Vienna Insurance : Annual Financial Report 2023

Management report

225 MANAGEMENT REPORT TO THE ANNUAL FINANCIAL STATEMENTS IN ACCORDANCE WITH UGB

1. Company profile
2. Management report 2023

1. VIG Holding business development

1. Risk report

1. Internal control and risk management system in the accounting process
   237 Disclosures in accordance with
2. • 243a and § 243(3)(3) UGB

237 Disclosures on outsourcing in accord- ance with § 156(1)(1) in conjunction with § 109 VAG

238 Outlook

For VIG diversity and solidarity go hand in hand. You can read more about our commitment to society and the environment and about further aspects of responsible corporate governance in our Sustainability Report 2023 or at group.vig/sustainability

Annual financial statements

241 ANNUAL FINANCIAL STATEMENTS IN ACCORDANCE WITH UGB

1. Annual Financial Statements 2023

1. Balance sheet

1. Income statement

1. Notes to the financial statements for 2023

1. Proposed appropriation of profits

262 Auditor's report

267 Declaration by the Managing Board

268 Supervisory Board report

Service

1. SERVICE INFORMATION
2. List of abbreviations

1. Notice - Address

Business development and economic position

ECONOMIC ENVIRONMENT

The general economic weakness of the Eurozone continued in the 4th quarter of 2023. In a first estimate, growth stagnated in the 4th quarter of 2023 (0.0% compared to the previous quarter). Thus, real GDP growth for 2023 was 0.5% year-on-year. Weak developments both in consumption and investment significantly contributed to it. In December 2023, sentiment among service providers weakened again slightly from a low level. Industry sentiment stabilised at an even lower level for now.

growth of 0.6% year-on-year, whereby Hungary (-0.9%) and the Czech Republic (-0.4%) mark the lower end, Croatia (2.4%) and Serbia (2.5%) as well as Romania (2.0%) mark the upper end. Support by external factors such as, for example, energy prices disinflationary trends were strong in the region over the course of 2023. Nevertheless, this could not prevent the region from being among the leaders in the EU's inflation expectations for 2023. The average inflation rate in the region in 2023 was 11.6% year-on-year, with Hungary having by far the highest rate at 17.6%.

LEGAL ENVIRONMENT

In the 4th quarter of 2023 consumer prices (Harmonised Consumer Price Index, HCPI) rose by 2.7% year-on-year in the Eurozone. A diminishing base effect of energy prices led to a certain deceleration of the disinflationary trends. Overall the inflation rate of consumer prices for 2023 was 5.4% year- on-year in the Eurozone. According to the quick estimate by Statistics Austria, the Austrian GDP in the 4th quarter 2023 fell by 1.3% year-on-year. The slight increase of 0.2% compared to the previous quarter - reflected by a positive development in investments and in government consumption in the 4th quarter - was the first indication of stabilisation. Overall, the strongly subdued economy resulted in a negative real GDP growth of -0.7% for the entire year of 2023.

The HCPI-inflation still increased to 5.7% year-on-year in December 2023, which is 0.8 percentage points more than in November 2023. Analogous to the Eurozone, this is also attributable to the diminishing base effect of the energy prices. For the entire year 2023, the HCPI inflation for Austria was 7.7%. Central and Eastern Europe was not able to significantly decouple from the general economic trend in 2023. Croatia and Romania grew dynamically for much of the year. In both these countries private consumption actually increased in the first half of 2023 in contrast to the rest of the region. The Czech Republic and Hungary are expected to end 2023 in recession, mainly due to weak domestic demand caused by high inflation and the resulting tight money policy. Overall, the region reported a real GDP

SUSTAINABLE FINANCE

Towards the end of the European legislative period 2019- 2024, numerous legislative EU initiatives under the title "European Green Deal" were completed. After the legislative process for the Corporate Sustainability Reporting Directive (CSRD) was completed at the end of 2022, details followed in 2023 in the form of new, obligatory European standards for sustainability reporting (European Sustainability Reporting Standards, ESRS) that, after several postponements were published on 22nd December 2023 in the Official Journal of the European Union and are already applicable for the 2024 reporting year. Extensive organisational and technical preparation was performed for its im- plementation. The preliminary political agreement on, the Corporate Sustainability Due Diligence Directive (CSDDD), at the end of 2023 introduced an initial limited application to the financial sector, but in particular the obligation to adopt corporate transition plans that essentially must determine decarbonisation of investment, insurance and own operations with interim targets by 2050.

