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Česká pojišťovna a.s. Annual Report 2006

YESTERDAYIn 2007, Česká pojišťovna celebrates 180 years in business; our beginnings date back to 1827. First we

provided only fire insurance. About 40 years later, we added hail insurance. In the next 80 years after

that, we expanded our portfolio to include life and accident assurance, insurance against burglary and

theft, statutory liability insurance, and glass breakage insurance. We also developed our reinsurance

business. After the second World War, insurance companies were nationalized and, subsequently, the

insurance sector as a whole was monopolized. It was not until 28 May 1991 that competition could start

to return to the Czech Republic insurance market. As of 1 May 1992, Česká pojišťovna is a joint stock

company that writes contractual and statutory property insurance, personal lines, liability insurance,

insurance for industry and business, and agricultural insurance, including insurance and reinsurance

ensuing from international trade.

During the past ten years, since Česká pojišťovna was acquired by PPF Group, we have gone from

being a specialized seller of insurance to being a universal financial services provider. Our market share

stands at 33%.

Three years ago, we built a central Client Services department based on modern information

technologies and “digitalized” operations, which has brought about a major increase in the speed and

effectiveness of client communications. The claims handling process has also changed so that now

clients receive claim payments much faster than in the past.

TOMORROWWhile it is true that Česká pojišťovna’s history pre-dates the invention of the telephone, the light bulb,

the gramophone, and the typewriter, our company lives primarily for the present and the future – our

clients. We are the Czech market leader and a major player even by pan-European standards. Compared

with other insurance companies operating in the Czech market, Česká pojišťovna has the broadest

product offering and the highest number of product innovations.

Our primary short- and long-term goal is to maintain our current position as the number-one domestic

insurer in both life and non-life insurance and, at the same time, to grow the company’s value and

increase spontaneous brand recognition among the populace.

As society develops, people’s habits change and their needs change as well. Logically, insurance

products have to develop, too, to keep pace. Today’s clients demand comprehensive coverage of family

and property and maximally flexible products that can adapt to the client’s needs as they change

throughout life. Česká pojišťovna is responding to these changing needs and demands by developing

new insurance products and innovating existing products.

Česká pojišťovna will manage its client relations so as to achieve the best possible understanding of

customers’ needs and wishes.

When Česká pojišťovna was foundedin 1827, its first name was “RoyalImperial Exclusive (Privileged) CzechJoint Fire Damage CompensationInsurance Institute.“

As at 1 October 1828, when Českápojišťovna actually commencedoperating as a property insurer,preliminary premium pledgesalready totaled 12,000,000 Guldens.

Česká pojišťovna was alreadyproviding its services when theVeverka Brothers completed theirinvention, the “ruchadlo”(a precursor of today’s plow), JosefRessel gave the world the inventionof the ship’s propeller, and planswere afoot for construction of thecountry’s first railroad – the ČeskéBudějovice–Linz line – which wascompleted five years later.

The first claim paid went to Mr. J. Lipanský of Loučice, on the Žehušický estate.

At first the company sold only fireinsurance. After about 40 years, itadded, for example, hail insurance.It wasn’t until 1909 that it beganoffering life and accident assurance,as well as insurance againstburglary and statutory liabilityinsurance.

In 1831, the region with the highestnumber of buildings insured againstfire (11,372) was Rakovník.Strangely enough, the region withthe lowest number (574) wasPrague.

Ema Destinová, the famous operasinger, took out a policy from thecompany on 21 May 1920. Thepolicy was for household contentslocated in the chateau in Stráž nadNežárkou.

Česká pojišťovna initiated theestablishment of an association ofdomestic insurers under the name“Prague Insurers‘ Association,“which was registered on 1 July 1915.

Starting in 1914, and for many yearsthereafter, an eel named Pepík livedin the mosaic pool in the company’shead office in Spálená Street.According to records from 1952, the eel had an inventory number and received a monthly allowance of CZK 30.

The first eel in the head officefountain lived to a record age of 62.It lived through two world wars andoutlived several company directors.

In 1937, Česká pojišťovnapurchased a palace – today’scomplex of buildings in VladislavovaStreet – from a knight of the Tomášnoble family.

In 1875, Česká pojišťovnaestablished the “Fund for firefightersinjured in the line of duty.”

In 1918, Česká pojišťovna donated50,000 Krone to relatives of fallenCzechoslovak legionnaires.

Česká pojišťovna made substantialcontributions toward construction of fire department buildings, waterstorage tanks, and new firefightinggear.

When Česká pojišťovna beganselling insurance, the Czech landshad a population of over 6.5 million,the average age was 44 years, and families had 5–9 children, half of which died before reaching fiveyears of age.

The biggest claim paid by theinsurer in the 19th century was for the fire of the National Theatreon 12 August 1881. Despite the sizeof the loss, the event gave thecompany much prestige among the Czech nation and enabled it topromote not only itself, but also the Czech insurance industry as a whole.

1919 saw the establishment of the Union of Česká pojišťovnaRepresentatives, whose missionwas to improve the standard of living of career insurancerepresentatives and their families.

The first regular reinsurance contractwas signed in 1862 with the FirstHungarian Insurance Company.

In 1869, the company purchasedthe Šmerhovský house at 76,Spálená Street. By coincidence, this happened to be the samehouse in which the companycommenced its business in 1827.

After the end of World War I, Českápojišťovna helped to solve a majorresidential housing shortage – bymaking financial contributions andbuilding new apartment buildings.

On 2 March 1923, Česká pojišťovnadonated 10,000 Krone from its four-percent Austrian goldallowance to the Republic’s goldreserves.

As of 1948, Československápojišťovna, national enterprise was the only insurer in the Republic.It operated under the nameČeskoslovenská státní pojišťovnauntil early 1969, when it was brokenup in to Česká státní pojišťovna and Slovenská státní pojišťovna. We have been Česká pojišťovna,akciová společnost since 1992.

As part of its efforts to help buildthe economies of Slovakia andCarpathian Ruthenia after the Czechand Slovak nations gainedindependence in the 1920s, Českápojišťovna engaged in amicablecooperation with the Zemskáhasičská jednota in Slovakia andparticipated in the establishment of the Russian fire insurer “Beskyd”based in Uzhhorod.

Starting on 1 May 1922, Českápojišťovna began publishing the“Pojistný obzor” (Insurance Horizons)journal – at that time it was the onlyCzech private insurance trade journal.

Česká pojišťovna helped to developprotective work clothing, co-founded the air rescue service,provided funding for developmentand manufacture of the Tatra 613ambulance vehicle prototype, andpurchased ambulances and medicalequipment for health care facilities.

Writer Eliška Krásnohorská wasa client of První české vzájemnépojišťovna (First Czech MutualInsurance Company) – she hada household contents insurancepolicy.

After the flood of 2002, Českápojišťovna donated CZK 1 milliontoward repair of the Czech NationalTheatre.

In the 1980s, Česká pojišťovnainsured 17 Czechoslovakoceangoing ships and two ocean-river shipping companies. At the time, Czechoslovakia had the second largest oceangoing fleetamong landlocked countries, after Switzerland.

During the 180 years that FirstCzech Mutual Insurance Companyand its successors have been in business, we have assembled an art collection of enormousaesthetic and historical value.

Česká pojišťovna’s art collectionincludes names such as VáclavBrožík, Josef Václav Myslbek,Mikoláš Aleš, Alfons Mucha,František Ženíšek, Vojtěch Hynais,Julius Mařák, and Luděk Marold.

ČESKÁPOJIŠŤOVNA

Česká pojišťovna is the biggest domestic insurance company with a total market share of 33%.

We currently manage over 10 million insurance contracts and we wrote CZK 39.7 billion in premiums in

2006. Česká pojišťovna is the Czech life assurance market leader. In 2006, Česká pojišťovna was

declared Insurer of the Year – for the third time – in the MasterCard Bank of the Year 2006 competition.

Česká pojišťovna posted record earnings of CZK 8.3 billion in 2006.

TODAY

Česká pojišťovna lives with its clients – we understand them and know their needs and wishes, and we

can be there with solutions earlier than the others. Since we honor the value of our clients’ time, we want

to be as close as possible to them and provide them high-quality services for a good price, quicker than

the others. Maximum customer satisfaction is the mission of over 5,200 employees and 4,485 sales

representatives working in 70 agencies and over 700 sales locations throughout the Czech Republic.

Chairman’s Statement 6Description of the Company 8Company History 8Company Profile and Position in the Czech Insurance Market 8Mission and Principal Strategic Goals 8Information on the Company 8Shareholder Structure 10PPF Group and Generali Group Sign Joint Venture Deal 10Securities Issued by Česká pojišťovna 10Principal Businesses According to Current Articles of Association and Types of Insurance Written 11Shareholder Rights and Obligations 12Articles of Association 12Most Important Events and Awards Received 13Financial Highlights 19Basic Indicators 19Description of Group Structure, Position of Česká pojišťovna and Selected Group Companies 21Description of Selected Companies of Česká pojišťovna Group 24Directors and Officers 36Board of Directors 36Supervisory Board 37Executive Board 38Board of Director’s Discussion and Analysis of the Company’s Business Activities and Financial Condition 40Czech Republic Macroeconomic Performance in 2006 and Forecast for 2007 40Situation in the Czech Insurance Market 41Company Financial Performance in 2006 42Financial Performance Commentary 42Insurance Performance Commentary 44Non-life Insurance 46Reinsurance 48Nuclear Pool 48Life Assurance 49Client Services 53Investments 53Human Resources 56Principal Marketing Initiatives and Public-Benefit Activities 56Information Technologies 57Outlook 59Suplementary Information on the Financial Situation and Financial Performance 60Fees Paid to the Auditor 60Basic Elements of Manager Incentives in 2006 60Development of Česká pojišťovna’s Solvency Over Time 61Information on Loans 61Subordinated Loan from the Shareholder 61Court, Administrative, and Arbitration Proceedings 61Principal Non-financial Investments 62Present Value of Land and Buildings 63Information on Entities in Which Česká pojišťovna Holds a Participating Share Exceeding 10% of Its Own Net Current Period Earnings 63Supervisory Board’s Report 64Auditor’s Report 66

FINANCIAL SECTION 68Balance Sheet 70Income Statement 71Statement of Changes in Equity 72Statement of Cash Flows 73Notes to the Financial Statements 74

Report on Relations Among Related Parties, 2006 Accounting Period 155Organization and Contacts 162Česká pojišťovna Basic Organization Chart 162Head Office Organization Chart 162Persons Responsible for the Annual Report 164Directory of Selected Companies of the Česká pojišťovna Financial Group 165Directory of Česká pojišťovna Head Office, Regions, and Agency Offices 166

Contents

Every day something happens, every day is like a gallery full of colorful images.

Short moments and long stretches of our lives are connected with a wide variety of places and people.

Day after day, we experience new and unique things.

Each new fact gives us food for thought, a unique experience on which to build.

We become part of a specific reality that influences the direction of our lives,

our needs, ambitions, wishes, and desires.

Chairman’s StatementDear business friends,

June 2006 marked the tenth anniversary of Česká pojišťovna’s acquisition by the PPF financial group. The Česká pojišťovna of ten years ago and today’s

Česká pojišťovna are two completely different institutions – in all conceivable ways. During the past few years, we have gone from being specialized in

selling insurance to offering universal financial services. We have also joined the European elite in terms of both efficiency and service quality. Between

1996 and 2006, our premiums written per non-sales employee figure has risen from CZK 3.5 million to over CZK 8 million. And today’s Česká pojišťovna is

the insurer with the highest perceived service quality, as demonstrated by several surveys conducted by prominent, independent agencies such as

Millward Brown.

Also in the past few years, the Company has seen its market share stabilize, remaining at above 30 percent. Thanks to all the changes made so far, today’s

Česká pojišťovna is one of the most profitable companies in the Czech Republic. Česká pojišťovna manages over 10 million insurance contracts, or

approximately one half of all insurance contracts in the Czech Republic. Our Return On Equity (ROE) indicator is substantially above 20%, placing us firmly

at the very top of the insurance industry at the pan-European level.

In October 2006, after ten years, a major change was made in the management of Česká pojišťovna. Lard Friese, an internationally recognized manager who

has worked for 15 years in the international insurance groups NOG and AEGON, joined us as the company’s new CEO. In the future I will – in addition to

heading up the Board of Directors of Česká pojišťovna – play a management role in the newly created international holding structure that will encompass the

activities of Generali Group and PPF Group in the areas of insurance, pension funds, asset management, and mutual funds in the region of Central & Eastern

Europe. Česká pojišťovna will be a part of this structure.

Last year, Česká pojišťovna posted record net earnings of CZK 8.3 billion. The earnings growth was driven in particular by excellent investment returns, mostly in

the last quarter of 2006, and one-off gains on sales of certain assets such as eBanka and a stake in the Blue Pyramid (Modrá pyramida) building society. Our loss

experience was interesting, too. After sustaining nearly CZK 1.5 billion in extraordinary losses from heavy snow, floods, and high winds in the first half of the year,

the latter half of the year brought mild winter weather which helped to improve the loss experience. The company’s shareholders’ equity at year end 2006 totaled

CZK 17.1 billion. On 30 June 2006, under a decision of the sole shareholder, the company’s basic share capital was increased by CZK 1 billion to CZK 4 billion.

The total assets figure of Česká pojišťovna reached CZK 121.3 billion and technical provisions stood at CZK 88.4 billion, up nearly CZK 1 billion from the previous year.

2006 was a successful year for Česká pojišťovna, and not only in terms of net earnings. Our results in key segments of the insurance market were also

very good. Česká pojišťovna is the largest insurance company in the Czech Republic, accounting for one third of overall premiums written. Non-life

insurance premiums written totaled CZK 26.5 billion, for a market share of 36.4%. In regular-payment life assurance, which is the foundation of an insurer’s

stability, our premiums written grew by 4.6% to CZK 11.8 billion. This gave us a market share of 34.1% in this area. This growth was driven by the

insurance products DYNAMIK, DYNAMIK Plus, and SLUNÍČKO. All told, Česká pojišťovna according to Czech Insurance Association guidelines wrote

a total of CZK 39.7 billion in premiums in 2006, down CZK 1.9 billion year-on-year. The decline was caused in particular by a drop in the single-premium

life assurance segment, which was not a priority for Česká pojišťovna. Česká pojišťovna is responding to this negative development with a number

of measures and initiatives in both the product and sales areas, and their effects began to be fully felt in the first half of 2007, with new business on the

upswing and figures exceeding plan in most key areas.

The decline in demand for single-premium life assurance was also offset by considerable growth in demand for products of other companies in the group –

Penzijní fond ČP, our pension fund, and ČP INVEST, our mutual funds company. The pension fund saw its assets under management grow by 24% in 2006,

while the number of clients rose 12% during the same period, to almost 1 million. For the first time in history, the fund’s earnings exceeded CZK 1 billion.

ČP INVEST grew its assets under management by 35% year-on-year and net sales of mutual funds were up 66%. In the second half of the year 2007,

Česká pojišťovna also began selling a new single-premium life assurance product, which promises to drive future sales performance in this segment.

In 2006, Client Services continued along the path of continuously increasing productivity in all of its activities. Since the successfully completed centralization

of administrative functions from the agencies, productivity has increased by 10%. This increase has been accomplished primarily by systematically

optimizing processes, improving the system of employee incentives, and automating repetitive tasks. In addition to increasing productivity, we also met

our cost reduction targets.

2006 was a year of transition for the Communications Center, as it began to sell insurance in addition to its service provider role. In addition to selling

insurance by telephone, Client Services also sells insurance over the company website, where clients can now arrange MTPL, motor damage, travel,

accident, and liability insurance policies from the comfort of their homes. Preparations are underway to further expand the range of products and services

offered by telephone and over the Internet. Even so, Česká pojišťovna’s offering in this area is already the richest in the market.

6 ANNUAL REPORT 2006

ZPRÁVA O HOSPODAŘENÍ 2006 7

Česká pojišťovna regularly has itself evaluated by the credit rating agencies Standard & Poor’s and Moody’s. We are the only insurance company in the

Czech Republic to have ratings from two international agencies. In its latest evaluation of Česká pojišťovna’s financial and credit position, dated March 2006,

Moody’s changed the outlook on our Baa3 financial strength rating from “stable” to “positive”. According to Moody’s, the positive rating outlook for Česká

pojišťovna reflects major progress made in risk management, investments, IT, and claims handling. Our current rating is also justified by the strong market

position of Česká pojišťovna and healthy profitability despite intensifying competition in the Czech insurance market. Another important factor in the rating

is the positive impact of the Company’s ongoing restructuring process, which aims to increase the transparency of Česká pojišťovna’s owner. Standard

& Poor’s reaffirmed Česká pojišťovna’s credit rating and financial strength rating at BBB with stable outlook. Thus, in both cases, Česká pojišťovna

confirmed its position in investment grade and we are one of the highest rated financial institutions in the Czech Republic.

For the third time in a row, Česká pojišťovna was declared Insurance Company of the Year, winning over 19 competing insurers in the prestigious competition,

MasterCard Bank of the Year 2006. We also scored with our product DYNAMIK Plus, which placed second in the Life Assurance category and was the

highest-rated product in the endowment life assurance segment. Penzijní fond ČP also won in its category and was declared Pension Fund of the Year.

Česká pojišťovna also considerably reinforced its position in terms of client loyalty. Our clients declare the highest satisfaction with Česká pojišťovna

compared to other insurance companies. In addition, the largest number of insureds consider Česká pojišťovna their primary insurer. I am glad that all

surveys show that Česká pojišťovna is perceived as the company that sets new trends in the insurance industry.

Ladislav Bartoníček

Chairman of the Board of Directors


Description of the CompanyCompany History

Česká pojišťovna a.s. (also referred to as “Česká pojišťovna” or “the Company”) has a long and rich tradition. It is the oldest insurance institution in the

Czech lands and the legal successor to First Czech Mutual Insurance Company (První česká vzájemná pojišťovna), which was founded in 1827. It was part

of the original State Insurance Company (Státní pojišťovna) until 1969, when, on the basis of the territorial principle, Státní pojišťovna was broken up into

Česká státní pojišťovna and Slovenská státní pojišťovna. Česká pojišťovna was founded by the National Property Fund of the Czech Republic under a Deed

of Incorporation dated 28 April 1992 and was incorporated by registration in the Commercial Register on 1 May 1992. The Company’s shares were first listed

on the Main Market of the Prague Stock Exchange in 1993. The shares of Česká pojišťovna were withdrawn from trading both on the Exchange and on the

RM-SYSTEM in conjunction with the buy-out of minority shareholders on 31 August 2005.

Company Profile and Position in the Czech Insurance Market

Since its inception, Česká pojišťovna has been a composite insurer offering a wide range of life and non-life insurance classes and is currently the largest

insurer in the Czech Republic. We administer over 10 million insurance contracts. In 2006, the market share of Česká pojišťovna by premiums written was

33.1% overall, 28.1% in life assurance and 36.4% in non-life insurance (source: ČAP preliminary figures).

Mission and Principal Strategic Goals

The principal goal of Česká pojišťovna is to provide the best possible services to its clients while achieving maximum long-term growth in value for our

shareholders. Česká pojišťovna intends to maintain its position as the number-one insurer in the Czech Republic in terms of both market share and client

satisfaction. In terms of financial stability, management will continue to maintain a high standard of solvency and capital adequacy for which Česká pojišťovna

has garnered praise from credit rating agencies. In its business operations, Česká pojišťovna leverages the synergies inherent in the conglomerate consisting

of Česká pojišťovna companies and PPF Group and it is our intention to further expand the Group’s operations in Central & Eastern Europe.

Information on the Company

Company name: Česká pojišťovna a.s. Legal form: Joint stock companyRegistered office: Spálená 75/16, 113 04 Prague 1 ID number: 452 72 956Tax ID number: CZ 4527 2956Bankers: Komerční banka, a.s. Prague 1Account number: 174 33-021/0100Date of inception: 1 May 1992

The Company was founded for an indefinite periodLegal regulation: The Company was founded (pursuant to Section 11(3) of Act No. 92/1991 Coll. on the Conditions for

the Transfer of State Property to Other Entities, as amended) by the National Property Fund of the CzechRepublic under a Founder’s Deed dated 28 April 1992 and was incorporated by registration in theCommercial Register on 1 May 1992.

Commercial Register: Prague Municipal Courtregistered in Part B, Entry 1464

The principal goal of Česká pojišťovna is to provide

the best possible services to its clients while achieving maximum

long-term growth in value for our shareholders.

We intend to maintain our position as the number-one insurer

in the Czech Republic in terms of both market share and client satisfaction.

With after-tax earnings of CZK 8.3 billion this year, Česká pojišťovna is once again one of the most profitable

companies in the Czech Republic.


Shareholder Structure

Shareholder 31/12/2003 31/12/2004 11/10/2005 *) 31/12/2005 31/12/2006

Česká pojišťovna a.s. 12.64% x x x x

CESPO B.V. 85.35% 97.70% 100.00% x x

PPF Group N.V. x x x 100.00% x

CZI Holdings N.V. x x x x 100.00%

Others 2.01% 2.30% x x x

*) Following exercise of right to buy out minority shareholders of Česká pojišťovna by the Company’s principal shareholder (described below). In 2005, in conjunction with the merger of CESPO B.V. (100%shareholder of Česká pojišťovna) and PPF Group N.V. into the successor company PPF Group N.V., there was a change in the sole shareholder of ĆP. Today, the sole shareholder is CZI Holdings N.V. withits registered office in Amsterdam, the Netherlands.

PPF Group and Generali Group Signed Joint Venture Deal

On 26 April 2007, PPF Group and Generali Group signed a Preliminary Agreement to merge their businesses in Central & Eastern Europe and to form a joint

venture. The final agreement was signed on 10 July 2007.

The new entity, Generali PPF Holding, will be 51% owned by Generali Group and 49% owned by PPF Group. This new joint venture will be one of the

largest insurance groups in Central & Eastern Europe with total assets of EUR 5.1 billion and over nine million clients in 12 countries. Together, the two

groups wrote EUR 2.6 billion in insurance premiums in 2006.

The formation of a joint venture is an important step in the strategic expansion of both groups in one of the most attractive regions for insurance services

and will create a strong platform for further growth in surrounding areas.

Generali PPF Holding is to begin operating in late 2007 after obtaining regulatory approvals.

Securities Issued by Česká pojišťovna

Shares

The Company was founded as a joint-stock company in a single action by the National Property Fund of the Czech Republic, as sole founder, based on a decision

of the Ministry of Finance of the Czech Republic dated 13 April 1992. At inception the Company’s basic share capital was TCZK 1,749,944 and was divided

into 314,990 bearer shares and 1,434,954 registered shares, 87,497 of which were employee shares. In 1992, Česká pojišťovna was privatized using the

voucher method. On 15 December 1994 an increase in the basic share capital was recorded in the Commercial Register, adding 524,983 bearer shares to

bring the total basic share capital to TCZK 2,274,927.

Based on a decision of the General Meeting of Česká pojišťovna dated 5 September 1996, the basic share capital was increased again, this time by adding

1,137,464 booked bearer shares to bring the basic share capital to a level of TCZK 3,412,391. The shares were issued at a share premium of 400% of their

nominal value. As a result, the shareholders’ equity swelled by TCZK 5,687,320, of which the share issue premium accounted for TCZK 4,549,856. This share

issue premium was used in 1997 to settle accumulated losses.

The shares of Česká pojišťovna were listed on the Prague Stock Exchange and RM-SYSTEM from the very beginning of trading in 1993 and were traded

there until 31 August 2005.

On 25 June 2004, a resolution of the Prague Municipal Court entered into legal force, under which the new amount of Česká pojišťovna’s basic share capital was

recorded in the Commercial Register. The basic share capital of Česká pojišťovna was reduced by TCZK 431,428 from its original amount of TCZK 3,412,391 to

a new amount of TCZK 2,980,963. The reduction in Česká pojišťovna’s basic share capital was carried out using all 431,428 treasury shares held by the

Company. The reason the Company’s basic share capital was reduced was to comply with statutory requirements relating to the holding of treasury shares.

ANNUAL REPORT 2006 11

In 2005, the principal shareholder of Česká pojišťovna (at that time Cespo B.V.) exercised its right under Section 183i et seq. of the Commercial Code to buy

out the minority shareholders of Česká pojišťovna, who owned 2.3% of the company’s shares. The buy-out plan was approved by an extraordinary General

Meeting held on 25 July 2005. The price per share was set at CZK 21,288. In accordance with the law, this price was paid out within two months of passage

of ownership rights to the Company’s shares.

On 30 June 2006 the sole shareholder, acting with the powers of the Company’s General Meeting, decided to increase the basic share capital by TCZK 1,019,037

out of the Company’s equity, i.e. from retained earnings. The capital increase was recorded in the Commercial Register on 15 August 2006.

On 19 September 2006, pursuant to a decision of the sole shareholder acting with the powers of the General Meeting, the nominal value of the Company’s

shares was changed from CZK 1,000 per share to CZK 100,000 per share.

As of 31 December 2006, the approved basic share capital consisted of 40,000 booked, registered shares of common stock with a total amount of TCZK 4,000,000.

Issue (ISIN) CZ0009106043

Type of security shares of common stock

Form registered

Appearance booked

Nominal value CZK 100,000

Number of securities 40,000

Total volume CZK 4,000,000,000

Issue date 15 November 2006

Listing status Not listed

Bonds

On 16 July 2001, Česká pojišťovna issued bonds with a variable interest yield of 6M PRIBOR + 0.40% p.a. with semiannual payment of coupons on 16 January

and 16 July of each year, in arrears. The bond issue, with a total face value of TCZK 4,000,000, matured on 16 July 2006.

Issue (ISIN) CZ0003700569

Type of security bond

Form bearer

Appearance booked

Nominal value CZK 1,000,000

Number of securities 4,000

Total volume CZK 4,000,000,000

Issue date 16 July 2001

Listing status Listed

The lead manager of the bond issue was Česká spořitelna a.s.

Principal Businesses According to Current Articles of Association and Types of Insurance Written

Česká pojišťovna is a composite insurer offering a wide range of life and non-life insurance classes.

Under a decision of the Ministry of Finance acting as the body of State supervision in insurance, ref. no. 322/26694/2002, dated 11 April 2002, which entered

into legal force on 30 April 2002 and which grants the Company a license to engage in insurance, reinsurance and related activities, and under a decision of

the Ministry of Finance acting as the body of State supervision in insurance, ref. no. 32/133245/2004-322 dated 10 January 2005, which entered into legal

force on 14 January 2005 and which expands the Company’s license to engage in insurance- and reinsurance-related activities,

the Company’s principal businesses are as follows:

■ insurance activity pursuant to Section 7(3) of Act 363/1999 Coll. on insurance and amending certain related acts (the “Insurance Act”), as

amended, consisting of:

– life assurance classes 1, 2, 3, 4, 5, 6 set forth in Part A of the Annex to the Insurance Act,

– non-life insurance classes 1, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 18 set forth in Part B of the Annex to the Insurance Act,


■ reinsurance activity pursuant to Section 3(3) of the Insurance Act

– for life assurance classes 1, 2, 3, 4, 5, 6 set forth in Part A of the Annex to the Insurance Act,

– for non-life insurance classes 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 18 set forth in Part B of the Annex to the Insurance Act,

■ activities related to insurance and reinsurance activity, pursuant to Section 3(4) of the Insurance Act

– acting as an intermediary in relation to insurance and reinsurance activity under the Insurance Act,

– consulting activity associated with insurance for individuals and legal entities under the Insurance Act,

– investigating insured loss events under an agreement with an insurer under the Insurance Act,

– exercising rights and meeting obligations in the name and for the account of the Czech Insurers Bureau pursuant to Act 168/1999 Coll., as amended,

– arranging for the following financial services (items 1 through 10, below):

1. arranging the acceptance of deposits and other funds from the public, including acting as an intermediary in the areas of building savings

and supplemental pension insurance,

2. arranging loans of all kinds including, inter alia, consumer loans, mortgage loans, factoring and financing of business transactions,

3. arranging finance leases,

4. arranging all payments and money transfers, including credit and debit cards, travelers’ cheques, and bank bills of exchange,

5. arranging guarantees and promissory notes,

6. arranging for customer trading and individual customer accounts on the stock exchange or other markets, for cash or otherwise, concerning

transferable instruments and financial assets,

7. arranging for the management of assets such as cash or portfolios, all forms of management of collective assets, administration of pension funds,

escrow accounts and custodianships,

8. arranging for payment and clearing services relating to financial assets, including securities, derivatives and other transferable instruments,

9. consulting activity, acting as an intermediary, and other ancillary financial services relating to all activities set forth in items 1) through 9), including

loan references and analysis thereof, research and consulting in the area of investments and portfolios, consulting work concerning mergers &

acquisitions, corporate restructurings and corporate strategy,

10. arranging for the provision and transmission of financial information and processing of financial data (including related computer software) by

providers of ancillary financial services,

– training activity for insurance intermediaries and independent loss adjusters.

Furthermore, the Company engages in all activities related to its ownership participations in other legal entities.

Shareholder Rights and Obligations

Holders of shares of common stock are entitled to receive dividends, which are approved in individual time periods, and are entitled to one vote at Company

General Meetings for each share they hold.

The rights and obligations of Company shareholders are stipulated by the Commercial Code (Act No. 513/1991 Coll.), as amended, and by the Articles

of Association of Česká pojišťovna, which are available for inspection in the Collection of Documents at the Commercial Register. These rights include,

most importantly:

– right to a share in the Company’s earnings;

– right to participate in the General Meeting and, while at the General Meeting, to vote, to demand explanations, and to raise motions;

– pre-emptive right to subscribe new shares in any increase in the basic share capital, in proportion to the shareholder’s stake in the Company’s basic share

capital prior to the increase. The terms and conditions for changing the basic share capital amount are set forth in the Company’s Articles of Association;

– right to a share in the liquidation balance arising from dissolution of the Company.

Income from shares is subject to taxation under the applicable laws and regulations of the Czech Republic, i.e. Act No. 586/1992 Coll., on Income Tax, as

amended. Dividend income from shares is taxed at a special tax rate of 15%. Exceptions to this are possible under international double taxation treaties.

Articles of Association

The current Articles of Association of Česká pojišťovna were approved by the Board of Directors of Česká pojišťovna on 3 November 2006 based on changes

decided by the Company’s sole shareholder on 25 October 2006 (reduction in number of Supervisory Board members to three).


2006

January

Tomáš Machanec New Executive Board Member for Life Assurance

Tomáš Machanec, the erstwhile Chief Director of the Life Assurance Product Management Section, is appointed as Member of the Executive Board.

He takes over the Life Assurance portfolio from Ivo Foltýn, who has been placed in charge of the PPF financial group’s international activities and the

Group’s policymaking in the area of life assurance and pension funds.

Standard & Poor’s Reaffirms Česká pojišťovna Investment-grade Rating

Standard & Poor’s reaffirmed the credit rating and financial strength rating of Česká pojišťovna at BBB with stable outlook, confirming Česká pojišťovna’s

position in the top grade – the investment grade. A full rating has a much higher prestige and information value than a so-called “public rating,” which is

based only on publicly-disclosed information.

