principles of the Corporate Management Code, which particularly includes the following: all reports regularly updated list of shareholders data on securities candidacy of all candidates for the membership in the Supervisory Board data on the structure of the Managing and Supervisory Board and their assistant units agenda of the Assemblies all relevant information published in English as well together with all the other information on business activities of Croatia osiguranje d.d. available on our web-site In 2009 pursuant to the rules of the Stock Exchange, the Company's Statute and the Law on Commercial Companies almost all the principles of the corporate management were observed, and that refers particularly to the organization of the General Assembly of the Company and to the delivery of the documents related to the General Assembly to all shareholders. Under the Insurance Law, section VIII, regulating the work of the internal auditing of the insurance companies, the Internal Auditing Department suggested a strategic work plan (a five-year plan) that was adopted by the Supervisory Board with the consent of the Company's Management Board. The basis for the adoption of the strategic plan was the risk assessment. The goal and the task of the risk assessment process were to present the priorities of certain audits in work plans for a certain period. On the basis of determined business and auditing risks the business plan for 2009 was made as well as the plan of particular audits in On the basis of the recommendations of the Company's Management Board the plans were adopted by the Supervisory Board of the Company. Business audits for 2009 were performed according to the adopted work plan and in line with the Internal Audit Procedure Rules, the International Internal Auditing Standards, Croatian Internal Auditing Standards and the Code of Professional Ethics. According to the Internal Audit Procedure Rules the report on the audit of organizational parts of the Company (branch-offices and departments in the Head Office) is to be delivered to the Company's Management Board and it is discussed by the Management Board at its regular meetings. Croatia osiguranje d.d. Annual Report

64 Furthermore, pursuant to the Insurance Law, Article 149, and the Internal Audit Procedure Rules, Article 17, the report on performed audits, on problems and defects discerned, the activities of the system of internal controls, illicitness and irregularities and suggestions for their elimination as well as on activities undertaken referring to the given recommendations is sent from the Internal Auditing Department to the Company's Management Board and to the Company's Supervisory Board twice a year. The Management Board believes that in this way it has feedback information on the course of business activities and that it reduces possible risks to the acceptable level, thus contributing to the credibility of the financial reports for the Company. Risk management is a fundamental function of all financial institutions, hence Croatia osiguranje d.d., as a financial institution and the market leader has to manage adequately all risks to which it is exposed in its business activities in order to accomplish safety and business sustainability and to actualize fair compensation for a loss of the insured, adequate profitability for the owners and employees and to meet all legal and regulatory provisions. The Company started certain activities in that area and in October 2009 it established the Department for Risk Management that should implement and develop models, techniques and methods of managing all risks at request of Solvency II (prepare data basis for Solvency II, as well as develop its own model of risk assessment within the frame of Solvency II). The Company elaborated the initiative of coordination with the directives Solvency II and it initiated the project of Gap Analysis, whose results will create the basis for making detailed plan for the adjustment activities. In the next period the risk management will be upgraded and a clear system for risk management will be set up formally and actually as on the level of the Company as a whole so too on the level of organizational units and dependent companies. The Croatian Privatization Fund is the most significant owner of the Company's shares and it controls the number of shares as set out in the table below: Croatian Privatization Fund Number of shares Stake in capital stock HFP / CROS-P-A / 76 0,02 2. HFP / CROS-R-A / ,68 3. HFP / State agency /CROS-R-A/-representation ,52 4. HFP /Hrv. šume d.o.o. /CROA-R-A/- representation 50 0,02 5. HFP / HP d.d. / CROS-R-A/- representation 104 0,03 TOTAL ,27 Pursuant to the Company's valid Statute there is no restriction or any partial restriction of the shareholders' voting right. Under Article 24 subsection 2 of the Statute, the Croatian Privatization Fund appoints one (1) member of the Supervisory Board, and it has this authority as long as it owns at least 25% of the Company's stock capital. Members of the Management Board or the Supervisory Board are not owners of the Company's shares. The Company does not have its own shares, and the General Assembly did not empower the Company to acquire its own shares, either. The data on the structure and activities of the Management Board and the Supervisory Board are given in the chapter on the Management Board and Management Organization. 064 Croatia osiguranje d.d. Annual Report 2009

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66

67 Independent Auditor's Report

68 INSOUCIANCE. from one generation to another

69 Responsibility for the Financial Statements The Company's Management Board is responsible for ensuring that the financial statements for the year ended 31 December 2009 are prepared in accordance with the Accounting Law (National gazette No. 109/07) and the International Financial Reporting Standards (National gazette No. 140/06, 30/08, 130/08, 137/08, 29/09), issued by the Accounting Standards Board, so that they provide a true and fair view of the financial position, business results, the changes in capital and the cash flows of the Company for that period. On the basis of performed analysis the Management Board justly expects that the Company has adequate means to continue business operations in the foreseeable future. In consistence with that, The Management Board prepared financial statements under the assumption of the time limitlessness of the Company's business activities. In preparing financial reports the Management Board is responsible: for the selection and thereafter a consistent application of adequate accounting policies; for giving reasonable and rational judgments and estimations; for the application of valid financial reporting standards, publication and explanation of all substantially significant aberrations in the financial statements; and for the creation of financial reports under the assumption of business time limitlessness, unless the assumption is unsuitable. The Management Board is responsible for keeping proper accounting records that reflect the financial position and business results of the Company with acceptable accuracy at any moment as well as their compliance with the Accounting Law (National gazette No. 109/07) and the International Financial Reporting Standards (National gazette No. 140/06, 30/08, 130/08, 137/08, 29/09) issued by the Accounting Standards Board. The Management Board is also responsible for the protection of the Company's assets and hence for taking justified measures in order to prevent and disclose fraud and other illegal acts as well. Signed on behalf of the Management Board: Silvana Ivan i Member of the Management Board Hrvoje Vojkovi President of the Management Board CROATIA OSIGURANJE d.d. Miramarska Zagreb Republic of Croatia 16 March 2010 Croatia osiguranje d.d. Annual Report

70 Independent Auditor's Report To the shareholders of CROATIA OSIGURANJE d.d., Zagreb 1. We have audited the enclosed financial statements of CRO- ATIA OSIGURANJE d.d. Company, Zagreb, Miramarska 22 ("Company") for the year ended 31 December 2009., which include the Balance Sheet as at 31 December 2009, Profit and Loss Account, Statement of Changes in Capital and Cash Flow Statement for the year ended then as well as the appertaining Notes to the financial statements providing a summary of significant accounting policies and other explanations. Responsibility of the Company's Management Board 2. The Company's Management Board is responsible for the preparation and a true and fair presentation of the enclosed financial statements in accordance with the International Financial Reporting Standards being effective in the Republic of Croatia. This responsibility includes: designing, implementing and maintaining internal controls relevant for the preparation and fair presentation of the financial statements without any significant erroneous presentations caused either by deceit or mistake, selecting and applying adequate accounting policies and making accounting assessments that are reasonable in the given circumstances. Auditor's Responsibility 3. It is our responsibility to express our opinion on the enclosed financial statements on the basis of our audit. We conducted the audit in accordance with the International Auditing Standards. These standards require adherence to the ethical rules on part of the auditor as well as the planning and performing of audit in order to obtain reasonable confidence as to whether the financial statements are presented without any significant errors. 4. The audit includes performing of procedures aiming at gathering evidence of amounts and statements in financial reports. The choice of procedures, including the assessment of risks of significant erroneous statements in financial reports due to deceit or mistakes, depends on the auditor's judgment. In assessing these risks the auditor considers internal controls that are important to the Company for the production and fair presentation of the financial statements in order to perform auditing procedures that are adequate in the given circumstances, but not also for the purpose of expressing opinion on the efficiency of internal controls. The audit also includes evaluating the adequacy of accounting policies applied and the reasonableness of accounting estimates made by the Company's Management, as well as evaluating the overall presentation of the financial statements. 070 Croatia osiguranje d.d. Annual Report 2009

71 5. We believe that the audit evidences gathered by us are sufficient and appropriate as the basis for the expression of our opinion. pursuant to the Accounting Law and the International Financial Reporting Standards effective in the Republic of Croatia. Opinion 6. In our opinion, the accompanying financial statements, in all substantially significant aspects, give a true and fair presentation of the financial position of the Company as at 31 December 2009 and the results of business operations, the changes in capital and the cash flows of the Company for the year 2009 Special Emphasis 7. Without reference to our opinion expressed above in point 6, we would like to draw your attention to Notes 5.2./i/ and to the financial statements that outline the effects of the adjustment of the real estate book value to the estimated fair value. Audit d.o.o., Zagreb Zdenko Balen, Certified Auditor, Member of the Management Board Zagreb, 16 March 2010 Croatia osiguranje d.d. Annual Report

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73 Financial Statements for the Year 2009

74 PROTECTION. from one generation to another

75 Basis of Preparation of Financial Statements 1.1. Basis for Composing The financial statements of the Company for the year 2009 are prepared in accordance with the Insurance Law (National gazette No. 151/05, 87/08, 82/09), Accounting Law (National gazette No. 109/07) and the International Financial Reporting Standards (National gazette No. 140/06, 30/08, 130/08, 137/08, 29/09) issued by the Accounting Standards Board and in accordance with the Ordinance on structure and content of annual financial statements of insurance companies (National gazette No. 31/08). The financial statements have been prepared by applying basic accounting assumption of the occurrence of a business event under which the effects of transactions are recognized after they have occurred and they are presented in the financial statements for the period they refer to by applying the basic accounting assumption of the time limitlessness in business activities Use of Estimates Creation of financial reports in accordance with the International Financial Reporting Standards requires the Management Board to make evaluations, estimates and assumptions that affect the application of policies and presented amounts of assets, liabilities, income and expenditures. These estimates and related assumptions are based on historical experience and other various factors deemed reasonable under given conditions and with information available on the date of the preparation of financial reports, and the result of which makes the basis for the estimation of the book value of assets and liabilities, which is not easy to determine from other sources. Actual results may differ from these estimates. Estimates and related assumptions are being continually reexamined. The changes of accounting estimates are recognized in the period in which the estimate is also changed for the future periods if they are affected by the change as well Report Currency The financial statements are presented in Croatian Kuna (HRK). At 31 December 2009 the official exchange rate was HRK7.31 for 1 Euro (HRK7.32 at 31 December 2008) and HRK5.09 for 1 USD (HRK5.16 at 31 December 2008) Transactions in Foreign Currencies Transactions presented in foreign currencies are converted into Croatian Kuna (HRK) according to the exchange rate of the Croatian National Bank being valid on the day of transaction or according to the exchange rate agreed between the parties. Assets and liabilities presented in foreign currencies were converted in HRK on the day of balance sheet according to the medium exchange rate of the Croatian National Bank valid on that day. Any income or expenditure resulting from a change in the exchange rate after the transaction date is included in the profit and loss account within the investment income or expenditure. Croatia osiguranje d.d. Annual Report

76 Profit and Loss Account for the Period From 1 January to 31 December 2009 in HRK DESCRIPTION I-XII 2008 Life Non-life Total I Earned premiums (income) II Investment income III Income from commissions and fees IV Other insurance-technical income, net of reinsurance V Other income VI Outlays for insured events, net VII Change in other technical provisions, net of reinsurance VIII Change in life insurance technical provisions when policyholder bears investment risk, net of reinsurance (+/-) IX Outlays for premium returns (bonuses and discounts), net of reinsurance X Business expenditures (outlays for insurance activities), net XI Investment expenses XII Other technical expenses, net of reinsurance XIII Other expenses, including value adjustments XIV Profit or loss in accounting period before taxation XV Profit or loss tax XVI Profit or loss in accounting period after taxation TOTAL INCOME TOTAL EXPENDITURES without profit tax Croatia osiguranje d.d. Annual Report 2009

77 Profit and Loss Account for the Period From 1 January to 31 December continued in HRK I-XII 2009 Indexes Life Non-life Total 6:3 7:4 8: ,91 95,25 95, ,28 186,82 159, ,85 106, ,67 29, ,28 91,03 91, ,19 92,92 93, ,29-117, ,64-82, ,56 105,64 105, ,41 107,50 79, ,83 172,89 172, ,44 109, ,86 141, ,79 766, ,72 107, ,95 100,52 99, ,07 100,64 99,62 Croatia osiguranje d.d. Annual Report

78 Balance Sheet at 31 December 2009 Assets in HRK ASSETS 31/12/ /12/2009 INDEX LIFE NON-LIFE LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL (2/5) (6/3) INTANGIBLE ASSETS ,5 96,5 TANGIBLE ASSETS ,8 158,8 TOTAL INVESTMENTS ,5 98,6 103,6 INVESTMENTS FOR THE ACCOUNT AND RISK OF LIFE INSURANCE POLICYHOLDER ,1 163,1 REINSURANCE STAKE IN TECHNICAL PROVISIONS ,9 92,1 92,1 DEFERRED AND CURRENT TAX ASSETS ,6 2,6 RECEIVABLES ,8 94,1 91,9 OTHER ASSETS ,7 62,7 58,0 PAID EXPENSES FOR FUTURE PERIOD AND UNDUE COLLECTION ,5 100,0 100,1 TOTAL ASSETS ,3 105,5 106,9 TOTAL (7/4) Liabilities LIABILITIES 31/12/ /12/2009 INDEX LIFE NON-LIFE LIFE NON-LIFE TOTAL LIFE NON-LIFE TOTAL (2/5) (6/3) TOTAL CAPITAL AND PROVISIONS OWN CAPITAL ,5 131,0 132,0 TOTAL TECHNICAL PROVISIONS ,2 95,2 99,0 LIFE INSURANCE TECHNICAL PROVISIONS WHEN POLICYHOLDER BEARS RISK ,1 163,1 OTHER PROVISIONS ,8 326,9 DEFERRED AND CURRENT TAX LIABILITY FINANCIAL LIABILITIES ,8 82,8 OTHER LIABILITIES ,4 91,5 DEFERRED PAYMENT OF EXPENSES AND FUTURE PERIOD INCOME ,1 72,2 82,0 TOTAL LIABILITIES ,3 105,5 106,9 TOTAL (7/4) 078 Croatia osiguranje d.d. Annual Report 2009

79 Statement of Changes in Capital at 31 December 2009 Item Principal Paid-in capital common shares Paid-in capital preferred shares Revaluation provision - land and buildings Revaluation provision - financial investments Legal provisions Statutory provisions Other provisions Retained profit Total capital and provisions Balance at 1 January ( ) Change in accounting policy ( ) ( ) Balance at 1 January 2009 (adjusted) ( ) Change in fair value of financial assets available for sale Realized profits/losses from financial assets available for sale Other profits and losses credited directly to capital and provisions Net profits/losses - for payment) Profit of the current period Dividends (profit share ( ) ( ) Transfer of profit to provisions ( ) - Balance at 31 December ( ) Balance at 1 January Change in fair value of financial assets available for sale ( ) ( ) Realized profits/losses from financial assets available for sale ( ) ( ) Other profits and losses credited directly to capital and provisions ( ) Net profits/losses ( ) ( ) Profit of the current period Dividends (profit share - for payment) ( ) ( ) Transfer of profit to provisions ( ) - Balance at 31 December ( ) Croatia osiguranje d.d. Annual Report

80 Cash Flow Statement From 1 January to 31 December 2009 Position in HRK Description of position mark I CASH FLOW FROM BUSINESS OPERATIONS Cash flow before change in business assets and liabilities Profit/loss before tax Adjustments Amortization of real estate and equipment Amortization of intangible assets Value decrease and profit/loss after adjustment to fair value Interest expenses Profit from interest Shares in profit of associate companies Profit/loss from sale of tangible assets (including land and buildings) Other adjustments Increase/decrease in business assets and liabilities Increase/decrease in investments available for sale Increase/decrease in investments evaluated at fair value through the profit and loss account Increase/decrease in deposits, loans and receivables Increase/decrease in deposits in insurance business ceded to reinsurance Increase/decrease in investments for the account and risk of life insurance policyholders Increase/decrease of reinsurance stakes in technical provisions Increase/decrease of tax assets Increase/decrease in receivables Increase/decrease in other assets Increase/decrease in paid expenses for future period and undue income collection Increase/decrease in technical provisions Increase/decrease in life insurance technical provisions when the policyholder bears investment risk Increase/decrease of tax liabilities Increase/decrease in deposits retained from business ceded to reinsurance Increase/decrease in financial liabilities Increase/decrease in other liabilities Increase/decrease in deferred payment of expenses and future period income Profit tax paid II CASH FLOW FROM INVESTMENT ACTIVITIES Money received from sale of tangible assets Outlays for purchase of tangible assets Money received from sale of intangible assets Outlays for purchase of intangible assets Money received from sale of real estate not used by the Company for insurance activities Outlays for purchase of real estate not used by the Company for insurance activities Increase/decrease of investments in branch-offices, associate companies and participating in joint investments Money received from sale of branch-offices and other business units, reduced by money and money equivalents Outlays for acquiring branch-offices and other business units, reduced by gained money and money equivalents Money received from investments kept till maturity Outlays for investments kept till maturity Money received from sale of securities and stakes Outlays for investments in securities and stakes Money received from dividends and profit share Money received from repayment of granted short-term and long-term loans Outlays for granted short-term and long-term loans III CASH FLOW FROM FINANCIAL ACTIVITIES Money received from increase of capital stock Money received from received short-term and long-term loans Money outlays for repayment of received short-term and long-term loans Money outlays for repurchase of own shares Money outlays for payment of profit share (dividends) NET CASH FLOW (I+II+III) IV EFFECTS OF FOREIGN CURRENCY RATE CHANGE ON MONEY AND MONEY EQUIVALENTS V NET INCREASE/DECREASE OF MONEY AND MONEY EQUIVALENTS Money and money equivalents at the beginning of period Money and money equivalents at the end of period Croatia osiguranje d.d. Annual Report 2009