In advance of the new sustainability reporting starting in 2024, the 2022 sustainability report, that was published in 2023, contained, for the second time, information regarding sustainable investment or insurance in the form of the taxonomy eligible investment and also underwriting KPIs in accordance with Article 8 of the Taxonomy Regulation. As a next step, preparations were made in 2023 for the technically

narrower taxonomy aligned investment and underwriting KPIs which will be published for the first time in 2024.

DIGITAL RESILIENCE

The regulation of the digital security in the financial sector also came into focus at the European level in the reporting period. On 27 December 2022 the Digital Operational Resilience Act (DORA) was published in the Official Journal of the European Union. Starting from 17 January 2025 DORA will be applicable to European financial entities and they will be obligated, among other things, to take all required security precautions to mitigate cyber attacks and other risks in the area of information and communication technology (ICT risks). Essential details for the provisions in DORA are set at level 2. These level 2 measures are developed by the ESAs (EIOPA, EBA and ESMA) in a joint committee and had to be published by 17 January 2024 or will have to be published by 17 July 2024 respectively.

INTERNATIONAL SANCTIONS

After significant changes to the dynamics, complexity and extent of the international sanctions environment as a result of the Russian aggresion against Ukraine in 2022, multiple countries and organisations, above all the European Union, the United States of America and the United Kingdom of Great Britain and Northern Ireland, imposed further comprehensive sanctions against Russia or expanded already exiting sanctions in the reporting year 2023. The restrictions ranged from (investment) restrictions for specific economic sectors to embargoes on goods, complete trade embargoes for specific regions to significant expansion of the number of persons and companies that were placed on the sanctions list and with whom business relationships are therefore prohibited. In 2023, however, persons and companies that are not located in Russia were also sanctioned because they were accused of circumventing the existing sanctions provisions. These relate to persons with nationalities from EU countries or companies with registered office in the EU. Also in 2023, following human rights violations by the Iranian regime in the country, in particular the European

Union imposed new and the United States of America expanded existing sanctions against Iran. Further restrictive measures are also expected in 2024 due to the ongoing conflicts, particularly in connection with Russia and Iran.

WHISTLEBLOWER PROTECTION

The EU Directive (EU) 2019/1937 on the protection of persons who report breaches of Union law ("Whistleblower Directive") provides for minimum standards for protecting whistleblowers from retaliation and the establishment of confidential reporting channels by companies and authorities. Austria has transposed the EU Whistleblower Directive into Austrian law with more than one year delay in form of the Austrian Whistle- blower Act (Hinweisgeber:innenschutzgesetzes, HSchG). This law entered into force on 25 February 2023. Companies with more than 250 employees or companies in the financial services sector, irrespective of the number of em- ployees, were obliged, within a transition period of six months, thus until 25 August 2023, to establish internal reporting channels to enable whistleblowers to report perceived violations against the areas of law listed in the HSchG while maintaining confidentiality and data protection. For companies with 50 to 249 employees, the transition period for the establishment of internal reporting channels ended on 17 December 2023. In VIG Holding, the respective processes (including a Whistleblowing Portal) were established in accordance with the provisions of the HSchG; incoming reports are treated in compliance with the applicable provisions.

GROUP BUSINESS DEVELOPMENT AND FINANCIAL PERFORMANCE INDICATORS

GENERAL INFORMATION

The over 50 VIG insurance companies and pension funds operate in the following reporting segments: Austria, Czech Republic, Poland, Extended CEE, Special Markets and Group Functions. These six segments are explained in the segment reporting section of the Group management report from page 12. The segment Extended CEE includes the countries of Albania incl. Kosovo, Baltic states, Bosnia-

Herzegovina, Bulgaria, Croatia, Hungary, Moldova, North Macedonia, Romania, Serbia, Slovakia and Ukraine. The segment Special Markets consists of the four countries Germany, Georgia, Liechtenstein and Türkiye. The Monte- negro and Belarus markets were not included in the scope of consolidation in the year 2023 due to immateriality. More information on the scope of consolidation and the consolidation method is provided in Notes 22. Affiliated companies and participations on page 133 and Note 25.2. Business combinations on page 148. Details on the changes in scope of consolidation can be found in Note 21. Business combinations starting on page 131.