February

Česká pojišťovna Client Center Sets New Record

On 21 February, 17,697 clients called the Česká pojišťovna Client Center, a record number of telephone calls since the Center commenced operating in

March 2003. On most days the operators take around 10,000 calls, and about one fifth more than that number on Mondays following a weekend.

March

Česká pojišťovna Has Best Financial Advertisement of 2005

A jury of professionals in a competition organized by the financial server Měšec.cz designated the TV spot of Česká pojišťovna titled “If you need anything,

I’ll be at the insurance company” (“Kdyby něco, jsem v pojišťovně“) the best financial advertisement of the year 2005.

Moody’s Raises Česká pojišťovna’s Rating Outlook

In its latest evaluation of Česká pojišťovna’s financial and credit position, Moody’s changed the outlook of its Baa3 of the company’s financial strength from

“stable” to “positive.”

According to Moody’s, the positive rating outlook for Česká pojišťovna reflects major progress made in risk management, investments, IT, and claims

handling. The current rating is also justified by the strong market position of Česká pojišťovna and healthy profitability despite intensifying competition

in the Czech insurance market. Another important factor in the rating is the positive impact of the Company’s ongoing restructuring process.

Most Important Events and Awards Received


May

DYNAMIK Declared Most Popular Financial Product of 2006 in Golden Crown Competition

Česká pojišťovna’s DYNAMIK life assurance, launched three years ago, won the title Most Popular Financial Product of the Year 2006. This victory is all

the more valuable because it was decided by the public through voting over the Internet. In the Business Insurance category, a professional jury comprised

of financial experts and journalists gave first place to another Česká pojišťovna product: business interruption insurance.

Adding to the joint success of the Česká pojišťovna Group were three more “gold medals” that went to eBanka – then a subsidiary of ČP – in the Universal

Banking Products category (for the Personal Account), the Electronic Banking category (for Direct Banking), and the Bank Cards category (for Bank Card

Locking). Penzijní fond České pojišťovny, the largest pension fund in the Czech Republic, won in the Golden Crown competition for the first time, taking

third place in the Pension Funds category.

June

Motor Liability Insurance from Česká pojišťovna with Live Internet Guide

As of June 1st, Česká pojišťovna offers motor third party liability (MTPL) insurance via the Internet, giving clients a new, more flexible and comfortable

alternative to the standard over-the-counter method of taking out the insurance.

Česká pojišťovna Declared Insurer of the Year

Česká pojišťovna won the top prize in the category Insurance Company of the Year 2005, awarded by the Czech Insurance Brokers Association, and was

a front runner in all remaining competition categories. In this year’s sixth annual event, 37 insurance companies active on the Czech market were judged by

top brokerage firms.

July

Česká pojišťovna Counters Sell ČP INVEST Mutual Funds

After obtaining the necessary consent from the Czech National Bank, as of July 20th selected counters of Česká pojišťovna began offering mutual funds

from the subsidiary ČP INVEST. The move brought nine mutual funds managed by this investment company closer to clients.

Single-Premium Endowment Life Assurance Back in Česká pojišťovna Product Offering

Česká pojišťovna revived a product that it successfully offered several years ago. Single-premium endowment life assurance is back in an innovated

version as a product which is very simple and which enables clients to secure their loved ones in the event of the insured’s death, and at the same time

offers attractive appreciation of the invested funds.

August

Česká pojišťovna Executive Board Gets New Member

An Executive Board Member for Marketing and Client Segmentation was added to the Executive Board of Česká pojišťovna. Pavel Řehák was appointed

by the Board of Directors to fill the new position as of 11 September 2006.


September

Česká pojišťovna Motor Liability Insurance Available at Post Offices

As of September 1st, motorists can obtain motor third-party liability (MTPL) insurance from Česká pojišťovna at any of Czech Post’s 3,400 teller windows.

It was one year ago that both companies signed a 12-year commercial representation agreement. Based on this agreement, post offices already sell life

and non-life insurance products from Česká pojišťovna. In the future, this line-up will expand further with the addition of travel insurance and stand-alone

accident and liability insurance policies.

Česká pojišťovna to Sell Stake in Blue Pyramid

Česká pojišťovna and Komerční banka entered into an agreement on the sale of Česká pojišťovna’s 10% stake in Modrá pyramida stavební spořitelna, a.s.

(the Blue Pyramid Building Society). The purchase price is EUR 24 million, or approximately CZK 677 million.

October

Ladislav Bartoníček Heads Up International Expansion of PPF Insurance Arm

As of 1 October 2006, PPF Group changed the way its insurance activities are managed. Ladislav Bartoníček, in addition to his role of Chairman

of Česká pojišťovna, will assume responsibilities for leading the strategic development and formation of PPF’s newly created holding structure covering

PPF’s activities in the areas of insurance, pension funds, asset management and mutual funds.

Lard Friese coming on board as Chief Executive Officer

In October 2006, ten years on, there was a major change in ČP’s leadership, with Lard Friese coming on board as Chief Executive Officer. An internationally

recognized manager, Mr. Friese served in the international insurance groups NOG and AEGON for 15 years. His principal aim is to execute the new

development strategy of Česká pojišťovna.

Česká pojišťovna Sells Stake in Blue Pyramid

Česká pojišťovna sold its 10% stake in the Blue Pyramid building society. This occurred upon approval of the transaction by the Czech National Bank and

the Office for the Protection of Competition.

Česká pojišťovna Sells eBanka

Česká pojišťovna transferred its shares of eBanka to Raiffeisen International Bank-Holding AG. In doing so, it implemented an agreement that it signed in

late July with the new Austrian shareholder of its former subsidiary. The price for which Česká pojišťovna sold eBanka totaled EUR 130 million, or roughly

CZK 3.7 billion.

Česká pojišťovna Declared Insurer of the Year for Third Time

For the third time in a row, Česká pojišťovna won first place in the Insurance Company of the Year category in the MasterCard Bank of the Year 2006

competition. In a field of 19 competing insurance companies, it also scored with its DYNAMIK Plus product, which placed second in the Life Assurance

category. Also successful was Penzijní fond ČP, which was declared Pension Fund of the Year.

November

Česká pojišťovna Becomes Member of European Road Safety Charter

Česká pojišťovna joined the European Road Safety Charter in Brussels, becoming the only Czech financial institution to support the European Commission

initiative. The Charter aims to reduce the number of traffic accident deaths to one half its current level by 2010. Last year 1,127 people died on the Czech

Republic’s roads, while in the EU as a whole roughly 40,000 traffic deaths are reported annually.


December

Česká pojišťovna Declared Most Popular Insurer, Wins Zlatý Měšec

In the Zlatý Měšec 2006 competition, Česká pojišťovna repeated last year’s performance in the same competition, receiving the highest number of votes

from readers of the Měšec.cz server in the category Insurance Company. Its subsidiaries were also successful. The pension fund Penzijní fond ČP took

first place in the survey, and ČP INVEST was second.

Česká pojišťovna Scores Double Win at Internet Effectiveness Awards 2006

Česká pojišťovna’s on-line insurance with video guide won in the on-line banking and finance category. At the same time, Česká pojišťovna received

an award for innovation, making it the only contest participant to win in its category and also gain the innovation prize.

2007

February

One Month After the Gale, Česká pojišťovna Records Nearly 38,000 Claims for CZK 720 Million; Hundreds of Millions Already Paid Out to Clients

One month after the storm Kyrril, Česká pojišťovna has taken in 37,712 insurance claims for a total of CZK 720 million. Over one half of them have already

been completely settled, but new claims are still coming in every day. These late claims are mainly for recreational buildings whose owners have only now

got around to checking. Česká pojišťovna has already paid out hundreds of millions of Czech Crowns in Kyrril storm damages and estimates that the final

numbers will be 40,000 claims for a total of CZK 800 million. As of the Annual Report compilation date (30 March 2007), 42,000 storm claims had been

filed for a total amount of CZK 819 million. Reinsurers’ share is CZK 464 million of that figure.

Česká pojišťovna Wins Rhodos Image Prize

Česká pojišťovna placed first in the insurance companies category in the jubilee tenth annual national Rhodos Image Prize competition. The prize, which

goes to the company with the most compelling image, was awarded based on a survey conducted among managers from across the country.

March

Česká pojišťovna Internet Insurance Sales Rise 130%

The Internet market in the Czech Republic grew by 40% and this year, according to independent forecasts, the number of customers using it is to surpass

two million. Česká pojišťovna, too, has existing and new clients who wish to shop over the Internet and not only for the usual goods such as electronics and

books – as the numbers showing growth in on-line insurance would indicate, they want to take advantage of alternative channels to buy insurance as well.

Awards

Česká pojišťovna’s life assurance product DYNAMIK won the title Most Popular Financial Product of the Year 2006, based on public voting over the

Internet. An expert jury comprised of financial experts and journalists awarded first place in the Business Insurance category to another product of Česká

pojišťovna – business interruption insurance.

Česká pojišťovna was declared Insurance Company of the Year for the third time in a row in the MasterCard Bank of the Year 2006 contest. Out of a field

of 19 insurance companies, we also scored with our product DYNAMIK Plus, which ranked second in the Life Assurance category.

In the Zlatý Měšec 2006 competition, Česká pojišťovna, like last year, gained the highest number of votes from Měšec.cz server readers in the Insurance

Company category.

Česká pojišťovna won first place in the insurance companies category in the jubilee tenth annual Rhodos Image Prize national competition. The prize for

the most compelling image was awarded to us based on the results of a survey conducted among managers from across the Czech Republic.

The Česká pojišťovna Brand

An annual survey conducted by the independent marketing agency Millward Brown showed that our brand-building goals were met. Česká pojišťovna

became even more attractive for younger clients and higher income groups alike, while at the same time maintaining its position in other demographic

groups. In terms of perceived attractiveness in the Czech population, Česká pojišťovna maintains first place, and this is also confirmed by the fact that our

brand has long enjoyed the highest commercial potential rating.

Current Rating of Česká pojišťovna

Agency Rating

Standard & Poor’s Financial Strength Rating BBB/Stable/ – (since 2 April 2007)

Moody’s Baa3, outlook positive (since 10 March 2006; Baa3, outlook stable since 30 June 2003)


WE LIVE IN EXCITING TIMES. WE ARE WITNESSING MANYREVOLUTIONARY DISCOVERIES AND EVENTS. OUR LIVES AREFASTER-PACED AND WE ARE LIVING THEM TO THE FULLEST.THUS, OUR TIME IS BECOMING EVER MORE VALUABLE.

Česká pojišťovna has what is by far the most extensive internal sales network in the Czech Republic and we currently

administer over 10 million insurance contracts. At the same time, Česká pojišťovna has the broadest offering of insurance

via telephone and Internet in the Czech Republic. The clients most likely to take out insurance on-line are those in the 30–39 age

group. The Česká pojišťovna Client Center takes around 10,000 client calls per day.


Basic Indicators

Highlights from the financial statements Units 2006 3) 2005 3) 2004 3) 2003 2002 2001

Total assets CZK million 121,285 131,558 122,081 120,655 115,560 108,626

Basic share capital CZK million 4,000 2,981 2,981 3,412 3,412 3,412

Shareholders’ equity CZK million 17,077 20,863 15,965 15,455 15,684 11,108

Financial placements (investments) CZK million 104,381 113,883 106,091 106,344 102,480 93,027

Dividend per share 5) CZK 2,684 0 670 1,178 340 1,140

Retained earnings CZK million 9,202 9,147 6,947 4,669 4,227 1,269

Net earnings CZK million 8,293 4,641 1,864 3,138 4,047 4,180

Performance indicators

Total gross premiums written 3) CZK million 37,836 39,968 39,644 37,875 33,280 31,036

– non-life insurance CZK million 24,635 24,966 23,804 23,581 20,909 19,026

– life assurance CZK million 13,201 15,002 15,840 14,294 12,371 12,010

Total claims paid, gross CZK million 23,158 22,310 22,586 25,628 22,896 18,625

– non-life insurance CZK million 13,628 9,487 8,830 15,928 14,822 9,382

– life assurance CZK million 9,530 12,823 13,756 9,700 8,074 9,243

Total technical provisions CZK million 88,369 87,652 83,610 89,532 87,854 81,055

– life assurance provision CZK million 66,499 65,865 64,002 62,187 62,276 61,613

– other technical provisions CZK million 21,870 21,787 19,608 27,345 25,578 19,442

Number of claims processed thousand 1,131 1,275 1,481 1,261 1,286 1,298

Number of policies 1) thousand 10,345 12,994 13,315 13,897 14,282 11,187

Other figures

Market share in terms of premiums written % 33.1 35.9 36.7 36.2 37.2 39.2

– non-life insurance % 36.4 37.4 37.2 37.1 37.8 37.4

– life assurance % 28.1 33.4 36.0 34.8 36.2 42.3

Number of employees number 5,251 5,562 6,224 6,585 6,425 6,158

Number of agencies number 70 71 80 74 74 74

Number of regions number 7 7 8 8 8 8

Performance ratios

ROA % 6.8 3.5 1.5 2.6 3.5 3.8

ROE % 48.6 22.2 11.7 20.3 25.8 37.6

Shareholders’ equity per share CZK 4,269 6,999 5,356 4,530 4,597 3,256

Earnings per share 4) CZK 20,733 1,557 625 920 1,186 1,225

Premiums written per employee CZK million 7.2 7.1 6.4 5.8 5.2 5.0

1) In 2002, the method used to report the number of policies changed – numbers given are numbers of “principal risks”.

2) 2005 and 2006 figures are in accordance with IFRS and 2004 figures are adjusted according to IFRS for the reason of comparability; figures for all other years are in accordance with CAS.

3) Figures for 2004 – 2006 are gross earned premiums according to IFRS.

4) Change in nominal share value from CZK 1,000 to CZK 100,000 per share.

5) The General Meeting of 30 June 2006 decided to a pay a dividend of CZK 2,684 per share and on 11 December 2006 the sole shareholder decided on payment of a CZK 87,500-per-share dividend (following increase of nominal share value from

CZK 1,000 to CZK 100,000 per share).

Financial Highlights

2001

2002

2003

2004

2005

2006

0 4 8 12 16

12.0

12.4

14.3

15.8

15.0

13.2

2001

2002

2003

2004

2005

2006

0 20 40 60 80

61.6

62.3

62.2

64.0

65.9

66.5

0 5 10 15 20 25

2001

2002

2003

2004

2005

2006

19.0

20.9

23.6

23.8

25.0

24.6

0 30 60 90 120 150

2001

2002

2003

2004

2005

2006

108.6

115.6

120.7

122.1

131.6

121.3

0 5 10 15 20 25

2001

2002

2003

2004

2005

2006

11.1

15.7

15.5

16.0

21.0

17.1

0 2 4 6 8 10

2001

2002

2003

2004

2005

2006

4.2

4.0

3.1

1.9

4.6

8.3

Life Gross Premiums Written (CZK billion) *) Life Assurance Provision (CZK billion) *)

Non-life Gross Premiums Written (CZK billion) *) Total Assets (CZK billion) *)

Shareholders’ Equity (CZK billion) *) Profit for the Accounting Period (CZK billion) *)

*) Figures from 2004 and later years are according to IFRS.



Based on information obtained from publicly accessible sources and information known to the Company, Česká pojišťovna is part of a corporate group.

PPF Group N.V., whose identification information is set forth below, is the ultimate parent company of said group.

The Controlling Person of the Company is Petr Kellner, who holds a 95% stake in the voting rights associated with the shares of PPF Group N.V. (The

remaining 5% share is held by Jiří Šmejc.)

PPF Group N.V. is the sole shareholder of CZI Holdings N.V.

CZI Holdings N.V. is a legal entity that was, as at 31 December 2006, and is, as at the compilation date of this report, the sole shareholder of Česká pojišťovna.

PPF Group N. V.

Date of inception: 29 December 1994

Registered office: Herengracht 450 – 454, 1017 CA Amsterdam, Netherlands

Netherlands, World Trade Center, Tower B, Level 9, Strawinskylaan 933, 1077 XX Amsterdam

(change in registered office effective 1 April 2007)

File number at the Register of the Amsterdam

Chamber of Commerce and Industry: 33264887

Basic share capital: EUR 667,380

Principal business: holding company activities and financing thereof

CZI Holdings N.V.

Date of inception: 6 April 2006

Registered office: Herengracht 516, 1017 CC Amsterdam, Netherlands

Netherlands, World Trade Center, Tower B, Level 9, Strawinskylaan 933, 1077 XX Amsterdam

(change in registered office effective 1 April 2007)

File number at the Register of the Amsterdam

Chamber of Commerce and Industry: 34245976

Basic share capital: EUR 100,000,000

Principal business: holding company activities and financing thereof

Description of Group Structure, Position of Česká pojišťovna and Selected Group Companies

Our paths lead in an infinite number of directions.

We have places where we feel at home, places we would rather not leave – and at other times we feel

an urgent need to set off on new roads, to go farther and higher.

But there is one thing we all have in common – some times, at least,

we need to feel the security of a home base and a clear view of the future.

Česká pojišťovna joined the European Road SafetyCharter in Brussels, becoming the only Czech financialinstitution to support the European Commission initiative.The Charter aims to reduce the number of traffic accidentdeaths to one half its current level by 2010.

Starting in August 2006, Česká pojišťovna began offeringa new service – roadside assistance for all participants ina traffic accident. We offer comprehensive post-accidentservices to parties who suffer injury or property damage in an accident caused by a client of Česká pojišťovna.

Description of Selected Companies of Česká pojišťovna Group

Below we provide information on companies that form part of the Česká pojišťovna consolidated group and are of fundamental importance either for the

Company’s business or its capital position. Information on certain other companies that belong to the same group as Česká pojišťovna may also be found

in the Notes to Financial Statements for the Year Ended 31 December 2006, in the section describing subsidiaries and associates of Česká pojišťovna.

AB – CREDIT a.s.

This company ceased to be part of the Group on 13 June 2006 when its shares were transferred out of the Group.

Principal businesses: management and collection of problematic receivables, administration and management of equity stakes

Date of inception: 2 September 1991 (name at inception was AB – REAL, akciová společnost)

Basic share capital: CZK 2,800 million

Česká pojišťovna stake: indirect stake through FOX Credit Services Ltd., with its registered office at Florinis, 11, Office No. 504,

Nicosia, Republic of Cyprus, the sole shareholder of AB – CREDIT a.s. until 12 June 2006

In December 2003, the sole shareholder of AB – CREDIT a.s. (“AB – CREDIT”), which at that time was Česká pojišťovna, officially adopted a plan to merge

the company with ČP finanční služby a.s. under Section 69 of the Commercial Code. The surviving company of the merger was AB – CREDIT and

ČP finanční služby a.s. was the merged company. The merger was recorded in the Commercial Register effective from 8 January 2005. As a result

of the merger, the basic share capital of AB – CREDIT was increased to TCZK 2,081,300.

By a decision of the sole shareholder FOX Credit Services Ltd. dated 15 May 2006, the basic share capital of AB – CREDIT a.s. was increased to TCZK 2,800,000

by issuing one registered share of common stock with nominal value CZK 718,700,000, in documentary form.

AB – CREDIT manages extensive debt portfolios, which it obtains mostly through successful participation in public tenders. The receivables market is the

principal sector in which AB – CREDIT pursues its investment plans. In past years, which saw the greatest expansion of the debt portfolio, whose aggregate

face value in early 2006 exceeded CZK 82 billion, AB – CREDIT became the largest private investor and manager in this sector of the domestic market.

AB – CREDIT is equipped with high-quality expertise and financial resources. In 2006, it built on its past accomplishments by expanding its management

portfolio and by collecting debts. As at the end of the year in question, its collections exceeded by nearly one forth the amount invested and in the future

the return can be realistically expected to be double the original investment.

CP Reinsurance company Ltd.

Principal business: reinsurance services

Date of inception: 21 May 2004

Basic share capital: CYP 24 million

Česká pojišťovna stake: 100%

CP Reinsurance company Ltd. (“CP Re”) with its registered office in Nicosia, Republic of Cyprus, is a 100% subsidiary of Česká pojišťovna. It was

established in 2004 and has been in operation since the second half of that year. The objective for which this company was established is to gradually

unify the reinsurance cover of insurance companies in the Česká pojišťovna Group, bringing them under one roof, and to provide reinsurance cover to

companies outside the Group as well. CP Re was established under the laws of the Republic of Cyprus and has received a reinsurance license from the

local supervision body.

During 2006, CP Re focused its activities on members of the Česká pojišťovna Group. In the future, it plans to expand its business. For the time being,

CP Re focuses on reinsuring non-life property risks.


CP Strategic Investments B.V.

Principal business: administration of ownership interests in subsidiaries


Basic share capital: EUR 25 million


In 2006, CP Strategic Investments B.V. sold from its portfolio an equity stake in První Callin agentura a.s., which acts as an insurance intermediary, to

Česká pojišťovna a.s. From PPF Group N.V. the company acquired a direct stake in Česká pojišťovna Ukrajina – životní pojišťovna (Закрите акцiонерне

товариство “Чеська страхова компанiя Україна – Страхування життя“).

In addition, the company owns 100% of Česká poisťovňa - Slovensko, akciová spoločnosť as well as an indirect stake in ČP Services, s.r.o., a 100%

subsidiary of Česká poisťovňa – Slovensko, akciová spoločnosť.

Česká poisťovňa – Slovensko, akciová spoločnosť

Principal business: insurance services, reinsurance

Date of inception: 12 July 1993

Basic share capital: SKK 550 million

Česká pojišťovna stake: indirect stake through CP Strategic Investments B.V.

Česká poisťovňa – Slovensko, akciová spoločnosť (“ČPS”) is a composite insurer offering comprehensive life and non-life insurance services in the Slovak

Republic.

2006 was a successful year for the company. Life assurance premiums written surpassed SKK 1 billion. Net earnings grew to SKK 85.9 million. The estimated

market share as at 31 December 2006 increased to 6.72% in terms of premiums written and 8.98% in terms of new business.

The biggest performer in life assurance was DYNAMIK, which grew over 2.5-fold compared to the previous year. Premiums written totaled SKK 1.3 billion.

The share of endowment life assurance in the life portfolio continues to grow (driven by DYNAMIK).

In terms of the life assurance structure in the years to come, we expect to see ongoing growth in the share of overall premiums written, especially

in unit-linked assurance and pension (annuity) assurance.

In the non-life segment, motor insurance will continue to be the largest driver of premiums written. Sale of mandatory contractual insurance through

electronic distribution channels (telephone, Internet), a segment in which ČPS is the only player in the Slovak market, will receive increased support,

and the offering of insurance products available through alternative distribution channels will be gradually expanded.

The implementation of the planned changes should lead to an extended product portfolio and increased competitiveness in individual insurance classes.

In sales, ČPS will endeavor to maintain its relationships with existing partners and make contact with new partners for the purpose of expanding the sales

network.


Česká pojišťovna ZDRAVÍ a.s.

Principal business: commercial private health insurance

Date of inception: 17 June 1993

Basic share capital: CZK 100 million


Česká pojišťovna ZDRAVÍ a.s. (“ČP ZDRAVÍ”) was established by Česká pojišťovna and Vereinte Krankenversicherung, the second largest private health

insurer in Germany.

ČP ZDRAVÍ was the first insurance company to provide private health insurance products in the Czech market – before that, they were simply unavailable.

The company closely collaborates with other members of the financial group to offer private health insurance bundled together with other Česká pojišťovna

Group products.

In 2006, ČP ZDRAVÍ posted total gross premiums written of CZK 190.1 million and its net earnings for the 2006 accounting period reached CZK 47.9 million.

Major drivers of earnings were lower claims paid costs and a decline in other technical provisions.

ČP ZDRAVÍ’s strategic objectives for the next year are to maintain its position in the private health insurance market, grow the policy portfolio, and maintain

the current level of profitability.

Češskaja strachovaja kompanija o.o.o.

Principal business: insurance

Date of inception: 18 January 2002

Basic share capital: RUB 86.7 million


Češskaja strachovaja kompanija o.o.o. (“ČP Russia”) obtained an insurance license in July 2002 and starting in September 2002 it began selling its first

product – mixed life assurance. In January 2006, in accordance with new Russian legislation, the company obtained a new license as a life insurer with

a wide range of life assurance products. It is also involved in selling accident insurance to go with consumer loans from Home Credit & Finance Bank o.o.o.

In developing the distribution network, the company is emphasizing building its own network. It has 409 agents, but also works with 87 brokerage firms. It

has 12 regional branches in the Russian Federation. In addition to the existing agencies in Moscow and the Moscow metropolitan area and the 12 existing

regions, the company plans to open another 10 regional branches in 2007.

The life assurance market in the Russian Federation is developing and demand for insurance is on the rise. Insurance companies are beginning to compete

with one another in the life assurance segment. Companies with various levels of foreign ownership are becoming serious contenders for Russian companies’

positions. According to 2006 data from the Federal Service for Insurance Supervision, ČP Russia was 16th among the top 20 life assurance companies in the

RF. This makes it the fourth most successful company with foreign capital participation involved in the Russian life assurance market.

In 2006, the company further developed its collaboration with Home Credit & Finance Bank o.o.o. in providing insurance to consumer loan applicants and

also in other areas of collaboration. In early 2007 these services were launched at 11,500 sales locations of the bank and its partners.

2006 also saw the beginning of sales collaboration with the State enterprise Russian Post. By the end of the first quarter of 2007, the company plans to begin

selling insurance at over 460 post offices in 52 regions of Russia.

In implementation of the company’s strategic development plan, 2006 also saw commencement of preparations for developing other alternative sales

channels which are to be opened during 2007.


ČP DIRECT, a.s.

Principal business: acting as an insurance agent, consulting

Date of inception: 1 January 1998



Based on an application dated 25 February 2005, the company was recorded in the Register of Insurance Intermediaries and Independent Loss Adjusters

under number 000561PA as an insurance agent pursuant to Section 7 of Act No. 38/2004 Coll. on Insurance Intermediaries and Independent Loss

Adjusters and amending the Trades Licensing Act. The company is contractually authorized to act as an intermediary for Česká pojišťovna a.s.

The insurance agency activity of ČP DIRECT, a.s. is focused primarily on non-life insurance – motor damage insurance and motor third party liability

insurance. To develop its business the company has built up a network of cooperating insurance intermediaries, mostly car and truck dealerships.

The company continues to develop the distribution of other insurance products such as property and casualty insurance, through real estate agencies.

ČP finanční holding a.s.

This company ceased to be part of the Group on 21 December 2006 when its shares were transferred out of the Group.

Principal business: managing subsidiaries in the field of collective investment

Date of inception: 1 October 1999



The principal business of ČP finanční holding a.s. in 2005 and 2006 was the management of the subsidiary ČP INVEST investiční společnost, a.s., a mutual

funds company.

ČP finanční servis a.s. (in liquidation)

Principal business: developing projects in the field of finance




Effective 1 August 2006, the sole shareholder acting with the powers of the General Meeting, decided to wind up the company with liquidation and

appointed a liquidator. On 11 December 2006, the company transferred its 100% stake in Finansovy servis o.o.o. to Česká pojišťovna a.s.


ČP INVEST investiční společnost, a.s.

Principal business: collective investment, management of mutual funds

Date of inception: 19 November 1991



The sole shareholder of ČP INVEST investiční společnost, a.s. (“ČP INVEST“), is Česká pojišťovna a.s. ČP INVEST is one of the largest investment

companies in the domestic market with CZK 4.7 billion in net assets under management.

Net mutual fund sales in 2006 totaled CZK 1,007 million. The earnings result as at 31 December 2006 was CZK 5.879 million.

In 2006, ČP INVEST opened three new mutual funds, merged two bond funds, expanded its product range by adding products such as the Regular

Investments Program and the Equities Investment Program, and obtained additional distribution channels for selling its products.

In the Zlatý měšec 2006 survey, ČP INVEST was ranked second in the category “Most Popular Investment Company.”

eBanka, a.s.

This company ceased to be a part of the Group on 24 October 2006 when its shares were transferred out of the Group.

Principal business: banking services

Date of inception: 29 December 1990 (established as Agrobanka Olomouc, akciová společnost)

Basic share capital: CZK 1,184.5 million


eBanka is a universal bank for higher-income individuals and small and medium-sized enterprises. It offers its clients a complete range of financial products

and services with an emphasis on the use of direct banking methods. Every year, eBanka wins a number of prestigious awards and titles in a variety of

competitions, both in the Czech Republic and abroad, in recognition of the high quality and technological level of its products and services.

eBanka was formed in October 1997 as Expandia Banka, which was the first in the Czech banking market to launch a comprehensive direct banking

service. In 2000, Česká pojišťovna bought into Expandia Banka. That marked the beginning of a new expansive strategy for the bank. As part of this new

strategy, the bank changed its name and has been operating as eBanka since 2001. Thanks to the new sales and marketing strategy, eBanka started

seeing dynamic growth in both key financial indicators and number of clients. In 2003 – 2005, eBanka underwent a far-reaching reorganization, completing

its transformation from an all-Internet bank into a universal bank with a full range of services and products and with its own network of branches for

serving its two key segments, Private Individuals (PI) and Small and Medium-sized Enterprises (SME).

In October 2006, eBanka joined the Raiffeisen International financial group. Currently integration with Raiffeisenbank is ongoing, to culminate in a merger in 2008.

As at 31 October 2006 eBanka served nearly 117,000 clients, i.e. holders of Personal or Company Accounts. eBanka has 42 branches for the PI segment

and 10 Business Centers for the SME segment. eBanka recorded growth in all key financial indicators in 2006. Total assets at 31 October 2006 stood at

CZK 19.4 billion, client deposits totaled CZK 16.1 billion, and client loans (gross) showed a balance of CZK 10.6 billion. As at 31 October 2006, eBanka

posted pre-tax earnings of CZK 8.2 million. The basic share capital was CZK 1.184 billion and capital adequacy was 9.83%.

eBanka’s high-quality products and services brought it a number of highly coveted awards in 2006. The Bank of New York granted eBanka the Excellence in

Straight Through Processing Award 2005 for exceptional quality in processing international payments denominated in USD and Deutsche Bank AG gave it the

same award for exceptional quality in processing international payments denominated in EUR. In the Golden Crown 2006 competition for the best banking

products in the market, eBanka won three top placements for its Direct Banking, Personal Account, and Bank Card Locking products, respectively. In the Best

Bank of 2006 contest, the trade journal Personal Finance gave eBanka first place in the Internet Banking category and second place in the Banks category. In the

prestigious MasterCard Bank of the Year 2006 competition, eBanka won the title Account of the Year 2006 and in a public vote it won second place in the category

Most Trustworthy Bank of the Year 2006. In a similar public vote for the most popular bank in the Czech market, Zlatý měšec 2006, eBanka took bronze.


Home Credit B.V.

This company is no longer a part of ČP Group due to a split-off of Česká pojišťovna a.s. which took effect on 4 August 2006.