81 II. Summary of Basic Accounting Policies The basic accounting policies adopted for the elaboration and presentation of substantially significant items that crucially determine the result and the financial position of the Company are as follows: 2.1. Gross written premiums /i/ Written premiums represent basic operating income and they include written non-life and life insurance premiums. /ii/ Gross written non-life insurance premiums include all amounts of premiums stipulated (written) in the current accounting period, no matter whether these sums fully or partially refer to the subsequent accounting period. /iii/ Gross written life insurance premiums include all amounts of premiums that are collected up to the end of the accounting period Investment income and expenses /i/ Investment income includes income realized from the participating interests (dividends, profit shares, book entries value increase), income from investments in land and buildings, income from interest, unrealized returns from investments at fair value through the profit and loss account, gains from investment sale (realization), net positive exchange rate differences and other income from investments. Income from investments in land and buildings consists of income from the increase in value of land and buildings, income from sale of land and buildings, rental income and other income related to investments in land and buildings. Income from rent of land and buildings and other operative leases is recognized in the profit and loss account through the linear method during the whole period of lease. Income from interest is recognized in the profit and loss account when accrued, taking into consideration the effective return on adequate assets. Interest on monetary assets at fair value through the profit and loss account is calculated at the voucher interest rate and is presented within the figure of interest income. Income from dividends is recognized in the profit and loss account at the date when dividends are voted. The accounting policy related to the recognition of financial income is described in Note 3.7 Financial assets. /ii/ Investment expenses include interest expenses, expenses for the adjustment of investment value (decrease), losses from investment sale (realization), net negative foreign exchange rate differences and other investment expenses Outlays for insured events Outlays for insured events include all paid amounts of claims in the accounting period, no matter in which accounting period the claims occurred, reduced by the reinsurance stake in claims, collected recourse claims, sold and salvaged parts and increased by the claims provisions at the end of the accounting period, and reduced by the claims provisions at the beginning of the accounting period. Gross amounts of paid claims, apart from net paid claims, include expenses related to the payment of claims (assessments, lawyer s fees and the like), repurchases and expenses under recourse claims Operating expenditures Operating expenditures include costs of sale of insurance policies and management costs. Sales costs include all direct costs resulting from the conclusion of insurance contracts such as costs of agents, commissions and promotion. Costs of commissions are recognized as they arise pursuant to the principle of the accounting period. Management costs include expenses resulting from the collection of insurance premiums, portfolio management, outlays for employees and other tangible and intangible costs Intangible and tangible assets and investments in real estate Long-term intangible and tangible assets are initially reported under the costs of procurement that include the purchase price, including import fees and non-refundable taxes after deduction of commercial discounts and rebates as well as all other costs that can be directly attributed to the setting of assets in the place and working condition for the intended use. Longterm intangible and tangible assets are recognized if it is likely that future economic benefits that can be attributed to the assets will inflow to the Company, if the costs of the procurement of assets can be determined with Croatia osiguranje d.d. Annual Report

82 confidence and if a single procurement value of assets exceeds HRK2,000. After the initial recognition the assets are presented under their procurement costs reduced by the accumulated amortization and accumulated losses from value decrease. After the initial recognition land and buildings are presented at revaluated amount consisting of its fair value at the date of revaluation reduced by subsequently accumulated amortization and accumulated losses from the value decrease. The increase in the value of assets due to the revaluation is credited directly to the capital as revaluation provision. The revalution is performed regularly in a way that the book amount does not differ significantly from the one that would come out of the determination of fair value at the balance sheet date. Costs of current maintenance and repairs, replacement and investment maintenance on a small scale are recognized as the expenditures of the period in which they emerged. In situations where it is clear that the costs resulted in the increase of future expected economic benefits that should be realized through the use of assets above their originally assessed capabilities, they are capitalized i.e. included in the book value of that means. Profits and losses on the basis of the write-off or sale of assets are reported in the profit and loss account in the period in which they occur. The amortization of assets begins when the assets are ready for use i.e. when they are in the place and in a condition necessary for use. The amortization of assets stops when the assets are classified as assets kept for sale. The amortization is calculated in a way that the costs of purchase of each particular means, apart from land and long-term intangible and tangible assets under preparation, are written off during the estimated period of useful life of means by applying the linear method, as follows: Amortization rate (from to %) Concessions, patents, licences, software etc. 25 Other intangible assets 25 Buildings 2,5 Furniture and equipment IT equipment 33,33 Means of transport 20 Investments in real estate (land, buildings) not used for insurance activities and which are owned by the Company or in financial lease are kept in order for the Company to gain income from the lease or/and because of the increase of market value of the assets, and they are set out at fair value through the profit and loss account Investments in subsidiaries and associate companies Subsidiary companies are companies in which the Company has a control over adoption and execution of financial and business policies. Associate companies are companies in which the Company has a significant influence but not a control over adoption and execution of financial and business policies. Investments in subsidiary and associate companies are set out by the cost method Financial assets /i/ Financial assets at fair value in the profit and loss account Financial instruments included in this portfolio are financial instruments kept for trade, and they were bought for the purpose of gaining profit from the short-term price fluctuations or broker s commission or the securities are included in the portfolio in which there is a pattern for the realization of short-term profit. In consistence with the investment policy of the Company each financial instrument may be classified as assets set out at fair value through the profit and loss account, with the exception of investments in equity instruments that do not have a listed price on an active market and whose fair value cannot be reliably measured. These instruments are initially set out under procurement costs, and later on they are measured again at fair falue that is based on listed purchase prices on active market. All related realized and unrealized profits and losses are included in investment income / costs. Earned interest that accrued while these instruments were kept is set out as interest income. All purchases and sales of instruments being kept for trade are recognized at the date the trade was made, and that is the date when the Company undertakes to buy or sell assets. Transactions not being recognized at the date the trade was made are accounted as financial derivatives.. /ii/ Loans and receivables Loans and receivables are underivative financial assets with fixed or determinable payments not listed on active market. Loans and receivables arise when the Company grants financial means without the intention of trading with these receivables, and they include loans to the insured and deposits at banks. Granted loans and receivables created by the Company are recognized at the moment of transfer of means on the part of the Company. Loans and receivables are set out reduced by provisions for a value decrease. Provisions for 082 Croatia osiguranje d.d. Annual Report 2009

83 /iii/ the value decrease are determined if there is an objective evidence that the Company will not be able to collect all receivables upon maturity date. Provisions for identified losses are estimated on the basis of the loan capacity and business results of debtor, taking into consideration the value of the collateral. The loan is written off at the moment of understanding that it is not possible to collect the loan anymore and that all legal possibilities for collection are exhausted and that the amount of total loss is determined. If the amount of the value decrease is subsequently diminished and the diminution is objectively related to an event that occurred after the value decrease, then the value decrease or provisions are diminished through the profit and loss account. In an event of default the Company charges debtors for default interest that is computed on the accounting basis and set out as income from interest. Financial assets available for sale Financial assets available for sale are those underivative financial assets that are defined as available for sale or those not classified either as assets at fair value through the profit and loss account or as loans and receivables. Financial instruments included in the assets available for sale consist of debt and equity securities. These instruments are initially recognized according to the investment expenses, and after the initial recognition they are set out at fair value based on listed prices and amounts derived from the models of cash flows. In cases when listed market prices are not available, fair value of debt securities is estimated by applying current value of future financial flows, and fair value of unlisted equity instruments is estimated by applying a correspondent ratio of price and earnings or price and cash flow cleared in a way that it reflects specific circumstances connected with the issuer. Profit and loss arising from change in fair value of financial assets available for sale are recognized directly in the capital as revaluation provision, and are set out in the report on changes in capital up to the moment of sale when cumulative profits and losses previously recognized in the capital are included in the profit and loss account of the period. The interest earned in the period of possession of securities available for sale is calculated daily and set out as income from interest. Foreign exchange rate differences under equity instruments in foreign means of payment classified as available for sale are set out in the capital, together with the profits and losses from change in fair value up to the moment of sale of instrument. Foreign exchange rate differences under debt instruments in foreign means of payment classified as available for sale are set out in the profit and loss account. Dividends under securities classified as available for sale are booked when notified. /iv/ Investments kept till maturity Investments kept till maturity are underivative financial assets with fixed payment amounts or payments that can be determined, and with fixed maturity dates, which the Company intends and is able to keep till maturity. Treasury bills and debt securities are included in them, too. Investments kept till maturity are set out at amortized costs by applying the method of effective interest rate decreased by a potential value adjustment due to a decrease. The Company checks regularly if there are objective evidences pointing to a decrease in investments kept till maturity. The value of a financial means is diminished if its book amount exceeds the estimated recoverable amount that equals the current value of expected future cash flows discounted by the application of the original effective interest rate for that instrument. The amount of loss from a decrease of certain means set out at amortized costs is calculated as a difference between the book value of that means and the current value of expected future cash flows discounted by the application of the original effective interest rate for that instrument. When it is established that a decrease in means arose, the Company recognizes a decrease in value to the debit of the profit and loss account Receivables /i/ Receivables from insurance activities include receivables from the insured under the non-life and life insurance premium. Receivables under the non-life insurance premium include receivables for written but non-invoiced premium as well as receivables for invoiced but uncollected premium. Receivables under the life insurance premium and supplementary accident insurance include receivables for invoiced but uncollected premium. The recognition of the insurance premium is described in Note 3.1. "Gross written premiums". /ii/ Receivables for invoiced but uncollected premium are reported at par value, and for doubtful and uncollectable claims a value adjustment is determined. The value adjustment as a decrease in receivables for premium is set out for all uncollected receivables whose maturity period expired 180 days earlier. The value adjustment can be decreased by those receivables under which a liability for the claim indemnification to the debtor (claim provision) was established. Croatia osiguranje d.d. Annual Report

84 /iii/ Receivables under the right to recourse are recognized for all recourse cases from out-of-court procedure resulting from receivables from the other insurance company and recourses for which a financial settlement was reached. The value adjustment of recourse receivables is defined for all receivables not collected within the period of 180 days. /iv/ Other receivables refer to the receivables for interest on loans and deposits, receivables for advance payments and the like Reductions At each balance-sheet date the Company checks the book values of its assets in order to establish whether there are any indications of the occurrence of losses due to a decrease in the value of assets. If such indications are present, the recoverable amount of assets is estimated so that a possible loss due to a decrease might be established. If the recoverable amount of some assets is estimated at a value that is lower than the book value, then the book value of these assets is reduced to the recoverable amount Cash and cash equivalents and short-term deposits Statements of cash flow and cash equivalents flow include implicitly cash at bank and till money as well as received cheques and bills of exchange. Deposits with the maturity period under one year imply shortterm deposits. Cash equivalents and deposits are set out at cost price, and those set out in foreign currencies are converted at the medium exchange rate of the Croatian National Bank at the end of the year Profit tax Profit tax consists of current and deferred tax. Current tax represents the expected tax liability calculated on the profit for the year and adjusted by the amounts not included in the tax basis or tax nondeductible expenditures, using tax rates that were in force on the report date. Deferred taxes are recognized by the balance method, reflecting temporary changes between the book value of assets and liabilities for want of financial reports and amounts used for tax calculation. Deferred tax is not recognized in case of investments in branch-offices if it is not to be refunded in the foreseeable future. Deferred tax is calculated by applying tax rates that are expected to be applied to temporary differences when they are refunded or settled on the basis of the regulations that were in force or were essentially valid at the balance sheet date. Deferred tax assets are recognized up to the amount for which the future taxable profit will probably be sufficient for the use of temporary differences. Deferred tax assets are examined at each reporting date and they are diminished if the realization of the related tax benefit is not likely any more. Deferred tax assets and liabilities are not discounted and they are set out as long-term assets and/or long-term liabilities Capital and provisions In its books of accounts the Company reports the capital divided into: subscribed capital, revaluation provisions, statutory provisions, legal reserves, other provisions, retained profit and current year profit. /i/ Subscribed capital represents an inseparable share capital of the Company paid in full. /ii/ The effect of an increase/decrease in the value of investments classified as investments available for sale and real estate used for insurance activities, as a result of adjustment to the estimated market value is presented by the Company in the balance sheet as the revaluation provision. During the period, the revaluation provisions are increased / decreased due to the value adjustment to the recoverable market value. /iii/ Allocations for statutory provisions, legal reserves, other provisions and retained profit were determined by the decisions of the General Assembly of the Company. /iv/ Current financial year profit is reported in the balance as of 31 December and transferred into the next financial year. The use, i.e., the distribution of profit is determined by the decision of the General Assembly of the Company Technical provisions Technical provisions set out in the financial statements refer to the unearned premiums, life insurance mathematical provisions, provisions for claims and other insurance-technical provisions, and they are formed pursuant to the Ordinance on minimal standards, accounting method and criteria for calculation of technical insurance provisions. All technical provisions were rated favorably by the appointed certified actuary of the Company. /i/ Unearned premiums The Company accounts unearned premiums for those insurance classes where the insurance cover is continued after the end 084 Croatia osiguranje d.d. Annual Report 2009

85 /ii/ /iii/ /iv/ of the accounting period since the insurance year and the accounting year do not overlap. The basis for the calculation of gross non-life insurance unearned premiums is written (policy) premium in the accounting period, while the basis for the calculation of gross unearned premium of supplementary insurance with life insurance is collected premium in the accounting period. Unearned premiums are calculated according to the pro rata temporis method, except for the types of loan insurance where the decrease of insurance cover during the validity period of a contract is taken into consideration. Mathematical life insurance provision Mathematical life insurance provision is accounted individually under each insurance contract, and in a way described in the report of the appointed certified actuary of the Company on the calculation of mathematical provision. Claims provisions Claims provisions include provisions for reported losses, provisions for incurred but not reported losses, provisions for costs of claims handling and the reinsurance stake in them. Provisions for reported losses are determined through an individual assessment. Actuarial methods are applied in determining provisions for claims handling costs and for incurred but not reported losses. The reinsurance stake in provisions is determined in accordance with the reinsurance contracts. Other insurance-technical provisions Other insurance-technical provisions are determined for the earthquake risk Technical life insurance provisions when the policyholder bears the investment risk Since the Company concludes life insurance policy for which the policyholder bears the investment risk, a corresponding special provision was made under each insurance contract Other liabilities /i/ Liabilities resulted from direct insurance activities refer to the liabilities under claims. /ii/ Liabilities resulted from reinsurance activities refer to the liabilities under stipulated sums for claims under reinsurance and liabilites under the reinsurance premium. /iii/ Other liabilities refer to the liabilities towards the inland suppliers, liabilities for received advance payments, liabilities for commissions and others Salaries of employees Salaries, taxes and contributions from salaries and on salaries are accounted as expenses of the period to which the employee's work relates Provisions Provisions are recognized if and only if the Company has a current liability as a result of a past event and if the liability settlement is likely to require the outflow of resources with economic benefits and if the amount of liability can be determined with a reliable estimate. Provisions are examined at each balance sheet date and adjusted according to the newest best estimates. Provisions are determined for costs of legal proceedings and expenses for employee rewards for their longtime work as well as for the retirement (regular anniversary rewards and severance pays). Provisions for costs of employee rewards for their longtime work as well as for the retirement (regular anniversary rewards and severance pays) were determined as a current value of future money outflows using a discount rate equalling the interest rate on state bonds Potential liabilities and assets Potential liabilities are not recognized in the financial statements, but are only set out in notes to the financial statements. Potential assets are not recognized in the financial statements, but are recognized at that moment when an inflow of economic benefits becomes probable Events after the date of balance sheet Events after the balance sheet date providing additional information on the position of the Company at the balance sheet date (events resulting in adjustments) are recognized in the financial statements. Those events that do not bring about the adjustments are presented in notes to the financial statements if they are substantially significant Earnings per share Earnings per share are accounted as profit of the period decreased Croatia osiguranje d.d. Annual Report