VIG Insurance Group operates with more than one company and brand in most of its markets. The market presence of each company in a country is aimed at different target groups. Their product portfolios differ accordingly. Use of this multi-brand strategy does not mean, however, that potential synergies remain unexploited. Structural efficiency and the cost-effective use of resources are examined regu- larly. Back offices that perform administrative tasks for more than one company are already being used successfully in many countries. Mergers of insurance companies are considered if the additional synergies that can be achieved outweigh the benefits of a diversified market presence. To ensure uniform management, specific country responsibilities also exist at Managing Board level. As part of the VIG 25 strategic programme, the country responsibilities of the members of the VIG Holding Managing Board were reassigned and, in addition to the CEO (Chief Executive Officer) and CFRO (Chief Financial and Risk Officer), a CTO (Chief Technical Officer), a COO (Chief Operations Officer) and a CIO (Chief Innovation Officer) were also established at the Managing Board level.

To improve readability, company names have been shortened throughout the entire report. A list of full company names is provided starting on page 274. In order to avoid duplicate information, reference will be made below to appropriate information in the notes. Changes in significant balance sheet and income statement items are presented in both the segment reporting and the notes to the financial

statements. Additional disclosures in the management report below are intended to explain these data in more detail.

NEW ACCOUNTING STANDARDS

As of 1 January 2023, the VIG Insurance Group applied the IFRS 9 and IFRS 17 accounting standards for the first time. The first-time application leads to significant changes and therefore has a material influence on this Group Annual Report including adjusted comparative information of the previous year. Detailed information can be found in the section "Initial application of standards" starting on page 35 in the notes to the consolidated financial statements.

FINANCIAL PERFORMANCE INDICATORS

The key financial performance indicators that form the basis for assessing the business development are presented below. All information on companies of the Vienna Insurance Group are based on IFRS figures, in particular the insurance service revenue. Due to lack of data availability all market data relates to the gross written premiums within one period.

Gross written premiums

Further details on the gross written premiums are included in Note 1.7. Risk of concentration on page 83.

The VIG Insurance Group in 2023 achieved gross written premiums of EUR 13,784.0 million and thus an increase of 9.8% year-on-year (2022: EUR 12,559.2 million).

With double digit growth rate in comparison to the previous year gross written premiums in the segments Poland (12.7%), Extended CEE (+12.5%), Special Markets (+11.3%) and Group Functions (+13.8%) grew especially strongly. Of the countries in the segment Extended CEE, the Baltic states (+12.2%), Romania (+17.8%) and Hungary (+24.1%) showed especially a dynamic premium development. In the segment Special Markets the countries of Georgia (+19.9%) and Türkiye (+18.4%, adjusted for inflation) recorded strong premium growth.

ABBREVIATED CONSOLIDATED INCOME STATEMENT

*The value consists of impairments of goodwill as well as intangible assets.

Insurance service revenue - issued business

Additional details on the insurance service revenue - issued business, hereinafter referred as "Insurance service revenue", are included in Note 1.3. Insurance contracts issued starting on page 64 in the notes to the consolidated financial statements.

The insurance service revenue in the year 2023 amounted to EUR 10,921.8 million (2022: EUR 9,737.6 million) and was thus 12.2% above the value of the previous year. The increase resulted primarily from the growth in the property and casualty insurance (Premium Allocation Approach).

Insurance service expenses - issued business

Further details on the insurance service expenses - issued business, hereinafter referred as "insurance service expenses",

are included in Note 1.3. Insurance contracts issued starting on page 64 in the notes to the consolidated financial statements.

In 2023 the insurance service expenses amounted to EUR 9,265.3 million (2022: EUR 8,525.8 million). The increase of 8.7% in comparison to the previous year resulted primarily from the significant increase in business volume.