HC Holding a.s.


Home Credit a.s.


Home Credit International a.s.


Home Credit Slovakia, a.s.


Home Credit & Finance Bank o.o.o.



Penzijní fond České pojišťovny, a.s.

Principal business: pension fund

Date of inception: 19 September 1994



Penzijní fond České pojišťovny, a.s., (“PF ČP”) has been in the pension funds market since 1994 and entered its second decade in business as the

unchallenged top pension fund in the Czech Republic.

Last year, the fund accelerated its already dynamic growth rate. High portfolio returns combined with reduction of the cost margin enabled the fund

to post record earnings in 2006, exceeding CZK 1 billion. It also substantially grew the volume of client savings, which reached CZK 30.2 billion in December.

The number of clients is also growing steadily, rising 12% in the past year to reach 974,000 people at the end of last year.

Česká pojišťovna sells PF ČP pension plans through its own network as well as through independent distribution firms. Last year, this multi-channel

distribution strategy and focus on the country’s largest employers yielded the fund 182,000 new contracts, i.e. 12,000 contracts more than in 2005. The

rising demand for private pension insurance is driven primarily by high returns, increasing involvement on the part of employers, as well as growing public

awareness of the consequences of not reforming the pension system. The corporate segment, in which our pension fund is also the market leader, also

represented a significant proportion of the business performance results. Last year the number of clients whose employers contribute to their pension

insurance plans reached 218,000.

The overall very good performance last year is underlined by awards received by the fund: in the spring the fund topped the pension funds category of the

prestigious CZECH TOP 100 listing. In October 2006, PF ČP defended its Pension Fund of the Year title by winning again in its category of the MasterCard

Bank of the Year 2006 competition. Then, in December, for the third time in a row, the fund received the highest ranking in the pension funds category

of the Zlatý Měšec 2006 survey for the most popular financial institution, organized by the Měšec.cz financial server.

PPF banka a.s.

As of 20 December 2006, this company is no longer a part of ČP Group due to transfer of its shares from Česká pojišťovna a.s. to PPF Group N.V.

Principal business: banking services



Česká pojišťovna stake: 92.76%

PPF banka a.s. (“PPF banka”) was established under a Founders’ Agreement dated 3 December 1992 without subscription of shares, under the business

name ROYAL BANKA CS, a.s. On 14 December 1994, a general meeting of the bank decided on a change in the business name to První městská banka, a.s.

and a general meeting held on 23 June 2004 decided to change the bank’s name to PPF banka effective 1 September 2004.

The principal focuses of PPF banka are financing for large and mid-size corporations, municipal finance, consulting, and investment services, with a focus

on securities trading. The bank continues to provide high-quality client care throughout the service range.

In 2006, according to the audited financial figures, PPF banka posted net earnings of CZK 281.1 million, its total assets figure exceeded CZK 24 billion, and

return on equity (ROE) reached 20.59%.

In addition to operations in the domestic government bond market and the Prague Stock Exchange, PPF banka engaged in trading on many international

global and local debt and capital markets.

The bank’s corporate lending operations were successful. The bank focused primarily on medium-sized and large corporations with Czech capital.

On 20 December 2006, pursuant to an Agreement on Transfer of Securities for Consideration dated 19 December 2006, Česká pojišťovna a.s. transferred

all shares issued by PPF banka a.s. and held by Česká pojišťovna a.s., i.e. a 92.76% equity stake, to PPF Group N.V., with its registered office at

Herengracht 450 – 454, 1017 CA Amsterdam, Netherlands, reg. no.: 33264887.


PPF Asset Management a.s.

As of 27 September 2006, the company is no longer a part of ČP Group due to transfer of the shares from PPF banka a.s. to CZI Holdings N.V.

Principal business: investment services



Česká pojišťovna stake: indirect stake through PPF banka a.s.

Providing professional, top-quality asset management services to institutional investors and investment consulting services continued to be the principal

focus of PPF Asset Management in 2006. PPF Asset Management is the only company in PPF Group that manages primarily portfolios of PPF Group

institutional investors (life and non-life insurance, supplemental pension insurnace, reinsurance, etc.), all under contracts with the customers. In 2006, the

company’s efforts focused on further increasing service quality. In particular, the spectrum of investment instruments used in portfolio management was

broadened further, and much emphasis was also placed on taking a highly individualized approach to each client.

2006 was a very good year for the company and a very successful one in many respects. The company posted before-tax earnings of CZK 60 million, and

assets under management at year end 2006 stood at nearly CZK 129 billion, up over 10% from the previous year. This indicator makes our company one of

the largest and most successful managers of customer assets in the Czech Republic.

Finansovy servis o.o.o.

Principal business: consulting


Basic share capital: RUB 100,000


The stake in Finansovy servis o.o.o. was transferred from ČP finanční servis a.s. in liquidation to Česká pojišťovna a.s. in December 2006.

FOX Credit Services Ltd.

Principal business: administration and trading in receivables and other instruments

Date of inception: 3 June 2005

Basic share capital: CYP 19.3 million


INFOBOS LLC.



LIKO – Technopolis


První Callin agentura a.s.

Principal business: insurance agent




The company focuses on selling insurance products exclusively using direct sales methods, i.e. by telephone and over the Internet. It holds a non-exclusive

agent license. In 2006, the company commenced active operation as a licensed insurance agent (in the previous year, it acted as a bound insurance

intermediary and offered only one product of Česká pojišťovna) and expanded its offering to include products of other insurance companies. In addition

to motor third party liability insurance from Česká pojišťovna, the company began to offer the same product from the insurance companies Generali,

Kooperativa, Triglav, Wüstenrot and ČPP. Further, it also began selling travel insurance from Česká pojišťovna and Pojišťovna Uniqa and the Internet

replaced the telephone as the company’s core sales channel.

Termizo a.s.

This company ceased to be a part of the Group on 13 June 2006.


Univerzální správa majetku a.s.

Principal business: operating non-State healthcare facilities (spa, health resort)




The company is negotiating with a strategic partner on a possible buy-in. Although the company did achieve a modest increase in the proportion of foreigners

and other individuals not covered by mandatory State health insurance in 2006, the State’s restrictive healthcare policies are reflected in the company’s

financial performance in the form of flat revenues, while costs are driven upward by inflation. Improved payment patterns in 2006 led to reduction in

outstanding receivables from CZK 22 million to CZK 11 million.

REFICOR s.r.o.

Principal business: administrative management and organizational-economic consulting services

Date of inception: 12 August 1997

Basic share capital: CZK 100,000


Part of ČP Group since 13 March 2006.

ČP Services s.r.o.

Principal business: acting as an insurance agent


Basic share capital: SKK 200,000

Česká pojišťovna stake: indirect stake through Česká poisťovňa – Slovensko a.s.


When we meet, we enhance one another.

We fill in the missing pieces of each other’s mosaics through our experience

and opportunities. We add to each other’s strengths.

Česká pojišťovna, which is building on 180 years of tradition

and experience in providing insurance services,

is part of PPF, the biggest financial group in the Czech Republic.

In April 2007, PPF Group and Generali announced a plan to create

a joint venture and a joint holding company.

Česká pojišťovna, which is the largest domestic insurance company,

and Generali, the third largest insurer in Europe,

will together form one of the largest insurance groups

in Central & Eastern Europe, with operations in 12 countries

in the initial phase.

They mirror new perspectives and push the present limits to beyond the boundaries of even the most ambitious goals.

New relationships and connections are reflections

of movement and development.

�

�

� �

Chairman

Ladislav Bartoníček

Term of office: since 3 June 2004

Born: in 1964

Domicile: Prague 4, Slepá II/458

Education: Czech Technical University,

Rochester Institute of Technology

Experience: ČKD Elektrotechnika,

PPF investiční společnost a.s.

Vice Chairman

Ladislav Chvátal

Term of office: since 26 September 2006

Born: in 1963

Domicile: Prague 9, Smidarská 742

Education: Prague University of Economics,

Faculty of Management

Experience: AVIA Praha, PPF investiční

společnost a.s., PPF Capital

Management a.s., PPF, a.s.

Member

Jiří Šmejc


Born: in 1971

Domicile: Prague 5, Jílovišťská 550

Education: Charles University, Faculty

of Mathematics and Physics

Experience: PUPP Consulting, s.r.o., Middle

Europe Finance, s.r.o., TV NOVA – Česká

produkční 2000, a.s., TV NOVA – CET 21, s.r.o.,

PPF, a.s.

Directors and Officers(as at the Financial Statements compilation date)


Board of Directors

Member

Jan Ježdík


Born: in 1955

Domicile: Liberec, Hálkova 1368/7

Education: Charles University, Faculty of Law

Experience: Česká státní pojišťovna

�

Vice Chairman

Milan Maděryč


Born: in 1955

Domicile: Zlín, Nad Vývozem 4872

Education: Secondary vocational with

school-leaving exam, Postgraduate study

at VUT Brno

Experience: IMPROMAT s.r.o.,

PPF investiční společnost a.s.


Supervisory Board

Vice Chairman

Aleš Minx

Term of office: since 19 May 2003

Born: in 1964

Domicile: Prague 5, Na Hvězdárně 429/28


Faculty of Industrial Economics

Member

Marek Orawski

Term of office: since 1 March 2006

Born: in 1965

Domicile: Havířov, Hlavní třída 25/304

Education: Technical University of Ostrava,

Faculty of Electrical Engineering, Liverpool

John Moores University

Changes in the Supervisory Board during 2006 and 2007

On 25 October 2006, the Supervisory Board discussed the resignation of František Tlustoš as

Vice Chairman and Member of the Supervisory Board. It declared 31 October 2006 to be

Mr. Tlustoš’s last day in office as Vice Chairman and Member of the Supervisory Board.

At the same time it discussed the resignation of Petr Kellner as Member of the Supervisory

Board and declared 31 October 2006 as Mr. Kellner’s last day in office.

On 1 February 2007, the Board of Directors of Česká pojišťovna a.s. discussed a report of the

resignation of Ivan Kočárník as Chairman and Member of the Supervisory Board. Mr. Kočárník

resigned at his own request effective 31 January 2007. The request was discussed and approved

by the Supervisory Board on 24 January 2007.

Pursuant to a decision of the shareholder, changes were made in the Supervisory Board of Česká

pojišťovna effective 1 June 2007. Subsequently, the erstwhile Vice Chairman of the Board of

Directors of Česká pojišťovna, Milan Maděryč, became the new Chairman of the Supervisory Board.

As at the Annual Report compilation date, these changes had been recorded in the Commercial Register.

Changes in the Board of Directors

during 2007

Pursuant to a decision of the shareholder,

changes were made in the Board of

Directors effective 1 June 2007. Lard

Friese, CEO of Česká pojišťovna, was

newly appointed to the Board of Directors.

Milan Maděryč, Jiří Šmejc and Ladislav

Chvátal left the Board of Directors. Marcel

Dostal, who is also Executive Board Member

for Investment Policy at Česká pojišťovna,

also joined the Board of Directors.

�

Executive Board

Executive Board Member

for Financial Management

Lubomír Bušek


Born: in 1970

Domicile: Prague 4, Jeremenkova 14


Faculty of Civil Engineering, Rochester

Institute of Technology

Experience: Beton Lafarge s.r.o.


for Underwriting and Reinsurance

Miroslav Matocha

Term of office: since 1 April 2000

Born: in 1964

Domicile: Prague 9, Bří. Dohalských 140/5

Education: Prague University of Economics, Faculty of Commerce

Experience: INCOTEX s.r.o., Brno, Federal Ministry of Foreign Affairs

of the Czech Republic, KOOPERATIVA, družstevní pojišťovna a.s.,

Winterthur pojišťovna, a.s.

Executive Board Member for Life Assurance

and Information Technologies

Tomáš Machanec

Term of office: since 16 January 2006

Born: in 1963

Domicile: Prague 9, Bošilecká 1509


Faculty of Nuclear and Physical Engineering,

US Business School of Prague

Experience: IHE Praha, SEP Bratislava, ČSAD Nitra, SEP

Bratislava, ŽB TRUST, investiční společnost, Živnostenská

banka, Allianz penzijní fond, PPF investiční společnost, a.s.


Chief Executive Officer

Lard Friese

Term of office: since 1 October 2006

Born: in 1962

Domicile: Praha 6, Vilímovská 16

Education: University of Utrecht, Faculty of Law

Experience: ACNielsen Europe, AEGON

Nederland N.V., NOG Verzekeringen

�

�

�

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Executive Board Member for Investment Policy

Marcel Dostal

Term of office: since 6 November 2006

Born: in 1969

Domicile: Prague 5, Högerova 1098/11

Education: VUT Brno, Faculty of Civil Engineering,

U.S. Business School of Prague

Experience: Rollins Hudig Hall Česká republika, s.r.o.,

Stratego Invest, a.s., PPF burzovní společnost a.s.,

Česká pojišťovna a.s., ČP INVEST investiční

společnost, a.s., PPF, a.s.


for Non-life Insurance

Jan Ježdík

Term of office: since 26 February 2002

Born: in 1955

Domicile: Liberec, Hálkova 1368/7

Education: Charles University, Faculty of Law

Experience: Česká státní pojišťovna

Executive Board Member for Sales

Petr Kopecký


Born: in 1970

Domicile: Horoměřice, Statenice 237


Faculty of Economics & Public Affairs

Experience: Logica Consulting k.s.,

Logica CMG s.r.o., MARK/BBDO, a. s.,

McCANN-ERICKSON PRAGUE spol. s.r.o.

Executive Board Member for Marketing

and Client Segmentation

Pavel Řehák


Born: in 1975

Domicile: Mohelnice, Stanislavova 11

Education: Prague University of Economics, Faculty

of International Relations, Northwestern University,

Kellogg Graduate School of Management

Experience: McKinsey & Company, Inc.

Executive Board Member for Operations

and Human Resources

Marie Kovářová

Term of office: since 1 March 2005

Born: in 1972

Domicile: Liberec, Na Pískovně 648

Education: Charles University, Faculty of

Mathematics and Physics

Experience: McKinsey & Company, Inc.


�

� �

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Czech Republic Macroeconomic Performance in 2006 and Forecast for 2007

Analysts from the New York-based research institution, the Conference Board, predict this year will bring a recovery of the global economy, whose Gross

Domestic Product should grow by approximately 5%.

According to a forecast published by the European Commission, economic growth this year is to be 2.7% EU-wide and 2.4% in the Eurozone.

That is 0.3 percentage points higher than was predicted in the autumn. Last year, the growth figures for EU-wide and Eurozone were 2.9% and 2.7%,

respectively, which in both cases is the highest since 2000. According to the Commission, 2006 was a “remarkable year,” in which growth was driven

primarily by domestic demand, swollen with three million new jobs created across the entire EU. Of those jobs, two million were created in the Eurozone.

The Czech Republic economy recorded the same Gross Domestic Product (GDP) figure in 2006 as it did in 2005, i.e. 6.1%, or 8.4% when GDP is not

adjusted for inflation. Like in the previous year, exports exceeded imports and the foreign trade balance was the best in the history of the Czech Republic

as an independent state. Both export and import were also at their highest absolute levels in Czech Republic history. For the second time since 1993,

export was higher than import for a foreign trade surplus. Foreign trade volume in 2006 was five times higher than it was in 1993, and export per capita

increased by more than fivefold, strengthening the Czech Republic’s global position as an exporting country. The nominal exchange rate in 2006

strengthened to CZK 28.343 for 1 Euro and CZK 22.609 for 1 U.S. Dollar.

The Czech Republic’s economic growth took place in a low-inflation environment: the inflation rate expressed in terms of the incremental growth in the

Consumer Price Index from the same month of the previous year was 1.7% at year end 2006, compared to 2.2% in 2005.

A relatively weak macroeconomic performance in 2002 was followed by three years of steadily accelerating GDP growth. The increase in GDP in 2005 was

the highest since the Czech Republic became an independent state, and in terms of absolute purchase prices, the 2006 GDP totaled CZK 3,204.1 billion.

This figure places the Czech Republic among the 25 EU countries with the fastest economic growth and strengthened the country’s standing in the

international community.

Employment continued to grow, causing the unemployment rate to fall. The average unemployment rate for 2006 was 7.1% (among persons 15 years and

older) for a year-on-year decrease of 0.8 percentage points, the lowest level since 1999.

The average gross monthly wage in 2006 was CZK 20,211, up CZK 1,226 (6.5%) year-on-year.

Consumer prices were up 2.5%. Real wage growth was 3.9%.

Board of Director’s Discussion and Analysisof the Company’s Business Activities and Financial Condition


Situation in the Czech Insurance Market

Since the early 1990s, the Czech insurance market has enjoyed uninterrupted growth. In 2006, the Czech insurance market continued to grow.

Overall premiums written by Czech Insurance Association (ČAP) member insurers grew 3.8% year-on-year to reach CZK 119.9 billion (ČAP figures from

29 January 2007). Life assurance premiums written totaled CZK 47.1 billion, up 4.8% year-on-year. Premiums written in non-life insurance grew 3.1% to

reach CZK 72.8 billion.

The Czech Republic’s overall insurance penetration, measured by the proportion of premiums written to GDP, has been rising every year. In the early

1990s it was only slightly above 2%, while in 2005 it reached nearly 4%. Still, compared to countries with well-developed insurance markets the Czech

Republic is lagging behind; the EU-25 average for this indicator is 9%. Thus, the Czech Republic’s insurance penetration reaches approximately half of the

average the EU-25.

Following a drop last year, life assurance’s share in overall premiums written in the Czech Republic reached 39.3% in 2006, bringing it back to the level it

had in 2003. Initial expectations that the Czech market would quickly narrow the gap between itself and Western markets, where life assurance’s share

is approximately 60%, have not been confirmed, and at the present rate of growth the indicator will most likely not reach 40% until 2008.

The sum of the market shares of the five largest insurers in overall premiums written in 2006 was 79%: 75% in life assurance and 86% in non-life

insurance. Česká pojišťovna continued to the most significant player in the Czech insurance market in 2006. Its share of overall premiums written reached

33.1%. In life assurance, we controlled 28.1% of the market, and in the regular premium segment Česká pojišťovna’s share was 34.1%. In non-life

insurance, Česká pojišťovna had a market share of 36.4%.

The most significant event of 2006 was the integration of financial market supervisory agencies into the Czech National Bank (ČNB). The Office of the

State Supervision in Insurance and Pension Funds of the Ministry of Finance (MF) closed its doors on 31 March 2006. The MF’s insurance supervision

mandate passed to the Czech National Bank. Other events with a significant impact on the Czech insurance market included the entry of several foreign

insurers into the Czech market (Skandia, Slovakia-based Wüstenrot, Austria-based Agra) and the acquisition of Pojišťovna Winterthur by the France-based

insurer AXA.


Company Financial Performance in 2006

State of the Company’s Assets

Česká pojišťovna is a long-standing, highly capitalized and stable company with assets totaling CZK 121.3 billion as at 31 December 2006. The Company’s

shareholders’ equity is nearly CZK 17.1 billion and the basic share capital is just under CZK 4 billion.

In terms of volume, the largest component in assets is financial assets, which stood at CZK 99.3 billion as at 31 December 2006, an increase of CZK 2.6 billion

over 2005. Within investments, the fastest-growing components were Financial assets available for sale (up CZK 3.4 billion) and Financial assets at fair

value through profit or loss (up CZK 2 billion). The value of Loans and receivables moved in the opposite direction (down CZK 3.1 billion).

The second largest component of assets, Subsidiaries and associates, was down year-on-year by CZK 12.8 billion to CZK 3.9 billion.

Investment property, at CZK 2.9 billion, declined by CZK 319 million year-on-year, while Reinsurance assets (i.e. reinsurers’ share in insurance liabilities), at

CZK 8.3 billion, grew by CZK 377 million.

Operating and other tangible assets totaled CZK 3.3 billion for a year-on-year decline of CZK 703 million. Prepayments and accrued income grew by

CZK 75 million to a total of CZK 752 million.

Cash and cash equivalents were up CZK 922 million to CZK 1.2 billion.

Intangible assets increased by CZK 11 million and totaled CZK 1.4 billion.

Treasury Shares

Česká pojišťovna did not hold any of its own shares during the 2006 accounting period.

Financial Performance Commentary

In this section, individual items of the Company’s assets and liabilities are indicated using terms derived from the Insurance Act, which may be different, in

form and/or content, from those used in the financial statements. This is being done as a service to users of the Annual Report who would prefer the information

from the financial statements to be presented in a structure and content comparable to that used by other insurers operating in the Czech Republic.

Earnings

In 2006 reported its financial performance in accordance with International Financial Reporting Standards (IFRS) for the second time. 2006 reaffirmed the

high profitability of Česká pojišťovna. With after-tax earnings of CZK 8.3 billion, the Company was once again one of the top-earning companies in the

Czech Republic.

The positive earnings performance was driven in particular by the operating result and investment returns, which include gains on sales of certain equity

stakes. Another accomplishment of 2006 was the handling of the snow and flood catastrophe in the spring, which affected the Company’s performance in

the first quarter in particular. The autumn, on the other hand, was quite favorable in terms of losses and in particular the last months of the year combined

with stability in life assurance for the good operating result. In 2006, the Company also continued to launch new products and optimize operating expenses.

The Company’s total assets figure reached CZK 121.3 billion.

Basic Share Capital and Reserves

In June 2006, a decision of the sole shareholder at the General Meeting approved the payment of a CZK 8 billion dividend, using Česká pojišťovna 2005

profit of CZK 4.6 billion and CZK 3.4 billion drawn from retained earnings. Subsequently, in December 2006 another dividend was approved, in an amount

of CZK 3.5 billion to be drawn from retained earnings.

The Basic share capital was also increased by CZK 1.0 billion to CZK 4.0 billion, by transferring funds from retained earnings. Under IFRS the equalization

provision is considered part of shareholders’ equity.

Overall the Company’s shareholders’ equity fell by 18.1% to CZK 17 billion.


Earnings Allocation Proposal

As at the Annual Report compilation date, the Board of Directors had not yet submitted an earnings allocation proposal.

Recent Shareholder Dividends

In June and December 2006, the sole shareholder acting with the powers of the General Meeting decided on payouts of a gross dividend for 2005 in a total

amount of CZK 11.5 billion.

As of the Annual Report compilation date, no decision had been made concerning a 2006 dividend.

Technical Provisions

Overall, technical provisions increased by CZK 0.7 billion year-on-year, to CZK 88.4 billion. Under IFRS, the equalization provision is not included in technical

provisions (see below).

Life Assurance Provision

This provision accounts for roughly three quarters of total technical provisions and includes the life assurance provision itself, the provision for unearned

life assurance premiums, provision for outstanding life assurance claims, and a provision for liabilities arising from the applied technical interest rate.

The total amount of the life assurance provision at 31 December 2006 was CZK 66.5 billion. This represents year-on-year growth of CZK 0.6 billion.

The balance of the provision for liabilities arising from the applied technical interest rate at 31 December 2006 was CZK 3.0 billion, down CZK 0.8 billion

from the previous year.

Provision for Outstanding Non-life Claims

This provision consists of the provision for claims reported but not settled (RBNS) and the provision for claims incurred but not reported (IBNR). It is the

second largest technical provision. The net amount of the provision at 31 December 2006 was CZK 15.6 billion, a year-on-year decline of CZK 0.4 billion.

Provision for Unearned Non-life Premiums

The total amount of this provision at 31 December 2006 was up approximately 9.2% year-on-year, to CZK 5.8 billion.

Equalization Provision and Other Provisions

International Accounting Standards do not acknowledge the equalization provision, which is set up under Czech Accounting Standards (specifically, Section 2

of Regulation No. 303/2004), as a provision. For this reason, the reported amount of the equalization provision as at 31 December 2006 is nil.

The provision for the liabilities of the Czech Insurers Bureau (both old and new losses) remains nearly unchanged at CZK 2.1 billion (year-on-year decrease

of CZK 7 million). This provision relates to motor third party liability insurance.

Receivables

Receivables rose to CZK 8.2 billion, up 4.6% from 2005. The growth was mainly in direct insurance receivables and was offset somewhat by a decline in

trade and other payables. The overall change in receivables was CZK 0.4 billion.

Liabilities

The Company’s total liabilities fell by roughly 6.8% in 2006 to a level of CZK 9.3 billion. The biggest drop, by CZK 0.9 billion to CZK 5.1 billion, was in

reinsurance-related liabilities. However, since this decline was partially offset by higher income tax liabilities, the overall year-on-year change is CZK 0.6 billion.

One-off Items with Impact on Earnings

In 2006, the company recorded CZK 3.4 billion in one-off items that influenced earnings. The result from financial investments was influenced by

a CZK 1.8 billion gain on the sale of certain equity participations (e-Banka a.s., Modrá Pyramida stavební spořitelna a.s., PPF Banka a.s.). In conjunction with

favorable developments in claims expenditures, loss ratio, and the current state of litigation relating to disputed claims, the IBNR and RBNS provisions were

partially reversed. This had a CZK 1.3 billion positive impact on earnings.


Insurance Performance Commentary

Internal Sales Channels

Internal distribution channels consist of the network of exclusive insurance agents and the Česká pojišťovna branch network. Exclusive insurance agents

are market-segmented so that they can fully focus on providing individualized service to private individuals and corporate clients.

The priorities in 2006 for internal distribution channels were to complete the sales tasks, improve the work quality of first-line management in the branch

network, and increase the quality of insurance consultants in the area of comprehensive service, and after-sale service in particular. 2006 saw the

completion of the process of certifying all sales personnel for the transition to the new legislative environment. The total number of persons certified was

over 4,000. We continued to train personnel to use methods for analyzing client needs, which is the basis for successful up-selling and cross-selling.

The over-the-counter network had a very successful year. A nearly 50% year-on-year performance increase based on disciplined management of the

activities and knowledge of individual workers and group managers as well as targeted regional marketing campaigns to support over-the-counter sales laid

a good foundation for further growth in 2007. A major change late in the year was the implementation of mobile service counters, which take the slogan

“Closer to customers!“ literally by offering business meetings outside Česká pojišťovna premises.

The network of exclusive insurance agents in the private individuals (PI) segment focused on campaigns aimed at increasing premiums and insurance

coverage on older policies. We implemented the “Financial Consultancy” project, which puts several hundred insurance agents in the role of consultants

offering a complete range of financial products, including mortgages and investments. Last but not least, we successfully launched mass sales of

ČP INVEST products through the Česká pojišťovna distribution network, completing the full integration of sales of Česká pojišťovna subsidiaries’ products

in the internal network. The success of this integration is demonstrated each year by the sales performance results of Penzijní fond České pojišťovny,

ČP INVEST and ČP ZDRAVÍ, as well as by their positions in their respective markets.

Insurance agents in the business segment focused on targeted campaigns for individual market sectors and on corporate business. A major qualitative

shift was also seen in recruiting of new sales personnel in this segment.

Česká pojišťovna has what is by far the most extensive internal sales network in the Czech Republic.

The principal tasks for 2007 are to achieve double-digit growth in the number of service counters and to further energize the network of insurance agents,

especially when it comes to acquiring new customers. The means for fulfilling these tasks will be sales campaigns based on continually improving the ability

of Česká pojišťovna and its sales force to offer products that meet client needs. Other initiatives are designed to further develop the performance-based

incentive scheme for insurance consultants, entitled ČP Career. The motto for insurance agents in the residential market for 2007 is “My Family,” i.e.

comprehensive service for all members of the family and adapted Česká pojišťovna value offering containing, among other things, instruments to support

retention. The motto for insurance agents in the business segment will be “My Firm,” which again means a comprehensive, individualized offering that

takes into account all the firm’s insurance needs with Česká pojišťovna there to fulfill them.

External Distribution Channels

Financial intermediaries operating on the basis of Multi Level Marketing (MLM)

In 2006, Česká pojišťovna continued to build cooperation with the major MLM partners ZFP akademie, a.s. and OVB ALLFINANZ, a.s. Based on a study of

the needs of clients in MLM networks, Česká pojišťovna prepared and in September 2006 launched a unit-linked life assurance product fully adapted for the

segment consisting of clients served by external partners. The sales performance figures confirm the high potential of this type of product. In 2007 we plan

to launch another innovative product based on unit-linked life assurance, also adapted to the needs of MLM networks. Česká pojišťovna intends to reaffirm

its position as the largest insurer in the Czech Republic in the MLM external partners segment, as well as its ability to work effectively with third parties.


Česká pošta (Czech Post)

In our collaboration with Czech Post, 2006 was a year of strengthening the perception of Czech Post offices as full-fledged Česká pojišťovna points of sale

that provide comprehensive client services. This transformation was supported by a television campaign and, most of all, by improved continual marketing

visibility of Česká pojišťovna at post offices. In September 2006 another insurance product was added to the post office portfolio – MTPL insurance. Now

the product portfolio includes all the major basic types of both life and non-life insurance products.

In conjunction with an amendment of the Act on Insurance Intermediaries, over 4,000 employees of Czech Post were recertified during 2006.

In 2007, Česká pojišťovna’s post office presence will be increased through more intensive support for sales acquisition activity and after-sale service.

In this respect, we anticipate dynamic growth in new business generated by this distribution channel, particularly in cities and towns with populations of

under 50,000. In this manner, Czech Post is shaping up to be a promising addition to Česká pojišťovna’s own branch network.

Brokers, Car Dealerships, Leasing Companies, and Tour Operators

In 2006 Česká pojišťovna continued in its sales collaboration with third parties such as brokers, car dealerships, leasing companies, and tour operators.

All of these third parties are served individually on a key account management basis. Individual partners are segmented by the total business they

generate, which also determines the scope and level of the value offering on the part of Česká pojišťovna.

In the brokers segment, Česká pojišťovna focused in particular on further improving day-to-day service, i.e. fast administrative support for individual brokers

throughout the regions. The result of the focus on service quality was appreciated by the brokers, as attested to by Česká pojišťovna’s taking first place

in the Insurance Company of the Year category in a survey conducted by the Association of Czech Insurance Brokers. The Company also received top

rankings in all other categories of the survey.

In the car dealership segment, 2006 saw another year-on-year growth in new contractual partners, with several dozen joining our ranks. Here, too, Česká

pojišťovna’s strategy is based on high quality services – especially in the areas of quality and speed of claims handling.

Among leasing companies and tour operators, Česká pojišťovna maintained its long-term position in 2006, despite heavy competition in the market.

With regard to these third parties, in 2007 we will continue to focus on the quality of our services and continual innovation.

Act on Insurance Intermediaries and Its Impact on the Network, Training of Intermediaries

The first major task of 2006 was to comply with the amendment to Act No. 38/2004 Coll. which entered into force on 1 April 2006. As of that date, all

employees of Česká pojišťovna that are involved in the process of entering into and administering insurance contracts must document absence of criminal

record and professional fitness for the job. Česká pojišťovna meets this statutory condition.

The second principal task in accordance with Act No. 38/2004 Coll. was to train all insurance intermediaries and independent loss adjusters of all VPA who

began operating before 1 January 2005 to ensure they have the basic degree of qualification.