86 by dividends of preferred shares divided by the weighted average of common shares decreased by own shares Classification of contracts Contracts by which the Company undertakes a significant insurance risk of the other party (policyholder) accepting to indemnify the policyholder or the other insurance beneficiary for a loss if a particular indefinite future event (insured event) occurs that has a negative impact on the policyholder or the other insurance beneficiary are classified as insurance contracts. Insurance risk differs from financial risk. Financial risk is the risk of a possible future change of one or several definite interest rates, price of securities, price of goods, exchange rates, price or rate indexes, loan rating or loan indexes or other variables provided that in case of a non-financial variable that variable is not specific for any of the contracting parties. Insurance contracts can also transfer the financial risk to some extent. Contracts in which the transfer of insurance risk from the policyholder to the Company is not significant are classified as investment contracts Concentration of insurance risk The key aspect of the insurance risk to which the Company is exposed is the level of insurance risk concentration that defines the level up to which a certain event or a series of events may influence the liabilities of the Company. Such concentration may arise from a single insurance contract of from a fairly great number of contracts. A very important aspect of the insurance risk concentration is that it may arise from the accumulation of risks through various classes of insurance. The risk concentration may arise from rare events with considerable consequences such as natural disasters, in situations when the Company is exposed to unexpected changes in trends, for example, unexpected change in human mortality or in the conduct of the insured; or when significant judicial or regulatory risks may cause big individual losses or have a significant impact on a large number of contracts. Risks underwritten by the Company are primarily located in the Republic of Croatia. The Management Board believes that in non-life insurance activities the Company is not notably exposed to any group of the insureds according to social, professional, generational or similar criteria. The greatest probability of considerable losses emerges from disastrous events, such as floods, storms or losses in consequence of an earthquake. Techniques and presumptions used by the Company for the calculation of these risks include: Survey of geographical accumulations; Evaluation of the biggest possible loss; Reinsurance of excess of loss Insurance risk management The Company is exposed to the actuarial risk and the sales risk resulting from a wide offer of life and non-life insurance products: participating traditional life products, policies linked to stakes and all classes of non-life insurance. The insurance risk refers to the uncertainty of insurance activities. The most significant components of insurance risk are the premium risk and the provision risk. They refer to the adequateness of premium tariffs and the adequateness of provisions in relation to the liabilities under insurance and capital stock. The premium risk is present at the moment of issuance of policy before the insured event occurs. There is a risk that costs and losses that would come about might be higher than received premiums. The provisions risk represents a risk that the absolute level of technical provisions is wrongly assessed or that actual losses will vary around statistical medium value. Non-life sales risk includes also the disaster risk that arises from extraordinary events that are not covered by the premium risk or provision risk in sufficient degree. Life insurance sales risk includes biometrical risk (that includes mortality, longevity, ailment risk and disability) and the risk of withdrawal. The risk of withdrawal represents a higher or lower rate of withdrawing from policies, breaks, changes in capitalization (suspension of premium payment) and repurchase. The Company manages the insurance risk through the limits of sale, procedure for the approval of transactions that include new products or surpass certain limits, tariffing, design of products and reinsurance management. Sales strategy pursues diversity that would ensure a balanced portfolio and is based on a large portfolio of similar risks over several years, which decreases the variability of results. As a rule all non-life insurance contracts are on an annual basis and the underwriters have a right to refuse the renewal of contract or change the terms and conditions of contract at renewal. The Company reinsures a part of a risk it underwrites in order to control the exposure to losses and protect the capital stock. The Company purchases a combination or proportional and disproportional reinsurance contracts in order to diminish the net exposure to a particular risk depending on the insurance class Basic presumptions with the greatest impact on recognized assets, liabilities, income and expenditures from insurance operations /i/ Non-life insurance At the balance sheet date provisions are made for the assessed final expenses for the settlement of all incurred losses arising from events that occurred up to that date, whether they were reported or not, together with appropriate claims handling fees, reduced 086 Croatia osiguranje d.d. Annual Report 2009

87 by amounts already paid. The liability for reported but not paid losses is estimated separately for each particular loss with regard to the circumstances, available information from the assessor and historical evidences of the amounts of similar claims. Particular losses are regularly examined and provisions are regulary updated with new information. The assessment of provisions for incurred but not reported (IBNR) losses is generally subject to a higher level of uncertainty than the provisions for reported losses. The IBNR provision is assessed by actuaries of the Company applying statistical and actuarial methods such as the chain-ladder method and the Bornhuetter Ferguson method. Key methods used for the liability and accident insurance are the following: the chain-ladder method that uses historical data in order to assess final costs of claims the Bornhuetter Ferguson method that combines the estimated loss quota and the method of projections. This method improves a raw use of loss quota taking into consideration the information received from the newest pattern of loss development. The actual method that is applied depends on the year of the accident being under consideration, insurance class and observed historical loss development. To the extent to which these methods use historical loss development it is assumed that the historical pattern of loss development will repeat itself in the future as well. There are reasons why this might not be the case, which are taken into consideration to the extent to which they can be established and in a way that the methods of estimate are modified. Such reasons include: economic, political and social trends (causing a different level of inflation in relation to the expected one); changes in the combination of types of insurance contracts that are underwritten; random variations, including the influence of major losses. For other insurance classes the IBNR is determined by flat rate methods. The IBNR provisions are initially assessed in gross amount and a special calculation is made in order to assess the reinsurance stake. The assumptions that have the major influence on the measurement of the amount of provisions for the non-life insurance are as follows: Residual factor of loss development For the backlog of claims the level of provisions depends to a large extent on the assessment of loss development from the last year of development for which there are historical data up to the final development. The residual factors of loss development are assessed reasonably applying mathematical methods of curves that project the observed factors or are based on actuarial assessment. Discounting Apart from the annuity claims, the non-life provisions are not discounted. Provisions for liability insurance claims that are paid as annuities were determined as the current value of future liabilities on the basis of the annual discount rate of 2.5% and the Table of mortality in the Republic of Croatia from 2000 to In 2009 on the basis of the Opinion of the Croatian Financial Services Supervisory Agency a change occurred in the treatment of unsettled motor TPL losses caused by unknown and uninsured vehicles before 27 February The abovementioned losses became a liability of the Gurantee fund and on 31 December 2009 the Croatian Insurance Bureau included them in the provisions for claims of the Hence, the provisions for motor TPL claims of the Company were diminished, and a proportional part of claims provisions (established as claims provisions of the Gurantee fund) that refers to the Company, was entered as liabilities under the claims provisions of the Gurantee fund. /ii/ Life insurance Mathematical provisions are calculated by net prospective method using rational actuarial assumptions in accordance with the directives issued by the Croatian Financial Services Supervisory Agency. The guaranteed technical interest rate in insurance policies ranges from 3.5-5%. The insureds or insurance beneficiaries in case of survival or death are entitled to a share in the Company s profit realized through the management of life insurance funds. The right to a share is calculated at the end of a period after the expiry of the third insurance year. The value of the profit share is determined by the Management Board Main sources of uncertainty related to assessments /i/ Losses from a decrease in the value of loans and receivables The need to diminish the value entered under the amortized costs is evaluated as described in Note 3.7./ii/. The value decrease for Croatia osiguranje d.d. Annual Report

88 /ii/ /iii/ /iv/ /v/ particular exposures in total losses from the value decrease is based on the best estimate on the part of the managers regarding the current value of expected future money receipts. When evaluating these money receipts, the managers evaluate the financial position of a debtor and net sales value of the collateral. Any assets that suffered a decrease in value are assessed separately and the function of loan risk independently approves the recovery strategy as well as the assessment of realizable cash flows. Determination of fair value For the financial instruments that are rarely traded with and that have a non-transparent price, a fair value is less objective and requires a different level of assessment depending on solvency, concentration, uncertainty of market factors, price assumptions and other risks affecting a particular instrument. Uncertainty of estimates related to establishing provisions The most significant estimates related to the financial statements of the Company refer to establishing provisions. The Company has a conservative approach to forming provisions and it applies regulations of the Croatian Financial Services Supervisory Agency. The Company employs certified actuaries. The Company s policy is to establish provisions for unexpired risks arising from the nonlife insurance business where it is expected that claims, deferred sales costs and administrative costs, which are likely to arise after the end of the financial year for contracts concluded before that date, will exceed the unearned premium and the premium originating from these contracts. The Management Board regards the present level of technical provisions as sufficient. Uncertainty of estimates related to legal proceedings A considerable source of the uncertainty of estimates arises out of judicial proceedings. The Management Board believes that the existing level of provisions is sufficient. Profit tax The Company establishes tax liability in accordance with tax regulations of the Republic of Croatia. Tax reports are subject to control on the part of the tax authorities who have the right to subsequently inspect the taxpayer s books of accounts. /vi/ /vii/ Regulatory requirements The Croatian Financial Services Supervisory Agency is authorized to perform regulatory inspections of business operations of the Company and to require changes in the book value of assets and liabilities in accordance with relevant regulations. Mutual liabilities The Company has liability towards the Croatian Insurance Bureau as regards the motor TPL losses caused by unknown or uninsured vehicles. Besides, like the other participants on the Croatian motor TPL insurance market the Company is liable for a part of unsettled motor TPL claims in case of bankruptcy of any of the insurance companies under the Insurance Law Key accounting estimates in the application of the Company s accounting policies /i/ /ii/ /iii/ /iv/ Classification of financial assets and liabilities The accounting policies of the Company make possible a classification of assets and liabilities at the beginning, under certain cirrumstances, in different accounting categories. When classifying financial assets and liabilities as those intended for trade, the Company establishes that they meet the definition of assets and liabilities as set out in Note 3.7. Classification of products For the accounting policy on the classification of contracts as insurance contracts or investment contracts see Note Classification of real estate The Company classifies all real estate pieces not used for own business operations but kept for renting as investments in real estate. Estimated duration of tangible and intangible assets' useful life The depreciation rates are initially set on the basis of the optimum evaluation of the duration of useful life of these assets. The Company s Management Board believes that the applied depreciation rates reflect the duration of useful life of tangible and intangible assets. 088 Croatia osiguranje d.d. Annual Report 2009

89 III. Financial Risk Management The basic goal of the Company while managing financial and insurance risks is to keep the capital level adequate to the scope and insurance classes it transacts and also with reference to the risks to which it is exposed. The Management Board recognizes the significance of existence of an efficacious and effective system of risk management. The Company is currently at the stage of introducing centralized system of risk management. Legal bodies control the solvency of the Company in order to ensure the cover for the liabilities deriving from possible economic changes or natural disasters. The Company actively manages the assets using the approach that creates a balance among the quality, diversification, coordination of assets and liabilities, solvency and return on investments. The managers examine and approve target portfolios on a periodical basis, determine investment directives and limits and supervise the process of managing assets and liabilities. Due attention is also paid to the compliance with the regulations defined by the Insurance Law. In the transactions of financial instruments the Company undertakes financial risks. These risks include market risk, loan risk and solvency risk. Each of these risks is described further in the text, together with the summary of the ways the Company manages that risk Market risk Description: Risk of fluctuation of fair value of the future cash flows under financial instruments due to changes in market prices. The market risk includes three types or risk: currency risk, interest risk and other price risks. a) Currency risk fluctuation risk of fair value or cash flows under financial instruments due to changes in the exchange rates of foreign currencies. The Company is exposed to the risk of change in the exchange rate through the transactions in foreign currencies. This is the risk that the value of a financial instrument might change due to the changes in the exchange rates of foreign currencies. The Company is exposed to the currency risk through loan, deposit and investment activities, as well as through the premium income, calculation of related technical provisions and claims payment under the insurance policies with foreign currency clause. The company manages the currency risk in a way that it endeavors to diminish the difference between assets and liabilities denominated in foreign currency or with foreign currency clause. Investments for covering mathematical provision are for the most part denominated in euros, since most mathematical provision is also denominated in euros. b) Interest risk: fluctuation risk of fair value or cash flows under financial instruments due to changes in the market interest rates The exposure of the Company to the market risk of changes in interest rates is concentrated in the investment portfolio. The Company's business is subject to the risk of a change in interest rates in the sense that the interest-bearing assets and liabilities mature or the interest is changed in various periods or in various amounts. The Company is also exposed to the risk of changes in the future cash flows deriving from the changes in the market interest rates. However, this risk is limited since most interestbearing assets of the Company at the balance sheet date bear fixed interest rates. Changes in interest rates do not affect the level of provision from the non-life insurance business, except for the annuity payments for the liability claims which are not significant at the balance sheet date. The rate used in the calculation of the mathematical provision reflects to a certain extent the expected trends in the interest returns over a longer period of time. The Company monitors this exposure through occasional inspections of the position of its assets and liabilities. A general goal is to limit net changes in the value of assets and liabilities arising from changes in interest rates. The Company endeavors to adjust future receipts from these assets to the liabilities from insurance through the purchases of state bonds. However, considering a relatively short period of life of such bonds and a longer period of life of liabilities under life insurance and the incapability of the Company to buy the interest swap in Croatia, the Company is exposed to the interest rate risk. According to the contracts, the Company is obliged to calculate interest at rates of 3.5-5% per Croatia osiguranje d.d. Annual Report

90 year on paid life insurance policy premiums for the payment of the amount to the insureds upon expiry of such insurance policies and it cannot currently protect itself against future interest risk to which it will be exposed in the investment of means for the cover of future liabilities. c) Other price risks: fluctuation risk of fair value or cash flows under financial instruments due to changes in market prices (not arising from the interest or currency risk) whether it is a matter of the changes caused by factors typical of a particular financial instrument or its issuer or other factors affecting all similar financial instruments being traded on the market. The portfolio of marketable equity securities that is presented at its fair value in the balance sheet makes the Company subject to the price risk. The price risk is the risk that the value of a financial instrument might change as a result of changes in market prices, no matter whether the changes emerged as a result of factors specific for a certan paper or its issuer or factors affecting all instruments being traded on the market. The goal of the Company is to earn competitive returns in a way that it invests in a diversified portfolio of securities. The characteristics of the portfolio are regularly analyzed. The portfolio of the Company contains securities of various issuers, and the concentration of any single firm or company is limited through the parameters defined by senior management as well as through legal requirements. fixed returns, mortgage loans, and to a lesser extent short-term and other investments is subject to the loan risk. This risk is defined as a potential decline in market value as a result of unfavorable changes in the capability of a debtor to pay off a debt. The managers determined the loan policy and they continually monitor the exposure to the loan risk. Evaluations of loan capacity are made for all insureds and the collateral is gathered before payments are made under granted loans or their prolongation. The collateral is in conformity with the valid Insurance Law. The Group adopted a careful investment policy. Accordingly, at the balance sheet date the Company had a significant concentration of receivables from the Republic of Croatia in bonds and treasury bills Solvency risk Description: Risk that a sudden and unexpected increase in withdrawal of liabilities might require from the Company disposing of the assets in a short term at low price. The solvency risk arises as a result of financial activities of the Company and management of positions. This risk includes the risk of incapability to finance assets within the appropriate time and interest as well as the risk of incapability to dispose of assets at reasonable price and within the appropriate time period. The Company has a portfolio of solvent assets as a part of solvency risk management strategy, by which it ensures continued business operations and meets legal requirements. The position of the Company s solvency is good and all legal requirements for the payment of claims in the course of the year were met Loan risk Description: Risk that one agreement party of the financial instrument might cause losses for the other party due to the nonfulfillment of obligations. The portfolio of the company that includes securities with 090 Croatia osiguranje d.d. Annual Report 2009

91 IV. Notes to the Profit and Loss Account 4.1. TOTAL INCOME in HRK in HRK in HRK in HRK in HRK in HRK Earned premiums (income) Investment income Income from commissions and fees Other insurance-technical income, net of reinsurance Other income Total EARNED PREMIUMS (INCOME) Life in HRK Non-life in HRK Total in HRK Life in HRK Non-life in HRK Total in HRK Gross written premiums Gross insurance premium Coinsurance premium Value adjustment and collected premium value adjustment ( ) ( ) Total Premiums ceded to reinsurance Inland reinsurance premiums (7.863) ( ) ( ) (9.476) ( ) ( ) Reinsurance premiums abroad - ( ) ( ) - ( ) ( ) Total (7.863) ( ) ( ) (9.476) ( ) ( ) Change in provisions for unearned premiums Change in gross provisions for unearned premiums (81.448) ( ) ( ) ( ) Reinsurance stake ( ) ( ) Total (81.448) ( ) ( ) ( ) Total Croatia osiguranje d.d. Annual Report