Insurance service result - reinsurance held

Further details on insurance service result from reinsurance held are included in Note 1.4. Reinsurance contracts held starting on page 74 in the notes to the consolidated financial statements.

The insurance service result from reinsurance held resulted in 2023 in a loss of EUR 448.4 million (2022: loss of EUR 73.0 million). It should be noted that coverage of a large claim was included in the segment Austria in 2022 which had a very positive influence on the previous year's result. On the other hand, the reported year was impacted by increased costs for reinsurance.

Total capital investment result

Details on the total capital investment result are included in Note 9. Notes to the consolidated income statement starting on page 109.

The two significant positions in the total capital investment result are the investment result in which the results of the assets evaluated according to IFRS 9 are shown and the insurance finance result in which primarily the discounting effect of the insurance assets and liabilities is shown. The total capital investment result increased in 2023 to EUR 284.3 million (2022: losses of EUR 12.2 million), whereby the investment result increased by EUR 2,702.8 million and the insurance finance result fell by EUR 2,398.5 million. This development is mainly attributable to the sharp rise in market interest rates during 2022.

Result before taxes

The consolidated results before taxes increased in 2023 to EUR 772.7 million (2022 adjusted: EUR 585.7 million). The

rise of 31.9% originates predominately from the significantly higher results in the segments Austria, Extended CEE and Group Functions.

The result before taxes adjusted by impairments of intangible assets and impairments goodwill in the amount of EUR 103.3 million, which predominantly comes from the countries of the Baltic states, Türkiye and Hungary as well as from the segment Group Functions, resulted in a business operating result of EUR 876.0 million. This was 38.2% higher than the value of the previous year (2022 adjusted: EUR 633.8 million).

Total capital investment portfolio

Further details on financial instruments are included in the Note 2. Financial assets and liabilities as well as other balance sheet items evaluated according to IFRS 9 starting on page 87 in the notes to the to the consolidated financial statements.

The total capital investment portfolio as of the reporting date 31 December 2023 amounted to EUR 42,586.1 million (31 December 2022: EUR 41,062.2 million). The increase of 3.7% year-on-year is primarily due to the increased market values of the investments measured at fair value. The financial instruments for unit- and index-linked life insurance increased 2023 by 8.4% mainly due to market and interest rate development from EUR 7,164.4 million in 2022 to EUR 7,768.3 million.

In the notes to the consolidated financial statements the risk-bearing portfolio consists of cash and cash equivalents, financial assets, investments in associates, investment property as well as owner-occupied property. As of 31 Dec- ember 2023 the portfolio amounted to EUR 35,288.7 million (31 December 2022: EUR 34,380.6 million) and corresponds to the total capital investment portfolio minus the financial instruments for unit- and index-linked life insurance plus owner-occupied property. As owner- occupied property a value of EUR 471.0 million was reported as of 31 December 2023 (31 December 2022: EUR 482.8 million).

SPLIT OF THE CAPITAL INVESTMENTS HELD AT OWN RISK 2023

Other investments 7.8% (9.6%)

Shares 3.3% (3.5%)

Loans 2.1% (2.3%)

Affiliated companies 1.7% (1.6%)

Values for 2022 in parentheses

Consolidated shareholders' equity

Further details on the consolidated shareholders' equity are included in the notes to the consolidated financial statements starting on page 111.

The consolidated shareholders' equity increased in 2023 by

5.5% to EUR 6,029.7 million (31 December 2022 adjusted: EUR 5,713.9 million). The rise is attributable to the positive development of the overall result. The equity attributable to shareholders increased as well in comparison to the previous year and amounted in 2023 to EUR 5,892.3 million (2022 adjusted: EUR 5,472.6 million).

Insurance contracts liabilities issued

Further details on the insurance contracts liabilities issued are included in Note 1.3. Insurance contracts issued in the notes to the consolidated financial statements starting on page 64.

The insurance contracts liabilities issued amounted to EUR 37,804.1 million as of the balance sheet date 31 Dec- ember 2023 (31 December 2022: EUR 36,370.4 million). That corresponds to an increase of 3.9% year-on-year and is primarily based on the positive price development of the underlying items in the Variable Fee Approach.