The Sales Training Department trained over 4,000 Česká pojišťovna employees and exclusive insurance agents. Česká pojišťovna also trained up to the

basic degree of professional qualification another 4,071 persons – partners of external distribution networks and employees of Czech Post.

In 2006, we completed the centralization of commissions processing, including complaints, into a single, centralized unit of Česká pojišťovna. Central

administration and processing of commissions increases the effectiveness of processing all commissions, including complaints, for all distribution channels

and agencies of Česká pojišťovna.

Another major initiative in 2006 was the “Commissions Revitalization Project,” which developed a new system for reporting and accounting for commissions

paid to Česká pojišťovna business partners.

A related project entitled “Commissions Stabilization Project” focused on improving how commissions are processed in the product systems and the

operations system. The project made processing more transparent and put in place control and escalation mechanisms.


Non-life Insurance

Description

In 2006, Česká pojišťovna completed a key recent project entitled “Centralization of Non-life Insurance.” This project involved implementing a new

portfolio of non-life products and rolling out new technology for processing insurance contracts, thereby fully automating the processes of setting

premiums and issuing insurance contracts and making client service faster. At the same time, infrastructure was put in place for selling key non-life

insurance products by telephone and over the Internet.

In the claims handling function, which was centralized in 2003, we made further improvements in how work is organized. This allowed the Company to

declare a commitment to clients – 95% of claims are completely processed within five days of receiving the last document.

Thanks to extensive innovation and automation, the Company has built up an excellent reputation among clients, brokers, and car dealerships. In 2006

Česká pojišťovna a.s. won the prestigious Insurer of the Year competition for the third time in a row.

Thanks most importantly to excellent client services in claims handling, Česká pojišťovna is perceived as the leader in service quality. We successfully

managed the claims handling process even in the face of natural catastrophes in early 2006.

Position in Insurance Market

After several years of rapid market expansion in the non-life market, 2006 saw the market’s growth rate slow and market shares underwent a correction.

Market-wide, premiums written grew 2.8% year-on-year. Although Česká pojišťovna did see slower development in premiums written, they nearly reached

2005 levels. The Company phased out several loss-making activities in motor insurance and certain insurance contracts were not renewed upon migration

from the old systems to the new operations and sales IT system. Although both of these initiatives caused premiums written to decline, they had a major

positive impact on the Company’s loss experience.

The result is a slight drop in Česká pojišťovna’s market share (the market in this case is defined as ČAP) by 1 percentage point to 36.4%, which means we

are still the market leader.

Non-life Insurance Performance by Insurance Class

Motor Third Party Liability (MTPL) Insurance

More and more, sales of this insurance class are being impacted by pricing approaches that differ from insurer to insurer, resulting in a widening price gap

between large and small insurance companies. Price cutting by certain competitors is slowing growth in premiums written in the market as a whole.

Exacerbating the unfavorable developments was a decline in new car sales and the market was also impacted by flat or falling sales through leasing

companies and car dealers that are key partners of Česká pojišťovna.

After several years of growth, our market share underwent a correction. Česká pojišťovna abandoned certain loss-making sales policies, causing our share

of the MTPL market to fall by approximately 1.3 percentage points. Despite this, however, our market share remained above 40%. The fact that Česká

pojišťovna is holding its rates at a profitable level forms the basis for our long-term very favorable loss ratio, which was 53.3% in 2006.

Motor Damage Insurance

All of the impacts mentioned above in MTPL insurance were seen in motor damage insurance as well. Although 2006 saw our motor damage premiums

written fall by CZK 0.3 billion to CZK 6.3 billion, the loss ratio fell to 62.3%, its best level in the past six years.

Small Risks

Premiums written in small risks insurance did not reach their 2005 level. The key reason for this was portfolio work, involving migration of insurance

contracts to the new operations system, in which we succeeded in purging the policy portfolio of loss-making contracts as well as contracts where the

company had experienced difficulty in collecting premiums from clients.

Although the natural catastrophes in early 2006 had a negative impact on claims costs, the resulting gross loss ratio remained at 64%.


Agricultural Insurance

All insurance contracts in the agricultural insurance portfolio were migrated to the new system in January 2006. The process was completed successfully,

with over 90% of the existing portfolio being converted. This was followed by new acquisitions spurred by the policy conversion process. Policy conversion

and excellent loss experience in past years, which made it necessary to carry out small price corrections, caused the Company to not reach the premiums

written figures seen last year in this insurance class. Even so, we maintained an 80% market share in this segment. Lower levels of certain crops and cuts

in livestock herd sizes are also having a negative impact on premiums written.

And despite the unfavorable impact of natural hazards (frost and snow resulting in snow mold, flood and hail damage), we succeeded in achieving a very

positive loss result of 62.2%. The Company pays close attention to claims and has identified problematic claims which it subjects to priority control and

supervision.

Large Risks

Premiums written in large risks were slightly above 2005’s level. The market is seeing steadily falling rates and we were no exception. Despite the

negatives, fine-tuned risk management and underwriting helped us to very decent results in this insurance class, despite the fact that the policy portfolio

was impacted by heavy snow and flood catastrophes in the first half of 2006. In terms of claims costs, 2006 was a very good year in that there were no

large-scale claims. The gross loss ratio was 31.2%; the net loss ratio was 73.5%.

Personal Lines

In non-life personal lines, we succeeded in growing premiums written by 2.8% compared to 2005. The biggest year-on-year growth in premiums written

was in liability personal lines, where we saw the positive influence of the conversion of product 31 in 2005. As the conversion of product 51 was postponed

for technical reasons, its impact on premiums written will not appear until 2007. The conversion of the legacy portfolio in this insurance class is helping to

reduce the loss ratio, which was 55% in 2006.

In 2006 we began selling a new household insurance product, launched “pojištění v Kostce,“ and we are successfully developing sales of travel insurance

over the Internet.

Despite the snow-related catastrophes in early 2006, which had an unfavorable impact on insurance of buildings, we managed to keep the overall loss ratio

in personal lines at a profitable 60%.

Claims Paid

2006 was a successful year in terms of claims paid, in spite of the heavy snow and subsequent flood catastrophes that occurred in the winter months.

Claims from both catastrophes totaled approximately CZK 1.5 billion and had a major negative impact on results in insurance of buildings and small risks.

This negative impact was offset by very good performance in other, non-catastrophe insurance classes. Overall, the gross loss ratio in non-life insurance

was 53%.

New Products

We are readying new non-life products for launch in 2007. These include insurance of household pets in the agricultural insurance category, new products

for medium-sized enterprises, and an expansion of risks covered by travel insurance for both individuals and businesses.

Outlook

Česká pojišťovna has introduced a new strategy, entitled “Closer to customers”, which sets the tone for further improving both sales and client service.

In the claims costs area, Česká pojišťovna will implement the results of projects designed to crack down on fraudulent claims, improve customer services,

and achieve cost savings by cooperating with other partners.

In the product development area, Česká pojišťovna is preparing new products that are built on the same foundations as the existing ones, i.e. automated

underwriting, automated pricing, and automated issuing of policies.


Reinsurance

For a long time now, Česká pojišťovna has been placing risks with the world’s largest and strongest reinsurance houses. Reinsurance allows us to pass

some of the risk on to reinsurers, thereby guaranteeing the stability of Česká pojišťovna and protecting us against unexpected volatility in results of

property and casualty insurance as well as in the insurance of special risks.

Česká pojišťovna acquires reinsurance cover both directly and through prominent reinsurance brokerages. In terms of geographic distribution, our reinsurance

contracts respect ongoing changes in reinsurance markets and, in addition to the traditional areas of continental Europe and the London market, we are

turning more and more to overseas reinsurers (USA, Bermuda) as well as to the Asian market (Japan, Korea). When placing risks, the primary criteria are the

reinsurer’s stability and security, which are, to a considerable extent, guaranteed by its rating. The strict criteria we place on reinsurer ratings led to a further

increase in the quality of the reinsurer portfolio and an increase in the average rating of the entire Česká pojišťovna reinsurance program. An integral part of

reinsurance is reinsurer services including know-how transfer, for example when launching new products. Since we are the Czech market leader, our

relations with reinsurers are at the highest possible quality level and reinsurance is an integral part of Česká pojišťovna’s stability and growth.

Unlike 2005, the year 2006 was very calm and successful in terms of reinsurance: there were no major global catastrophes that had any significant negative

impact on the behavior of reinsurance markets or reinsurance rates. Still, however, reinsurers’ cost of capital, which rises with their ratings, is being

reflected more and more in reinsurance terms. In spite of this, Česká pojišťovna is successfully renewing reinsurance contracts at conditions that are just

as good as those achieved in previous years and, in many aspects, even better.

Catastrophic risks will continue to be one of the most important reinsurance areas in the future. In 2006, the Czech insurance market faced a new phenomenon

in natural hazard claims. Due to the abnormal course of last year’s winter, Česká pojišťovna registered a huge number of claims due to heavy snow, further

exacerbated by localized flooding. The high frequency of catastrophic claims and increasing numbers of small claims not covered by reinsurance represent one

of the problem areas that Česká pojišťovna is successfully addressing through its reinsurance program.

In order to optimize the structure of reinsurance cover at Česká pojišťovna we are increasingly using dynamic financial analysis instruments. In addition,

catastrophic reinsurance is modeled using in-house and independent models to determine flood exposure. The Czech Republic has one of the most

progressive insurance markets in this area and Česká pojišťovna, thanks to these instruments (among other factors), is able to manage its risks and adapt

reinsurance cover to the needs of its individual portfolios.

Česká pojišťovna provides inwards reinsurance capacity only to its subsidiaries. Some of this business is subsequently retroceded within the appropriate

reinsurance programs. Since 2004, the Group includes the Cyprus-based reinsurance house CP Re, which is a 100% subsidiary of Česká pojišťovna. The

primary task of this reinsurer is to provide captive reinsurance capacity to companies in the Česká pojišťovna Group.

Nuclear Pool

The Czech Nuclear Pool (“CNP”) is an informal consortium of non-life insurers based on co-insurance and reinsurance of nuclear risks. The CNP operates both

as an insurer of domestic risks and in the area of inwards reinsurance. Due to the unique character of nuclear risks, individual insurance companies usually do

not insure them. The insurers in the CNP each provide their own net lines, the sum of which forms the overall capacity of the CNP for individual types of insured

risks. Since the CNP’s inception, Česká pojišťovna has been the lead co-insurer based on an agreement among insurers participating in the pool. Effective

1 January 2007, the Board of Directors of Česká pojišťovna approved a 10% increase in the Company’s net line for insuring nuclear liability. The CNP’s

executive body is the CNP Office, which is a part of Česká pojišťovna’s organization.

Česká pojišťovna’s share in the overall premiums written by the CNP in 2006 was the highest in CNP history. While in domestic risks insurance there was

a slight (approximately 0.7%) decline in premiums written compared to the previous year, inwards reinsurance premiums written were up 19.9%, which in

terms of Česká pojišťovna’s share represents growth of approximately CZK 13.7 million. In the direct insurance area, the Czech Nuclear Pool provides mainly

nuclear liability insurance and property insurance for Czech nuclear power plants, as well as smaller nuclear risks. In the area of inwards reinsurance, the

CNP cooperates with all the major nuclear pools in the world.

Nuclear risks have a unique standing in the insurance market. In 2006, practically all the major insurers that operate in the Czech market were members of

the Pool. Česká pojišťovna’s share in the overall capacity of the Czech Nuclear Pool was approximately 40%.

So far in its history, the Czech Nuclear Pool has not had any direct insurance claims.

In view of the unique character of the insurance, we are endeavoring to maintain premiums written at 2006’s level.


Life Assurance

Description

The new product DYNAMIK Plus, launched by Česká pojišťovna in the second half of 2005, enriched the core offering of Česká pojišťovna by adding a modern

unit-linked life assurance product that satisfies clients’ demanding requirements not only in terms of breadth of cover, but also in terms of return on amounts

invested. In 2006, in addition to the already mentioned regular-premium product DYNAMIK Plus, Česká pojišťovna’s core life assurance range included the

regular-premium products DYNAMIK and SLUNÍČKO, KOMBI single-premium life assurance, and single-premium endowment life assurance. In addition, the

key product portfolio contains comprehensive accident insurance which in most cases is entered into by clients as part of wider life assurance cover.

Life Assurance Market

The major slowdown in the first half of 2005, which also affected the market’s overall performance in 2005 (market growth was only 1.6% for the year),

was replaced in 2006 by a recovery in the life assurance market. According to figures published by the Czech Insurance Association (ČAP), the market as

a whole grew 4.8% year-on-year, as premiums written increased from CZK 44.9 billion to CZK 47.1 billion. The pace of growth in regular premiums slowed

from 8.9% to 6.7%, while single premiums, which had slumped by 13.3% last year, remained flat in 2006 posting a year-on-year decline of 0.1%.

Key Events of the Past Year

Following the success in 2005 of initiatives focused on increasing the insurance protection of clients who have already had accident insurance cover in

their life policy for several years, in 2006 Česká pojišťovna expanded the initiative to increase insurance protection not only in accident insurance, but in life

assurance itself as well.

This activity marked the beginning of a new sales model for communicating with clients. The previous model of focusing on the “Client” is being replaced

by a new model of focusing on the “Family.” The new approach made it simpler to gain access to the family by creating a space for providing maximum

family service, including the opportunity of comprehensive insurance for all family members, within the context of a single sales meeting with the client.

In response to high market demand, 2006 saw the renewal of the single-premium endowment life assurance product, with certain revisions. Nationwide

sales of the product commenced in July and by year end CZK 135 million in premiums had been written for an average premium of CZK 110,000 per policy.

The return of this product filled a gap in the single-premium segment of the life portfolio and mitigated the decline in our share of the single-premium

endowment life assurance market.

Česká pojišťovna also focused on cross-selling activities last year. Following the proven and successful correspondence initiative, throughout the year selected

clients of Penzijní fond ČP and Home Credit were contacted. The total number of clients contacted was 250,000, in several waves, and they were offered

a price discount on accident insurance.

During all of last year, we continued to provide strong support to the sales force in selling DYNAMIK Plus, the flexible life assurance with an optional unit-linked

investment component. The number of certified insurance consultants grew, and they successfully concluded 24,000 insurance contracts last year. In terms of

premiums written on new policies, this product outpaced its more traditional sister product DYNAMIK in the second half of the year. By the end of 2006, its

share in new business had climbed to 18.4%.

Position in the Insurance Market

Premiums written and collected by Česká pojišťovna in 2006 from clients reached a level of CZK 13.2 billion and overall market share counted 28.1%.

In regular-premium insurance, we succeeded in growing premiums written by 4.6% year-on-year, to CZK 11.8 billion, enabling Česká pojišťovna to maintain

its position as market leader with a share of 34.1%.


Česká pojišťovna is the Czech life

assurance market leader.

Based on a public vote in the Golden Crown 2006

survey, our product DYNAMIK life assurance

was found to be the most popular insurance

product in the Czech Republic.

The number of clients with DYNAMIK life

assurance and its unit-linked version,

DYNAMIK Plus, has reached nearly one million.

Good times with our loved ones,

fleeting everyday experiences,

little joys and big plans – all these

make up the many-colored

caleidoscope of life.

Harmony of relationships

and environment, coupled

with traditional values, give us

a feeling of security and comfort.

Life Assurance Performance by Insurance Class

The growth in premiums written achieved by the new unit-linked life assurance product DYNAMIK Plus in 2005 continued in this year as well. As a category,

insurance linked to investment funds saw premiums written rise by 220% compared to 2005 and DYNAMIK Plus was the third best-selling product of

Česká pojišťovna in 2006.

The best-selling product in the Czech insurance market, DYNAMIK, continued to enjoy strong demand in 2006 on the part of clients who appreciate this

modern product primarily for its flexibility.

Česká pojišťovna achieved positive performance in selling the SLUNÍČKO product - life assurance for children. Compared with 2005, we grew the number

of policies in the portfolio by over 4%.

The decline in premiums written in the pension (annuity) insurance category is the result of attrition in legacy contracts, as no product in this category is

currently offered to clients.

A long-term excellent performer for Česká pojišťovna is the category of supplemental accident insurance, and 2006 was no exception, with premiums

written increasing by 5.5%.

Development of the Life Assurance Policy Portfolio

Regular life assurance premiums in 2006 totaled CZK 11.6 billion for growth of 1% over the same period of last year. The number of contracts in the life

assurance portfolio in 2006 (3.1 million) was down 5% compared to 2005. This development is related to changes in the Česká pojišťovna product offering.

The biggest growth in the portfolio took place in Insurance linked to investment fund (regular life assurance premiums up 175%, number of policies up

120%). The biggest decline, on the other hand, was in Pension (annuity) insurance (regular life assurance premiums down 10%, number of policies down

11%). In order to eliminate longevity risk, Česká pojišťovna is not currently offering any regular-premium pension (annuity) insurance products.

New Products

Effective 1 September 2006, Česká pojišťovna added the modified unit-linked life assurance product PROFI Invest to its line-up. The product was designed

for the external partner OVB with the aim of increasing our share in new business intermediated by OVB. PROFI Invest allows clients to allocate premiums

to portfolios actively managed by the external asset manager Conseq Investment Management as well as to funds managed by ČP INVEST. The launch of

PROFI Invest met the expectations and sales targets of Česká pojišťovna and we look forward to further developing our business relationship with OVB in

the future.

The DYNAMIK Plus product was expanded to include new ČP INVEST funds – the Oil and Energy Industry Fund, the Real Estate Equities Fund, and the

Golden Fund.

Claims Paid

In 2006, claims paid fell by 23% compared to the previous year, to CZK 8.8 billion. This was achieved by completion of the process of converting legacy life

assurance policies to new products in 2005. The total number of claims processed was 526,000.

Like in previous years, the greatest number of claims was in Insurance on survival or death or survival. In terms of monetary volume, the most claims in

2006 (CZK 4.4 billion) were paid on life assurance contracts due to survival of policyholder to policy term.

Outlook

The growth in the insurance market last year sets the stage for another successful year in life assurance. The relatively fast pace of wage growth accompanied

by low inflation and growing public awareness of the advantages and features of life assurance form a firm foundation for the anticipated growth in the life

assurance market in the years to come. We expect that the ratio of life assurance premiums written to GDP will continue to grow, converging to the level

commonly seen in more advanced countries.


Client Services

Česká pojišťovna Client Services encompass all administrative activities related to insurance policies, such as entering policies in the system, making

changes in policies, and processing premium payments. They play an important role in claims handling, from initial reporting to payout. Through the

Communications Center and the Central Mailroom, Client Services handle all written and telephone communications with clients, insurance dealers, and

business partners.

Upon successful completion of centralization of administrative activities from the agencies, Client Services continued in the path of continuously increasing

productivity in all its activities. In 2006, this productivity increased by 10%. This increase was achieved primarily through systematic optimalization of

processes, improvements to the system of employee incentives, and process automation. In addition to increasing productivity, our attention also focused

on achieving cost savings in other areas. For example, 2006 saw the completion of the process of moving the Communications Center from Prague to

Pardubice. More advantageous payment terms were negotiated, and supplier management was improved.

2006 was a breakthrough year for our Communications Center, which in addition to providing services also began to sell insurance to clients who contact

Client Services. In addition to telephone sales, Client Services also prepared sales of insurance over the Internet for MTPL, motor damage, travel insurance,

accident insurance, and liability insurance. Currently, Česká pojišťovna is preparing to further expand the range of products and services offered over the

Internet, so as to continue in future to have the most comprehensive offering of products for sale in this channel and to give clients something extra as well.

In addition to developing direct communication channels (telephone and the Internet), in 2007 Client Services will focus on further processes optimizing.

One of the goals is to train more workers to optimize using the “lean” method.

Investments

Investment Activities

After insurance and reinsurance, Česká pojišťovna’s most important activity area is investments (also sometimes called “financial placements”), which

in financial terms make up the bulk of the Company’s assets. These investments serve to cover both the technical provisions and the Company’s own

equity. That portion of investments that covers the technical provisions is regulated by Regulation No. 303/2004 Coll., implementing certain provisions

of the Insurance Act, which, by placing limits on individual types of investments, regulates the overall structure of the company’s investment portfolio.

Where these regulatory limits leave off, Česká pojišťovna picks up with a number of internal regulations designed to ensure the security, returns, and

liquidity of the investments as well as to ensure that, under all circumstances, Česká pojišťovna is able to meet its obligations to clients in both life and

non-life insurance.

In 2006, Česká pojišťovna posted a profit of CZK 5.292 billion on investments financed by technical provisions. The main driver of this favorable result was

positive development in domestic and international equity markets and our prudent strategy in managing assets and liabilities in fixed-rate interest-bearing

instruments.

Our investments in fixed-rate interest-bearing instruments (particularly bonds) reached 3.51% p.a. in portfolios financed by life assurance provisions,

and 2.84% p.a. on assets covering non-life provisions. In 2006, the yield curve shifted higher and reduced its slope, meaning that prices on bond markets

moved downward. That caused the fair value of bonds, which comprise a significant portion of investments, to decline. On the other hand, however, it also

reduced the fair value of life assurance obligations. Unlike bonds, equity instruments put in a strong performance with returns of 15.68% p.a. in the life

segment and 15.40% for assets financed by non-life insurance provisions. The global equity markets underwent a major correction in the middle of 2006,

but in the second half they made a complete recovery and powered to new record-high levels.


Total investments of life and non-life technical provisions in 2006 are shown in the following graph, entitled “Structure of Investments by Source of

Financing, IFRS Book Value“.

Investments Financed by Life Provisions

As at December 31st, the bulk (73.2%, CZK 50.551 billion) of life technical provision funds was invested in fixed-rate interest-bearing instruments.

Mostly these are financial assets at fair value through profit or loss not held for trading (debt securities, CZK 35.682 billion) and fixed-term bank deposits

(CZK 7.511 billion). This portion of the portfolio consists mainly of domestic and foreign government securities and securities of top-rated issuers, as well

as deposits with highly capitalized domestic and foreign banks. Life assurance provisions are characteristically long in duration and therefore these provisions

are allocated mostly to conservative instruments with longer times-to-maturity, which assure stable returns over the long term.

The second group of assets financed by life provisions, in terms of volume, is equity securities (shares and other securities with variable returns). Their

volume was CZK 15.460 billion, or 22.4% of the total. Shares and unit certificates are investments that give the portfolio long-term growth potential and

constitute an appropriate supplemental component in a portfolio dominated by fixed-income investments, as they optimize returns and diversify risk.

The share of other assets in overall assets at the end of 2006 was 4.4%. This category consisted of trade and other payables, and fixed assets.

Its total monetary value is CZK 3.008 billion and it comprises the remainder of the life assurance portfolio structure as shown in the graph “Structure of

Investments Financed by Life Assurance Provisions, IFRS Book Value”.

The total return on investments financed by life assurance provisions in 2006 was CZK 4.218 billion. Interest and similar revenues totaled CZK 2.061 billion.

A return of CZK 1.628 billion was achieved on securities trading. The difference between revenues and costs related to fixed assets was CZK 35 million.


■ Life technical provisions■ Non-life technical provisions■ Other sources

■ Fixed-income interest-bearing instruments■ Equity securities■ Other assets

■ Fixed-income interest-bearing instruments■ Equity securities■ Other assets

74%

24%

2%

73.2%

22.4%

4.4%

75.6%

0.3%

Structure of Investments by Source Structure of Investments Financed by Structure of Investments Financed by

of Financing, Life Assurance Provisions, Non-life Insurance Provisions,

IFRS Book Value IFRS Book Value IFRS Book Value

24.1%

Investments Financed by Non-life Provisions

As at 31 December 2006, the entire non-life portfolio (CZK 22.390 billion) consisted primarily of fixed-income interest-bearing instruments (75.6%

weighting). Most of these were financial assets at fair value through profit or loss not held for trading (debt securities) totaling CZK 12.562 billion.

Fixed-term bank deposits totaled CZK 2.893 billion.

Of the total amount of non-life insurance provisions, equity securities account for 24.1% (CZK 5.401 billion). This is also shown in the graph: “Structure

of Investments Financed by Non-life Insurance Provisions, IFRS Book Value.” These funds continue to be invested with short investment terms and in

instruments that, in the case of catastrophic loss events, can be converted in a very short time into liquidity to meet obligations toward insurance beneficiaries.

The total return on investments financed by non-life technical provisions in 2006 was CZK 1.074 billion. The biggest driver of this result was investment

and similar income, at CZK 414 million. Trading in foreign currency instruments contributed another CZK 341 million to the overall return.

Structure of Investments by Source of Financing, IFRS Book Value

2006

IFRS line Description – IFRS line Life provisions (CZK) % Non-life provisions (CZK) %

1.03.02.00 Financial assets at fair value through profit or loss 51,804,449,453.51 75.06 18,044,905,398.95 80.59

1.03.02.10 Financial assets held for trading 10,185,308 641.28 14.76 4,047,874,916.90 18.08

1.03.02.11 Debt securities 124,866,666.67 0.18 0.00 0.00

1.03.02.12 Equities and other securities with variable return 9,523,372,264.87 13.80 3,965,737,274.49 17.71

1.03.02.13 Positive market value of derivatives 537,069,709.74 0.78 82,137,642.41 0.37

1.03.02.20 Financial assets at fair value through profit or loss not

held for trading 41,619,140,812.23 60.30 13,997,030,482.05 62.51

1.03.02.21 Debt securities 35,682,241,598.63 51.70 12,561,561,871.74 56.10

1.03.02.22 Equities and other securities with variable return 5,936,899,213.60 8.60 1,435,468,610.31 6.41

1.03.02.24 Other 0.00 0.00 0.00 0.00

1.03.03.00 Available-for-sale financial assets 4,021,899,430.66 5.83 242,552,417.11 1.08

1.03.03.10 Debt securities 4,021,899,430.66 5.83 242,552,417.11 1.08

1.03.03.20 Equities and other securities with variable return 0.00 0.00 0.00 0.00

1.03.04.00 Held-to-maturity investments 1,886,610,183.10 2.73 0.00 0.00

1.03.04.10 Debt securities 1,886,610,183.10 2.73 0.00 0.00

1.03.05.00 Loans and receivables 8,394,266,238.62 12.16 4,102,991,944.23 18.32

1.03.05.10 Credits and loans to banks 8,298,001,137.41 12.02 4,044,617,245.88 18.06

1.03.05.11 Fixed-term bank deposits 7,511,410,327.41 10.88 2,892,696,657.74 12.92

1.03.05.12 Credits and loans 0.00 0.00 168,316,043.14 0.75

1.03.05.14 Receivables under repos 786,590,810.00 1.14 983,604,545.00 4.39

1.03.05.15 Other 0.00 0.00 0.00 0,00

1.03.05.20 Credits and loans to non-bank entities 0.00 0.00 0.00 0.00

1.03.05.21 Loans to non-bank entities, including loans to insureds 0.00 0.00 0.00 0.00

1.03.05.30 Receivables 96,265,101.21 0.14 58,374,698.35 0.26

1.03.05.35 Trade and other receivables 96,265,101.21 0.14 58,374,698.35 0.26

1.04.00.00 Fixed assets 2,911,593,997.07 4.22 0.00 0.00

Total 69,018,819,302.96 100.00 22,390,449,760.29 100.00


Human Resources

Česká pojišťovna strives to acquire and keep the best employees, providing client services at the highest level. In 2006, programs focused in particular on

employee professional and career growth helped to stabilize the Company’s work force. The ongoing trend toward more efficient processes resulted in 2006

in another reduction in the number of employees. The employee head count at year end 2006 was 5,270. This equates to an overall work force reduction of

147 employees compared to 2005. The average number of employees was 5,251, down 311 compared to 2005.

In order to develop management skills, we launched the KOMPAKT program for newly hired managers and Cafeterie Soft Professional Seminars. Additional cycles

of the Experts and Professions Pool development programs were launched and, at the same time, we continued with our series of specialized afternoon seminars

for employees on selected themes. In accordance with Act No. 38/2004 Coll. on Insurance Intermediaries and Independent Loss Adjusters, we organized training

for exclusive insurance consultants, concluding with certification, and in conjunction with an amendment to that Act, we required all employees whose activities

are covered by the amendment to undergo an examination to determine their professional fitness level. Other factors contributing to work force stability included

our internal internship exchange and excursion system and increased standards of behavior and improved service processes.

Česká pojišťovna was declared “Employer of the Year 2006” in recognition of having the best regional HR project. Steadily increasing use of performance-based

compensation and more emphasis on staffing key positions from within the company made Česká pojišťovna more attractive not just for job applicants,

but for existing employees as well. Under the Collective Agreement, company employees receive a range of standard benefits: life assurance contributions,

supplementary pension insurance contributions, meal plan contributions, and health benefits including a health program for managers as well as preventive

care and awareness events for all employees.

The overall trend towards more in-depth knowledge of insurance processes is leading not just to better cooperation between individual Company departments,

but also, and more importantly, to better services for clients of Česká pojišťovna.

Principal Marketing Initiatives and Public-Benefit Activity

In 2006, Česká pojišťovna’s marketing work focused primarily on year-long support for the best-selling life assurance product DYNAMIK, SLUNÍČKO life

assurance for children, Supplementary Pension Insurance, and motor insurance. Product campaigns were designed to further the building of a strong brand

with the highest degree of attractiveness and sales potential in relation to the offerings of individual insurance companies. We supported the communication

of the Company’s key attributes: speed of claims handling and high-quality, modern services with specific, concrete benefits for clients – claims processed

within five days, the option of taking out insurance over the Internet or by telephone, and our ability to adapt insurance policies to meet customer needs.

In addition, the Company focused on communication toward small and medium-sized enterprises and the speed of handling their insurance claims.

In 2006, the Company continued not only in acquiring new customers but also in laying the groundwork for ensuring their long-term loyalty to the brand.

Česká pojišťovna further expanded the product portfolio available through the Czech Post distribution channel by adding sales of MTPL insurance and also

began selling DYNAMIK Plus life assurance through MLM networks.

In 2006 the Company continued in the tradition of supporting long-term and proven sponsorship platforms: ice hockey, the Česká pojišťovna Velká

pardubická Steeplechase, the Škoda Octavia Cup, the CZECH TOP 100, and the Summer Shakespeare Festival.

Also in 2006, Česká pojišťovna continued in its long-standing initiatives in the area of safety, including our long-term sponsorship of the “Česká pojišťovna

Blue Wave” traffic reports. 2004 saw the launch of a Ministry of Transport – BESIP and Česká pojišťovna public-private partnership entitled “Welcome to

Our Town.” Nearly 50 cities and town are now participating in the project and more are signing up all the time. In another project – the ČP Safety Index,

launched last year – a ranking of the safest district and regional capital cities of the Czech Republic is periodically released.