92 INVESTMENT INCOME in HRK in HRK in HRK in HRK in HRK in HRK Income from branch-offices, associate companies and participating in joint investments Income from investments in land and buildings Interest income Unrealized investment profit at fair value through profit and loss account Profit from financial investment sale (realization) Net positive exchange rate differences Other investment income Total /i/ /ii/ Income from branch-office, associate companies and participating in joint investments refers to received dividends, i.e. profit shares. Income from investments in land and buildings in HRK in HRK in HRK in HRK in HRK in HRK Income from value increase Income from rental fees Income from sale Total /iii/ Interest income in HRK in HRK in HRK in HRK in HRK in HRK Interest on investments kept till maturity Interest on granted deposits Interest on granted loans Total /iv/ Profit from financial investment sale (realization) in HRK in HRK in HRK in HRK in HRK in HRK Investments at fair value through profit and loss account Investments available for sale Total Croatia osiguranje d.d. Annual Report 2009

93 /v/ Other investment income in HRK in HRK in HRK in HRK in HRK in HRK Income from collected loans, decreased in value in previous years Call deposit interest Other income Total INCOME FROM COMMISSIONS AND FEES Income from commissions and fees amounting to HRK29,734,078 (amounting to HRK27,852,593 in 2008) refers to commissions from reinsurance companies under the reinsurance contracts OTHER INSURANCE-TECHNICAL INCOME, NET OF REINSURANCE in HRK in HRK in HRK in HRK in HRK in HRK Income from Guarantee fund Income from foreign claims Income from interest on premium Income from border insurance fees Income from recourse receivables ( ) ( ) Other income Total OTHER INCOME in HRK in HRK in HRK in HRK in HRK in HRK Income from service assessments Income from MOT test stations Income from collected insurance claims Income from provision cancellation Income from subventions and refunds Income from tangible assets sale Other income Total Croatia osiguranje d.d. Annual Report

94 4.2 TOTAL EXPENDITURES in HRK in HRK in HRK in HRK in HRK in HRK Outlays for insured events, net, of reinsurance ( ) ( ) ( ) ( ) ( ) ( ) Change in other technical provisions, net of reinsurance ( ) ( ) ( ) ( ) ( ) ( ) Change in life insurance technical provisions when policyholder bears risk ( ) - ( ) ( ) - ( ) Business expenditures (outlays for business operations), net ( ) ( ) ( ) ( ) ( ) ( ) Investment expenses ( ) ( ) ( ) ( ) ( ) ( ) Other technical expenses, net of reinsurance ( ) ( ) ( ) ( ) ( ) ( ) Other expenses, including value adjustments - ( ) ( ) - ( ) ( ) Total ( ) ( ) ( ) ( ) ( ) ( ) OUTLAYS FOR INSURED EVENTS, NET in HRK in HRK in HRK in HRK in HRK in HRK Paid claims Gross amount ( ) ( ) ( ) ( ) ( ) ( ) Coinsurer s stake - ( ) ( ) - ( ) ( ) Reinsurer s stake Total ( ) ( ) ( ) ( ) ( ) ( ) Change in claims provisions Gross amount ( ) ( ) ( ) Reinsurer s stake ( ) ( ) Total ( ) ( ) ( ) Total ( ) ( ) ( ) ( ) ( ) ( ) 094 Croatia osiguranje d.d. Annual Report 2009

95 CHANGE IN OTHER TECHNICAL PROVISIONS, NET OF REINSURANCE in HRK in HRK in HRK in HRK in HRK in HRK Change in mathematical insurance provisions Gross amount ( ) - ( ) ( ) - ( ) Reinsurer s stake (2.918) - (2.918) Total ( ) - ( ) ( ) - ( ) Change in other technical provisions, net of reinsurance Gross amount - ( ) ( ) - ( ) ( ) Total - ( ) ( ) - ( ) ( ) Total ( ) ( ) ( ) ( ) ( ) ( ) CHANGE IN LIFE INSURANCE TECHNICAL PROVISIONS WHEN POLICYHOLDER BEARS RISK in HRK in HRK in HRK in HRK in HRK in HRK Gross amount ( ) - ( ) ( ) - ( ) Total ( ) - ( ) ( ) - ( ) BUSINESS EXPENDITURES (OUTLAYS FOR INSURANCE OPERATIONS), NET in HRK in HRK in HRK in HRK in HRK in HRK Sales expenses Commission ( ) ( ) ( ) ( ) ( ) ( ) Other sales expenses ( ) ( ) ( ) ( ) ( ) ( ) Total ( ) ( ) ( ) ( ) ( ) ( ) Management expenses (administrative expenses) Amortization of tangible assets ( ) ( ) ( ) ( ) ( ) ( ) Salaries, taxes and contributions from and on salaries ( ) ( ) ( ) ( ) ( ) ( ) Other management expenses ( ) ( ) ( ) ( ) ( ) ( ) Total ( ) ( ) ( ) ( ) ( ) ( ) Total ( ) ( ) ( ) ( ) ( ) ( ) Croatia osiguranje d.d. Annual Report

96 /i/ Commission in HRK in HRK in HRK in HRK in HRK in HRK Commission expenses under credit cards and pos devices ( ) ( ) ( ) ( ) ( ) ( ) Commission expenses for commissioners ( ) ( ) ( ) ( ) ( ) ( ) Commission expenses for employees ( ) ( ) ( ) ( ) ( ) ( ) Commission expenses for banks, agencies and dispatchers ( ) ( ) ( ) ( ) ( ) ( ) Commission expenses for MOT test stations - ( ) ( ) - ( ) ( ) Other commission expenses (38.147) ( ) ( ) ( ) ( ) ( ) Total ( ) ( ) ( ) ( ) ( ) ( ) /ii/ Other sales expenses in HRK in HRK in HRK in HRK in HRK in HRK Promotion expenses ( ) ( ) ( ) ( ) ( ) ( ) Expenses for policy issuance ( ) ( ) ( ) ( ) ( ) ( ) Other direct sales expenses ( ) ( ) ( ) ( ) ( ) ( ) Total ( ) ( ) ( ) ( ) ( ) ( ) /iii/ Amortization in HRK in HRK in HRK in HRK in HRK in HRK Amortization of intangible assets - ( ) ( ) - ( ) ( ) Amortization of tangible assets ( ) ( ) ( ) ( ) ( ) ( ) Total ( ) ( ) ( ) ( ) ( ) ( ) /iv/ Salaries, taxes and contributions from and on salaries in HRK in HRK in HRK in HRK in HRK in HRK Net salaries and compensations ( ) ( ) ( ) ( ) ( ) ( ) Taxes and contributions from salaries ( ) ( ) ( ) ( ) ( ) ( ) Contributions on salaries ( ) ( ) ( ) ( ) ( ) ( ) Total ( ) ( ) ( ) ( ) ( ) ( ) 096 Croatia osiguranje d.d. Annual Report 2009

97 /v/ Other management expenses in HRK in HRK in HRK in HRK in HRK in HRK Expended supplies ( ) ( ) ( ) ( ) ( ) ( ) Energy ( ) ( ) ( ) ( ) ( ) ( ) Transport, mail and telecommunication services ( ) ( ) ( ) ( ) ( ) ( ) Maintenance services ( ) ( ) ( ) ( ) ( ) ( ) Rental services ( ) ( ) ( ) ( ) ( ) ( ) Municipal services ( ) ( ) ( ) ( ) ( ) ( ) Intellectual services ( ) ( ) ( ) ( ) ( ) ( ) Other services ( ) ( ) ( ) ( ) ( ) ( ) Provisions for severance pays and anniversary rewards - ( ) ( ) (43.720) ( ) ( ) Provisions for legal proceedings - ( ) ( ) - ( ) ( ) Business travel allowances and expenses ( ) ( ) ( ) ( ) ( ) ( ) Expenses compensations for employees, presents and subventions ( ) ( ) ( ) ( ) ( ) ( ) Expense account ( ) ( ) ( ) ( ) ( ) ( ) Insurance premiums ( ) ( ) ( ) ( ) ( ) ( ) Banking services and fees ( ) ( ) ( ) ( ) ( ) ( ) Contributions, membership dues and the like ( ) ( ) ( ) ( ) ( ) ( ) Taxes independent of salary and charges (7.142) ( ) ( ) (10.233) ( ) ( ) Unamortized value of tangible property written off (4.205) ( ) ( ) (9.129) ( ) ( ) Value decrease of tangible property used for insurance operations ( ) ( ) Write off of supplies and small inventory ( ) ( ) ( ) (69.603) ( ) ( ) Other material rights of employees (refunds, severance pays and anniversary ( ) ( ) ( ) ( ) ( ) ( ) rewards) Expenses for professional education and literature ( ) ( ) ( ) ( ) ( ) ( ) Expenses for service claim settlements - ( ) ( ) - ( ) ( ) Other operating expenses ( ) ( ) ( ) ( ) ( ) ( ) Total ( ) ( ) ( ) ( ) ( ) ( ) Croatia osiguranje d.d. Annual Report

98 INVESTMENT EXPENSES in HRK in HRK in HRK in HRK in HRK in HRK Amortization (buildings not used by the Company for insurance operations) - ( ) ( ) - (24.575) (24.575) Interest (120) (22.086) (22.206) (6) ( ) ( ) Investment value adjustment(decrease) ( ) ( ) ( ) ( ) ( ) ( ) Losses realized on investment sale (realization) ( ) ( ) ( ) ( ) ( ) ( ) Net negative exchange rate differences - ( ) ( ) ( ) ( ) ( ) Other investment expenses ( ) ( ) ( ) ( ) ( ) ( ) Total ( ) ( ) ( ) ( ) ( ) ( ) /i/ Value adjustment (investment decrease) in HRK in HRK in HRK in HRK in HRK in HRK Value decrease of investments in branch-offices ( ) ( ) Loss from change in fair value of real estate ( ) ( ) Unrealized losses from loans ( ) ( ) ( ) ( ) (50.360) ( ) Unrealized losses from deposits - ( ) ( ) - ( ) ( ) Unrealized losses from investment funds - ( ) ( ) Other ( ) ( ) Total ( ) ( ) ( ) ( ) ( ) ( ) /ii/ Loss on investment sale (realization) in HRK in HRK in HRK in HRK in HRK in HRK Investments available for sale ( ) ( ) ( ) ( ) ( ) ( ) Investments at fair value through profit and loss account ( ) ( ) ( ) - (172) (172) Investments kept till maturity ( ) - ( ) (19.544) - (19.544) Other investments - ( ) ( ) Total ( ) ( ) ( ) ( ) ( ) ( ) 098 Croatia osiguranje d.d. Annual Report 2009

99 /iii/ Net negative exchange rate differences in HRK in HRK in HRK in HRK in HRK in HRK Investments kept till maturity - ( ) ( ) ( ) ( ) ( ) Investments available for sale (8.761) - (8.761) Investments at fair value through profit and loss account Deposits - ( ) ( ) ( ) ( ) Loans Foreign currency accounts - ( ) ( ) (76.807) ( ) ( ) Other Total - ( ) ( ) ( ) ( ) ( ) /iv/ Other investment expenses in HRK in HRK in HRK in HRK in HRK in HRK Value decrease of granted loans - ( ) ( ) - ( ) ( ) Value decrease of receivables for interest on granted loans - ( ) ( ) - ( ) ( ) Compensations for payment transactions fees ( ) ( ) ( ) ( ) ( ) ( ) Negative exchange rate differences under receivables and payables - ( ) ( ) - ( ) ( ) Current value of sold and written off property - ( ) ( ) - ( ) ( ) Expenses for founding of new branch -offices - ( ) ( ) - (88.620) (88.620) Other value decreases - ( ) ( ) - ( ) ( ) Other investment expenses ( ) ( ) ( ) ( ) ( ) ( ) Total ( ) ( ) ( ) ( ) ( ) ( ) Croatia osiguranje d.d. Annual Report

100 OTHER TECHNICAL EXPENSES, NET OF REINSURANCE /i/ Other technical insurance expenses in HRK in HRK in HRK in HRK in HRK in HRK Contributions for health insurance out of motor TPL premium ( ) ( ) Contribution for Guarantee fund - ( ) ( ) - ( ) ( ) Contribution for fire department - ( ) ( ) - ( ) ( ) Contribution for Croatian Insurance Bureau - ( ) ( ) - ( ) ( ) Contribution for Croatian Financial Services Supervisory Agency ( ) ( ) ( ) ( ) ( ) ( ) Other insurance technical expenses ( ) ( ) ( ) ( ) ( ) ( ) Expenses for cover of negative life result - ( ) ( ) Other expenses (70.124) ( ) ( ) ( ) ( ) ( ) Total ( ) ( ) ( ) ( ) ( ) ( ) 4.3 PROFIT TAX The profit tax is calculated at the rate of 20% on the determined tax basis, and it is calculated and presented in accordance with the legal regulations. The profit tax report for the year 2009 in the part referring to reported positions of income and expenditures as well as to the increase and decrease of profit is set out as follows: in HRK in HRK Accounting profit (profit before taxation) Tax non-deductible expenses Tax reliefs ( ) ( ) Tax basis Profit tax liability Valid profit tax rate for the years 2009 and 2008 was 20% EARNINGS PER SHARE in HRK in HRK Net profit for the period Less: dividends on preferred shares ( ) ( ) Net profit for the period per common share Weighted average of common shares except own shares Earnings per share 207,84 223, Croatia osiguranje d.d. Annual Report 2009

101 4.5. INSURANCE BUSINESS RESULTS PER CLASSES Position Mark Position Description Accident Insurance Motor Hull Insurance Property Insurance Liability Insurance Loan and Guarantee Insurance Other Insurance Classes Non-life Total Life Total Total I Earned premiums (income) II Investment income III Income from commissions and fees IV Other insurance-technical income, net of reinsurance ( ) (59.682) V Other income VI Outlays for insured events, net ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) VII VIII Change in other technical provisions, net of reinsurance (+/-) Change in life insurance technical provisions when policyholder bears investment risk, net of reinsurance (+/-) - - ( ) ( ) ( ) ( ) ( ) ( ) IX Business expenditures (outlays for insurance activities), net ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) X Investment expenses ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) XI XII Other technical expenses, net of reinsurance Other expenses, including value adjustments ( ) ( ) ( ) ( ) (72.866) ( ) ( ) ( ) ( ) ( ) - - ( ) - ( ) XIII Profit or loss for the accounting period before taxation (+/-) ( ) ( ) ( ) XIV Tax on profit or loss ( ) ( ) ( ) ( ) ( ) ( ) ( ) - ( ) XV Profit or loss for the accounting period after taxation (+/-) ( ) ( ) ( ) Presentation of income and investment expenses according to the source of funds Type of income / investment expenses Income from capital investment Income from mathematical provision investment Income from other technical provisions investment Total investment income Capital investment expenses (19.544) (19.544) Mathematical provision investment expenses ( ) ( ) Other technical provisions investment expenses ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) Total investment expenses ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) Croatia osiguranje d.d. Annual Report

102 V. NOTES TO THE BALANCE SHEET 5.1. INTANGIBLE ASSETS Investments on Other intangible assets non-own assets in function in preparation Total in HRK in HRK in HRK in HRK Purchasing value Balance at 31 December Increase Write-off (4.506) ( ) - ( ) Balance at 31 December Value adjustment Balance at 31 December Amortization during Write-off (4.506) ( ) - ( ) Balance at 31 December Current value 31 December December TANGIBLE ASSETS 31/12/ /12/2009 Purchasing Value Current Purchasing Value Current Value Adjustment Value Value Adjustment Value in HRK in HRK in HRK in HRK in HRK in HRK Land and buildings used for insurance operations ( ) ( ) Equipment ( ) ( ) Other tangible assets and supplies ( ) ( ) Total ( ) ( ) Croatia osiguranje d.d. Annual Report 2009

103 /i/ Land and buildings used by the Company for insurance operations Land Buildings Property in preparation Granted advances Total in HRK in HRK in HRK in HRK in HRK Purchasing value Balance at 31 December Revaluation provision Revaluation (value decrease through PLA) ( ) ( ) - - ( ) New purchased property Transfer from preparation ( ) - - Transfer from / to ( ) (28.088) - - Transfer from technical provisions Transfer to technical provisions (1.596) ( ) ( ) ( ) ( ) Write-off - ( ) - - ( ) Balance at 31 December Value adjustment Balance at 31 December Amortization from revaluation Amortization during Transfer from technical provisions Transfer to technical provisions - ( ) - - ( ) Write-off - (73.050) - - (73.050) Balance at 31 December Current value Balance at 31 December Balance at 31 December During 2009 the Company performed an independent estimate of the market value of the land and buildings used by the Company for insurance operations, on account of which an increase in the value of real estate and revaluation provision amounting to HRK417,776,027 was recorded. As at 31 December 2009 the Company has no regulated ownership of a certain number of real estate pieces registered in the books of accounts. Property rights issues are being handled and claims for the entering of ownership rights were filed for rather many real estate pieces. Croatia osiguranje d.d. Annual Report

