How the crisis hits insurance companies and pension funds

1. How the crisis hits insurance companies and pension funds Christoph Plein, COO Allianz pojišťovna a.s. Prague, March 25,2009

2. at a glance: • Total GWP 2007: Disclaimer • All statements represent the opinion and viewpoint of Allianz pojišťovna, a.s. The statements can only serve as indication for the situation on the whole Czech insurance market. The opinion, judgments and conclusions of other Czech insurance companies may deviate.

3. Czech insurance market 2008: • 29 insurers (ČAP membership) • GWP Non Life: 76 bn CZK (ca. 3.0 bn EUR) • GWP Life: 54 bn CZK (ca. 2.0 bn EUR) • Allianz pojišťovna, a.s. at a glance: • GWP Non Life 2008: 7.2 bn CZK (ca. 288 mio EUR) • GWP Life 2008: 2.7 bn CZK (ca. 108 mio EUR) • IFRS result 2008: 0.7 bn CZK (ca. 28 mio EUR) • Assets under Management: 26.7 bn CZK (ca. 1.0 bn EUR) • Market position: 3 NL, 6 L • Market share: NL 9,0% ; L 4,8% • Distribution channels: Tied agents, brokers, banks, www.allianzdirect.cz

4. Review EBFF 2008 Impacts on insurance business Impacts on pension fund business Outlook and summary Content

5. Review European Banking & Financial Forum 2008 1

6. Concerns expressed on the EBBF in 2008 • General economic slowdown will also hit non-life and life insurance business; reduced business growth and earnings can be expected • Similarities to the US also exist in the Czech Republic: Strong increase of real estate prices, mortgage lending without downpayment, high leverages through debt financing • Insurers will not refinance banks if doubts about local asset quality is to arise • Customers who invested in unit linked life insurance are confronted with the capital market’s volatility • Problems to come where already visible one year ago

7. Concerns 2008 Development until 1Q2009 Economic slowdown • Negative GDP development cannot be excluded; increase of unemployment rate already visible; pessimistic outlook across the whole economy Exaggerations on real estate market • Complete stop of new developments; buying prices signifi- cantly dropped (office space multiples 13 vs. 20 before), risk aversion in mortgage business • Inter-banking market dried up; only governmental guarantees avoid bank runs (valid for whole Europe) Mistrust towards banks • Unprecedented simultaneous downturn of all asset classes Volatility on capital markets • Intensity of the downturn could not be expected Today‘s situation

8. Impacts on insurance business 2

9. Impacts of the financial crisis on the non-life insurance business • Stable development on the claims side – no major natural catastrophes • Business results 2008 were partially influenced by write downs or depreciations due to turmoil on the capital markets • Economic downturn is having and will have impacts on the top line (e.g. Motor business, entrepreneurial business, industrial business) • Cost cutting and (working) capacity adjustments are unavoidable • End of the softening market (i.e. price reductions) can be expected – also due to higher premiums for reinsurance • So far moderate impacts, but business environment is challenging

10. Impacts of the financial crisis on the life insurance business • Weak capital markets do not endanger classical life products (e.g. endowment, accidental covers etc.), but... • ...volatility in all asset classes makes investment decisions difficult, • ...clients invested into unit linked life insurances are confronted with tremendous volatility of capital markets, • ...willingness of clients to invest longer term is harmed by unsecurity about further economic development. • Same business principles will be applied like in Non Life, i.e. cost cutting and (working) capacity adjustments • Life business suffers from the turmoil on the financial markets

11. * *) before profit participation Source: Association of Czech Pension Funds Impacts of the financial crisis on the pension fund business • Key financial indicators show a gloomy picture for 2008

12. Impacts of the financial crisis on the pension fund business • First steps for a clearer regulation have been taken in 2008 (e.g. capitalization rules) – but more needs to be done: • Accounting principles to be reviewed • Option to change pension fund at any point of time to be reviewed • Earnings system for pension fund companies to be reviewed • Difficulties to earn cost of capital within the current system • Willingness of shareholders to invest further into the current system is limited • Pension fund system is in crisis

13. Outlook and summary 3

14. Outlook – what can be expected • Insurers are facing the same difficulties like other industrial sectors, but presumably in a less distinct amplitude • Insurers are at this point of time not comparable with banks! • There are however factors which can still have severe impacts on the insurance sector • Mistrust in government bonds and increasing spreads reduces capital position of insurers and pension funds • Accounting rules can still lead to selfenergizing negative effects • Imported inflation through unfavourable exchange rates • Crisis is by far not over – full attention of all participants is needed

15. Thank you for your attention