In cooperation with the Police of the Czech Republic, Česká pojišťovna continued in the “Gentleman of the Roads” project – an award for saving lives after

a serious traffic accident, quick reactions, and courage. Another joint traffic safety project of Česká pojišťovna and the Police of the Czech Republic is

“Drive with a smile,” in which from mid-May to the end of October police officers throughout the Czech Republic perform traffic controls together with

school children dressed in special reflective vests from Česká pojišťovna. Offenders receive a child’s drawing of a frowning car and those who follow traffic

rules are presented with a sticker showing a smiling car. Famous race-car drivers such as Karel Loprais, Roman Kresta, and Jarek Janiš also come out to

show their support. All told, over three thousand school children participated in the project in several dozen locations.

In November 2006, Česká pojišťovna joined the European Road Safety Charter, becoming the only Czech financial institution to support this European

Commission initiative. Its aim is to reduce the number of traffic accident deaths to one half its current level by 2010.


Information Technologies

Results of 2006

During 2006, Česká pojišťovna completed the process of building out a strong, centralized IT organization. The specific steps taken to this end were, most

importantly, centrally managed IT support (administration and requests from management) and a strong central IT management function. Other important

factors that also contributed substantially to improving the IT organization included separating the IT operations function from IT development, together

with the IT architecture function which has been separate since 2004. The number of supported distribution channels grew and we made significant

progress in differentiating IT specialists by developing specific professional knowledge and skills. We also increased monitoring by rolling out business

continuity management.

In the IT development area, 2006 saw the Company complete the process of separating operations from development in the last two key systems (the life

assurance system and the commissions processing system) while at the same time significantly speeding up their regular batch processes. Also in 2006

we completed the long-term non-life insurance centralization project by implementing the new TIA system. Last but not least, Česká pojišťovna launched

a new solution for Internet and telephone sales of selected insurance classes.

In the IT operations area, we completed the restructuring of the metropolitan data network as well as implementing and successfully testing Disaster

Recovery for the critical applications TIA and JOK.

Also in 2006, we put into routine operation the major business applications TIA, KDP, and Commissions.

The operations section laid the groundwork for rolling out the ITIL, Service Desk and Migration Management processes. We also completed, to a considerable

extent, the standardization of PCs and notebook computers assigned to end users.

Key security activities of 2006 included a revision of IT security policies, partial revision of internal IT guidelines, involvement of security functions in IT

processes – primarily the Help Desk and Change Management, an independent assessment of the state of IT security, an update of our Business Impact

Analysis (BIA) with an emphasis on drawing up crisis plans for business units and developing workstation configuration standards.

IT Outlook and Strategy

Česká pojišťovna IT will support the segmentation-driven strategy. In terms of new information system functionality, we expect to see strong development

of new life and non-life insurance products. We are preparing an improvement of the data warehouse and simplified reporting. Last but not least, emphasis

is being placed on developing CRM activities at Česká pojišťovna (Contact and Campaign Management).

The IT strategy is also focused on maximizing IT transparency, primarily through SLAs, and complete accountability for IT development. So, in the future

one of the principal IT objectives is for the internal IT functions to take full responsibility for all IT supplies called for by projects. The new IT strategy also

focuses heavily on process optimizing in general, and in particular the implementation of additional processes in accordance with the ITIL methodology.

In addition, the Company is focusing on increasing the efficiency, availability, and operational security of our information systems (optimizing the extensive

systems for managing non-life insurance contracts and processing payments, further improving the JOK application, completing the migration of TIA,

increasing process automation, and completing the separation of IT development from IT operations).

In the finance area, IT strategy is focused primarily on improving the planning process, cost transparency (optimizing the costs of operating and maintaining

information systems), as well as on reducing the number of suppliers.

In the IT architecture and security area, 2007 will see completions of an update of internal IT guidelines with emphasis on ensuring that company

employees receive security training. We will conduct security audits of technologies and processes, revise Company employees’ access to information

assets, and make changes to how information system users are monitored.

The primary goal for the near future is intensive development of products for life assurance (unit-linked life assurance, flexible life assurance), as well as

non-life insurance, supported by the segmented approach and multichannel distribution.

We are planning to conclude the process of migrating the non-life KOS system to TIA; monitor, optimize, and improve batch processes in the TIA, CZP, and

APH systems; improve DWH architecture; further improve the front-end infrastructure of the JOK system; and, last but not least, standardize and

streamline the commissions system.


In the claims handling function, we made

further improvements in how work is

organized. This allowed Česká pojišťovna to

declare a commitment to clients –

95%of the claims are completely

processed within 5 days of receiving

the last document.

MODERN TECHNOLOGIESARE TURNING OUR LIFE INTOA NEVER-ENDING STREAMOF INFORMATION ANDSTIMULI. THE DISTANCESBETWEEN PEOPLE AREGETTING SHORTER,ENABLING THE SHARING OF THOUGHTS, IDEAS, ANDEXPERIENCES. THE WORLDIS GETTING SMALLER, BUT AT THE SAME TIME THE HORIZON OF OURPOSSIBILITIES ANDPOTENTIAL IS EXPANDINGEVEN FURTHER.

Outlook

The Company’s principal short- and mid-term goal continues to be to maintain its existing position in the Czech life and non-life insurance market segments

and at the same time to grow the Company’s value. Česká pojišťovna intends to continue to build its identity as an insurance institution offering insurance

as well as financial products and services to the widest possible clientele.

The Company entered the year 2007 with stabilized non-life insurance portfolios and well established business procedures. We are working hard to

implement new products and internal corporate processes to ensure that investments in new technologies not only increase our potential for success in

business, but also bring savings in administrative overhead costs.


Fees Paid to the Auditor

Type of service For Česká pojišťovna For the Česká pojišťovna Consolidated Group

Paid Of which, Paid Of which,

in 2006 relating to 2006 in 2006 relating to 2006

CZK ’000 accounting period accounting period

Audit-related services 7,735 7,735 5,153 5,153

Other services 22,084 21,918 11,471 10,816

Total 29,819 29,653 16,624 15,969

Basic Elements of Manager Incentives in 2006

Pursuant to the Articles of Association and a decision of the General Meeting, members of the Board of Directors (Supervisory Board), who are also

employees of Česká pojišťovna under a labor contract or appointment, are entitled to Board of Directors (Supervisory Board) member remuneration.

Base Wage

For managers and other employees alike, the base wage is governed by the wage rules set forth in the Collective Agreement. The specific base wage amount

for managerial positions is stipulated individually in the manager’s contract, or by a wage order, and is in line with usual practice in the Czech Republic.

Bonus and Other Variable Wage Components

The annual bonus and possible other variable wage components (performance pay, project pay, etc.) are governed by unified rules. Eligibility for the bonus is

given in written form during the calendar year. The written document in question defines the tasks and targets of the manager, the amount of the bonus, and

rules for payout. The average bonus amount, provided the stipulated tasks are fulfilled, is 4.5 times the base monthly wage and essentially reflects the usual

market level.

Supplementary Information on the FinancialSituation and Financial Performance


Development of Česká pojišťovna’s Solvency Over Time

The table below shows the results of the solvency calculation for 2004 and 2005 pursuant to Regulation No. 303/2004 Coll., and for 2006 pursuant to

Regulation No. 96/2006 Coll. implementing Act No. 363/1999 Coll. on Insurance, as amended.

The long-term development of Česká pojišťovna’s solvency is quite favorable. The drop in Available Solvency Margin in 2006 was caused by a change

in capital in conjunction with payment of a dividend in 2006. Nonetheless, Česká pojišťovna meets solvency requirements by a large margin in both life

and non-life insurance.

CZK billion 2006 2005 2004

Life assurance

Required Solvency Margin 3.4 3.2 3.1

Available Solvency Margin 13.2 14.5 14.2

Non-life insurance

Required Solvency Margin 2.6 2.5 2.6

Available Solvency Margin 6.5 8.4 5.3

Note: Under Regulation No. 303/2004 Coll., reinsurance is included in non-life insurance.

Information on Loans

In 2006 and 2005, the Company did not have any records of loans extended to members of the Board of Directors and/or Supervisory Board.

Subordinated Loan from the Shareholder

Under a Subordinated Loan Agreement, the Company accepted a CZK 2,500,000,000 loan from PPF Group N.V. on 10 June 2003. The loan matures in 2018.

In conjunction with the split-off transaction, this subordinated loan was repaid in 2006 and as of 31 December 2006 Česká pojišťovna had no subordinated

debt – see Note F.15 to the financial statements.

Court, Administrative and Arbitration Proceedings

The Company is party to litigation with the National Property Fund of the Czech Republic (the “NPF”), in which the NPF is seeking consideration under an

Agreement to Agree, which was entered into between the Company and the NPF on 8 October 1997. The Company’s position on the dispute is that the

NPF’s alleged claim does not exist. Based on filings made, information known, and a legal analysis conducted, company management is of the opinion that

the complainant’s claim should not be granted.


Principal Non-financial Investments

The non-financial investments set forth below went mainly on building construction and renovation, furnishings, and information technology.

Year/category Construction Furniture Office equipment Other Total

and renovation and fittings and information

technology

2000 581,906 6,544 195,423 85,981 869,854

1st quarter 2001 10,181 – 40,192 11,929 62,302

2001 536,674 17,310 211,367 75,884 841,235

1st quarter 2002 23,716 2,644 13,499 11,885 51,744

2002 406,452 16,971 385,117 79,489 888,029

1st quarter 2003 67,505 1,446 142,845 7,557 219,352

2003 467,688 10,914 936,667 75,357 1,490,626

1st quarter 2004 78,820 1,487 62,339 6,707 149,353

2004 725,076 12,536 955,269 26,096 1,718,978

1st quarter 2005 226,616 2,250 157,475 4,176 390,517

2005 416,090 17,117 1,116,103 9,291 1,558,601

1st quarter 2006 52,571 607 64,819 72 118,069

2006 357,758 8,933 698,153 9,986 1,074,830

1st quarter 2007 121,848 1,658 73,219 154 196,879

Česká pojišťovna makes non-financial investments only in the Czech Republic and finances them from equity. In future years, Česká pojišťovna expects to

make non-financial investments at a level of roughly CZK 1.2 billion.


Present Value of Land and Buildings

In view of the quantity of the real estate owned by the Company (see, e.g., the number of structures given in the table below), only aggregate figures

are given. Due to excessive size, an item-by-item list could only be included at the expense of reduced ease of orientation in the Annual Report.

None of the real estate owned by Česká pojišťovna is encumbered by mortgage.

Year Land Buildings In process and Total

advance payments

Value at 31 December 2000 TCZK 781,266 6,861,931 333,351 7,976,548

Number number – 225 – 225

Total area m2 1,235,809 – – 1,235,809

Present value at 31 December 2001 TCZK 743,117 7,351,795 435,909 8,530,821


Total area m2 1,221,554 – – 1,221,554



Total area m2 1,082,620 – – 1,082,620

Present value at 31 December 2003 TCZK 797,312 5,740,121 1,074,434 7,611,867


Total area m2 853,298 – – 853,298



Total area m2 830,425 – – 830,425



Total area m2 792,647 – – 792,647



Total area m2 696,018 – – 696,018

Information on Entities in Which Česká pojišťovna Holds a Participating Share Exceeding 10% of Its Own Net Current Period Earnings (as at 31 December 2006; based on figures known to the Company as at the Annual Report compilation date)

Name Registered office ID No. Principal Basic share Stake in basic Acquisition cost

business capital (TCZK) share capital (TCZK)

CP Reinsurance Florinis 11, Nicosia, n/a Reinsurance services 1,141,176 100.00% 1,305,096

company Ltd. Republic of Cyprus

Penzijní fond České

pojišťovny Truhlářská 1106/9, Prague 1 61858692 Pension fund 213,700 100.00% 1,559,137

RAO UES (GDR) Moscow n/a Energy n/a n/a 852,403

ZENTIVA B.V. Fred. Roeskestraat 123, n/a Manufacture 10,486 10.92% 4,753,262

1076 EE Amsterdam of pharmaceuticals


During 2006 the Supervisory Board discharged the tasks required by law and the Company’s Articles of Association. During the year 11 meetings were

held. The Supervisory Board monitored the Board of Directors’ performance and the implementation of the Company’s business activities. It verified

whether the Company conducted its business in compliance with applicable law, the Articles of Association and instructions given by the General Meeting

and decisions of the sole shareholder. The Supervisory Board also dealt with complaints made by the Company’s clients and business partners, which

were delivered to the Supervisory Board.

The four-year terms of the following Supervisory Board members expired in 2006: Eva Dytrychová and Marie Kortová. Marek Orawski was elected to the

Supervisory Board. Jaromír Prokš resigned from the Supervisory Board and František Tlustoš was elected in his place.

On 25 October 2006, the Supervisory Board discussed the resignation of František Tlustoš as Vice Chairman and Member of the Supervisory Board.

It declared 31 October 2006 to be Mr. Tlustoš’s last day in office as Vice Chairman and Member of the Supervisory Board. At the same time it discussed

the resignation of Petr Kellner as Member of the Supervisory Board and declared 31 October 2006 as Mr. Kellner’s last day in office.

On 1 February 2007, the Board of Directors of Česká pojišťovna a.s. discussed a report of the resignation of Ivan Kočárník as Chairman and Member of the

Supervisory Board. Mr. Kočárník resigned at his own request effective 31 January 2007. The request was discussed and approved by the Supervisory

Board on 24 January 2007. Subsequently the Supervisory Board operated in the following configuration: Aleš Minx (Vice Chairman) and Marek Orawski.

During its meetings, the Supervisory Board discussed the Company’s financial performance, the fulfillment of the financial and commercial plan, the

investment policy, and the financial performance of the Company’s subsidiaries. The Supervisory Board monitored the company’s strategic objectives as

well as those of its financial group.

The Board of Directors submitted to the Supervisory Board the financial performance results for 2006, which are part of the audited year-end financial

statements. The Board of Directors also submitted its proposal for distribution of the Company’s earnings, including distribution of the earnings from the

2006 accounting period, which was discussed by the Board of Directors and which the Board of Directors intends to recommend for approval to the sole

shareholder acting in the capacity of the General Meeting, as well as the consolidated financial performance results for the 2006 accounting period. The

Supervisory Board also received for its review the Report on Relations Between the Company and Related Entities in 2006 (compiled in accordance with

Section 66a(9) of Act No. 513/1991 Coll., the Commercial Code).

The Supervisory Board has reviewed the year-end financial statements for 2006, the consolidated financial statements for 2006, the Board of Directors’

proposed distribution of the company’s earnings, including the distribution of the earnings from the 2006 accounting period, and the Report on Relations

Among Related Parties, 2006 Accounting Period, and has found nothing therein that would constitute grounds to pronounce a negative Supervisory Board

opinion on the contents of the above mentioned documents. Within its review, the Supervisory Board further found that the proposed earnings distribution

will not have a negative impact on the company’s financial situation, with regard for the company’s current business position. In light of these facts,

the Supervisory Board recommends that the sole shareholder exercise the power of the General Meeting to approve the Company’s year-end financial

statements for the 2006 accounting period, the consolidated financial statements for the 2006 accounting period, and the earnings distribution according

to the proposals submitted.

Prague, 19 April 2007

Aleš Minx Marek Orawski

Vice Chairman of the Supervisory Board Member of the Supervisory Board


Supervisory Board’s Report

Standard & Poor’s reaffirmed the creditrating and financial strength rating ofČeská pojišťovna at BBB with stableoutlook, confirming Česká pojišťovna’sposition in the top grade – the investmentgrade.

In its latest evaluation of Českápojišťovna’s financial and credit position,Moody’s changed the outlook of Českápojišťovna’s Baa3 financial strength ratingfrom “stable” to “positive.”

History gives us unrepeatable experiences.

The most valuable things about the past are

reflected in the present. The only limit

on future possibilities is the variety

of our own ambitions and plans.

Auditor’s Report

Auditor’s report to the shareholders of Česká pojišťovna a.s.

Financial statements

On the basis of our audit, on 30 March 2007 we issued an auditor’s report on the Company’s statutory financial statements, which are included in this

annual report, and our report was as follows:

"We have audited the accompanying separate financial statements of Česká pojišťovna a.s., which comprise the balance sheet as of 31 December 2006,

and the income statement, the statement of changes in equity and the cash flow statement for the year then ended and the notes to these separate

financial statements including a summary of significant accounting policiess and other explanatory notes. Information about the company is stated in point

A.1. of the notes to these separate financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these separate financial statements of Česká pojišťovna a.s. in accordance with the

Act on Accounting and relevant legislation of the Czech Republic and in accordance with International Financial Reporting Standards as adopted by the EU.

This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of separate financial

statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making

accounting estimates that are reasonable in the circumstances.

Auditor’s Responsibility

Our responsibility is to express an opinion on these separate financial statements based on our audit. We conducted our audit in accordance with the Act

on Auditors and International Standards on Auditing and the relevant guidance of the Chamber of Auditors of the Czech Republic. Those standards require

that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from

material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the separate financial statements. The procedures

selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the separate financial statements, whether

due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of

the separate financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an

opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the

reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the separate financial statements.

We believe, that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the separate financial statements present fairly in all material respects the assets, liabilities and the financial position of Česká pojišťovna a.s.

as of 31 December 2006, and of its expenses, revenues and financial performance and its cash flows for the year then ended in accordance with the Act on

Accounting and relevant legislation of the Czech Republic and in accordance with International Financial Reporting Standards as adopted by the EU.“

KPMG Česká republika Audit, s.r.o. Tel.: +420 222 123 111Pobřežní 648/1a Fax: +420 222 123 100186 00 Praha 8 Internet: www.kpmg.czČeská republika

KPMG Česká republika Audit, s.r.o., a Czech limited liability IČ 49619187 Obchodní rejstřík Živnostenská banka, Praha 1company and a member firm of KPMG network DIČ CZ49619187 vedený Městským soudem v Praze č.ú./account no. of independent member firms affilated oddíl C, vložka 24185. 466016004/0400with KPMG International, a Swiss cooperative.


Report on relations between related parties

We have also reviewed the factual accuracy of the information disclosed in the report on relations between related parties of Česká pojišťovna a.s. for the

year ended 31 December 2006. This report on relations between the related parties is the responsibility of the Company’s management. Our responsibility

is to express our view on the report on relations based on our review.

We conducted our review in accordance with International Standards on Auditing and the relevant guidance of the Chamber of Auditors of the Czech

Republic. Those standards require that we plan and perform the review to obtain moderate assurance that report on relations is free of material factual

misstatement. A review is limited primarily to inquiries of Company personnel and analytical procedures and examination, on a test basis, of the factual

accuracy of information, and thus provides less assurance than an audit. We have not conducted an audit of the report on relations and, accordingly, we do

not express an audit opinion.

Nothing has come to our attention based on our review that indicates that the information disclosed in the report on relations between related parties of

Česká pojišťovna a.s. for the year ended 31 December 2006 contains material factual misstatements.

Annual report

We have audited the consistency of the annual report with the audited financial statements. This annual report is the responsibility of

Company’s management. Our responsibility is to express our opinion on the consistency of the annual report with the audited financial statements based

on our audit.

We conducted our audit in accordance with the Act on Auditors and International Standards on Auditing and the relevant guidance of the Chamber of

Auditors of the Czech Republic. Those standards require that we plan and perform the audit to obtain reasonable assurance that the information disclosed

in the annual report describing matters that all also presented in the financial statements is, in all material respects, consistent with the audited financial

statements. We believe that our audit provides a reasonable basis for the auditor’s opinion.

In our opinion, the information disclosed in the annual report is, in all material respects, consistent with the audited financial statements.

Prague, 31 August 2007

KPMG Česká republika Audit, s.r.o. František Dostálek

Licence numer 71 Partner

Licence number 176



Balance Sheet 70

Income Statement 71

Statement of Changes in Equity 72

Statement of Cash Flows 73

Notes to the Financial Statements 74

A. GENERAL 74

A.1. Description of the Company 74

A.2. Statutory Bodies 74

A.3. Statement of compliance 75

A.4. Basis of preparation 75

B. SEGMENT REPORTING 76

C. SUBSIDIARIES AND ASSOCIATES 80

D. SIGNIFICANT ACCOUNTING POLICIES

AND ASSUMPTIONS 83

D.1. Significant accounting policies 83

D.2. Principal assumptions 92

D.3. Terms and conditiions of insurance

and investment contracts that have a material effect on

the amount, timing and uncertainty of future cash flows 96

D.4. Changes in accounting policy and accounting

pronouncements adopted since 1 January 2006 99

E. RISK EXPOSURES, RISK MANAGEMENT

OBJECTIVES AND PROCEDURES 100

E.1. Derivate financial instruments 100

E.2. Company’s risk management 101

E.3. Hedging 113

E.4. Risk management and control 113

F. NOTES TO THE BALANCE SHEET AND

INCOME STATEMENT 115

F.1. Intangible assets 115

F.2. Property, plant and equipment 117

F.3. Investment property 118

F.4. Financial assets 118

F.5. Non-current assets held for sale 122

F.6. Reinsurance assets 123

F.7. Deferred tax 123

F.8. Other assets 124

F.9. Prepayments and accured income 124

F.10. Cash and cash equivalents 125

F.11. Impairment losses on loans and advances to banks

and customers, receivables, non-current assets held

for sale, inventories and other assets recognised 125

Financial Part

ANNUAL REPORT 69

F.12. Capital and reserves 126

F.13. Insurance liabilities 127

F.14. Financial liabilities for investment contracts with DPF 131

F.15. Subordinated liabilites 132

F.16. Other liabilites evidenced by paper 132

F.17. Financial liabilities at fair value through profit or loss 133

F.18. Liabilities to banks 133

F.19. Provisions 133

F.20. Payables 134

F.21. Accruals and deferred income 135

F.22. Net insurance premium revenue 135

F.23. Interest income and similar income 137

F.24. Other income from financial assets 138

F.25. Income from investment property 139

F.26. Net fee and commission income, and income

from service activities 139

F.27. Other income 140

F.28. Net insurance claims and benefits 140

F.29. Investment contract benefits 141

F.30. Interest and similar expense 141

F.31. Other expense from financial assets 141

F.32. Expense from investment property 142

F.33. Acquisition costs and other operating expenses 142

F.34. Other expenses 143

F.35. Net income from investments in subsidiaries

and associates 144

F.36. Income tax expense 144

F.37. Repurchase and resale agreements 145

F.38. Off balance sheet items 145

F.39. Related parties 146

F.40. Earnings per share 151

F.41. Fair value of assets and liabilities 152

F.42. Critical accounting estimates and judgements 153

G. SUBSEQUENT EVENTS 154

G.1. Merger of CP Reinsurance company Ltd. and

FOX Credit Services Ltd. 154

G.2. The Project for the sale of significant land and buildings 154

G.3. Hurricane Kyrril 154

G.4. âSOB squeeze-out 154


Balance Sheetas at 31 December

TCZK Note 2006 2005

Intangible assets F.1 1,436,102 1,425,055

Subsidiaries and associates C 3,950,694 16,728,599

Property, plant and equipment F.2 3,267,516 3,970,050

Investment property F.3 2,911,611 3,230,699

Financial assets available for sale F.4 5,174,571 1,779,769

Financial assets held to maturity F.4 1,886,610 1,870,728

Financial assets at fair value through profit or loss F.4 69,855,005 67,897,066

Loans and receivables F.4 22,343,190 25,357,831

Non-current Assets Held for Sale F.5 214,964 –

Reinsurance assets F.6 8,266,244 7,888,762

Other assets F.8 55,912 56,670

Prepayments and accrued income F.9 751,926 676,888

Cash and cash equivalents F.10 1,171,098 249,087

Total assets 121,285,443 131,131,204

Issued capital F.12 4,000,000 2,980,963

Reserves F.12 3,874,961 4,094,378

Retained earnings F.12 9,202,536 13,787,834

Total equity 17,077,497 20,863,175

Insurance liabilities F.13 88,368,875 87,652,105

Financial liabilities for investment contracts with DPF F.14 1,308,480 1,065,924

Subordinated liabilities F.15 – 2,500,000

Other liabilities evidenced by paper F.16 – 4,068,190

Financial liabilities at fair value through profit or loss F.17 392,236 511,817

Liabilities to banks F.18 277,129 264,910

Provisions F.19 2,292,848 2,275,839

Payables F.20 9,297,336 9,971,765

Deferred tax liabilities F.7 711,423 603,699

Other liabilities 46,971 38,635

Accruals and deferred income F.21 1,512,648 1,315,145

Total liabilities 104,207,946 110,268,029

Total equity and liabilities 121,285,443 131,131,204

ANNUAL REPORT 71

Income Statementfor the year ended 31 December

TCZK Note 2006 2005

Insurance premium revenue 37,836,087 39,967,689

Insurance premium ceded to reinsurers -11,056,134 -12,422,952

Net insurance premium revenue F.22 26,779,953 27,544,737

Net income from investments in subsidiaries and associates F.35 2,863,487 1,524,364

Interest and similar income F.23 2,541,356 2,641,998

Other income from financial assets F.24 4,040,822 4,482,584

Income from investment property F.25 341,024 297,525

Fee and commission income F.26 258,654 244,623

Other income F.27 703,509 891,251

Total revenue 37,528,805 37,627,082

Insurance claims and benefits incurred -23,158,302 -28,850,782

Insurance claims and benefits recoverable from reinsurers 5,364,393 6,540,514

Net insurance claims and benefits F.28 -17,793,909 -22,310,268

Investment contracts benefits F.29 -242,556 -312,666

Interest and similar expenses F.30 -208,720 -345,209

Other expenses from financial assets F.31 -159,745 -220,856

Expenses from investment property F.32 -305,939 -650,763

Acquisition costs and other operating expenses F.33 -6,299,003 -6,007,583

Fee and commission expenses F.26 -375,088 -341,107

Other expenses F.34 -1,790,671 -1,601,141

Total expenses -27,175,631 -31,789,593

Profit before tax 10,353,174 5,837,489

Income tax expense F.36 -2,059,974 -1,196,213

Profit after tax F.12 8,293,200 4,641,276

Net profit for the year 8,293,200 4,641,276

Weighted average number of shares 40,000 40,000

Basic and Diluted earning per share (CZK) F.40 207.330 116.032


Statement of Changes in Equityfor the year ended 31 December

2006 Issued Revaluation Revaluation Legal and Catastrophe Retained Total

capital financial – Land and statutory and earnings

assets AFS buildings reserves equalisation

TCZK reserves

Balance as at 1 January 2,980,963 899,648 166,131 682,478 2,346,121 13,787,834 20,863,175

Total gains and losses recognized

in equity – -364,359 -14,581 – – 19,184 -359,756

Profit for the year – – – – – 8,293,200 8,293,200

Total recognized income (expense)

for the period – -364,359 -14,581 – – 8,312,384 7,933,444

Net allocation to legal and statutory

reserves (other than from Net profit) – – – – – – –

Dividends to shareholders – – – – – -11,500,904 -11,500,904

Increase of the share capital 1,019,037 – – – – -1,019,037 –

Other movements 1) – – – – – -218,218 -218,218

Changes in catastrophe

and equalisation reserves – – – – 159,523 -159,523 –

Balance as at 31 December 4,000,000 535,289 151,550 682,478 2,505,644 9,202,536 17,077,497

1) Includes an impact of the split-off of Home Credit in amount of TCZK 218,892. See also note C.

2005 Issued Revaluation Revaluation Legal and Catastrophe Retained Total

capital financial – Land and statutory and earnings

assets AFS buildings reserves equalisation

TCZK reserves

Balance as at 1 January 2,980,963 686,055 122,971 682,478 2,680,919 8,811,539 15,964,925

Total gains and losses recognized

in equity – 213,593 43,160 – – – 256,753

Profit for the year – – – – – 4,641,276 4,641,276

Total recognized income (expense)

for the period – 213,593 43,160 – – 4,641,276 4,898,029

Net allocation to legal

and statutory reserves

(other than from Net profit) – – – – – – –

Dividends to shareholders – – – – – – –

Increase of the share capital – – – – – – –

Other movements – – – – – 221 221

Changes in catastrophe

and equalisation reserves – – – – -334,798 334,798 –

Balance as at 31 December 2,980,963 899,648 166,131 682,478 2,346,121 13,787,834 20,863,175

ANNUAL REPORT 73

Statement of Cash Flows for the year ended 31 December

TCZK 2006 2005Cash flows from operating activitiesProfit before tax 10,353,174 5,837,489Adjustments for:Depreciation and amortisation 970,017 880,328Impairment and reversal of impairment of current and non current assets 171,112 245,041Profit/Loss on disposal of PPE, intangible assets and investment property 27,627 336,227Profit/Loss on sale of Financial Assets -2,580,644 -3,268,858Gains/losses on disposal of consolidated subsidiaries and associates -3,013,630 -1,525,529Interest expense 208,720 345,209Interest income -2,541,356 -2,641,998Income/expenses not involving movements of cash 62,230 180,849Purchase of financial assets at FVPL held for trading -15,448,095 -18,572,594Proceeds from financial assets at FVPL held for trading 14,923,719 21,519,638Change in loans and advances to banks 3,029,351 -2,558,062Change in loans and advances to customers 327,955 594,431Change in receivables -517,381 -2,901,787Change in reinsurance assets -377,482 -2,364,872Change in other assets, prepayments and accrued income -75,038 274,125Change in payables -1,008,712 2,690,395Change in financial liabilities for investment contract with DPF 242,556 312,665Change in financial liabilities at FVPL held for trading -119,581 -1,120,192Change in liabilities to banks 10,715 27,669Change in insurance liabilities 716,770 4,042,439Change in other liabilities, accruals and deferred income 197,503 -552,980Change in other provisions 17,009 -11,076Cash flows arising from taxes on income -1,569,237 -2,041,349Net cash from operating activities 4,007,302 -272,792Cash flows from investing activitiesInterest received 2,475,250 2,570,654Dividends received 2,212,696 1,888,091Purchase of tangible assets and intangible assets -1,120,961 -1,225,665Purchase of financial assets at FVPL not held for trading -27,685,936 -40,989,970Purchase of financial assets available for sale -4,260,346 –Purchase of investment property -62,218 -268,637Acquisition of subsidiaries and associates, net of cash acquired -350,545 -6,014,000Proceeds from disposals of tang. and intang. assets 623,856 66,759Proceeds from financial assets at FVPL not held for trading 28,033,616 42,367,962Proceeds from financial assets held to maturity – 310,217Proceeds from financial assets available for sale 1,074,364 –Proceeds from sale of investment property 259,330 437,888Proceeds from disposal of subsidiaries and associates and other proceeds from subsidiaries and associates 7,441,245 1,587,031Other investing activities -43,570 –Net cash from investing activities 8,596,781 730,330Cash flows from financing activitiesDrawing of other loans 4,054,895 –Proceeds from the issue of other liabilities evidenced by paper – 60,000Payment of other liabilities evidenced by paper -3,989,955 -32,000Interest paid -235,232 -360,737Dividends paid to shareholders -11,500,904 –Net cash from financing activities -11,671,196 -332,737Net increase (decrease) in cash and cash equivalents 932,887 124,801Cash and cash equivalents as at 1 January 249,087 119,569Effect of exchange rate changes on cash and cash equivalents -10,876 4,717Cash and cash equivalents as at 31 December 1,171,098 249,087


Notes to the Financial Statements

A. GENERAL

A.1. DESCRIPTION OF THE COMPANY

âeská poji‰Èovna a.s. (”âeská poji‰Èovna” or “âP” or “the Company”) is a composite insurer offering a wide range of life and non-life insurance products

and is domiciled in the Czech Republic. The Company was incorporated on 1 May 1992, as a joint stock company and is the successor to the former

state-owned insurance company âeská státní poji‰Èovna.