104 /ii/ Equipment Equipment and furniture Means of transport Instruments Means in preparation in HRK in HRK in HRK in HRK in HRK Purchasing value Balance at 31 December Increase Transfer from / to ( ) - Write-off ( ) ( ) - - ( ) Balance at 31 December Value adjustment Balance at 31 December Adjustment of initial balance Amortization during Write-off ( ) ( ) - - ( ) Balance at 31 December Current value 31 December December Total /iii/ Other tangible assets and supplies Other tangible assets Assets in preparation Granted advances Supplies in HRK in HRK in HRK in HRK in HRK Purchasing value Balance at 31 December Increase Transfer from / to (77.226) (4.270) ( ) ( ) Write-off (96.839) (96.839) Balance at 31 December Value adjustment Balance at 31 December Adjustment of initial position Amortization during Write-off (63.747) - - ( ) ( ) Balance at 31 December Current value 31 December December Total 104 Croatia osiguranje d.d. Annual Report 2009

105 5.3. INVESTMENTS 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Investments in land and buildings not used for insurance operations Investments in branch-offices, associate companies and participating in joint investments Other financial investments Total Investments in land and buildings not used for insurance operations in HRK Balance at 31 December Transfer to land and buildings used for insurance operations ( ) Transfer from land and buildings used for insurance operations Fair value increase credited to the profit and loss account Fair value decrease charged to the profit and loss account ( ) New purchased during the year Sold during the year ( ) Balance at 31 December During 2009 the Company performed an independent estimate of the market value of the land and buildings not used by the Company for insurance operations, on account of which an increase in the value of real estate through the profit and loss account amounting to HRK 128,486,908 was recorded. As at 31 December 2009 the Company has no regulated ownership of a certain number of real estate pieces registered in the books of accounts. Property rights issues are being handled and claims for the entering of ownership rights were filed for rather many real estate pieces Investments in branch-offices, associate companies and participating in joint investmentsa 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Shares and stakes in branch-offices Shares and stakes in associate companies Total Croatia osiguranje d.d. Annual Report

106 /i/ Shares and stakes in branch-offices Activity Country Ownership percentage Investment gross amount 31/12/ /12/2009 Value decrease Investment net amount Ownership percentage Investment gross amount Value decrease Investment net amount % in HRK in HRK in HRK % in HRK in HRK in HRK Croatia Lloyd d.d., Zagreb Reinsurance Croatia 94, , Croatia Leasing d.o.o., Zagreb Leasing Croatia 100, , ( ) Croatia - Tehni ki pregledi d.o.o., Zagreb MOT tests Croatia 100, , Herz d.d., Požega MOT tests Croatia 100, , Croatia osiguranje, mirovinsko društvo d.o.o., Zageb Croatia zdravstveno osiguranje d.d., Zagreb PBZ Croatia osiguranje d.d., Zagreb Milenijum osiguranje a.d., Beograd, Srbija Croatia Sigurimi sh.a., Priština, Kosovo Croatia osiguranje d.d., Ljubuški, Bosna i Hercegovina Croatia osiguranje - život a.d, društvo za osiguranje života, Skopje, Makedonija Croatia osiguranje - neživot a.d., društvo za osiguranje života, Skopje, Makedonija Pension Fund Manag. Croatia 100, , ( ) Insurance Croatia 100, , Pension Fund Manag. Croatia 50, , Insurance Srbija 99, , Insurance Kosovo 100, , Insurance Bosnia and Herzegovina 52, , Insurance Macedonia 92, , Insurance Macedonia , Zagos d.o.o. u likvidaciji, Zabok Insurance agency Croatia 100, , Slavonijatrans - Tehn. pregledi d.o.o., Slavonski Brod MOT tests Croatia 76, , Total ( ) The company adjusted the value of investments in subsidiary companies Croatia Leasing d.o.o., Zagreb and Croatia osiguranje mirovinsko društvo d.o.o., Zagreb debiting the profit and loss account for 2009 due to reported losses in business operations of these companies. During 2009 the company established Croatia osiguranje - neživot a.d., a company for non-life insurance, Skopje, Makedonija. /ii/ Shares and stakes in associate companies Activity Country Ownership percentage 31/12/ /12/2009 Investment value Ownership percentage Investment value % in HRK % in HRK Autoprijevoz d.d., Oto ac Transport Croatia 32,78% ,78% Brioni d.d., Pula Trade Croatia 25,57% ,57% Total Croatia osiguranje d.d. Annual Report 2009

107 OTHER FINANCIAL INVESTMENTS 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Investments kept till maturity Investments available for sale Investments at fair value through profit and loss account Deposits, loans and receivables Total Investments kept till maturity 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Debt securities and other securities with fixed income State bonds Corporate bonds Local government bonds Total Treasury bills Commercial bills Total Croatia osiguranje d.d. Annual Report

108 /i/ Structure of investments in bonds is set out as follows Issuer Mark Interest rate 31/12/ /12/2009 Maturity Life Non-life Total Total in foreign currency Life Non-life Total Total in foreign currency % in HRK in HRK in HRK (eur) in HRK in HRK in HRK (eur) Bonds denominated in HRK Atlantic grupa d.d., Zagreb ATGR-0-11CA 5,75% HEP d.d., Zagreb HEP-0-13BA 5,00% Ingra d.d., Zagreb INGR-0-11CA 6,13% Metronet telekomunik. d.d. 12,10% Jadranka d.d., Mali Lošinj JDRA-0-129A 6,48% Ministry of Finance of RC RHMF-0-103A 6,75% Ministry of Finance of RC RHMF-0-137A 4,50% Ministry of Finance of RC RHMF-0-15CA 5,25% Ministry of Finance of RC RHMF-0-172A 4,75% Nexe grupa, Našice NEXE-0-116A 5,50% Odašilja i i veze d.o.o., Zagreb OIV-0-14B 7,25% Podravka d.d., Koprivnica PODR-0-115A 5,13% Plodine d.d., Rijeka PLOR-0-133A 9,00% Bonds of RC, Shipyard Split 7,00% Total Bonds denominated in foreign currency Agrokor d.d., Zagreb XS ,00% City of Rijeka GRRI-0-167A 4,13% HBOR d.d., Zagreb XSO ,00% Ministry of Finance of RC RHMF-0-08CA 6,88% Ministry of Finance of RC XS ,25% Ministry of Finance of RC XS ,75% Ministry of Finance of RC RHMF-0-125A 6,88% Ministry of Finance of RC RHMF-0-142A 5,50% Ministry of Finance of RC RHMF-0-157A 4,25% Ministry of Finance of RC RHMF-0-19BA 5,38% Ministry of Finance of RC RHMF-0-085A 7,00% Total Total /ii/ Structure of investments in treasury bills is set out as follows: 31/12/2009 Issuer Maturity Interest rate Acquisition costs Life Non-life Total in HRK in HRK in HRK in HRK Ministry of Finance of RC ,00% Ministry of Finance of RC ,50% Total Croatia osiguranje d.d. Annual Report 2009

109 /iii/ Structure of investments in commercial bills is set out as follows: 31/12/2009 Issuer Maturity Interest rate Acquisition costs Life Non-life Total in HRK in HRK in HRK in HRK Dalekovod d.d ,65% Dalekovod d.d ,65% Ingra d.d ,40% Ingra d.d ,00% M san grupa d.d ,85% Magma d.d ,60% Nexe grupa d.d ,70% Petrokemija d.d ,90% Žito d.o.o ,50% H1 telekom d.d ,00% H1 telekom d.d ,50% Konstruktor-inženjering d.d ,00% Magma d.d ,90% Medika d.d ,40% Medika d.d ,40% Zagreb montaža d.d ,60% Zagreb montaža d.d ,90% Total /iv/ Maturity dates of debt securities and other securities with fixed income are set out as follows: 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Bonds Up to 1 year From 1 to 5 years Over 5 years Total Treasury bills Up to 1 year From 1 to 5 years Total Commercial bills Up to 1 year Total Croatia osiguranje d.d. Annual Report

110 Investments available for sale 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Shares, stakes and other securities with variable income - listed on stock exchange not listed on stock exchange Total Stakes in investment funds Total /i/ Structure of investments in shares, stakes and other securities with variable income is set out as follows: Gross amount Value Net Ownership Gross amount Value Net Ownership Life Non-life decrease amount percentage Life Non-life decrease amount percentage in HRK in HRK in HRK in HRK % in HRK in HRK in HRK in HRK % Shares listed on stock exchange Atlantska plovidba d.d., Dubrovnik , ,08 Luka Rijeka d.d., Rijeka , ,69 Jadranska banka d.d., Šibenik , ,48 Varaždinska banka d.d., Varaždin , ,29 Linijska nacionalna plovidba d.d., Split , ,61 Liburnia Riviera Hoteli d.d., Rijeka , ,53 HT-Hrvatske telekomunikacije , ,02 Podravka d.d., Koprivnica , ,22 Atlantic grupa d.d., Zagreb , ,26 SPIN VALIS d.d., Požega , ,07 Istraturist d.d., Umag , ,60 Karlova ka banka d.d., Karlovac , ,81 Drvoplast d.d., Buzet , ,08 Zve evo d.d., Požega , ,29 Sarajevo osiguranje d.d., Sarajevo , ,41 Split tours d.d., Split , ,24 Total Baoti d.d., Zagreb , ,71 Agroservis d.o.o., Virovitica ( ) , ( ) ,00 Panonija d.d., Osijek ( ) - 2, ( ) - 2,52 IMOTA d.d., Imotski ( ) - 0, ( ) - 0,07 Tržište novca d.d., Zagreb , ,50 Trimot d.d., Imotski ( ) - 0, ( ) - 0,66 Adria Diesel d.d., Karlovac (50.800) - 0, (50.800) - 0,01 Maslina d.d., Punat (37.798) - 7, (37.798) - 7,18 uro akovi Aparati d.d., Slavonski Brod (15.600) - 0, (15.600) - 0,28 Total ( ) ( ) Total ( ) ( ) Croatia osiguranje d.d. Annual Report 2009

111 Recapitalization of Jadranska banka d.d., Šibenik in which the Company participated with HRK8,400,000 on the basis of which it obtained the additional 4,200 shares of HRK2,000 par value was not confirmed by the Commercial Court in Šibenik due to the appeal of other shareholders for the purpose of establishing invalidity and refuting the Decision of the General Assembly on the increase of capital stock. Acquisition costs Gross value Value decrease Balance at 31 December 2008 Balance at 31 December 2007 Revaluation provision development during 2008 Increase/decrease 31 December 2008 /i/ Shares listed on stock exchange Atlantska plovidba d.d., Dubrovnik ( ) Luka Rijeka d.d., Rijeka ( ) Jadranska banka d.d., Šibenik ( ) HT-Hrvatske telekomunikacije d.d., Zagreb ( ) ( ) Linijska nacionalna plovidba d.d Atlantic grupa d.d., Zagreb ( ) ( ) ( ) VABA d.d., Varaždin ( ) Liburnia Riviera Hoteli d.d., Rijeka ( ) ( ) Podravka d.d., Koprivnica ( ) ( ) SPIN VALIS d.d., Požega ( ) Drvoplast d.d., Buzet ( ) - ( ) Istraturist d.d., Umag ( ) Zve evo prehrambena ind. d.d., Požega ( ) ( ) Karlova ka banka d.d., Karlovac ( ) Sarajevo osiguranje d.d., Sarajevo ( ) ( ) ( ) Split tours d.d., za turizam, Split Total ( ) Other ( ) ( ) ( ) ( ) Total ( ) ( ) Acquisition costs Gross value Value decrease Balance at 31 December 2009 Balance at 31 December 2008 Revaluation provision development during 2009 Increase/decrease 31 December 2009 /ii/ Shares listed on stock exchange Atlantska plovidba d.d., Dubrovnik Luka Rijeka d.d., Rijeka Jadranska banka d.d., Šibenik HT-Hrvatske telekomunikacije d.d., Zagreb ( ) Linijska nacionalna plovidba d.d ( ) ( ) Atlantic grupa d.d., Zagreb ( ) ( ) VABA d.d., Varaždin ( ) ( ) Liburnia Riviera Hoteli d.d., Rijeka ( ) ( ) Podravka d.d., Koprivnica ( ) (53.934) Istraturist d.d., Umag ( ) Zve evo prehrambena ind. d.d., Požega ( ) (17.675) ( ) Karlova ka banka d.d., Karlovac ( ) (62.000) Sarajevo osiguranje d.d., Sarajevo ( ) (32.136) ( ) SPIN VALIS d.d., Požega Drvoplast d.d., Buzet ( ) - ( ) Split tours d.d., Split Total Shares not listed on stock exchange ( ) ( ) Total ( ) Croatia osiguranje d.d. Annual Report

112 /ii/ Structure of investments in investment funds classified as investments being kept for sale is set out as follows: Acquisition costs 31 December December 2009 Revaluation provision development during 2009 Life Non-life Total Acquisition costs Life Non-life Total 31/12/2008 Realized loss/profit Unrealized profit/loss 31/12/2009 in HRK in HRK in HRK in HRK in HRK in HRK in HRK in HRK in HRK in HRK in HRK Aureus Equity ( ) ( ) Aureus Balanced ( ) - ( ) ( ) Erste Total East ( ) - ( ) ( ) Erste balanced ( ) - (33.380) ( ) Erste Adriatic Equity ( ) ( ) Fima Equity ( ) ( ) ( ) Ilirika Jugoisto na Europa ( ) ( ) Ilirika Jugoisto na Europa Balanced ( ) ( ) PBZ I-STOCK ( ) ( ) PBZ - Equity ( ) ( ) Prospectus Jugoisto na Europa ( ) Raiffeisen balanced ( ) ( ) Raiffeisen central Europe ( ) ( ) ZB PRIVATE EAST ( ) ( ) Questus Private Equity Kapital ( ) Total ( ) ( ) Investments at fair value through the profit and loss account 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK ST Cash Aureus Equity Raiffeisen cash OTP Money fund HI cash HI cash - KP VB Cash Erste Money ZB Plus HPB Money fund HPB Money - KP Raiffeisen BONDS ZB Global Total Croatia osiguranje d.d. Annual Report 2009

113 Deposits, loans and receivables 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Deposits at loan institutions Loans Total /i/ Structure of investments in deposits at loan institutions is set out as follows: 31/12/ /12/2009 Life Non-life Total Interest rate Life Non-life Total in HRK in HRK in HRK % in HRK in HRK in HRK BKS Bank d.d., Rijeka , Centar banka d.d., Zagreb , Credo banka d.d., Split , Croatia banka d.d., Zagreb , Erste&Steiermärkische Bank d.d., Rijeka , Hrvatska poštanska banka d.d., Zagreb* , * Hypo Alpe-Adria-Bank d.d., Zagreb , Imex banka d.d., Split , Jadranska banka d.d., Šibenik , Karlova ka banka d.d., Karlovac , Nava banka d.d., Zagreb , Kreditna banka Zagreb d.d., Zagreb Kvarner banka d.d., Rijeka OTP banka Hrvatska d.d., Zadar Partner banka d.d., Zagreb , Podravska banka d.d., Koprivnica , Privredna banka Zagreb d.d., Zagreb ,5-7, Raiffeisenbank Austria d.d., Zagreb , Slatinska banka d.d., Slatina , Slavonska banka d.d., Osijek , SG-Splitska banka d.d., Split , Štedbanka d.d., Zagreb , VABA d.d., Varaždin , Total Croatia osiguranje d.d. Annual Report

114 The balance sheet as at 31 December 2009 includes under the position denoting deposits also the deposits with the maturity period up to 3 months amounting to HRK82,101,498. * Under the position denoting deposits the balance sheet as at 31 December 2009 sets out a hybrid deposit amounting to HRK50,000,000 that is made at Hrvatska poštanska banka d.d., Zagreb pursuant to the Agreement on investment in the supplementary capital of the Bank. /ii/ Loans 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Gross amount Value decrease - ( ) ( ) - ( ) ( ) Total In the Balance sheet as at 31 December 2009 loans were granted to the affiliated companies to the amount of HRK29,043,401 (in 2008 to the amount of HRK27,681,324). Maturity dates of the granted loans are set out as follows: 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Up to 1 year From 1 to 5 years Over 5 years Total Structure of loans according to the collateral is set out as follows: 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Guarantees of business banks Life insurance policies with restricted transferability Mortgages and real estate fiduciaries With consent of supervisory body and others Total Croatia osiguranje d.d. Annual Report 2009