Structure of Shareholders

Till 22 December 2006 100% shares of âeská poji‰Èovna a.s. were owned by PPF Group N.V. domiciled in the Netherlands.

On 22 December 2006 100% shares of âeská poji‰Èovna a.s. were transferred from PPF Group N.V. to a holding company CZI Holdings N.V., domiciled in the

Netherlands, which was established by PPF Group N.V. to manage its insurance activities. The effective change of control occurred on 31 December 2006.

The PPF Group N.V. continues to be the Company’s ultimate parent company.

Registered Office:

Spálená 75/16

113 04 Prague 1

Czech Republic

ID number: 45 27 29 56

The Directors authorised the financial statements for issue on 30 March 2007.

A.2. STATUTORY BODIES

The Board of Directors as at the Balance Sheet Date:

Chairman: Ladislav Bartoníãek, Prague

Vice Chairman: Milan Madûryã, Zlín

Ladislav Chvátal, Prague

Members: Jifií ·mejc, Prague

Jan JeÏdík, Liberec

Ladislav Chvátal has accepted a position of the Vice Chairman of the Board of Directors on 26 September 2006.

At least two members of the Board of Directors, of whom one must be the Chairman or the Vice-Chairman, must act together in the name of the Company

in relation to third parties, courts and other bodies. When signing on behalf of the Company, the signatures and positions of at least two members of the

Board of Directors, one of which one must be the Chairman or the Vice-Chairman, must be appended to the designated business name of the Company.

The Supervisory Board as at the Balance Sheet Date:

Chairman: Ivan Koãárník, Prague

Vice Chairman: Ale‰ Minx, Prague

Members: Marek Orawski, Havífiov

ANNUAL REPORT 75

On 21 and 22 February 2006, the election of the Supervisory Board members was held where, in accordance with the Commercial Code, one new member

was elected by the Company’s employees. The newly elected member is Marek Orawski, with effect from 1 March 2006. He replaced former employee

elected Marie Kortová and Eva Dytrychová. On 22 March 2006, the Supervisory Board discussed the resignation of Jaromír Prok‰ from the Supervisory

Board and co-opted Franti‰ek Tlusto‰ to the vacated position, based on the recommendation of the Board of Directors. In October 2006 Franti‰ek Tlusto‰

and Petr Kellner resigned from their positions and subsequently the sole shareholder acting decided that starting 1 November 2006 the Supervisory Board

would consist of 3 members only. Accordingly Franti‰ek Tlusto‰ and Petr Kellner resigned from their positions in October 2006.

On 31 January 2007 Ivan Koãárník resigned from his position as chairman and a member of the Supervisory Board.

A.3. STATEMENT OF COMPLIANCE

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and their interpretations as adopted by

the International Accounting Standards Board (IASB) and International Financial Reporting Standards as adopted by the European Union (EU) in accordance

with the IAS Regulation (EC 1606/2002). None were adopted prior to their effective date.

The management has reviewed those standards and interpretations adopted by the EU at the date of issue of the financial statements but which were not

effective at that date. An assessment of the expected impact of these standards and interpretations on the Company is shown in note D.4.

A.4. BASIS OF PREPARATION

The local accounting legislation requires the Company to prepare these separate financial statements in accordance with IFRS (as adopted by EU – see

note A.3.). The Company also prepares consolidated financial statements for the same period in accordance with IFRS.

The financial statements are presented in Czech Crowns (“CZK”), rounded to the nearest thousand.

The financial statements have been prepared on the historical cost basis except that the following assets and liabilities which are stated at their fair value:

derivative financial instruments, financial instruments held for trading, financial instruments designated upon initial recognition as valued at fair value

through profit or loss, financial instruments classified as available-for-sale and investment properties.

Non-current assets and disposal groups held for sale are stated at the lower of carrying amount and fair value less costs to sell.

The preparation of the financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the

application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on

historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making

the judgements about carrying values of assets and liabilities that cannot readily be determined from other sources. The actual values may differ from

these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the

estimate is revised if the revision affects only that period or in both the period of the revision and future periods if the revision affects both the current and

future periods.


B. SEGMENT REPORTING

BALANCE SHEET BY BUSINESS SEGMENT as at 31 December

2006 Non-life Life Non-allocated Total

TCZK

Assets

Intangible assets 1,035,722 400,380 – 1,436,102

Subsidiaries and associates 1,255,749 2,694,945 – 3,950,694

Property, plant and equipment 1,261,504 2,006,012 – 3,267,516

Investment property – 2,911,611 – 2,911,611

Financial assets available-for-sale 242,552 4,932,019 – 5,174,571

Financial assets held-to-maturity – 1,886,610 – 1,886,610

Financial assets at fair value through profit or loss 18,050,380 51,804,625 – 69,855,005

Loans and receivables 12,417,502 9,898,432 27,256 22,343,190

Non-current asset held for sale – 214,964 – 214,964

Reinsurance assets 7,437,017 829,227 – 8,266,244

Other assets – – 55,912 55,912

Prepayments and accrued income 657,697 94,229 – 751,926

Cash and cash equivalents 278,522 892,576 – 1,171,098

Total assets 42,636,645 78,565,630 83,168 121,285,443

Liabilities

Insurance liabilities 21,869,457 66,499,418 – 88,368,875

Financial liabilities for investment contracts with DPF – 1,308,480 – 1,308,480

Financial liabilities at fair value through profit or loss 21,788 370,448 – 392,236

Liabilities to banks – 277,129 – 277,129

Provisions 2,216,129 76,719 – 2,292,848

Payables 7,300,317 1,358,040 638,979 9,297,336

Deferred tax liabilities – – 711,423 711,423

Other liabilities – – 46,971 46,971

Accruals and deferred income 1,093,080 419,568 – 1,512,648

Total liabilities 32,500,771 70,309,802 1,397,373 104,207,946

Shareholders’ equity – – – 17,077,497

Total shareholders’ equity and liabilities – – – 121,285,443

ANNUAL REPORT 77


TCZK

Assets

Intangible assets 993,263 431,792 – 1,425,055

Subsidiaries and associates 1,308,408 15,420,191 – 16,728,599

Property, plant and equipment 353,986 3,616,064 – 3,970,050

Investment property – 3,230,699 – 3,230,699

Financial assets available-for-sale – 1,779,769 – 1,779,769

Financial assets held to maturity – 1,870,728 – 1,870,728

Financial assets at fair value through profit or loss 11,210,927 56,686,139 – 67,897,066

Loans and receivables 15,516,153 9,814,441 27,237 25,357,831

Reinsurance assets 7,106,207 782,555 – 7,888,762

Other assets – – 56,670 56,670

Prepayments and accrued income 582,230 94,658 – 676,888

Cash and cash equivalents 39,030 210,057 – 249,087

Total assets 37,110,204 93,937,093 83,907 131,131,204

Liabilities

Insurance liabilities 21,786,557 65,865,548 – 87,652,105

Financial liabilities for investment contracts with DPF – 1,065,924 – 1,065,924

Subordinated liabilities – – 2,500,000 2,500,000

Other liabilities evidenced by paper 318,189 3,750,001 – 4,068,190

Financial liabilities at fair value through profit or loss 136,389 375,428 – 511,817

Liabilities to banks 109,797 155,113 – 264,910

Provisions 2,211,294 64,545 – 2,275,839

Payables 8,318,340 1,398,109 255,316 9,971,765

Deferred tax liabilities – – 603,699 603,699

Other liabilities – – 38,635 38,635

Accruals and deferred income 902,170 412,975 – 1,315,145

Total liabilities 33,782,736 73,087,643 3,397,650 110,268,029

Shareholders’ equity – – – 20,863,175

Total shareholders’ equity and liabilities – – – 131,131,204


INCOME STATEMENT BY BUSINESS SEGMENT for the year ended 31 December


TCZK

Net insurance premium revenue 14,620,906 12,159,047 – 26,779,953

Net income from investments in subsidiaries and associates 1,392,845 1,470,642 – 2,863,487

Interest and similar income 479,390 2,061,966 – 2,541,356

Other income from financial assets 1,114,515 2,926,307 – 4,040,822

Income from investment property – 341,024 – 341,024

Fee and commission income 246,171 12,483 – 258,654

Other income 178,898 524,611 – 703,509

Total revenue 18,032,725 19,496,080 – 37,528,805

Net insurance claims and benefits -8,586,513 -9,207,396 – -17,793,909

Investment contracts benefits – -242,556 – -242,556

Interest and similar expenses -25,002 -53,808 -129,910 -208,720

Other expenses from financial assets -79,974 -79,771 – -159,745

Expenses from investment property – -305,939 – -305,939

Acquisition costs and other operating expenses -3,661,690 -2,637,313 – -6,299,003

Fee and commission expenses -189,006 -186,082 – -375,088

Other expenses -816,929 -973,742 – -1,790,671

Total expenses -13,359,114 -13,686,607 -129,910 -27,175,631

Profit before tax 4,673,611 5,809,473 -129,910 10,353,174

Income tax expense – – -1,929,493 -1,929,493

Deferred tax – – -130,481 -130,481

Net profit for the year 4,673,611 5,809,473 -2,189,884 8,293,200

Profit attributable to equity holders 4,673,611 5,809,473 -2,189,884 8,293,200


TCZK

Net insurance premium revenue 13,709,515 13,835,222 – 27,544,737

Net income from investments in subsidiaries and associates 678,467 845,897 – 1,524,364

Interest and similar income 566,360 2,075,638 – 2,641,998

Other income from financial assets 386,407 4,096,177 – 4,482,584

Income from investment property – 297,525 – 297,525

Fee and commission income 231,196 13,427 – 244,623

Other income 135,822 755,429 – 891,251

Total revenue 15,707,767 21,919,315 – 37,627,082

Net insurance claims and benefits -9,486,707 -12,823,561 – -22,310,268

Investment contracts benefits – -312,666 – -312,666

Interest and similar expenses -45,459 -112,020 -187,730 -345,209

Other expenses from financial assets -203,689 -17,167 – -220,856

Expenses from investment property – -650,763 – -650,763

Acquisition costs and other operating expenses -3,107,851 -2,899,732 – -6,007,583

Fee and commission expenses -100,545 -240,562 – -341,107

Other expenses -505,686 -1,095,455 – -1,601,141

Total expenses -13,449,937 -18,151,926 -187,730 -31,789,593

Profit before tax 2,257,830 3,767,389 -187,730 5,837,489

Income tax expense – – -1,488,251 -1,488,251

Deferred tax – – 292,038 292,038

Net profit for the year 2,257,830 3,767,839 -1,383,943 4,641,276

Profit attributable to equity holders 2,257,830 3,767,839 -1,383,943 4,641,276

ANNUAL REPORT 79

The following table shows key figures per business segment:

2006 Non-life Life Total

TCZK

Capital expenditure -432,764 -722,904 -1,155,668

Depreciation and amortisation -635,838 -334,179 -970,017

Impairment losses recognised -79,974 -108,297 -188,271

Reversal of impairment losses 72,794 4,695 77,489

2005 Non-life Life Total

TCZK

Capital expenditure -543,464 -739,412 -1,282,876

Depreciation and amortisation -491,216 -389,112 -880,328

Impairment losses recognised -203,689 -164,085 -367,774

Reversal of impairment losses 16,612 156,579 173,191

Inter – segment pricing is determined on an arm’s length basis.

Measurement of segment assets and liabilities and segment revenues and results is based on the accounting policies set out in the accounting policy

notes.

The Company comprises Non-life insurance and Life insurance as the main business segments. Note D.3. of the financial statements provides further

information about significant terms and conditions of insurance products.

Products offered by reported business segments include:

Non-life:

Property and liability

Motor third party liability

Life:

Traditional life

Unit linked

Health

GEOGRAPHICAL SEGMENTThe Company operates mainly in the Czech Republic and in EU countries. More than 99% of the income from insurance contracts comes from clients in

the Czech Republic.


C. SUBSIDIARIES AND ASSOCIATES

The following table provides details about the Company’s subsidiaries and associates:

2006 Country Cost of Inpairment Net Proportion Proportion Accounting Note

investment loses cost of of of voting treatment

investment ownership power

TCZK interest

CP Reinsurance company Ltd. Cyprus 1,305,096 – 1,305,096 100.0 100.0

CP Strategic Investments B.V. Netherlands 391,530 – 391,530 100.0 100.0

âeská poji‰Èovna, a.s.

v Ruské federaci Russia 291,667 – 291,667 100.0 100.0

âP DIRECT, a.s. Czech Republic 80,000 – 80,000 100.0 100.0

âP finanãní servis a.s. v likvidaci Czech Republic 75,000 – 75,000 100.0 100.0

âeská poji‰Èovna ZDRAVÍ a.s. Czech Republic 191,250 – 191,250 100.0 100.0

Penzijní fond

âeské poji‰Èovny, a.s. Czech Republic 1,559,137 – 1,559,137 100.0 100.0

FOX Credit Services Ltd. Cyprus 0 – 0 100.0 100.0 3)

Univerzální správa majetku a.s. Czech Republic 1,103 – 1,103 100.0 100.0

Contractual Digital Floor, a.s. Czech Republic 510 – 510 51.0 51.0

Nadaãní fond KarlÛv most Czech Republic 5,000 – 5,000 100.0 100.0

První Callin agentura a.s. Czech Republic 153,004 -150,000 3,004 100.0 100.0 11)

âP INVEST

investiãní spoleãnost, a.s. Czech Republic 45,758 – 45,758 100.0 100.0 10)

Finanãní servis o.o.o. Russia 1,566 – 1,566 100.0 100.0 13)

REFICOR s.r.o. Czech Republic 73 – 73 100.0 100.0 14)

Total 4,100,694 -150,000 3,950,694 – – –

Detailed information about transactions with subsidiaries of the Company is provided below. Unless disclosed otherwise, the sales were made outside the

PPF Group.

1) Split-off of HC Holding a.s. and Home Credit B.V.

At a shareholders meeting held on 19 July 2006 (the split-off effective day) the sole shareholder approved a transformation of the Company via a split-off

with the incorporation of a new company Home Credit Grand Holding a.s. The transformation has been performed in accordance with the article 220, note

(r), paragraph (2) and note (zb), paragraph (2) of the Commercial code. PPF Group N.V. is the sole shareholder of the Home Credit Grand Holding a.s.

The Company designated certain assets and liabilities for a split-off. The following assets and liabilities were transferred to the newly incorporated company

at their carrying amounts: Ownership rights to the shares of HC Holding a.s. and Home Credit B.V. with a book value of TCZK 6,780,021 as at the split-off

day, liabilities from the loan from PPF Group N.V. in the amount of TCZK 4,054,895 and from the subordinated loan from PPF Group N.V. and PPF a.s. in the

amount of TCZK 2,509,259. Cash in the amount of TCZK 43,570 and the, remaining liabilities from matured debentures issued by the Company in the

amount of TCZK 40,545. Finally retained earnings of the Company in the amount of TCZK 218,892 of retained earnings of the Company passed

to HC Grand Holding a.s. on the split-off day.

The main reason for this reorganisation is to merge different lines of business not related directly to the insurance business; this move will support the

development of a clear-cut business profile and improvements in the management of both âP and the companies whose shares were transferred to the

newly incorporated company as part of the split-off.

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ANNUAL REPORT 81

2) Sale of eBanka, a.s.

âeská poji‰Èovna has sold its interest in eBanka a.s. to Raiffeisen International Bank-Holding AG. The Company sold the subsidiary based on a sale contract

signed on 24 July 2006 with the new Austrian shareholder. The ownership interest was sold for TCZK 3,686,801 (EUR 130 million). The net book value of

the interest was TCZK 2,740,225.

3) Fox Credit Services Ltd.

On 14 June 2006 the Company, as the sole shareholder, decided to decrease the share capital and pay back the share premium of Fox Credit Services Ltd.

In accordance with this decision the Company has received TCZK 2,070,311. The cost of the investment has been decreased by this amount.

4) âesk˘ porcelán, akciová spoleãnost

According to a contract signed on 10 April 2006 the whole interest of the Company in âesk˘ porcelán, akciová spoleãnost was sold for TCZK 20,000. The

net book value of the interest was 48,687 TCZK.

5) âP PARTNER, a.s

âP PARTNER, a.s. in liquidation has finalised its liquidation and was deleted from the Trade Register on 18 January 2006.

6) PPF Banka a.s.

In accordance with a contract signed on 8 February 2006 shares of PPF Banka a.s. with an acquisition cost of TCZK 2,125 were sold for TCZK 2,125. The

remaining interest in PPF Banka a.s. with a net book value of TCZK 1,281,348 was sold to PPF Group N.V. for fair value TZCK 1,574,936 in accordance with

the contract of sale. The transaction was agreed between two parties and the fair value was determined by an independent valuator. This sale contract was

signed on 19 December 2006.

7) AZ Stavební a.s.

Based on a contract signed on 5 September 2006 the Company sold its interest in AZ Stavební a.s. for CZK 85.50. The net book value of the interest was nil.

8) âP finanãní holding a.s.

Based on the decision of the Company, as the sole shareholder, the share capital of âP finanãní holding a.s. was decreased by TCZK 80,000 on

30 June 2006. The decrease has been paid back to the Company.

Subsequently, âP finanãní holding a.s. was sold for TCZK 127 in accordance with a contract signed on 21 December 2006. The net book value of the

interest in the company was TCZK 118,000.

9) Limeno CSLM Ltd.

In 2006, the Company paid an additional amount of TCZK 144 to Limeno CSLM Ltd in order to cover its losses. An impairment has been recorded in the

same amount. On 5 October 2006 the liquidation of the company was finalised and the company was deleted from the Trade Register on 5 December 2006.

10) âP INVEST investiãní spoleãnost, a.s.

As part of the process of restructuring of the PPF Group, the Company acquired the whole interest in âP INVEST investment company a.s. based on

a contract signed on 29 September 2006. The Company acquired the interest from its subsidiary âP finanãní holding a.s. for TCZK 45,758.

11) První Callin agentura a.s.

In accordance with a contract signed on 8 August 2006 the Company became the sole shareholder of První Callin agentura a.s. The interest in the share

capital in the amount of TCZK 2,000 was acquired for TCZK 3,004 from its subsidiary CP Strategic Investments B.V. The Company has subsequently

increased its investment in První Callin agentura a.s. by TCZK 150,000 in the form of a debt capitalisation. The share capital has been increased by

TCZK 1,000 to the total amount of TCZK 3,000 as registered in the Trade Register on 25 October 2006. The remaining investment has increased the share

premium account by TCZK 149,000. An impairment has been recorded in the amount of the additional investment.


12) Sale of KabelCorp, a.s.

The Company sold its whole interest in KabelCorp, a.s. with a net book value of TCZK 4,280 for TCZK 3,643 in accordance with a contract signed

on 21 December 2006.

13) Acquisition of Finanãní servis o.o.o.

As part of the process of restructuring of the PPF Group the Company has acquired a one hundred percent interest in Finanãní servis o.o.o in the Russian

Federation for TCZK 1,566. The Company has acquired the interest from its subsidiary âP Finanãní servis a.s. v likvidaci based on a contract signed on

11 December 2006.

14) Acquisition of REFICOR s.r.o.

In accordance with a contract signed on 9 March 2006 the Company has acquired the whole interest in REFICOR s.r.o. for TCZK 73.

2005 Country Cost of Inpairment Net Proportion Proportion Accounting Note

investment loses cost of of of voting treatment

investment ownership power

TCZK interest

CP Reinsurance company Ltd. Cyprus 1,305,096 – 1,305,096 100.0 100.0

CP Strategic Investments B.V. Netherlands 391,530 – 391,530 100.0 100.0

âeská poji‰Èovna, a.s. in Russia Russia 291,666 – 291,666 100.0 100.0

âP DIRECT, a.s. Czech Republic 80,000 – 80,000 100.0 100.0

âP finanãní holding a.s. Czech Republic 300,000 -102,000 198,000 100.0 100.0

âP finanãní servis a.s. Czech Republic 75,000 – 75,000 100.0 100.0

âeská poji‰Èovna ZDRAVÍ a.s. Czech Republic 191,250 – 191,250 100.0 100.0

eBanka, a.s. Czech Republic 2,740,225 – 2,740 225 100.0 100.0

FOX Credit Services Ltd. Cyprus 2,070,311 – 2,070,311 100.0 100.0

HC Holding a.s.* Czech Republic 1,590,815 – 1,590,815 100.0 100.0

Home Credit B.V. Netherlands 4,889,206 – 4,889,206 11.4 11.4

Penzijní fond

âeské poji‰Èovny, a.s. Czech Republic 1,559,137 – 1,559,137 100.0 100.0

PPF banka a.s. Czech Republic 1,283,473 – 1,283,473 92.9 92.9

Univerzální správa majetku a.s. Czech Republic 1,103 – 1,103 100.0 100.0

AZ stavební a.s. Czech Republic 8,550 -8,550 – 57.0 52.0

Contractual Digital Floor, a.s. Czech Republic 510 – 510 51.0 51.0

âesk˘ porcelán,

akciová spoleãnost Czech Republic 65,387 -16,700 48,687 23.8 26.7

âP PARTNER, a.s. Czech Republic 25,000 -21,690 3,310 100.0 100.0

KabelCorp, a.s. Slovak Republic 58,480 -54,200 4,280 100.0 100.0

Limeno CSLM Ltd. Hungary 785 -785 – 100.0 100.0

Nadaãní fond KarlÛv most Czech Republic 5,000 – 5,000 100.0 100.0

Total investments

in enterprises 16,932,524 -203,925 16,728,599 – –*C

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ANNUAL REPORT 83

D. SIGNIFICANT ACCOUNTING POLICIES AND ASSUMPTIONS

D.1. SIGNIFICANT ACCOUNTING POLICIES

D.1.1. FOREIGN CURRENCY TRANSLATION

A foreign currency transaction is a transaction, which is denominated in or requires settlement in other than functional currency. Functional currency is the

currency of the primary economic environment in which entity operates. A foreign currency transaction is recorded, on initial recognition in the functional

currency, by applying to the foreign currency amount the exchange rate effective at the date of the transaction.

At each balance sheet date:

a) foreign currency monetary items are translated using the closing foreign exchange rate;

b) non-monetary items denominated in a foreign currency which are carried at historical cost are translated using the foreign exchange rate at the date of

the original transaction;

c) and non-monetary items denominated in a foreign currency, which are carried at fair value, are translated using the foreign exchange rates ruling at the

dates the fair values were determined.

Exchange differences arising from the settlement of monetary items or from translation of the Company’s monetary items at rates different from those at

which they were initially recorded or reported in previous financial statements are recognised as Other income or as Other expenses in the period in which

they arise.

D.1.2. IMPAIRMENT

The carrying amounts of the Company’s assets, other than investment property (see note D.1.6.), deferred acquisition costs (D.1.13.), inventories

(D.1.12.1.) and deferred tax assets (D.1.34.), are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any

such indication exists, the asset’s recoverable amount is estimated. The recoverable amount is measured annually regardless of any indication of

impairment for intangible assets with an indefinite useful life and for intangible assets not yet available for use.

An impairment loss is recognised to the extent that the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in

the income statement.

Individual impairment losses are losses which are specifically identified. General impairment losses are losses which are present in a portfolio of loans or

receivables but not specifically identified.

The carrying amount of subsidiaries and associates is tested for impairment annually. The Company observes if events or changes in subsidiaries or

associates business indicate that it there might be impaired. The Company considers the fact, that the equity of subsidiary or associate is decreasing, as

a key indicator of potential impairment.

The recoverable amount of the Company’s investments in held-to-maturity securities, loans and receivables is calculated as the present value of expected

future cash flows, discounted at the original effective interest rate inherent in the asset. Receivables with a short duration are not discounted.

Loans and advances are reported net of allowances for loan losses to reflect the estimated recoverable amounts. Receivables are stated at their cost less

impairment losses.

The recoverable amount of an available-for-sale asset is current fair value. When there is an objective evidence that it is impaired, the decline in fair value

that had been recognized directly in equity is recognized into the income statement.

The recoverable amount of other assets is the greater of their fair value less cost to sell and value in use. In assessing value in use, the estimated future

cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the

risks specific to the asset.

An impairment loss in respect of subsidiary or associates is not reversed in a subsequent period.

An impairment loss in respect of a held-to-maturity security, loan, advance or receivable, available-for-sale debt instrument is reversed through the income

statement (up to the amount of the amortised cost) if the subsequent increase in recoverable amount can be attributed objectively to an event occurring

after the impairment loss was recognised.

An impairment loss in respect of available-for-sale equity instruments is not reversed through the income statement and any subsequent increase in fair

value is recognized in the equity.


In respect of other assets, an impairment loss is reversed through the income statement if there has been an increase in the recoverable amount and the

increase can be objectively related to an event occurring after the date of the impairment. An impairment loss is reversed only to the extent that the

asset’s carrying amount does not exceed the carrying amount of the asset that would have been determined, net of depreciation or amortisation, if no

impairment loss had been recognised.

D.1.3. DISCRETIONARY PARTICIPATION FEATURES (DPF)

A discretionary participation feature (DPF) represents a contractual right to receive, as a supplement to guaranteed benefits, additional benefits that

constitute significant portion of the total contractual benefits, whose amount or timing is at the discretion of the Company and are based on the

performance of pool of assets, profit or loss of Company or investment returns.

As the amount of bonus to be allocated to policyholders has been irrevocably fixed at the balance sheet date, the amount is presented as a guaranteed

liability in the financial statements, i.e. within the life assurance provision in the case of insurance contracts or within the Guaranteed liability for investment

contracts with DPF in case of investment contracts.

D.1.4. INTANGIBLE ASSETS

Intangible assets that are acquired by the Company are stated at cost less accumulated amortisation and impairment losses.

Intangible assets with a finite useful lives are amortised on a straight-line basis over an average period of 3 – 5 years. The depreciation methods, useful

lives and residual values, if not insignificant, are reassessed annually. If a material technical improvement is made to an asset during the year, its useful life

and a residual value is reassessed at the time the technical improvement is recognised.

Intangible assets with an indefinite useful life are not amortized but are tested for impairment annually, or whenever there is an indication that the

intangible asset may be impaired.

D.1.5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are valued at purchase price or production cost, less accumulated depreciation and any accumulated impairment losses.

Depreciation is provided on a straight-line basis using the following rates:

Item Depreciation rate (%)

Land –

Buildings 1.00 – 10.00

Other tangible assets and equipment 6.67 – 33.33

Component parts of an asset which have different useful lives or provide benefits in a different pattern are recognised as separate assets with different

depreciation rates.

The depreciation methods, useful lives and residual values, if not insignificant, are reassessed annually. If a material technical improvement is made to an

asset during the year, its useful life and residual value is reassessed at the time a technical improvement is recognised.

Property that is being constructed or developed for future use as investment property is classified as property, plant and equipment and stated at cost until

construction or development is complete, at which time it is reclassified as investment property.

Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Property, plant and

equipment acquired by way of finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease

payments at the inception of the lease, less accumulated deprecation and impairment losses.

D.1.6. INVESTMENT PROPERTY

Investment properties are properties which are held either to earn rental income or for capital appreciation or for both. A property owned by the Company

is treated as an investment property if it is not occupied by a Company or if only an insignificant portion of the property is occupied by a Company.

ANNUAL REPORT 85

Subsequent to initial recognition all investment properties are measured at fair value. Fair value is determined annually. Valuation is based on reliable

estimates of future cash flows, discounted at rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows,

and supported by evidence of current prices or rents for similar properties in the same location and condition. Any gain or loss arising from a change in fair

value is recognised in the income statement. Rental income from investment property is accounted for over the term of the lease.

When an item of property, plant and equipment becomes an investment property following a change in its use, any difference arising at the date of transfer

between the carrying amount of the item and its fair value, and related deferred tax thereon, is recognised directly in equity if it is a gain. Upon disposal of

the item, the gain is transferred to retained earnings. Any loss is recognised in the income statement immediately.

Subsequent expenditures relating to investment properties are capitalised if they extend the useful life of the assets, otherwise they are recognised as an

expense.

D.1.7. SUBSIDIARIES AND ASSOCIATES

All subsidiaries and associates are valued at cost less any impairment losses (see D.1.2.).

Derecognition of subsidiaries and associates follows the contractual arrangements or law conditions.

D.1.8. FINANCIAL ASSETS

Financial assets include financial assets at fair value through profit or loss, financial assets available for sale, financial assets held to maturity, loans and

receivables, cash and cash equivalents.

Financial assets are recognised on the balance sheet when the Company becomes a party to the contractual provisions of the instrument. For regular way

purchases and sales of financial assets, the Company’s policy is to recognise them using settlement date accounting. Any change in the fair value of an

asset to be received during the period between the trade date and the settlement date is accounted for in the same way as could be accounted for had the

Company used trade date accounting. Financial instruments are measured initially at fair value plus, with the exception of financial instruments at fair value

through profit or loss, transaction costs directly attributable to the acquisition or issue of the financial instrument.

The fair value of financial instruments is based on their quoted market price at the balance sheet date without any deduction for transaction costs. If

a quoted market price is not available or if the market for an investment is not active, the fair value of the instrument is estimated using pricing models or

discounted cash flow techniques.

Where discounted cash flow techniques are used, estimated future cash flows are based on management’s estimates and the discount rate is a market

related rate at the balance sheet date for an instrument with similar terms and conditions. Where pricing models are used, inputs are based on market

related measures at the balance sheet date.

The fair value of derivatives that are not exchange-traded is estimated at the amount that the Company would receive or pay to terminate the contract at

the balance sheet date taking into account current market conditions and the current creditworthiness of the counterparties.

A financial asset is derecognised when the Company transfers the risk and rewards of ownership of the financial assets or loses control over the

contractual rights that comprise that asset. This occurs when the rights are realised, expired or surrendered.

D.1.8.1. Financial assets available for sale

Available-for-sale financial assets are those non-derivative financial assets that are not classified as loans and receivables, held to maturity investments, or

financial assets at fair value through profit or loss. Available-for-sale financial assets include equity securities whose fair value can not be reliably measured

and selected bonds.

After initial recognition, the Company measures financial assets available for sale at their fair values, without any deduction for transaction costs that it may

incur upon sale or other disposal, with the exception of instruments that do not have a quoted market price on an active market and whose fair value

cannot be reliably measured which are stated at cost, including transaction costs, less impairment losses.

Any revaluation gain or loss on a financial asset available for sale is recognized directly in equity with the exception of impairment losses and, in the case of

monetary items such as debt securities, foreign exchange gains and losses. When available-for-sale assets are derecognized, the cumulative gain or loss

previously recognized in equity is recognized in the income statement. Where these instruments are interest-bearing, interest calculated using the effective

interest rate method is recognized in the income statement.