115 5.4. INVESTMENTS FOR THE ACCOUNT AND RISK OF LIFE INSURANCE POLICYHOLDERS Investments for the account and risk of life insurance policyholders amounting to HRK22,327,665 (amounting to HRK13,686,926 at 31 December 2008) refer to the products that combine insurance and investment components for policyholders through the investments of premium in investment funds on behalf of and for the account of policyholders DEFERRED AND CURRENT TAX ASSETS Current tax assets amounting to HRK 593,629 (amounting to HRK23,076,880 at 31 December 2008) refer to the extra paid profit tax RECEIVABLES 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Receivables from direct insurance operations Receivables from reinsurance operations Other receivables Total Receivables from direct insurance operations 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Receivables under inland premium Receivables under premium abroad Premium value adjustment - ( ) ( ) - ( ) ( ) Total Croatia osiguranje d.d. Annual Report

116 The elaboration of time-limited receivables structure for inland insurance premium as well as the cover for over 180 days past due but uncollected receivables are determined as follows: 31/12/ /12/2009 in HRK in HRK Written uninvoiced inland premium Invoiced uncollected inland premium Invoiced uncollected premium abroad Total receivables Undue and past due up to 180 days Past due by over 180 days Total upon maturity date Past due by over 180 days At value adjustment Unadjusted value of receivables Cover for receivables past due by over 180 days Claims provision for debatable receivables Total cover Value decrease development during 2009 is set out as follows: 31/12/2009 in HRK Balance at 31 December 2008 ( ) Increase of value adjustment ( ) Collection of previously decreased amounts Loss from value decrease ( ) Write-offs Balance at 31 December 2009 ( ) Receivables from coinsurance and reinsurance operations Receivables from reinsurance operations amounting to HRK13,833,681 (at 31 December 2008 amounting to HRK43,028,014) refer to the receivables from the reinsurer on the basis of the stake in the claims indemnification and receivables for the reinsurance commission. 116 Croatia osiguranje d.d. Annual Report 2009

117 Other receivables 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Receivables from other insurance operations Receivables for investment returns Other receivables Total /i/ Receivables from other insurance operations 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Recourse receivables Recourse receivables value decrease - ( ) ( ) - ( ) ( ) Total Receivables under foreign claims Value decrease - ( ) ( ) - ( ) ( ) Total Total /ii/ Receivables for investment returns 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Receivables for regular interest on granted loans Receivables for regular interest on granted deposits Receivables for default interest Other receivables for interest (6.231) (4.850) Value decrease - ( ) ( ) - ( ) ( ) Total Croatia osiguranje d.d. Annual Report

118 /iii/ Other receivables 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Receivables for sold flats Receivables for paid advances Receivables obtained through cessions Receivables for property obtained through fiduciaries Receivables from card issuers Receivables from state and state institutions Receivables from purchasers Receivables from employees Receivables under judicial rulings Other receivables Total OTHER ASSETS 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Money at bank and till money Other Total Money at bank and till money 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Money on HRK accounts Money on foreign currency accounts Till money Money for mathematical provision cover Total Croatia osiguranje d.d. Annual Report 2009

119 Other 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Received cheques Received bills of exchange Total PREPAID EXPENSES OF THE FUTURE PERIOD AND UNDUE COLLECTION 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Deferred interest and rental fees Other prepaid expenses of the future period Total Croatia osiguranje d.d. Annual Report

120 5.9. CAPITAL AND PROVISIONS Capital stock The capital stock was determined at nominal value to the amount of HRK442,887,200 (at 31 December 2008 to the same amount) and consists of 316,348 shares at par value of HRK 1,400.00, which were entirely paid in cash and entered in the registry of the Commercial Court in Zagreb All shares are of the I issue and are marked as follows: 307,598 common shares marked as CROS-R-A 8,750 preferred shares marked as CROS-P-A Each share, either the common or the preferred one, entitles to 1 (one) vote at the General Assembly of the Company. All shares are paid in total, issued in non-materialized form, freely transferable and recorded in the register of the Central Depository Agency. The ownership structure as at 31 December 2008 and 31 December 2009 is set out as follows: Shareholder Number of shares 31/12/ /12/2009 Amount in HRK % of stake in capital Number of shares Amount in HRK % of stake in capital Croatian Privatization Fund , ,28 Raiffeisenbank Austria d.d. - custodial account , ,43 HPB d.d. / Kapitalni fond d.d. - custodial account , ,00 Hrvatska poštanska banka d.d , ,19 Societe Generale - Splitska banka d.d. - custodial account , ,42 Julius k.d.d., Maribor , ,67 Privredna banka Zagreb d.d., Zagreb - custodial account , ,77 Hypo Alpe-Adria-Bank d.d., Zagreb - custodial account , ,35 Kraš d.d., Zagreb , ,44 Zagreba ka banka d.d. - custodial account , ,23 Auto Hrvatska d.d., Zagreb , ,32 Dioki d.d., Zagreb , ,00 Komercijalna banka Zagreb d.d., Zagreb - in bankruptcy , ,22 Erste&Steiermarkische Bank d.d., Rijeka - custodial account , ,28 Bahovec Sre ko , ,17 Adriacommerce d.o.o., Split , ,16 Radi Antun , ,13 Tankerska plovidba d.d., Zadar , ,13 TEB inženjering d.o.o., Zagreb , ,00 Škaro Miroslav , ,12 Other small shareholders , ,69 Total , , Croatia osiguranje d.d. Annual Report 2009

121 Revaluation provisions Revaluation provisions amounting to HRK462,272,014 (amounting to HRK102,406,509 at 31 December 2008) are set out as follows: Revaluation provisions for land and buildings: in HRK 31 December Increase Decrease ( ) Amortization on the revaluation effect ( ) Transfer to deferred tax liability ( ) Transfer from deferred tax liability Other changes in revaluation provisions December Revaluation provisions for investments available for sale: Investments in funds Investments in shares and stakes Total in HRK in HRK in HRK 31 December 2008 ( ) ( ) Changes in fair value of financial assets available for sale Realized loss and profit from financial assets available for sale December 2009 ( ) ( ) Provisions Provisions to the amount of HRK423,894,652 (at 31 December 2008 to the amount of HRK405,232,684) were determined by the Decisions of the General Assembly of the Company out of the profit in previous years as follows: 31/12/ /12/2009 in HRK in HRK Legal reserves Statutory provisions Other provisions Total Croatia osiguranje d.d. Annual Report

122 /i/ Legal reserves in HRK 31 December Transfer of profit in 2008 (see Note ) December /ii/ Statutory provisions in HRK 31 December Transfer of profit in 2008 (see Note ) December /iii/ Other provisions Other provisions amounting to HRK342,210,828 (at 31 December 2008 to the same amount) were determined by the Decision of the General Assembly of the Company out of a part of profit in previous years Retained profit in HRK 31 December Transfer of profit in 2008 (see Note ) Change in accounting policy ( ) 31 December During 2009 the Company set out the provisions for regular severance pays and anniversary rewards for all employees working for indefinite period of time with the position as at 31 December 2008 by debiting the retained profit. 122 Croatia osiguranje d.d. Annual Report 2009

123 Current year profit Business operations of the Company during 2009 resulted in the realized profit amounting to HRK69,690,466 (in 2008 amounting to HRK64,911,195). Pursuant to the decision of the Assembly of the Company the profit realized through the business operations of the Company during 2008 amounting to HRK64,911,195 was allocated as follows: in HRK Legal reserves (see Note /i/) Statutory provisions (see Note /ii/) Retained profit (see Note ) Liability for dividend payment - preferred shares Total TECHNICAL PROVISIONS 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Unearned premiums, gross Math. insurance provision, gross Claims provision, gross Other insurance-technical provisions, gross Total /i/ Other insurance-technical provisions, gross amount Other insurance-technical provisions, gross amount totalling HRK14,400,000 (totalling HRK14,200,000 at 31 December 2008) refer to the provisions for the earthquake risk LIFE INSURANCE TECHNICAL PROVISIONS WHEN THE POLICYHOLDER BEARS THE RISK Life insurance technical provisions when the policyholder bears the risk amounting to HRK22,327,665 (amounting to HRK13,686,926 at 31 December 2008) are formed for the life insurance policies when the policyholder bears the insurance risk. Croatia osiguranje d.d. Annual Report

124 5.12. OTHER PROVISIONS 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Provisions for pensions and legal proceedings Other provisions Total /i/ Development of provisions for pensions and legal proceedings during 2009 is set out as follows: Costs of legal proceedings Costs of anniversary rewards and Other Total severance pays in HRK in HRK in HRK in HRK 31 December Additional provisions Transfer from / to ( ) - - Cancellation of provisions ( ) ( ) - ( ) Use of provisions (62.958) ( ) ( ) ( ) 31 December DEFERRED AND CURRENT TAX LIABILITY 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Deferred tax liability Current tax liability Total The deferred tax liability is recognized under the adjustment to the fair value of land and buildings used for the insurance operations and a part of land and buildings not used for insurance operations. 124 Croatia osiguranje d.d. Annual Report 2009

125 5.14. OTHER LIABILITIES 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Liabilities derived from direct insurance operations Liabilities derived from coinsurance and reinsurance operations Other liabilities /i/ Liabilities derived from direct insurance operations 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Liabilities for Guarantee fund Liabilities under paid claims Liabilities for fire department contribution Liabilities towards Croatian Insurance Bureau for insurance premiums Liabilities for CFSSA contribution Liabilities for health insurance contribution out of motor TPL ins premium Other liabilities Total Croatia osiguranje d.d. Annual Report

126 /ii/ Other liabilities 31/12/ /12/2009 in HRK in HRK in HRK in HRK in HRK in HRK Liabilities towards suppliers Liabilities for received advances Liabilities for dividends Liabilities for net salaries Liabilities for contributions from salaries Liabilities for tax and surtax from salaries Liabilities for contributions on salaries Deductions from salaries and salary compensation Liabilities under motor TPL and motorhull insurance tax Liabilities towards state for sold flats Other liabilities Total Member of the Management Board President of the Management Board 126 Croatia osiguranje d.d. Annual Report 2009

127

128

129 Croatia Osiguranje Group

130 POWER. from one generation to another

131 CROATIA OSIGURANJE D.D. GROUP On 31/12/2009 Croatia osiguranje Group consisted of the company Croatia osiguranje d.d. Zagreb (parent company) and 23 daughter companies (13 daughter companies and 10 grand-daughter companies). Organization of the Group Croatia osiguranje d.d. CROATIA osiguranje d.d. DAUGHTER COMPANIES Croatia LLoyd d.d. Zagreb (94,64%) Milenijum osiguranje a.d Beograd, Srbija (99,78%) Croatia mirovni dom d.o.o. Zagreb (100%) Plan i d.o.o. Vrbanj (51%) Croatia osiguranje a.d. za životna osiguranja, Skopje, Makedonija (92,5%) Croatia osiguranje a.d za neživotna osiguranja, Skopje, Makedonija (100%) Croatia osiguranje d.d. Ljubuški, BIH (52,05%) Croatia Sigurimi sh.a. Priština (100%) PBZ Croatia osiguranje d.d. Zagreb (50%) Crotehna d.o.o. Ljubuški (100%) Croatia remont d.d. apljina (69,79%) Croauto d.o.o. Mostar (67,0%) Croatia Vitez d.o.o. Vitez (90,0%) Hotel Hum d.o.o. Ljubuški (80%) Croatia osiguranje dobrovoljno mirovinsko društvo d.o.o. Zagreb (100%) Croatia leasing d.o.o. Zagreb (100%) Croatia zdravstveno osiguranje d.d. Zagreb (100%) Herz d.d. Požega (100%) Poliklinika Ars Medica Pula (74%) Poliklinika Croatia zdravstveno osiguranje, Zagreb (100 %) Slavonijatrans tehni ki pregledi d.o.o. Slavonski Brod (76%) Croatia tehni ki pregledi d.o.o. Zagreb (100%) STP PITOMA A Pitoma a (100%) Croatia osiguranje d.d. Annual Report

132 DESCRIPTION AND BUSINESS OPERATIONS OF THE DAUGHTER COMPANIES 1. CROATIA LLOYD d.d., Zagreb Ulica grada Vukovara 62, Zagreb Capital stock: HRK116,060,800 Capital ownership of the Group: 94.64% Number of shares issued: 145,076 Nominal value of one share: HRK Number of shares owned by CROATIA osiguranje d.d.: 137,299 Number of employees on 31/12/2009: 52 Management Board of the Company: Supervisory Board: 1. Robert Stude, Chairman 1. Hrvoje Vojkovi 2. Kitica Mio, Member 2. Zoran Zaninovi 3. Ljerka Šeparovi 4. Vanja Nadali 5. Damir Mihanovi 6. Zdenka Matkovi 7. Jakov Su evi More than 40 years, the company Croatia Lloyd d.d. has been operating as a professional reinsurance company in the Republic of Croatia at the same time successfully connecting home and international insurance and reinsurance market. The Company offers reinsurance against all types of risks among which property and transport risks are the core business. Major ownership of the Company: Croatia mirovni dom d.o.o., Zagreb (100%) and Plan i d.o.o., Vrbanj (51%). In 2009, business operations of the Company were under pressure of unstable financial market environment and economic crisis that affected the insurance industry on the home as well as on the international market. The Company's business operations were undertook in significant insolvency of the market as a whole. The existing portfolio of the Company is, however, stable and the share of the active business from abroad increased. In 2009, the Company achieved the results as planned and expected. The total income increased by 5.1% compared to the same period of the previous year and amounted to HRK mil. That increase is by its major part the result of the investment income that increased by 29.7% compared to the same period of the previous year. The total expenditures increased by 14.9% compared to 2008 and amounted to HRK253.1 mil. In accordance with branch requirements and positive provisions only the claim provision increased by HRK 11.7 mil. All that resulted with gross profit amounting to HRK 36.1 mil. that is somewhat lower than planned. Given the environment, longterm measures applied with the aim to decrease expenses contributed as well as to achieve such good results. The same effects of these measures are expected in 2010 as well. In 2009 Croatia Lloyd acquired the stake in the member company of the Group Croatia zdravstveno osiguranje (33.81%) and in the company Plan i d.o.o. (51%). The Company applies the Code of Corporate Management of the Zagreb Stock-Exchange d.d. 132 Croatia osiguranje d.d. Annual Report 2009

133 2. CROATIA zdravstveno osiguranje d.d., Zagreb Miramarska 22, Zagreb The capital stock: HRK44,363,000 - by the recapitalization of the member company of the Group Croatia Lloyd d.d. amounting to HRK 15,000,000 the capital stock increased from HRK 29,363,000 up to HRK 44,363,000 The capital stock owned by the Group: 100% (66.19% owned by Croatia osiguranje d.d. whille 33.81% owned by Croatia Lloyd d.d.) Number of shares issued: 44,363 Nominal value of one share: HRK1, Number of shares owned by CROATIA osiguranje d.d.: 29,363 Number of shares owned by Croatia Lloyd d.d.: 15,000 Number of employees on 31/12/2009: 153 Management Board of the Company: Supervisory Board: 1. Vesna Dulibi, Chairwoman 1. Hrvoje Vojkovi 2. Josip Kereta, Member 2. Ljerka Šeparovi 3. Damir Mihanovi 4. Zvonko Lovri 5. Kitica Mio The Company was founded in March, 2004 as the company specialized for private health insurance and separated as the daughter company of the parent company Croatia osiguranje d.d. In accordance with the Law on voluntary health insurance 2006 dividing the voluntary health insurance as supplementary, additional and private health insurance, now the company CROATIA zdravstveno osiguranje provides voluntary health insurance supplementary and additional health insurance. In its major ownership the company Croatia zdravstveno osiguranje has two clinics: Poliklinika Ars Medica in Pula and Poliklinika Croatia zdravstveno osiguranje in Zagreb. In 2009, the company Croatia zdravstveno osiguranje d.d. realized the gross profit amounting to HRK 6.4 mil. that is an increase of 39.0% compared to the same period of the previous year. The business results of the company Croatia zdravstveno osiguranje, owing to its longterm strategy, detailed creative insurance programmes and the highest quality of service confirm its successful struggle with business challenges. During 2009, the company CROATIA zdravstveno osiguranje d.d. realized the gross written premium amounting to HRK 97.0 mil. that is an increase of 9.5% compared to the same period in The realized increase of profit and premium is the result of the improved programme of additional health insurance, introducing new sales channels via Internet and applying the newest business operation standards. The company Croatia zdravstveno osiguranje got the prestigious certificate Quality Management System ISO 9001:2008 given to companies extremely satisfying the restrictive international business standards. This Certificate guarantees that the Company's running business is in accordance with business standards of European Union and the rest of the world and was given to the company Croatia zdravstveno osiguranje by the company Lloyd`s Register EMEA. During 2009, the company CROATIA zdravstveno osiguranje has been preparing necessary steps in order to open a new clinic in Koprivnica that will start with its work in the second quarter of In 2010 the company plans up to 20% more newly contracted insurance policies and further strengthening and development of the sales network, introducing and improving new sales channels and launching the redesigned existing and new sales programmes to the market as well as improving both service and staff's skills. Croatia osiguranje d.d. Annual Report