D.1.8.2. Financial assets held to maturity

Held-to-maturity assets are financial assets with fixed or determinable payments and fixed maturity where the Company has the positive intent and ability

to hold to maturity.

Financial assets held to maturity are valued at amortised cost less any impairment losses. Premiums and discounts are amortised over the life of the

instrument using the effective interest method. The amortisation of premiums and discounts is recorded as interest income or expense.

The fair value of an individual security within the held to maturity portfolio can fall temporarily below its carrying value, but, provided there is no risk

resulting from a change in financial standing, the security would not be written down in value.

D.1.8.3. Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets, other than financial assets held to maturity or held for trading, loans and receivables,

and non-trading financial assets which are designated upon initial recognition as at fair value through profit or loss.

Financial assets held for trading are acquired or incurred principally for the purpose of generating a profit from short-term fluctuations in the price or

dealer’s margin. Financial assets are classified as held for trading if, regardless of the reason they were acquired, they are part of a portfolio for which there

is evidence of a recent actual pattern of short-term profit taking.

Financial assets held for trading include investments and certain purchased loans and derivative contracts that are not designated as effective hedging

instruments. All trading derivatives in a net receivable position (positive fair value), as well as options purchased, are reported as trading assets. All trading

derivatives in a net payable position (negative fair value), as well as options written, are reported as financial liabilities at fair value through profit or loss.

The Company designates non-trading financial assets as at fair value through profit or loss, if there is an active market and the fair value can be reliably

measured and it reduces the accounting mismatch.

An accounting mismatch arises in particular in respect of insurance liabilities which are revaluated through profit and loss if the liability adequacy test

indicates a deficiency.

The Company designates as non-trading financial assets as at fair value through profit and loss equity securities whose fair value can be reliably measured

and selected bonds not held for trading.

Subsequent to initial recognition all financial assets at fair value through profit or loss, except for derivative instruments that are not exchange traded and

financial assets which are not quoted on an active market, are measured at fair value based on the quoted market price on an active market. Gains and

losses arising from changes in the fair values of financial assets at fair value through profit or loss are recognised in the income statement.

D.1.8.4. Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than classified

as at fair value through profit or loss or classified as available for sale.

Loans and receivables are measured at amortised cost using the effective interest method and are reported net of allowances for loan losses to reflect the

estimated recoverable amounts.

The Company enters into purchases (sales) of investments under agreements to resell (repurchase) substantially identical investments at a certain date in

the future at a fixed price. Investments purchased subject to commitments to resell them at future dates are not recognised. The amounts paid are

recognised in loans to either banks or non-banks. The receivables are shown as collateralised by the underlying security. Investments sold under

repurchase agreements continue to be recognised in the balance sheet and are measured in accordance with the accounting policy for either assets held

for trading or available-for-sale, as appropriate. The proceeds from the sale of the investments are reported as liabilities to either banks or non-banks.

The difference between the sale and repurchase considerations is recognised on an accrual basis over the period of the transaction and is included

in interest.

ANNUAL REPORT 87

D.1.9. NON-CURRENT ASSETS HELD FOR SALE

Non-current assets (or disposal groups comprising assets and liabilities) that are expected to be recovered primarily through sale rather than through

continuing use are classified as held for sale. Immediately before being classified as held for sale, the assets (or components of a disposal group) are

measured in accordance with the applicable IFRS. Thereafter generally the assets (or disposal group) are measured at the lower of their carrying amount

and fair value less cost to sell. Any impairment loss on a disposal group is allocated to assets and liabilities on a pro rata basis, except that no loss is

allocated to inventories, financial assets, deferred tax assets, employee benefit assets, investment property and biological assets, which continue to be

measured in accordance with the Company’s accounting policies. Impairment losses on initial classification as held for sale and subsequent gains or losses

on remeasurement are recognised in profit or loss. Gains are not recognised in excess of any cumulative impairment loss.

D.1.10. LEASE TRANSACTIONS

Property and equipment holdings used by the Company under operating leases, whereby the risks and benefits relating to ownership of the assets remain

with the lessor, are not recorded on the Company’s balance sheet. Payments made under operating leases to the lessor are charged to income statement

over the period of the lease.

D.1.11. REINSURANCE ASSETS

Reinsurance assets comprise the actual or estimated amounts, which, under contractual reinsurance arrangements, are recoverable from reinsurers in

respect of technical provisions.

Reinsurance assets relating to technical provisions are established based on the terms of reinsurance contracts and valued on the same basis as the

related reinsured liabilities. The Company records an allowance for estimated irrecoverable reinsurance assets, if any.

D.1.12. OTHER ASSETS

D.1.12.1. Inventory

Inventories are stated at the lower of cost and net realisable value (being the estimated selling price in the ordinary course of business less the estimated

costs of completion and the estimated costs necessary to make the sale). Where the net realisable value is below cost, inventories are written down to the

lower value, and the impairment loss is recorded in the income statement.

D.1.12.2. Works of art

Works of art which were acquired in order to support the art are disclosed under Other assets. Works of art are initially recognized at acquisition cost.

Subsequently, they are not depreciated but rather tested for impairment at each reporting date.

D.1.13. DEFERRED ACQUISITION COSTS

Acquisition costs are costs that are incurred in connection with the acquisition of new insurance contracts and the renewal of existing contracts. Only

certain (“deferrable”) acquisition costs are deferred, such as agents’ commissions and other variable underwriting and policy issue costs. General selling

expenses and line of business costs as well as commissions for servicing a portfolio are not deferred unless they are primarily related to the acquisition of

new business.

In non-life insurance a proportion of the related acquisition costs are deferred commensurate with the unearned premiums provision. The amount of any

deferred acquisition costs is established on a similar basis as that used for unearned premiums for a relevant line of business (product).

The recoverable amount of deferred acquisition costs is assessed at each balance sheet date as part of the liability adequacy test.

Acquisition costs in respect of life insurance contracts and investment contracts with DPF are charged directly to the income statement as incurred and are

not deferred.

In case of investment contracts incremental transaction costs directly attributable to the issue of a financial liability carried at amortised cost are deducted

from the fair value of the consideration received and included within the effective interest rate calculation.


D.1.14. CASH AND CASH EQUIVALENTS

Cash consists of cash on hand and demand deposits with banks and other financial institutions. Cash equivalents are short-term, highly liquid investments

that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

D.1.15. EQUITY

D.1.15.1. Repurchase of share capital

When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as

a change in equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity.

D.1.15.2. Dividends

Dividends on share capital are recognised as a liability provided they are declared before the balance sheet date. Dividends declared after the balance sheet

date are not recognized as liability but disclosed in the notes.

D.1.16. INSURANCE LIABILITIES

D.1.16.1. Provision for unearned premiums

The provision for unearned premiums comprises that part of gross premiums written attributable to the following financial year or to subsequent financial

years, computed separately for each insurance contract using the pro rata temporis method, adjusted to reflect any variation in the incidence of risk during

the period covered by the contract. The provision for unearned premiums is created for both life insurance and non-life insurance.

D.1.16.2. Life insurance provision

The life insurance provision (the provision for outstanding claims and the other life insurance technical provision) comprises the actuarially estimated value

of the Company’s liabilities under life insurance contracts. The amount of the life insurance provision is calculated by a prospective net premium valuation,

taking account of all future liabilities as determined by the policy conditions for each existing contract and including all guaranteed benefits, bonuses already

declared and proposed, expenses and after deducting the actuarial value of future premiums.

The provision for outstanding claims is initially measured using the assumptions used for calculating the corresponding premiums and remain unchanged

except where liability inadequacy occurs. A liability adequacy test (LAT) is performed at each reporting date by the Company’s actuaries using current

estimates of future cash flows under its insurance contracts (see D.2.3.). If those estimates show that the carrying amount of the provision is insufficient in

the light of the estimated future cash flows, the difference is recognised in the income statement with corresponding increase to the other life insurance

technical provision.

D.1.16.3. Provision for outstanding claims – non life insurance

The provision for outstanding claims represents the total estimated ultimate cost of settling all claims arising from events which have occurred up to the

end of the financial year, whether reported or not, less amounts already paid in respect of such claims, including the related internal and external claims

settlement expenses as estimated based on historical experience and specific assumptions about future economic conditions.

The provision includes claims reported by policyholders but not settled (RBNS) and claims incurred but not reported (IBNR).

Where benefits resulting from a claim are paid in the form of an annuity, the provision is calculated by recognised actuarial methods.

With the exception of annuities, the Company does not discount its provisions for outstanding claims.

Where applicable, provisions are disclosed net of the prudent estimates for salvage and subrogation recoveries.

The provision for outstanding claims in respect of life insurance policies is included within the life insurance provision.

Whilst the Board of Directors considers that the gross provision for claims and the related reinsurance recoveries are fairly stated, the ultimate liability may

differ as a result of subsequent information and events and may result in significant adjustments to the amounts provided. Adjustments to the amounts of

the provisions are reflected in the financial statements for the period in which the adjustments are made. The methods used and the estimates made are

reviewed regularly.

ANNUAL REPORT 89

D.1.16.4. DPF liability for insurance contracts

DPF (Discretionary Participation Feature) liability represents contractual liability to provide significant benefits in addition to the guaranteed benefits which

are at the discretion of the issuer over the timing and amount of benefits and which are based on performance of defined contracts, investment returns or

profit or loss of the issuer. For more details see D.1.3.

D.1.16.5. Other insurance provisions

Other insurance provisions contain any other insurance technical provision which is not mentioned above, such as the provision for unexpired risks (also

referred to as “premium deficiency”) in non-life insurance the ageing provision in health insurance, provision for contractual non-discretionary bonuses in

non-life business and other similar provisions.

The provision for contractual non-discretionary bonuses in non-life business covers future benefits in the form of additional payments to policyholders or

reduction of policyholders’ payments, which are a result of the past performance. This provision is not recognised for those contracts, where future

premium is reduced by bonuses resulting from favourable past policy claim experience and such bonus is granted irrespectively of whether the past claim

experience was with the reporting entity. In such situation, the reduction of the premium reflects the expected lower future claims, rather than distribution

of past surpluses.

D.1.16.6. Financial liabilities for investment contracts with DPF

Financial liabilities for investment contracts with DPF represents liabilities for contracts which do not meet the definition of insurance contracts, because

they do not lead to the transfer of significant insurance risk from the policyholder to the Company, but which contain DPF (as defined in D.1.3.). Financial

liabilities arising from investment contracts with DPF are accounted for in the same way as insurance contracts.

D.1.17. SUBORDINATED LIABILITIES

Subordinated liabilities are financial liabilities, for which it has been contracted that in the case of liquidation, bankruptcy, forced settlement or other

settlement, will be settled only after claims of other creditors have been discharged.

Subordinated liabilities are recognised initially at fair value, net of transaction costs incurred, and subsequently carried at amortised cost. Amortised cost of

subordinated debt is the amount at which the financial liability was measured at initial recognition minus principal repayments, plus or minus the cumulative

amortisation of any difference between that initial amount and the maturity amount. Amortisation/accretion of discounts or premiums and interest are

recognised in interest expense and similar charges.

D.1.18. OTHER LIABILITIES EVIDENCED BY PAPER

Liabilities evidenced by paper are recognised initially at fair value, net of transaction costs incurred, and subsequently carried at amortised cost.

Amortisation of discount or premium and interest are recognized in interest expense and similar charges using the effective interest method.

D.1.19. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial liabilities at fair value through profit or loss are liabilities classified as held for trading, which include derivative liabilities that are not hedging

instruments, and obligations to deliver securities borrowed by a short seller. Financial liabilities at fair value through profit or loss are measured at fair value

and the relevant gains and losses from this revaluation are included in the income statement.

D.1.20. LIABILITIES TO BANKS AND NON-BANKS

Liabilities to banks and non-banks are recognised initially at fair value, net of transaction costs incurred, and subsequently valued at their amortised cost.

Amortised cost of a financial liability is the amount at which the financial liability was measured upon initial recognition minus principal repayments, plus or

minus the cumulative amortisation of any difference between that initial amount and the maturity amount.

D.1.21. PROVISIONS

A provision is recognized in the balance sheet when the Company has a legal or constructive obligation as a result of a past event, it is probable that an

outflow of economic benefits will be required to settle the obligation and a reasonable estimate can be made of the amount of the obligation. If the effect

is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time

value of money and, where appropriate, the risks specific to the liability.


D.1.22. PAYABLES

Accounts payable are when the Company has a contractual obligation to deliver cash or another financial asset. Accounts payable are measured at

amortised cost, which will normally equal their nominal or repayment value.

D.1.23. NET INSURANCE PREMIUM REVENUE

Net insurance premium revenue includes gross premiums written from direct insurance business and assumed (inwards) reinsurance business, net of

premiums ceded to reinsurers.

Gross premiums comprise all amounts due during the financial year in respect of insurance contracts regardless of the fact that such amounts may relate in

whole or in part to a later financial year. Gross premiums are recognized in respect of contracts meeting the definition of an insurance contract or an

investment contract with DPF.

The above amounts do not include the amounts of taxes or charges levied with premiums.

Premiums are recognized when an unrestricted legal entitlement is established. For contracts where premiums are payable in instalments such premiums

are recognized as written when the instalment becomes due.

Premiums are recognized as earned on a pro-rata basis over the term of the related policy coverage via the provision for unearned premiums. For those

contracts for which the period of risk differs significantly from the contract period, premiums are recognized over the period of risk in proportion to the

amount of insurance protection provided.

The change in the unearned premium provision is represented by the difference in balance of the provision for unearned premium at the beginning of the

year and the balance at the year-end.

D.1.24. NET INSURANCE CLAIMS AND BENEFITS

Insurance technical charges include claims (benefit) expenses, the change in technical provisions and rebates and profit sharing.

Claims (benefits) expenses are represented by benefits and surrenders, net of reinsurance (life) and claims paid net of reinsurance (non-life). Benefits and

claims comprise all payments made in respect of the financial year. These amounts include annuities, surrenders, entries and withdrawals of loss provisions

to and from ceding insurance enterprises and reinsurers, and external and internal claims management costs. Sums recovered on the basis of subrogation

or salvage are deducted. Claims paid are recognised at the moment that the claim is approved for settlement.

The change in technical provisions represents change in provisions for claims reported by policyholders, change in provision for IBNR and change in other

technical provisions.

Bonuses comprise all amounts chargeable for the financial year representing an allocation of surplus or profit arising on business as a whole or from

a section of business, after deduction of amounts provided in previous years which are no longer required. Rebates comprise such amounts to the extent

that they represent a partial refund of premiums resulting from the experience of individual contracts.

D.1.25. INVESTMENT CONTRACTS BENEFITS

Investment contracts benefits represent changes in financial liabilities resulting from investment contracts.

The change in financial liabilities from investment contracts with DPF (for definition see D.1.16.4.) involves guaranteed benefits credited, change in DPF

liabilities from investment contracts and change in liability resulting from liability adequacy test of investment contracts with DPF.

D.1.26. INTEREST AND SIMILAR INCOME AND INTEREST AND SIMILAR EXPENSE

Interest income and interest expense are recognised in the income statement on accrual basis, taking into account the effective yield of the asset or

liability, or an applicable floating rate. Interest income and interest expense includes the amortisation of any discount or premium or other differences

between the initial carrying amount of an interest bearing instrument and its amount at maturity calculated using the effective interest method.

D.1.27. OTHER INCOME AND EXPENSE FROM FINANCIAL ASSETS

Other income and expenses from financial assets comprise realized and unrealized gains/losses, dividends, impairment loss and net trading income.

A realised gain/loss arises on derecognition of financial assets other than financial assets at fair value through profit or loss. The amount of the realised

gain/loss represents the difference between the carrying value of financial asset and the sale price adjusted for any cumulative gain or loss that had been

recognized directly in the equity.

ANNUAL REPORT 91

Net fair value gains on financial assets and liabilities at fair value through profit or loss not held for trading represents the amount of the subsequent

measurement of financial assets and liabilities designated at fair value through profit or loss to their fair value or the gain/loss from their disposal.

Dividends from investments are recorded in “Dividends from investment” when declared and approved by the shareholder’s meeting of the respective company.

Net trading income represents the subsequent measurement of the “Trading assets” and “Trading liabilities” to fair value or the gain/loss from disposal of

the “Trading assets” or “Trading liabilities”. The amount of the trading income to be recorded represents the difference between the latest carrying value

and the fair value as at the financial statements date or the sale price.

D.1.28. INCOME AND EXPENSE FROM INVESTMENT PROPERTE

Income and expense from investment property comprise realised gains/losses triggered by derecognition, unrealised gains/losses from subsequent

measurement at fair value, rental income and other income and expense related to investment property.

D.1.29. NET FEE AND COMMISSION INCOME AND INCOME FROM SERVICES ACTIVITIES

The main part of fee and commission income and income from services activities arise from administration services relating to the Employer’s liability

provided by the Company for the state. The Company bears for this type of insurance no insurance risk; it only administrate the fee collection and claims

settlement. The revenue is recognised in the accounting period when services are provided an in the amount stated by law.

D.1.30. OTHER INCOME AND OTHER EXPENSE

D.1.30.1. Rental income

Rental income from investment properties and other operating leases is recognised in the income statement on a straight-line basis over the term of the

lease. Lease incentives granted are recognised as an integral part of the total rental income.

D.1.30.2. Operating lease payments

Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives

granted are recognised as an integral part of the total lease expense.

D.1.31. ACQUISITION COSTS

Acquisition costs are costs arising from the conclusion of insurance or investment contracts and include direct costs, such as acquisition commissions or

the cost of drawing up the insurance document or including the insurance contract in the portfolio, and indirect costs, such as advertising costs or the

administrative expenses connected with the processing of proposals and the issuing of policies.

In non-life insurance, acquisition costs that vary with and are directly related to the acquisition of new policies or the renewal of existing policies are

deferred. Deferred acquisition costs represent the proportion of acquisition costs incurred that corresponds to the provision for unearned premiums.

Deferred acquisition costs are subject to recoverability testing at the time of policy issue and at the end of each accounting period. Deferred acquisition

costs which are not deemed to be recoverable are charged to the income statement.

For life insurance policies and investment contracts with DPF, acquisition costs are charged to the income statement as incurred.

D.1.32. ADMINISTRATIVE EXPENSE

Administrative expenses include expenses relating to the administration of the Company. This includes personnel costs, office rental expenses and other

operating expenses. Staff costs include expenses arising from employee benefits, such as salaries and wages, management remuneration and bonuses,

social insurance and costs of premium collection, portfolio administration and the processing of inwards and outwards reinsurance.


D.1.33. REINSURANCE COMMISSIONS AND PROFIT PARTICIPATIONS

Reinsurance commissions and profit participations include commissions received or receivable from reinsurers and profit participations based on

reinsurance contracts. Non-life reinsurance commissions are deferred in a manner consistent with the deferral of acquisition costs in non-life insurance.

D.1.34. INCOME TAX

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent

that it relates to items recognised directly to equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and

any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities

for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial

recognition of assets or liabilities that affect neither accounting nor taxable profit and differences relating to investments in subsidiaries to the extent that

they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement

of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

D.1.35. SEGMENT REPORTING

A segment is a distinguishable component of the Company that is engaged either in providing insurance (business segment), or in providing insurance

within a particular economic environment (geographic segment), which is subject to risk and rewards that are different from other segments. The Company

regards business segments as its primary segments for the purposes of applying IAS 14.

D.2. PRINCIPAL ASSUMPTIONS

D.2.1. LIFE ASSURANCE LIABILITIES

Actuarial assumptions and their sensitivities underlie the calculation of insurance. The life insurance provision is calculated by a prospective net premium

valuation (see D.1.16.2.) using the same statistical data and interest rates used to calculate premium rates (in accordance with relevant national legislation).

The assumptions used are locked-in at policy inception and remain in-force until expiry of the liability. The adequacy of insurance liabilities is tested in

liability adequacy test (see D.2.3.).

The guaranteed technical rate of interest included in policies varies from 2% to 7.5% according to the actual technical rate used in determining the premium.

As a part of the life insurance provision an additional provision is established in respect of bonuses payable under certain conditions, referred to as “special

bonuses”. This provision corresponds to the value of special bonuses calculated using the prospective method and using the same interest rate and

mortality assumptions as used to calculate the basic life insurance provision. No allowance is made for lapses.

D.2.2. NON-LIFE INSURANCE

Provision is made at the balance sheet date for the expected ultimate cost of settlement of all claims incurred in respect of events up to that date, whether

reported or not, together with related claims handling expenses, less amounts already paid.

The liability for reported claims (RBNS) is assessed on a separate case-by-case basis with due regard to the claim circumstances, information available from

loss adjusters and historical evidence of the size of similar claims. Case reserves are reviewed regularly and are updated as and when new information arises.

The estimation of claims incurred but not reported (IBNR) is generally subject to a greater degree of uncertainty than reported claims. IBNR provisions are

predominantly assessed by the Company’s actuaries using statistical techniques such as chain ladder methods, whereby historical data is extrapolated in

order to estimate ultimate claims costs.

ANNUAL REPORT 93

To the extent that these methods use historical claims development information they assume that the historical claims development pattern will occur

again in the future. There are reasons why this may not be the case, which, insofar as they can be identified, have been allowed for by modifying the

methods. Such reasons include:

a) economic, legal, political and social trends (resulting in different than expected levels of inflation);

b) changes in the mix of insurance contracts incepted;

c) random fluctuations, including the impact of large losses.

IBNR provisions are initially estimated at a gross level and a separate calculation is carried out to estimate the size of reinsurance recoveries.

The assumptions which have the greatest effect on the measurement of non-life insurance liabilities insurance are follows:

Expected claims ratio

The expected claims ratio represents the ratio of expected claims incurred to premiums earned.

For determining total liability are in projection of future cash flows considered estimated values of parameters, which can influence amount of separate

claim (according to type of insurance it is frequency of claims, risks connected with insurance contract – death during accident, persistent effects, minimal

time of curing, different time delay between date of occurrence of insured event and date of termination of liquidation in each risks).

Tail factors

For long-tail business, the level of provision is significantly influenced by the estimate of the development of claims from the latest development year for

which historical data is available to ultimate settlement. These tail factors are estimated prudently using mathematical curves, which project observed

development factors.

Discounting

With the exception of annuities, non-life claims provisions are not discounted.

Annuities

In MTPL insurance and other third party liability lines, part of the claims payment may be in the form of an annuity. The provision for such claims is

established as the present value of expected future claims payments.

The key assumptions involved in the calculation are the discount rate, the expected increase in wages and disability pensions which influence the amount

of annuities to be paid. The Company follows guidance issued by the Czech Bureau of Insurers in setting these assumptions.

Under current legislation future increases of disability pensions are set by governmental decree and may be subject to social and political factors beyond

the Company’s control. The same applies to the real future development of annuity inflation (it is also dependent on governmental decrees).

Compensation of loss of The annuities which are not the compensation

earnings during the period of and after of loss of earnings during the period of and after

ends of incapability of work ends of incapability of work

2007 – 2013 2014 onwards

Discount rate 2% p.a. 2% p.a. 2% p.a.

Annuity inflation 6,1% p.a. (6,3% p.a. for old legal MTPL) – –

Wage inflation – 8% p.a. 4.5% p.a.

Increase of the disability rents pensions – 8% p.a. 4.5% p.a.

In addition, the Company takes account of mortality through the use of mortality tables recommended by National Motor Insurance Bureau.

D.2.3. LIABILITY ADEQUACY TEST

D.2.3.1. Life assurance

The life assurance provision is tested at each reporting date against a calculation of future cash flows using explicit and consistent assumptions of all

factors – future premiums, mortality, morbidity, investment returns, lapses, surrenders, guarantees, policyholder bonuses, expenses and exercise of

policyholder options.


Where reliable market data is available, assumptions are derived from observable market prices.

However, in the absence of market transactions in the economies in which the Company operates, there remain significant difficulties in calibrating the

assumptions used by the Company in the liability adequacy test to observable market conditions in most cases.

Assumptions which can not be reliably derived from market values are based on current estimates calculated by reference to the Company’s own internal

models, on guidance notes issued by the Czech Society of Actuaries and publicly available resources (e.g. demographic information published by national

Statistical Bureaux).

Due to the levels of uncertainty in the future development of the insurance markets and the Company’s portfolio, the Company uses conservative margins

for risk and uncertainty within liability adequacy test.

Input assumptions are updated annually based on recent experience.

The methodology of testing considers current estimates of all future contractual cash flows including cash flows from embedded options and guarantees.

This methodology enables quantification of correlation between all risks factors.

The principal assumptions used are:

Segmentation

The Company segments the products into several homogenous groups according to the characteristics of individual products (type of product and

guaranteed interest rates). Each group is tested separately for liability adequacy. Liability inadequacies of individual groups are not offset against surpluses

arising on other groups in determining the additional liability to be established.

The net present value of future cash flows calculated using the assumptions described below is compared with the insurance liabilities, for each product

group separately. If that comparison shows that the carrying amount of the insurance liabilities is inadequate in the light of the estimated cash flows, the

entire deficiency is recognised in profit or loss, by establishing an additional provision.

Mortality and morbidity

Mortality and morbidity are usually based on data supplied by the Czech Statistical Offices as amended by the Company based on a statistical investigation

of the Company’s mortality experience over the last 15 years. For pension insurance the Company uses generation mortality tables, developed in

co-operation with Munich Re, which allow for future mortality improvements.

Morbidity tables are made as an aggregation of Czech probabilities of death and German probabilities of Dread Disease diagnose.

Assumptions for mortality and morbidity are adjusted by margins for risk and uncertainty.

Persistency

Future contractual premiums are included without any allowance for premium indexation. Estimates for lapses and surrenders are estimated based on the

Company’s past experience with insurance policies (split by type and policy durations). The Company regularly investigates its actual persistency rates by

product type and duration and amends its assumptions accordingly.

The assumptions as derived above are adjusted by a margin for risk and uncertainty.

Expense

Estimates for future renewal and maintenance expenses included in the liability adequacy test are derived from the Company’s business plan for the period

2007 – 2009, increased by a factor of 15%. For periods after 2009 cash flows for expenses have been increased by a factor equal to the Company’s

estimate of annual inflation for individual expense items increased by a further 15%. The resulting annual expense inflation (including the 15% margin) is

in the range of 3.78 – 5.99% (in 2005 it was 3.4 – 5.82%).

Expected investment return and discount rate

Future investment returns are calculated using the risk free interest rate derived from market swap rates reduced by 0.25%. As a reference point, the

15 year swap rate was 3.92% at 31 December 2006 compared to 3.68% at 31 December 2005.

ANNUAL REPORT 95

Interest rate guarantee

As noted above, the Company discounts all expected cash flows at a rate equal to the risk-free rate less 0.25%.

The Company makes an additional allowance for the potential volatility of actual investment returns compared to the risk-free rate. The interest rate

guarantee is calculated using stochastic option pricing techniques (Ornstein-Uhlenbeck processes), whereby the Company treats divides the policy duration

into a series of one year put options. The interest rate guarantee is mainly influenced by volatility of investment returns.

Profit sharing

Whilst, for most life assurance policies, the amount and timing of the bonus to policyholders is at the discretion of the Company, the assessment of liability

adequacy takes into account of future discretionary bonuses, calculated as a fixed percentage of the excess of the risk-free rate over the guaranteed

technical interest rate on individual policies. The percentage applied is consistent with the Company’s current business practice and expectations for bonus

allocation.

Annuitisation option

The option to choose between a lump sum payment and an annuity is available to policyholders under pension insurance. For insurance products the

Company assumes, for the purposes of the liability adequacy test, an annuity option take-up rate of 20% of all eligible policyholders.

D.2.3.2. Investment contracts with Discretionary Participation Features (DPF)

Investments contracts with DPF are included within the liability adequacy test for life insurance as described above.

D.2.3.3. Non-life insurance

Contrary to life insurance, insurance liabilities connected with non-life insurance are calculated by using current (not historical) assumptions and therefore

no additional liabilities are established for outstanding claims as a result of a liability adequacy test.

The liability adequacy test for non-life insurance is therefore limited to the unexpired portion of existing contracts. It is performed by comparing the

expected value of claims and expenses attributable to the unexpired periods of policies in force at the balance sheet date with the amount of unearned

premiums in relation to such policies after deduction of deferred acquisition costs. Expected cash flows relating to claims and expenses are estimated by

reference to the experience during the expired portion of the contract, adjusted for significant individual losses which are not expected to recur.

The test is performed by product groups which comprise insurance contracts with a similar risk profile.

For annuities, the assumptions used to establish the balance sheet provision include all future cash flows with changes being recognized immediately in

the income statement. As such no separate liability adequacy test is required to be performed.

D.2.4. SIGNIFICANT VARIABLES

Profit or loss and insurance liabilities are mainly sensitive to changes in mortality, lapse rate, expense rate, discount rates and annuitisation which are

estimated for calculating adequate value of insurance liabilities during the LAT.

The Company has estimated the impact on profit for the year and equity at the end of the year of changes in key variables that have a material effect on

them.


D.2.4.1. Life insurance

2006 Change in Change Change in

TCZK variable in P/L insurance

Variable liabilities

Mortality 10% -88,216 88,216

Lapse rate -10% -59,774 59,774

Expense rate 10% -196,263 196,263

Discount rate 100 bp 1,604,457 -1,604,457

-100 bp -3,271,876 3,271,876

Annuitisation 10% -387,629 387,629

2005 Change in Change Change in

TCZK variable in P/L insurance

Variable liabilities

Mortality 10% -128,933 128,933

Lapse rate -10% -89,192 89,192

Expense rate 10% -381,635 381,635

Discount rate 100 bp 2,062,413 -2,062,413

-100 bp -4,470,678 4,470,678

Annuitisation 10% -565,499 565,499

Changes in variables represent reasonable possible changes in mentioned variables which could have occurred and would have lead to significant changes

in insurance liabilities at the balance sheet date. The reasonable possible changes represent neither expected changes in variables nor worst case

scenarios.

The analysis has been prepared for a change in variable with all other assumptions remaining constant and ignores changes in values of the related assets.

Sensitivity was calculated always for worse direction of movement, therefore the sensitivity to changes in mortality was calculated for decrease of

mortality for pension products by 10% and increase of mortality for other types of products by 10%, sensitivity to changes in lapse rate was calculated for

decrease by 10%, sensitivity to changes in expense rate and annuitisation was calculated for increase by 10%.

P/L and insurance liabilities are mostly influenced by a change in the discount rate in both directions. Hence changes in discount rates are stated in

100 basis points for both directions.

D.2.4.2. Non-life insurance

In non-life insurance variables which would have the greatest impact on the insurance liabilities relate to MTPL annuities.

The key variable in the calculation of the provision for the MTPL annuities is a discount rate. A 1% decrease in the discount rate would lead to an increase

of the liability by CZK 690 million (2005: CZK 640 million).