134 3. CROATIA OSIGURANJE d.d., LJUBUŠKI, B&H Nikole Kordi a bb, Ljubuški, B&H 4. MILENIJUM osiguranje a.d., Beograd Kneza Miloša 82/I, Beograd, Republic of Serbia Capital stock: KM8,018,304 Capital owned by the Group: 52.05% Number of shares issued: 30,144 Nominal value of one share: KM Number of shares owned by CROATIA osiguranje d.d.: 15,690 Number of employees on 31/12/2009: 254 Management Board of the Company: Supervisory Board: 1. Mladen Markoti, Chairman 1. Hrvoje Vojkovi 2. Siniša Srzi, Member 2. Damir Mihanovi 3. Florijan Boras 4. Zdravko Petrovi 5. Ivan Luburi Croatia osiguranje d.d., Ljubuški takes the third place among insurance companies in Bosnia&Herzegowina. In its total or major ownership the Company has several companies mostly operating MOT testing and TPL insurance of motor vehicles: Crotehna d.o.o., Ljubuški (100%), Croatia remont d.d., apljina (69,79%), Croauto d.o.o., Mostar (67,0%), Croatia Vitez d.o.o., Vitez (90,0%), Hotel Hum d.o.o., Ljubuški (80%). In 2009, the Company operated in unstable environment of financial market and economic crisis and at the same time under the pressure of illegal competition still present on the insurance market of B&H. In 2009, the total income realized amounted to HRK139.7 mil. that is a decrease of 5.9% compared to the same period of the previous year while expenditures amounted to HRK136.4 mil. that is a decrease of 4.7%. The realized gross profit decreased by 38.2% and amounted to HRK 3.3 mil. The written gross premium amounted to HRK mil. which is a decrease of 3.0% while the technical provision increased by 4.2%. Capital stock: RSD483,550,000 - On 09/04/2009 the General Assembly brought a decision on an increase of the capital stock by issuing 3,137 shares from the retained profit. Capital stock owned by the Group: 99.78% Number of shares issued: Nominal value of one share: RSD10,000 Number of shares owned by CROATIA osiguranje d.d.: Number of employees on 31/12/2009: 310 Management Board of the Company: Supervisory Board: 1. Damir Mihanovi, Chairman 1. Hrvoje Vojkovi 2. Hrvoje Parlov, Member 2. Pero Beki 3. Eugen Sunara, Member 3. Stamenka Milovi 4. Hrvoje Paukovi, Member 5. Veljko Kneževi, Member Milenijum osiguranje a.d. is one of the smaller insurance companies in the Republic of Serbia. CROATIA osiguranje d.d. acquired the major ownership part in Milenijum osiguranje a.d., by purchasing shares at the beginning of Soon after purchasing shares recapitalization took place in order to enable Milenijum osiguranje a.d. to operate other types of insurance besides TPL motor insurance. During 2008 the falling down of economic operations has started and it continued during 2009 as well so affecting the insurance market in the Republic of Serbia as a decrease both in insurance product sales and in premium received. During 2009 the insurance market in the Republic of Serbia has not become stable. Illegal competence, commission higher than legally prescribed etc. placed restrictions on normal business operations. During 2009, in spite of that, the Company registered an increase in the written premium by 7.8% compared to 2008 amounting to HRK77.1 mil. while technical provision increased by 16.1%. 134 Croatia osiguranje d.d. Annual Report 2009

135 The total income amounted to HRK 81.4 mil. that is a decrease of 0.8% compared to 2008 while total expenditures amounted to HRK 80.3 mil. that is an increase of 1.0%. The realized gross profit decreased by 55.1% and amounted to HRK 1.2 mil. 5. CROATIA osiguranje a.d. Društvo za osiguranje života Skopje, Republic of Macedonia Mito Hadživasilev 20/II, 1000 Skopje, Republic og Macedonia In 2010, the strategic target of the company Milenijum osiguranje a.d. is to keep the existing portfolio and to enhance it, at the same time to allocate it to the major part of the registered property and personal accident insurance as well as to the growth of the participation in the portfolio referring to primarily companies from the Republic of Croatia operating on the territory of the Republic of Serbia. Capital stock: MKD184,131,750 or EUR 3,000,000 Capital stock owned by the Group: 92.50% Number of shares issued: 30,000 Nominal value of one share: EUR Number of shares owned by CROATIA osiguranje d.d.: 27,750 Number of employees on 31/12/2009: 19 Director: Management Board of the Company: 1. Vladimir Popovski 1. Željko Juki 2. Vladimir Popovski 3. Mario Puljiz 4. Franjo Mišak 5. Vlado Kambovski In March, 2005 the Company started with operating life insurance. In December, 2007 the purchase of 2,520 shares of the company Vardar Croatia osiguranje d.d. Skopje from the company Croatia osiguranje d.d. Ljubuški, has been realized, that increased the share of Croatia osiguranje d.d. Zagreb in the Company from 36.40% to 70%. In December, 2008 recapitalization of the Company which amounted to EUR 2,250, took place and the capital stock of the Company as well as the share of Croatia osiguranje d.d. in the Company increased from 70% to 92.50%. At the same time the Company changed its name from VARDAR CROATIA osiguranje a.d. Skopje to CROATIA osiguranje a.d. Društvo za osiguranje života Skopje. In 2009, the total income of the Company amounted to HRK17.1 mil. that is an increase of 27.1% compared to the same period of the previous year while expenditures amounted to HRK 16.6 mil. that is an increase of 26.3%. The realized gross profit increased by 68.2% and amounted to HRK thousand. The written gross premium increased by 27.1% and amounted to HRK13.5 mil. while the mathematical provision increased by 47.9% and amounted to HRK 19.8 mil. The realized business results overfulfilled the plan for Croatia osiguranje d.d. Annual Report

136 6. CROATIA osiguranje a.d. Društvo za neživotna osiguranja, Skopje, Republic of Macedonia Mito Hadživasilev 20/II, 1000 Skopje, Republic of Macedonia Capital stock: MKD199,593,125 or EUR 3,250,000 Capital stock owned by the Group: 100% Number of shares issued: 32,500 Nominal value of one share: EUR Number of shares owned by CROATIA osiguranje d.d.: 32,500 Number of employees on 31/12/2009: 20 Director: Management Board: 1. Dragan Lazareski 1. Vlado Ošust 2. Dragan Lazareski 3. Ivan Pavkovi 4. uro Eder 5. Risto Mal eski The company CROATIA osiguranje, Društvo za neživotna osiguranja, is a new member of the Group that started with work in 2009 and operates all types of non-life insurance. Foundation of that company and investment of EUR25 mil. shows the continuance of the process of expanding operations and strengthening the position of the Group in the region. As the Company started with its work in June the basic targets in the second quarter of 2009 were establishing legal and professional predispositions for the beginning of business operations. With regard to only six months-work of the Company the realized results in 2009 were as expected. In the total income that amounted to HRK 1.6 mil., income from investment amounted to 43.5% while earned premium participated with 37.4%. In total expenditures that amounted to HRK 2.9 mil. the biggest part (89.4%) refers to business expenditures (acquisition expenses and administrative expenses) that are necessary as it is a new company at the beginning of its operation and expansion. In 2010 the strategic target of the Company is enhancing the share on the Macedonian insurance market i.e. wider market presence with bigger scope and quality of sales service (further education and professional training of the personnel as well as stronger marketing strategy) and first of all the need for development of own sales network by foundation of new subsidiaries. Taking into account everything above mentioned, in spite of economic recession, the Management Board is optimistic and expects the realization of total income amounting to HRK 12.4 mil., total expenditures amounting to HRK 12.2 mil. and the realization of profit amounting to HRK 180 thousand in They expect increase in gross written premium by 349% that equals to HRK 18,0 mil. 136 Croatia osiguranje d.d. Annual Report 2009

137 7. CROATIA Sigurimi sh.a., Priština, Kosovo Rr. Luan Haradinaj 5/A, Priština, Kosovo Capital stock: EUR3,000,000 Capital stock owned by the Group: 100% Number of issued shares: 30,000 Nominal value of one share: EUR Number of shares owned by CROATIA osiguranje d.d.: 30,000 Number of employees on 31/12/2009: 39 Director: Management Board: 1. Ivica Pezo 1. Ivan Jurina 2. Boris Sekelez 3. Ivica Pezo 4. Mahmut Alidemaj 5. Nazmi Bytyqi In March, 2005 the Company was founded with minimal capital stock of EUR 2,500, and operates non-life insurance. In June, 2005, Banking and payments authority of Kosovo (BPK) brought a decision on additional conditions needed to get a working license to operate non-life insurance, in terms of increasing minimal capital stock from EUR 2,500, to EUR 3,000, that was successfully completed until 31/12/2006 as prescribed. In 2009, the total income of the Company amounted to HRK 18.6 mil. that is an increase of 32.5% compared to 2008, while expenditures amounted to HRK14.7 mil. that is an increase of 33.4%. The gross profit amounted to HRK3.9 mil. that is an increase of 29.1% compared to The gross written premium increased by 14.4% compared to 2008 and amounted to HRK 21.0 mil. while the technical provision increased by 69.1%. The gross profit is overfulfilled by 31.3% compared to plan for In 2010 a new policy against illegal competence, better marketing strategy, investment in new sales channels branch offices, technology and professional education of personnel are planned. 8. Croatia osiguranje mirovinsko društvo za upravljanje dobrovoljnim mirovinskim fondom d.o.o., Zagreb Miramarska 22, Zagreb Capital stock: HRK15,000,000 - On September 15, 2009 the General Assembly of the Company brought a decision on the decrease of the capital stock from HRK30.0 mil. to HRK 15.0 mil. due to losses. The capital stock owned by the Group: 100% Number of employees on 31/12/2009: 18 Management of the Company: Supervisory Board: 1. Veronika Šapina-Pezelj, Director 1. Lidija Kralj 2. Hrvoje Paukovi 3. Nina Babi In 2003 the Company was founded as an open fund offering voluntary pension insurance on the basis of individual capitalized saving and expanded its business by including closed pension funds since Now the Company manages with one open (CROATIA OSIGURANJE dobrovoljni mirovinski fond) and four closed pension funds (CROSIG mirovinski fond, HEP mirovinski fond, HAC mirovinski fond, SPH mirovinski fond). In 2009 the Voluntary Pension Fund met with extremely hard market conditions affected not only by economic crisis but additionally by evaluations of pension reform from the side of actual public policy. Negative media opinion concerning small pensions arising out of the second pillar pension insurance resulted with negative reaction with citizens and savers from the third pillar pension insurance. In spite of the negative economic circumstances the total number of members in all funds was 26,047 that is an increase of 4.75% compared to the same period of the previous year. The realized total income amounted to HRK 3.7 mil. that is an increase of 6.2% compared to the same period of the previous year while the total expenditures amounted to HRK 3.0 mil. that is the decrease of 27.1% which resulted with positive result amounting to HRK 720 thousand. The realized income registers the decrease of 30.5% compared to plan for Savings and rationalization measures resulted with decrease in expenses by 42.7% compared to plan for 2009 and the gross profit more than expected was realized. Croatia osiguranje d.d. Annual Report

138 9. PBZ CROATIA osiguranje d.d. za upravljanje obveznim mirovinskim fondom, Zagreb Ul. kralja Držislava 5, Zagreb Capital stock: HRK56,000,000 Capital stock owned by the Group: 50% Number of shares issued: 56,000 Nominal value of one share: HRK1,000 Number of shares owned by CROATIA osiguranje d.d.: 28,000 Number of employees on 31/12/2009.: 16 Management Board of the Company: Supervisory Board: 1. Dubravko Štimac, Chairman 1. Nikola Mijatovi 2. Mario Radakovi, Member 2. Vesna Urek 3. Nedjeljko Pavlovi In 2001 the Company was founded with the aim to manage obligatory pension fund which is jointly managed by Croatia osiguranje d.d. and Privredna banka Zagreb d.d.. PBZ CO is a well-known and respectable company among funds managing pension funds in the Republic of Croatia. In 2009, the number of the fund members was 270,426 that is a share of 17.7% among all obligatory pension fund members. The number of fund members increased by 3.1% compared to the same period of the previous year. In 2009, the total income of the Company amounted to HRK49.2 mil. and increased by 10.8% compared to 2008 while total expenditures amounted to HRK 19.3 mil. and increased by 21.6%. The gross profit amounted to HRK 30.0 mil. and increased by 4.7% compared to CROATIA LEASING d.o.o., Zagreb Miramarska 22, Zagreb The capital stock: HRK38,000,000 - On 30/06/2009 the General Assembly brought a decision on the decrease of the capital stock from HRK 90.0 mil. to HRK 38.0 mil. due to losses. The capital stock owned by the Group: 100% Number of employees on 31/12/2009: 19 Management Board of the Company: Supervisory Board: 1. Miroslav Marketi, Chairman 1. Hrvoje Vojkovi 2. Zoran Šangut, Member 2. Ljerka Šeparovi 3. Damir Mihanovi The company CROATIA LEASING d.o.o. is registered to operate finance and operative leasing of material assets. In 2009, the total income of the Company amounted to HRK mil. that is an increase of 4.1% compared to 2008 while expenditures amounted to HRk mil. that is a decrease of 11.7%. The gross profit amounted to HRK thousand. 138 Croatia osiguranje d.d. Annual Report 2009

139 11. CROATIA tehni ki pregledi d.o.o., Zagreb Miramarska 22, Zagreb The capital stock:hrk 71,767,400 The capital stock owned by the Group: 100% Number of employees on 31/12/2009: 66 Management Board of the Company: Supervisory Board: 1. Joško Divi, Chairman 1. Hrvoje Vojkovi 2. Staško Adleši, Member 2. Damir Mihanovi 3. David Sopta, Member 3. Hrvoje Parlov 4. Željko Serdar 5. Bernard Mršo In October, 2003 the company CROATIA-tehni ki pregledi d.o.o. became the member of the CROATIA osiguranje d.d. Group and the main business operation of the company is testing and registration of motor vehicles. The Head Office of the Company is in Zagreb and MOT test stations are situated at 20 places all over the Repuiblic of Croatia. The Company owes a 100%-share in STP PITOMA A, Pitoma a. In 2009, Croatia tehni ki pregledi d.o.o. opened new MOT test stations in Vukovar, Split, Osijek, Koprivnica and Glavina Donja (near Imotski) that will ensure contemporary and quality service of the technical testing and assessment of claims all in one place making the procedure faster and easier to the clients. All MOT test stations owned, co-owned or rented by the Group, realized in total the number of 191,570 technical testings of the motor vehicles that is an increase of 10.5% compared to This increase is the result of the increase in the number of the MOT test stations mentioned above during 2009 that at the same time improved the sales of the MTPL insurance policies by 6.4%. The total income amounted to HRK 47.0 mil. that is an increase of 6.8% compared to 2008, while total expenditures amounted to HRK 40.4 mil. that is an increase of 10.0%. The increase of the total expenditures mostly is the result of the increase of expenses due to opening of new MOT test stations. The gross profit decreased by 9.2% and amounted to HRK 6.6 mil. The plan for 2009 announced the decrease in income, expenditures and profit but the realilzation overfulfilled the plan. 12. SLAVONIJATRANS TEHNI KI PREGLEDI d.o.o., Slavonski Brod, Vinogradska 17, Slavonski Brod The capital stock: HRK20,000 The capital stock owned by the Group: 76% Number of employees on 31/12/2009: 14 Management Board of the Company: Supervisory Board: 1. Davor Pin ar, Chairman 1. Nenad Pehnec 2. Stjepan Furlan 3. Mika Mimica In July, 2004 the company was founded and started to operate testings of the motor vehicles. In 2009, the number of 18,284 of testings was achieved that is an increase of 1.1% or 200 of testings more than in The total income amounted to HRK 6.9 mil. that is a decrease of 1.4% compared to 2008, while the total expenditures amounted to HRK 6.2 mil. that is a decrease of 4.5%. The realized gross profit increased by 39.9% and amounted to HRK thousand. The realization overfulfilled the plan for Croatia osiguranje d.d. Annual Report

140 13. HERZ d.d. Požega Sv. Roka 2, Požega The capital stock: HRK 3,408,600 The capital stock owned by the Group: 100% Number of shares issued: 8,970 Nominal value of one share: HRK Number of shares owned by CROATIA osiguranje d.d.: 8,970 Number of employees on 31/12/2009: 30 Management Board of the Company: Supervisory Board: 1. Vladimir Hut, Chairman 1. Mika Mimica 2. Zdenko Ov ar, Member 2. Marija Bajt 3. Ilija Šimunovi, Member 3. Željko Vinkovi HERZ d.d., Požega is a company that operates driving schools and MOT testings. The technical equipment level of the driving school and of the MOT testing station belong to the highest rank in the Republic of Croatia. The total income amounted to HRK 8.2 mil. that is a decrease of 4.2% compared to 2008, while the total expendituires amounted to HRK 7.0 mil. that is a decrease of 13.4%. The realized gross profit increased by 159.0% and amounted to HRK 1.2 mil. Plan for 2009 announced decrease in profit by 18.7% due to financial crisis and falling down of the standard of living. The realized profit increased by 218.4% than planned owing to the significant rationalization of operating expenses. In 2010, it is expected that recession would still affect the business and the announced business results should be on the level of those in Croatia osiguranje d.d. Annual Report 2009

141 BUSINESS RESULTS OF THE GROUP Key Performance Indicators 31/12/ /12/2009 Index (3/2) Profit & Loss Account: Total income (HRK 000) ,8 Total expenditures (HRK 000) ,0 Written premium (HRK 000) ,0 - non-life ,4 - life ,3 Claims paid (HRK 000) ,7 - non-life ,9 - life ,0 Investment income(hrk 000) ,2 - non-life ,6 - life ,0 Investment expenses(hrk 000) ,8 - non-life ,0 - life ,8 Business expenditures (HRK 000) ,6 - non-life ,6 - life ,2 Gross profit (HRK 000) ,3 Net profit (HRK 000) ,5 Balance: Total assets (HRK 000) ,9 Capital & Provision (HRK 000) ,3 Technical provision (HRK 000) ,4 - unearned premium ,0 - provision for claims ,1 - LIMP ,1 - other insurance-technical provision ,6 Investment (HRK 000) ,1 Other indicators : Earning per share (HRK) 195,6 492,6 251,9 Claim ratio (%) 68,5 68,8 100,4 Cost ratio (%) 38,9 44,5 114,5 Ratio combined (%) 107,4 113,3 105,5 Asset profitability (%) 0,7 1,7 233,4 Capital profitability (%) 4,6 8,5 185,7 Croatia osiguranje d.d. Annual Report

142 Business Result of the Group In 2009, economic crisis and recession greatly influenced the results but the Group records the total income amounting to HRK 4,042,1 mil. that is an increase of 0,8% compared to the previous year. The consolidated profit after taxation and minority shares amounted to HRK 152,5 mil. The written premium of non-life insurance amounted to HRK 3,019,2 mil. that is a decrease of 5.6% while written premium of life insurance amounted to HRK 393,7 mil. that is a decrease of 0.7%. The non-life insurance in the total written premium of the Group participated with 88.5% while life insurance participated with11.5%. The written premium as the biggest income in insurance operations amounted to HRK 3,412,9 mil. and recorded the decrease of 5.0% that confirmed the existence of crisis i.e. stagnation in insurance industry as well as in the economy of the Republic of Croatia as in the region. Investment income from life and non-life insurance recorded an increase of 62.2% amounting to HRK 512,0 mil. That increase is mainly influenced by increase in income from interest as well as by value adjustment of investment in land and buildings. Income of the Group according to business segments: HRK Index (3/2) Insurance operation income ,6 Finance and operative leasing income ,3 Pension fund managing income ,1 MOT test stations income ,2 Total ,8 The paid claims amounted to HRK 2,185,3 mil. and recorded the decrease of 1.3%. The insurance operation expenses amounted to HRK 1,219,3 mil. that is 31.1% of total expenses and increased by 4.6% compared to the same period of the previous year. The total assets of the Group on 31/12/2009 amounted to HRK 9,0 billion. On 31/12/2009 the calculated technical provision amounted to HRK 6.2 billion that is a decrease of 0.6% compared to the technical provision calculated on 31/12/2008. The Group will endeavour to grow further and record positive results as the regional leader by significantly reducing operative expenses and by enhancing sales activities during the next business year. 142 Croatia osiguranje d.d. Annual Report 2009

143 Share by members of the Group in the Group's business result: Profit/Loss I-XII 2008 Profit/Loss I-XII 2009 Index 09/08 HRK =2/1 Croatia osiguranje d.d ,7 Croatia Lloyd Grupa d.d ,7 PBZ Croatia osiguranje d.d ,7 Croatia osiguranje Ljubuški Grupa d.d ,8 Milenijum osiguranje a.d ,9 Croatia osiguranje mirovinsko društvo d.o.o Croatia - tehni ki pregledi Grupa d.o.o ,8 Croatia zdravstveno osiguranje Grupa d.d ,0 Slavonijatrans tehni ki pregledi d.o.o ,0 Croatia leasing d.d Croatia Sigurimi sh.a ,0 Herz d.d ,1 Croatia osiguranje d.d., za neživot.osig., Skopje Croatia osiguranje d.d., za život.osig., Skopje ,8 GROSS PROFIT OF THE GROUP BEFORE ELIMINATION ,5 Consolidation elimination (dividend, value adjustment of the investment in the daughter-companies) Profit before taxation ,3 Profit tax ,8 Profit after taxation ,8 Minority shareholders ,9 Company's shareholders ,5 Croatia osiguranje d.d. Annual Report

144 Changes in the Group In 2009, two new member companies i.e. Croatia osiguranje a.d., Društvo za neživotna osiguranja, Skopje and Plan i d.o.o., Vrbanj joined the Group. Assets and business results of the new member companies are included in the consolidated financial reports of the Group. Major business events During previous business year, in spite of more difficult operating conditions caused by economic crisis, the Group continued with more conservative strategy of expanding its operations in the Republic of Croatia as well as in the region. At the beginning of June, a new company operating non-life insurance started with business in Macedonia. With the aim to expand its sales network in Macedonia, the company Croatia osiguranje opened a new subsidiary operating non-life insurance in Ohrid. That is the first subsidiary of that kind of the daughter company Croatia osiguranje, društvo za neživotno osiguranje. During the previous business year, five MOT test stations were opened (in Vukovar, Split, Osijek, Koprivnica and Glavina Donja (near Imotski) that will ensure more contemporary and quality service of technical testing of the motor vehicles as well as the assessment of loss all at one place that will make the procedure faster and easier to the clients. Furthermore, a new business premises in Koprivnica, intended for new polyclinic that should start with work soon have been bought. The new polyclinic will cover not only the Koprivnica-Križevci district but the wider territory of the North-West region of the Republic of Croatia as well. At the beginning of the business year new corporate web pages of Croatia osiguranje d.d. as well as the corporate data warehouse were introduced. The member of the Group Croatia zdravstveno osiguranje acquired the prestigious certificate Quality Management System ISO 9001:2008 given to the companies that satisfy extremely rigorous international business standards. Quality Management Certificate is a guarantee that the company operates according to rigorous business standards of the European Union and the rest of the world and was given to Croatia zdravstveno osiguranje by the company Lloyd`s Register EMEA. The sale and distribution of the insurance products in the Croatian post offices started while travel health insurance as well as travel cancellation insurance can be bought on-line as well as in the tourist agencies. The co-operation with FINA, which will have FINA Option offices in its 17 offices offering all information needed by the clients as well as conclusion of insurance, offers or requirements for MTPL insurance, motor hull insurance, household insurance, travel insurance, private health insurance, personal accident insurance, life insurance, housingsavings, voluntary pension savings and risk investments, has started. The above stated co-operation will enable cheaper distribution and sale of the insurance products and services. In the scope of saving measures with the aim to decrease unproductive expenses and according to the Republic of Croatia Government's reccomendation, the salary of the Board of Management and of the management of the Group decreased and the Decision on the decrease 144 Croatia osiguranje d.d. Annual Report 2009

145 of the gross salary in the parent as well as in the daughter companies (the Group) by 10% has been brought and implemented. During 2009, the project of organization optimization of Croatia osiguranje d.d. has been completed and implemented. It continues to be realized in the member companies of the Group as well. This project unifies the organization and metodology of remuneration at the Group level. In the scope of Middle&East Europe Euromoney Conference, the company Croatia osiguranje has got a great recognition as the best insurance company in the Middle&East Europe. During next two years the Group Croatia osiguranje will be profiled as the full service financial institution that will base its operations on insurance, financial service and asset management. MAJOR BUSINESS EVENTS AFTER EXPIRY OF THE BUSINESS YEAR The Group acquired 16.9% stake in the company Adriatica-Net d.o.o., Zagreb. President of the Board of Management of the Company Mr. Hrvoje Vojkovi and member of the Management Board Mr. Damir Mihanovi have been revealed of duty while Mr. Zdravko Zrinuši was appointed President of the Management Board. EXPECTED DEVELOPMENT OF COMPANIES IN CONSOLIDATION It is expected that Croatia osiguranje d.d. Group will continue with growth and successful business results. This particularly refers to the newly founded companies abroad that started with business successfully but on the markets of those countries participate with little percentage for now. It is necessary to enable faster growth to these companies to become respectable competence on the insurance markets there. Investment in education and training of personnel, especially the young ones, then expanding of the sales network, introducing new channels of insurance sales, particularly on-line sale as well as through agencies and brokers, will be enlarged. The business partnership with banks will be stronger with the aim to sale insurance products and to enhance the business operations step by step to other segments of financial industry such as investment funds, obligatory and voluntary pension funds. Health insurance, either through a new company or as an insurance product will be offerred as well. During a five-year period our aim is that no company operating abroad should participate on the market of that country with less than 5% and efforts should be made to realize even better business results depending on the particular market conditions. Special attention will be paid to the insurance technology transfer and new products on the relation parent company daughter companies as well as to the development of new insurance products in the daughter companies. With the aim to achieve good participation on the insurance markets abroad (depending on conditions and possibilities of those markets and companies) there is a continuous interest in taking over other insurance companies abroad as well as entry in industries close to insurance such as building engineering, leasing sales, motor vehicles repair and the like. Croatia osiguranje d.d. Annual Report

146 ACTIVITIES OF THE DAUGHTER COMPANIES AS A WHOLE IN THE FIELD OF RESEARCH & DEVELOPMENT(R&D) The research and development (R&D) as a very important part of the marketing will be further-on managed by the parent company. The independence of the daughter companies in realization of this segment will be encouraged in regard with development of new insurance products and new insurance sales channels targeted at maximum harmonization of offer and needs on the market. In that way Croatia osiguranje d.d. and its daughter companies will mostly be in service of their insureds' needs and wishes. Special attention will be paid to further development of the Daughter company department in the Head office aimed at creating a new strategy on development and growth of all daughter companies especially those in the region. MAIN CHARACTERISTICS OF THE INTERNAL SUPERVISION OF THE DAUGHTER COMPANIES AND RISK MANAGEMENT SYSTEM The internal supervision of the daughter companies is well organized. The Internal Control & Audit Department is established in the Head Office of Croatia osiguranje d.d., Zagreb, that, besides supervising the business and business results of the parent company supervises business operations of all daughter companies nevertheless their shares/ stakes are quoted on the stock-exchange or not. However, in all insurance companies, the internal supervision and audit is established consisting of a certified auditor and a certified actuary including other specific ways of supervision and control according to regulations in the particular country. The scope of activities of the above mentioned departments are closely regulated by the Insurance Law in every country separately but basically their scope of activities, liability and way of operating do not make any significant difference. Similarly, in accordance with Insurance Law of the Republic of Croatia the company Croatia osiguranje d.d. Zagreb, is obliged to present all relevant business reports twice a year for the reason of capital calculation, guarantee capital and capital adequacy of the insurance companies as well as the data about investment and related business between some linked business subjects to HANFA. On that occasion all business reports of the daughter companies are additionally analyzed by the Risk Management Department in the Head office of Croatia osiguranje d.d., Zagreb. As the regulations of the countries where our daughter companies operate also regulate their continuous supervision by their supervising agencies, practically all business reports and business events significant for stability, solvency, liquidity and possible business risks are repeatedly supervised. Risk management system is still at its beginning, as in the company Croatia osiguranje d.d. as in its daughter companies. However, some business functions where implementation of risk management is significant, for example, treasury, investment, real estate purchase/sale and the like, already exist, while at the same time some other functions of risk management are still at the very beginning. Member of the Management Board President of the Management Board 146 Croatia osiguranje d.d. Annual Report 2009

147

148

149 Independent audit opinion Group

150 PARTNERSHIP. from one generation to another

151 Responsibility for consolidated financial reports The Company's Management is liable to ensure that the consolidated financial reports for the year ended 31 December 2009 are composed pursuant to the Croatian Accounting Law (NN 109/07) and the International Financial Reporting Standards (NN 140/06, 30/08, 130/08, 137/08, 29/09) set by the Accounting Standards Board, so that they provide a true and fair view of financial situation, business results, changes in capital and cash flows of the Group for that period. On the basis of performed analysis the Board of Management justly expects that the Company has suitable means to continue the business activities in the forseeable future. Accordingly the Board of Management made financial reports under the assumption of the time limitlessness of the Group's business activities. When composing financial reports the Board of Management is liable: for giving reasonable and prudent judgements and estimates for the application of valid financial reporting standards, publication and giving explanation for all substantially significant aberrations in financial reports and for composing financial reports under the assumption of business time limitlessness, unless the assumption is inappropriate. The Board of Management is liable for keeping proper accounting records that will reflect the financial position and business results of the Group with acceptable accuracy at any moment as well as their adjustment to the Croatian Accounting Law (NN 109/07) and the International Financial Reporting Standards (NN 140/06, 30/08, 130/08, 137/08, 29/09) set by the Accounting Standards Board. The Board of Management is also liable for the protection of the Group's property, consequently also for taking justified measures in order to prevent and disclose fraud and other illegal acts. for the selection and thereafter a consistent application of suitable accounting policies For and on behalf of the Management Board: Silvana Ivan i Member of the Management Board Hrvoje Vojkovi President of the Management Board CROATIA OSIGURANJE d.d. Miramarska Zagreb Republic of Croatia March 16, 2010 Croatia osiguranje d.d. Annual Report

152 Independent audit opinion To the shareholders of the company CROATIA osiguranje d.d., Zagreb 1. We have audited the attached consolidated financial reports of CROATIA osiguranje d.d. Zagreb, Miramarska 22 ( Group ) for the year ended December 31, 2009 that include the consolidated Balance sheet of that day, the consolidated Profit and Loss Account, the consolidated Report on Changes in Capital and consolidated Report on Money Flow for the year ended on that day as well as the belonging Notes to the consolidated financial reports consisting of significant summaries of accounting policies and other explanations. Liability of the Management Board of the Company 2. The Management of the Company is responsible for making and fairly presenting the following financial reports according to the International Standards for Financial Reporting valid in the Republic of Croatia. That responsibility includes: identifying, including and managing the internal control significant for making and fair presentation of financial reports without materially significant mistakes as a consewuence of errors or fraud, the choice and the application of adequate accounting policies and reasonable accounting estimation in given circumstances. Responsibility of the Auditors 3. Our responsibility is to express our independent opinion about the enclosed financial reports on the basis of our audit. The auditing procedure was performed according to the International Auditing Standards. The mentioned Standards require the audit to be planned and made in such a manner to collect all evidence and all explanations that we consider needed to collect adequate evidence providing us a reasonable guarantee that consolidated financial reports do not include materially significant errors. 4. The auditing procedure includes procedures with the aim to collect auditing evidence of the amounts and explanations in the consolidated financial reports. The chosen procedures including estimation of risk of the significant errors in consolidated financial reports caused by mistake or as the result of fraud depend on the opinion of the auditor. In estimation of the risk the auditor 152 Croatia osiguranje d.d. Annual Report 2009

153 takes into consideration internal controls that are important for the Company for making and fairly presenting the consolidated financial reports so as to identify auditor's procedures adequate in given circumstances but not at the same time to give opinion about internal controls' of the Company efficiency. The auditing procedure also includes the estimation of adequate implementation of accounting policies and accounting estimation of the Management Board of the Company as well as the estimation of the whole presentation of the consolidated financial reports. 5. We believe that the collected audit data are adequate to give our expert opinion. fair financial position of the Group on December 31, 2009 as well as the business results, changes in capital and money flows of the Group in 2009 according to Law on Accountancy and International Financial Reporting Standards valid in the Republic of Croatia. Special remark 7. Without making it conditional on our opinion given in point 6 above we bring your attention to the Notes 5.2./i/ and / ii/ attached to the consolidated financial reports containing the effects of value adjustment of book and estimated fair value of real estate. Opinion 6. It is our expert opinion is that attached consolidated financial reports, in all materially significant aspects, provide true and Audit d.o.o., Zagreb Zdenko Balen, certified auditor, Member of the Management Board Zagreb, March 16, 2010 Croatia osiguranje d.d. Annual Report

154

155 Consolidated Annual Financial Reports Group

156 RELIABILITY. from one generation to another