D.3. TERMS AND CONDITIONS OF INSURANCE AND INVESTMENT CONTRACTS THAT HAVE A MATERIAL EFFECT ON THE AMOUNT, TIMING AND UNCERTAINTY OF FUTURE CASH FLOWS

D.3.1. NON-LIFE INSURANCE CONTRACTS

The Company offers many forms of general insurance, mainly motor insurance, property insurance and liability insurance. Contracts may be concluded for

a fixed term of one year or on a continuous basis with either party having the option to cancel at 8 weeks’ notice. The Company is therefore generally able

to re-price the risk by revising the premium at intervals of not more than one year. It also has the ability to impose deductibles and reject fraudulent claims.

Future insurance claims are the main source of uncertainty which influences the amount and the timing of future cash flows.

ANNUAL REPORT 97

The amount of particular claim payments is limited by the sum insured which is established in the insurance policy.

The other significant source of uncertainty connected with non-life insurance arises from legislative regulations which entitle the policyholder to report

a claim before the time of expiration, which usually lasts 3 – 4 years from the date, when the policyholder becomes aware of the claim. This feature is

particularly significant in case of permanent disability arising from accident insurance, because of the difficulty in estimating the period between occurrence

and confirmation of permanent effects.

Following parts describe characteristics of particular types of insurance contracts if they are significantly different from the above mentioned features.

Motor insurance

The Company motor portfolio comprises both motor third party liability insurance (MTPL) and motor (casco) insurance. MTPL insurance covers bodily injury

claims and property claims in the Czech Republic as well as claims caused abroad by insured motorists under the Green Card system.

Property damage under MTPL and casco claims are generally reported and settled within a short period of the accident occurring. Payments relating to

bodily injury claims, however, take longer to finalise and are more difficult to estimate. Such claims may be settled in the form of a lump-sum settlement or

an annuity.

Claims relating to bodily injury and related losses of earnings, the amount of the related claim payments is derived from governmental decree. This

requirement may have a retrospective effect on claims incurred before effective date of this requirement.

Policyholders are entitled to a no-claims-bonus on renewal of their policy where the conditions are fulfilled.

The amount of claim payment for damage of property and compensation of losses of earnings does not exceed CZK 100 million per claim, as well as

compensation of damage to health.

Casco insurance represents standard insurance against damage; claim payment is limited by the sum insured and the amount of coinsurance.

Property insurance

This is broadly split into Industrial and Personal lines. For Industrial lines the Company uses risk management techniques to identify risks and analyse

losses and hazards and also cooperates with reinsurers. Personal property insurance consists of the standard buildings and contents insurance.

Claims are normally notified promptly and can be settled without delay.

Liability insurance

This covers all types of liability and includes commercial liability, directors and officers and professional indemnity as well as personal liability.

While the majority of general liability coverages are written on an “claims-made” basis, certain general liability coverages are typically insured on

a “occurrence basis” basis.

Accident insurance

Accident insurance is traditionally sold as add on to the life products offered by the Company and belongs to life insurance account. Only a small part of

accident insurance is sold without life insurance.

D.3.2. LIFE INSURANCE CONTRACTS

Bonuses

Over 90% of the Company’s life insurance contracts include an entitlement to receive a bonus. Bonuses to policyholders are granted at the discretion of

the Company and are recognized when proposed and approved by the Board of Directors in accordance with the relevant legal requirements. Once

allocated to policyholders bonuses are guaranteed (see D.1.3.).

Premiums

Premiums may be payable in regular instalments or as a single premium at inception of the policy. Most endowment-type insurance contracts contain

a premium indexation option which may be exercised at the discretion of the policyholder annually. Where the option is not exercised premiums are not

increased with inflation.


Term life insurance products

Traditional term life insurance products comprise risks of death, waiver of premium in case of permanent disability and accident rider. Premium is paid

regularly or as single premium. Policies offer fixed or decreasing sum insured of death. The policies offer protection from a few years up to medium

long-term. Death benefits are paid only if the policyholder dies during the term of insurance. Waiver of premium arises only in case of approved disability

pension of policyholder.

Period of disability is a main source of uncertainty connected with life insurance products. It is limited by contractual minimum duration of insurance policy

and by the end of insurance period.

Endowment products

These are also traditional term life insurance products providing life-long financial protection. Many long-term policies have tax advantages and give the

insured the possibility to finance their needs in retirement. Capital life insurance products for regular or single premium offer covering for risks of death,

endowment, dread diseases, waiver of premium in case of disability and accident rider. Insurance benefits are usually paid in lump-sum.

Variable capital life insurance products

Variable capital life insurance products offer all types of insurance risk as traditional capital life insurance products. In addition, they have possibility for

policyholder to pay extra single premium during the term of insurance. Policyholder can ask to interrupt payment for regular premium, to withdraw a part of

extra single premium, to change term of insurance, risks, sums insured and premium.

Children’s insurance products

These products are based on traditional life risk: death or endowment of assured, waiver of premium in case of disability and accident rider. They are paid

regularly. The term of insurance is usually limited by the 18th birthday of the child for which the policy is negotiated. Benefits may be in the form of

a lump-sum or annuity payment.

Unit-linked life insurance

Products for account of policyholders are those where the policyholders carry the investment risk.

The Company earns management and administration fees and mortality results on these products.

Unit-linked life insurance combines traditional term life insurance, with risks of death or dread diseases together with waiver of premium in case of

permanent disability, and possibility to invest regular premium or extra single premium to some investment funds. The policyholder defines funds and ratio

of premium where payments are invested and can change the funds and ratio during the contract. He can also change sums assured, regular premium, and

insurance risks. He can pay an additional single premium or withdraw a part of extra single premium.

Retirement insurance for regular payments (with interest rate)

Lifelong retirement program, products include all known types of offered pensions paid off in case of death, dread diseases or maturity of agreed age of

assured, options for variable combination of component. Policyholder can pay premium regularly or single. Basic types of pension are short-term pension

and lifetime pension.

D.3.3. INVESTMENT CONTRACTS WITH DPF

Adult deposit life or accident insurance with returnable lump-sum principal.

These types of life or accident products allow policyholders to pay a single returnable deposit at the beginning of the policy. The interest earned on the

deposit is used to pay the annual premiums. The deposit is returned at the end of assurance or on death. These contracts also entitle the policyholder to

a discretionary bonus, determined as under life insurance contracts.

ANNUAL REPORT 99

D.4. CHANGES IN ACCOUNTING POLICIES AND ACCOUNTING PRONOUNCEMENTS ADOPTED SINCE 1 JANUARY 2006

D.4.1. STANDARDS, AMMENDMENTS AND INTERPRETATIONS TO EXISTING STANDARDS RELEVANT FOR THE COMPANY AND APPLIED IN THE ACCOUNTING PERIOD

The following published amendments and interpretations to existing standards are mandatory and relevant for the Company and have been applied by the

Company since 1 January 2006:

Amendment to IAS 21 The Effects of Changes in Foreign Exchange Rates – Net Investment in a Foreign Operation (1 January 2006)

Amendments to IAS 39 Financial Instruments: Recognition and Measurement – Cash Flow Hedge Accounting of Forecast Intra-group Transactions

(1 January 2006)

Amendments to IAS 39 Financial Instruments: Recognition and Measurement – The Fair Value Option (1 January 2006)

Amendments to IAS 39 and IFRS 4 Financial Guarantee Contracts (1 January 2006)

IFRIC 4 Determining whether an Arrangement contains a Lease (1 January 2006)

IFRIC 8 Scope of IFRS 2 Share-based Payment (1 May 2006)

IFRIC 9 Reassessment of Embedded Derivatives (1 June 2006)

IFRIC 10 Interim Financial Reporting and Impairment (20 July 2006)

IFRIC 11 Group and Treasury Share Transactions (2 November 2006).

The following amendments and interpretations have the most significant potential impact on the Company:

IAS 39 (Amendment), The Fair Value Option

This amendment reduces the option to designate any financial asset or financial liability at fair value through profit or loss.

The amendment permits use of the fair value option only in the following situations:

If use of the fair value option results in more relevant information, because either:

– It eliminates or significantly reduces a measurement or recognition inconsistency (“accounting mismatch”) that would otherwise arise from measuring

assets or liabilities, or recognising the gains and losses on them on different bases;

– A group of financial assets and/or financial liabilities are managed on a fair value basis, in accordance with a documented risk management or investment

strategy, with information being provided to key management personnel on this basis;

– When a contract contains one or more substantive embedded derivatives, unless the embedded derivative does not significantly modify the cash flows

that otherwise would be required by the contract or it is clear that separation of the embedded derivative is prohibited.

The Company designate non-trading financial assets as at fair value through profit or loss so that it reduces accounting mismatch. The Company designate

non-trading financial assets as at fair value through profit and loss in case of equity securities with reliably measurable fair value and in exceptional cases of

selected bonds not held for trading.

The Company considers that the amendment does not impact the previous classification of assets recognised at fair vale through profit or loss because

classification was always made in order to reduce measurement inconsistency of asset and relating liabilities.

IFRIC 10 Interim Financial Reporting and Impairment

IFRIC 10 states that an entity stall not reverse any impairment loss recognized in a previous interim period on goodwill or on an investment in either an

equity instrument or a financial asset carried at cost. IFRIC 10 is in compliance with currently used accounting policy of the Company.

D.4.2. STANDARDS, INTERPRETATIONS AND AMENDMENTS TO PUBLISHED STANDARDS THAT ARE NOT YETEFFECTIVE AND ARE RELEVANT FOR THE COMPANY’S FINANCIAL STATEMENTS

The following new standards, amendments and interpretations to existing standards have been published and are mandatory and relevant for the

Company’s accounting periods beginning on or after 1 January 2007 but have not been applied earlier by the Company:

IFRS 7 – Financial Instruments: Disclosures, and a complementary amendment to IAS 1, Presentation of Financial Statements – Capital Disclosures

(effective from 1 January 2007).

IFRS 7 introduces new disclosures to improve the information about the financial instruments. It requires the disclosure of qualitative and quantitative

information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk,

including a sensitivity analysis to market risk. It replaces IAS 30, Disclosures in the Financial Statements of Banks and Similar Financial Institutions, and the

disclosure requirements in IAS 32, Financial Instruments: Disclosure and Presentation. It is applicable to all entities that report under IFRS. The amendment

to IAS 1 introduces disclosures about the level of an entity’s capital and how it manages capital. Management is currently assessing the impact of IFRS 7 and

the amendment to IAS 1. The Company will apply IFRS 7 and the amendment to IAS 1 from the annual period beginning 1 January 2007.


IFRS 8 – Operating segments (effective from 1 January 2009)

This standard requires an entity to adopt the “management approach” to reporting on the financial performance of its operating segments. Generally, the

information to be reported would be that which management uses internally for evaluating segment performance and deciding how to allocate resources to

operating segments. Such information may be different from what is used to prepare the income statement and balance sheet. The standard therefore

requires explanations of the basis on which the segment information is prepared and reconciliations to the amounts recognised in the income statement

and balance sheet. This standard replaces IAS 14 Segment reporting and applies only to listed entities. The Company will apply IFRS 8 from the annual

period beginning 1 January 2009.

E. RISK EXPOSURES, RISK MANAGEMENT OBJECTIVES AND PROCEDURES

This section provides details of the Company’s exposure to risk and describes the methods used by the management to control risk. The most important

types of financial risk to which the Company is exposed are credit risk, liquidity risk, actuarial risk and market risk. Market risk includes currency risk,

interest rate risk and equity price risk.

E.1. DERIVATIVE FINANCIAL INSTRUMENTS

The Company holds a variety of derivative financial instruments for trading and for risk management purposes. This note describes the derivatives used by

the Company. Further details of the Company’s objectives and strategies in the use of derivatives are set out in the following sections. The nature of the

derivative instruments outstanding at the balance sheet date is described in the following sections of this note and in note F.4.

Derivative financial instruments used by the Company include swaps, futures, forwards, options and other similar types of contracts whose value changes

in response to changes in interest rates, foreign exchange rates, security prices or price indices. Derivatives are either standardised contracts transacted

through regulated exchanges (referred to as exchange-traded products) or individually negotiated over-the-counter contracts (referred to as

OTC-products). The main types of derivative instruments used by the Company are described below.

E.1.1. SWAPS

Swaps are over-the-counter agreements between the Company and other parties to exchange future cash flows based upon agreed notional amounts.

Swaps most commonly used by the Company are interest rate and cross-currency interest rate swaps. Under interest rate swaps, the Company agrees

with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an

agreed notional amount. Cross-currency interest rate swaps require an exchange of interest payment flows and capital amounts in different currencies.

The Company is subject to credit risk arising from default of the respective counter parties. Market risk arises from potentially unfavourable movements in

interest rates relative to the contractual rates of the contract, or from movements in foreign exchange rates.

E.1.2. FUTURES AND FORWARDS

Forward contracts are commitments to either purchase or sell a designated financial instrument, currency, commodity or an index at a specified future date

for a specified price and may be settled in cash or another financial asset. Forward contracts result in credit exposure to the counter party and exposure to

market risk based on changes in market prices relative to the contracted amounts.

E.1.3. OPTIONS

Options are derivative financial instruments that give the buyer, in exchange for a premium payment, the right, but not the obligation, to either purchase

from (call option) or sell to (put option) the writer a specified underlying instrument at a specified price on or before a specified date. The Company enters

into interest rate options, foreign exchange options, equity and index options and credit failure options (swaps). Interest rate options, including caps and

floors, may be used as hedges against a rise or fall in interest rates. They provide protection against changes in interest rates of floating rate instruments

above or below a specified level. Foreign currency options may also be used (commensurate with the type of option) to hedge against rising or falling

currency rates. The Company as a buyer of over-the-counter options is subject to market risk and credit risk since the counter party is obliged to make

payments under the terms of the contract if the Company exercises the option. As the writer of over-the-counter options, the Company is subject to

market or credit risk, as it is obliged to make payments if the option is exercised by the counterparty.

ANNUAL REPORT 101

E.2. COMPANY’S RISK MANAGEMENT

The Company carries an inventory of capital market instruments. Positions are open in the money market, foreign exchange markets, debt and credit

markets and equity markets based on expectations of future market conditions.

Below is a description of the various risks the Company is exposed to as a result of its activities and the approach taken to manage those risks. Further

details of the steps taken to measure and control risk are set out in the “Risk measurement and control” section.

E.2.1. LIQUIDITY RISK

Liquidity risk arises in the general funding of the Company’s activities and in the management of its positions. It includes both the risk of being unable to

fund assets using instruments with appropriate maturities and rates and the risk of being unable to liquidate an asset sufficiently quickly and in the

appropriate amount, and the risk of being unable to meet obligations as they become due.

The Company has access to a diverse funding base. Apart from insurance provisions, which serve as a main source of financing, funds are raised using

a broad range of instruments including deposits, other liabilities evidenced by paper, reinsurance policy, subordinated liabilities and shareholder equity. This

enhances funding flexibility, limits dependence on any one source of funds and generally lowers the cost of funds. The Company strives to maintain

a balance between continuity of funding and flexibility through the use of liabilities with a range of maturities. In addition the Company holds a portfolio of

liquid assets as part of its liquidity risk management strategy. Special attention is paid to the liquidity management of non-life insurance business requiring

sufficient funding to meet all the potential obligations in the event of a natural disaster. The Company continually assesses its liquidity risk by identifying

and monitoring changes in the funding required to meet business goals and the targets set in terms of the overall Company strategy.


The following tables show an analysis of the Company’s financial assets and liabilities broken down into their relevant maturity bands based on the

remaining period to repayment.

Residual maturities of financial assets and financial liabilities:

2006 Less than Between Between Between More Non- Total

1 month 1 and 3 months 1 and than specified

TCZK 3 months and 1 year 5 years 5 years

Subsidiaries and associates – – – – – 3,950,694 3,950,694

Financial assets 16,693,011 2,897,640 6,911,290 22,648,921 28,166,131 23,113,481 100,430,474

Financial assets available for sale – – – 135,960 4,128,492 910,119 5,174,571

Equity securities – – – – – 910,119 910,119

Debt securities – – – 135,960 4,128,492 – 4,264,452

Financial assets held to maturity – – – 1,049,506 837,104 – 1,886,610

Debt securities – – – 1,049,506 837,104 – 1,886,610

Financial assets at fair value through

profit or loss held for trading 122,696 23,097 151,868 338,802 113,086 13,489,110 14,238,659

Equity securities held for trading – – – – – 13,489,110 13,489,110

Debt securities held for trading – – 124,867 – – – 124,867

Positive market values of derivatives 122,696 23,097 27,001 338,802 113,086 – 624,682


profit or loss not held for trading – 1,190,030 5,115,926 19,074,435 22,863,412 7,372,543 55,616,346

Debt securities not held for trading – 1,190,030 5,115,926 19,074,435 22,863,412 – 48,243,803

Equity securities not held for trading – – – – – 7,372,368 7,372,368

Other not held for trading – – – – – 175 175

Loans and receivables 16,570,315 1,684,513 1,643,496 2,050,218 224,037 170,611 22,343,190

Loans and advances to banks 13,730,492 – – 267,499 – 163,838 14,161,829

Loans and advances to non-banks 1,182 – – 179 7,364 – 8,725

Receivables 2,838,641 1,684,513 1,643,496 1,782,540 216,673 6,773 8,172,636

Cash and cash equivalents 1,171,098 – – – – – 1,171,098

Total financial assets 16,693,011 2,897,640 6,911,290 22,648,921 28,166,131 27,064,175 104,381,168

ANNUAL REPORT 103




Subsidiaries and associates – – – – – 16,728,599 16,728,599

Financial assets 18,342,694 1,803,890 4,976,803 21,243,024 24,222,296 26,565,774 97,154,481

Financial assets available for sale – – – – – 1,779,769 1,779,769

Equity securities – – – – – 1,779,769 1,779,769

Financial assets held to maturity – – – 1,049,487 821,241 – 1,870,728

Debt securities – – – 1,049,487 821,241 – 1,870,728

Financial assets at fair value through profit

or loss held for trading 48,108 5,061 219,711 154,345 467,257 11,160,391 12,054,873

Equity securities held for trading – – – – – 11,160,391 11,160,391

Positive market values of derivatives 48,108 5,061 219,711 154,345 467,257 – 894,482


or loss not held for trading 125,471 – 1,974,728 18,564,158 22,150,442 13,027,394 55,842,193

Debt securities not held for trading 125,471 – 1,974,728 18,564,158 22,150,442 – 42,814,799

Equity securities not held for trading – – – – – 13,027,219 13,027,219

Other not held for trading – – – – – 175 175

Loans and receivables 18,169,115 1,798,829 2,782,364 1,475,034 783,356 349,133 25,357,831

Loans and advances to banks 15,921,060 – – 670,101 620,113 – 17,211,274

Loans and advances to non-banks 1,843 – 319,714 – 8,591 – 330,148

Receivables 2,246,212 1,798,829 2,462,650 804,933 154,652 349,133 7,816,409

Cash and cash equivalents – – – – – 249,087 249,087

Total financial assets 18,342,694 1,803,890 4,976,803 21,243,024 24,222,296 43,294,373 113,883,080




Financial liabilities for investment

contracts with DPF – – – 584,654 723,826 – 1,308,480

Guaranteed liability for investment


Payables 3,232,937 3,810,272 881,244 1,355,704 – 17,179 9,297,336

Other liabilities – – – – – 46,971 46,971

Financial liabilities at fair value

through profit or loss 11,078 102,554 5,784 14,982 257,838 – 392,236

Negative fair value of derivatives 11,078 102,554 5,784 14,982 257,838 – 392,236

Liabilities to banks 277,129 – – – – – 277,129

Total financial liabilities 3,521,144 3,912,826 887,028 1,955,340 981,664 64,150 11,322,152





Financial liabilities for investment contracts

with DPF – – – 465,722 600,202 – 1,065,924



Subordinated liabilities – – – – 2,500,000 – 2,500,000

Other liabilities evidenced by paper 40,690 – 4,027,500 – – – 4,068,190

Payables 3,033,899 6,092,748 363,884 409,238 61,572 10,424 9,971,765

Other liabilities – – – – – 38,635 38,635


through profit or loss 122,257 116,786 123,425 107,812 41,537 – 511,817

Negative fair value of derivatives 122,257 116,786 123,425 107,812 41,537 – 511,817

Liabilities to banks 264,910 – – – – – 264,910

Total financial liabilities 3,461,756 6,209,534 4,514,809 982,772 3,203,311 49,059 18,421,241

Note F.13.6. provides information about expected maturity of insurance provisions.

E.2.2. MARKET RISK

All financial instruments and positions are subject to market risk, the risk that future changes in market conditions may make an instrument more or less

valuable. Financial instruments held for trading are recognised at fair value and all changes in market conditions directly affect net trading income.

Non-trading financial instruments recognized initially at fair value through profit or loss are recognised at fair value and all changes in market conditions

directly affect the net fair value gains on financial assets and liabilities at fair value through profit or loss not held for trading. Financial instruments available

for sale are recognised at fair value plus directly attributable transaction costs and all changes in market conditions affect the equity revaluation reserve.

Financial instruments held to maturity, loans and receivables are recognised at amortised value using the effective interest rate method. Impairment of

financial assets available for sale, held to maturity, loans and receivables is recognised in net income.

The Company manages its use of trading instruments in response to changing market conditions. Exposure to market risk is formally managed in

accordance with risk limits or frameworks set by senior management by buying or selling instruments or entering into offsetting positions. The “Risk

measurement and control” section at the end of this note describes the approaches used to manage market risk.

E.2.2.1. Interest rate risk

The Company’s operations are subject to the risk of interest rate fluctuations to the extent that interest-earning assets (including investments) and

interest-bearing liabilities mature or reprise at different times or in differing amounts. In the case of floating rate assets and liabilities the Company is also

exposed to an interest rate cash flow risk, which varies depending on the different reprising characteristics of the various floating rate instruments.

Asset-liability management activities are conducted in the context of the Company’s sensitivity to interest rate changes. The Company is more liability sensitive

because its interest-earning assets have a shorter duration and their interest rates are re-fixed more frequently than the majority of its interest-bearing liabilities.

This means that in a rising interest rate environment, in connection with the re-fixing of interest rates, the margins earned will widen as assets reprise. The

actual effect will depend on a number of factors, including the extent to which repayments are made earlier, or later, than the contracted dates and variations

in interest rate sensitivity within the reprising periods and among currencies. Furthermore, with rising interest rates, the net present value of assets will

decrease less than the net present value of liabilities. To achieve its risk management objectives, the Company uses a combination of derivative financial

instruments, particularly interest rate swaps, futures, and options, as well as other types of contracts. The instruments used are detailed in note F.4.3.

Interest rate derivatives are primarily used to bridge the mismatch in the reprising of assets and liabilities. In some cases derivatives are used to convert

certain groups of policyholder loans and other interest-earning assets to floating or fixed rates to reduce the risk of losses in value due to interest rate

changes or to lock in spreads. In addition, the Company enters into interest rate swaps to fix the interest rates on its floating-rate debts at a certain level.

Part of the Company’s return on financial instruments arises from its management of the incongruity between the duration of its assets and liabilities.

ANNUAL REPORT 105

The tables below summarise the interest rate sensitivity of the Company’s financial assets and liabilities at the reporting date. The carrying amounts of

interest-rate-sensitive assets and liabilities and the notional amounts of swaps and other derivative financial instruments are presented in the periods in

which they mature or in which the interest rates will next be fixed. To reflect anticipated prepayments, certain asset and liability categories are included

in the table based on the estimated rather than the contractual maturity dates. Items are allocated to time bands by reference to the earlier of the next

contractual interest rate reprising date and the expected maturity date.

Interest rate sensitivity of financial assets and financial liabilities:

2006 Effective Less than Between Between Between More Non- Total

interest 3 months 3 months 1 and 2 2 and 5 than 5 specified

TCZK rate and 1 year years years years

Subsidiaries and associates – – – – – – 3,950,694 3,950,694

Financial assets – 23,168,730 14,467,315 4,272,893 10,281,208 25,126,847 23,113,481 100,430,474

Financial assets available for sale – – – 135,960 – 4,128,492 910,119 5,174,571

Equity securities – – – – – – 910,119 910,119

Debt securities 3.68% – – 135,960 – 4,128,492 – 4,264,452

Financial assets held to maturity – – – – 1,049,506 837,104 – 1,886,610

Debt securities 7.60% – – – 1,049,506 837,104 – 1,886,610

Financial assets at fair value

through profit or loss held

for trading – 242,791 505,689 – 1,069 – 13,489,110 14,238,659

Equity securities held for trading – – – – – – 13,489,110 13,489,110

Debt securities held for trading 2.52% – 124,867 – – – – 124,867

Positive fair value of derivatives – 242,791 380,822 – 1,069 – – 624,682


through profit or loss not held

for trading – 4,403,613 12,318,130 2,593,763 8,991,083 19,937,214 7,372,543 55,616,346

Debt securities not held

for trading 4.77% 4,403,613 12,318,130 2,593,763 8,991,083 19,937,214 – 48,243,803

Equity securities not held

for trading – – – – – – 7,372,368 7,372,368

Other not held for trading – – – – – – 175 175

Loans and receivables – 18,522,326 1,643,496 1,543,170 239,550 224,037 170,611 22,343,190

Loans and advances to banks 2.45% 13,997,991 – – – – 163,838 14,161,829

Loans and advances

to non-banks 1) 1,182 – 179 – 7,364 – 8,725

Receivables – 4,523,153 1,643,496 1,542,991 239,550 216,673 6,773 8,172,636

Cash and cash equivalents – 1,171,098 – – – – – 1,171,098

Total financial assets – 23,168,730 14,467,315 4,272,893 10,281,208 25,126,847 27,064,175 104,381,168

1) Loans and advances to non-banks include almost fully impaired overdue loans where an interest is no more charged.





Subsidiaries and associates – – – – – – 16,728,599 16,728,599

Financial assets – 22,168,193 11,228,696 5,512,020 10,100,199 21,579,599 26,565,774 97,154,481

Financial assets available for sale – – – – – – 1,779,769 1,779,769

Equity securities – – – – – – 1,779,769 1,779,769

Financial assets held to maturity – – – – 1,049,487 821,241 – 1,870,728

Debt securities 7.60% – – – 1,049,487 821,241 – 1,870,728


through profit or loss held

for trading – 293,278 542,034 – 59,170 – 11,160,391 12,054,873

Equity securities held for trading – – – – – – 11,160,391 11,160,391

Positive fair value of derivatives – 293,278 542,034 – 59,170 – – 894,482


through profit or loss not held

for trading – 1,486,858 7,704,298 4,074,879 8,953,649 20,595,115 13,027,394 55,842,193

Debt securities not held

for trading 4.89% 1,486,858 7,704,298 4,074,879 8,953,649 20,595,115 – 42,814,799

Equity securities not held

for trading – – – – – – 13,027,219 13,027,219

Other not held for trading – – – – – – 175 175

Loans and receivables – 20,388,057 2,982,364 1,437,141 37,893 163,243 349,133 25,357,831

Loans and advances to banks 2.51% 16,341,173 200,000 670,101 – – – 17,211,274

Loans and advances

to non-banks 1.63% 1,843 319,714 – – 8,591 – 330,148

Receivables – 4,045,041 2,462,650 767,040 37,893 154,652 349,133 7,816,409

Cash and cash equivalents – – – – – – 249,087 249,087

Total financial assets – 22,168,193 11,228,696 5,512,020 10,100,199 21,579,599 43,294,373 113,883,080

ANNUAL REPORT 107





contracts with DPF – – – 5,218 579,436 723,826 – 1,308,480


contracts with DPF 2.65% – – 5,218 579,436 723,826 – 1,308,480

Payables – 7,043,209 881,244 1,306,400 49,304 – 17,179 9,297,336

Other liabilities – – – – – – 46,971 46,971


through profit or loss – 145,776 135,549 108,392 2,519 – – 392,236

Negative market value of derivatives – 145,776 135,549 108,392 2,519 – – 392,236

Liabilities to banks 2.48% 277,129 – – – – – 277,129

Total financial liabilities – 7,466,114 1,016,793 1,420,010 631,259 723,826 64,150 11,322,152





contracts with DPF – – – – 465,722 600,202 – 1,065,924


contracts with DPF 2.77% – – – 465,722 600,202 – 1,065,924

Subordinated liabilities 7.51% – – – – 2,500,000 – 2,500,000

Other liabilities evidenced by paper – 4,037,690 30,500 – – – – 4,068,190

Bonds 2.57% 4,037,690 – – – – – 4,037,690

Deposit bill of exchange – – 30,500 – – – – 30,500

Payables – 9,126,647 363,884 405,441 3,797 61,572 10,424 9,971,765

Other liabilities – – – – – – 38,635 38,635


through profit or loss – 403,370 108,447 – – – – 511,817

Negative market value of derivatives – 403,370 108,447 – – – – 511,817

Liabilities to banks 1.96% 264,910 – – – – – 264,910

Total financial liabilities – 13,832,617 502,831 405,441 469,519 3,161,774 49,059 18,421,241

E.2.2.2. Equity price risk

Equity price risk is the risk that equity prices will fluctuate affecting the fair value of equity investments and other instruments that derive their value from

a particular equity investment or index of equity prices.

The Company manages its use of equity investments in response to changing market conditions and limits the risk by maintaining a diversified portfolio.

E.2.2.3. Currency risk

The Company is exposed to currency risk through transactions in foreign currencies and through its assets and liabilities denominated in foreign currencies.

The Company’s main foreign exposures are to Europe and the United States of America. Its exposures are measured mainly in Euros (“EUR”), U.S. Dollars

(“USD”), Slovak Crowns (“SKK”), Cypriot Pounds (“CYP”) and Russian Rubles (“RUR”). As the currency in which the Company presents its financial

statements is CZK, movements in the exchange rates between these currencies and the CZK affect the Company financial statements.

The Company’s transactional exposures give rise to foreign currency gains and losses that are recognised in the income statement. These exposures

comprise the monetary assets and liabilities of the Company that are not denominated in the Company’s functional currency. In respect of monetary assets

and liabilities in foreign currencies, the Company ensures that its net exposure is kept to an acceptable level by buying and selling foreign currencies at spot

rates when considered appropriate, or using short-term FX operations.

The Company also has investments in foreign operations whose net assets are exposed to a foreign currency translation risk.


The following table shows the composition of financial assets and liabilities with respect to the main currencies:

2006 EUR USD SKK CYP CZK Other Total

TCZK

Subsidiaries and associates 391,530 – – 1,305,096 1,960,835 293,233 3,950,694

Financial assets 8,544,433 9,067,449 1,750,080 – 80,922,459 146,053 100,430,474

Financial assets available for sale 837,342 213,186 – – 4,124,043 – 5,174,571

Debt securities 837,342 213,186 – – 3,213,924 – 4,264,452

Equity securities – – – – 910,119 – 910,119

Financial assets held to maturity – – – – 1,886,610 – 1,886,610

Debt securities – – – – 1,886,610 – 1,886,610


profit or loss held for trading 2,182,867 5,660,589 457 – 6,288,689 106,057 14,238,659

Equity securities held for trading 2,101,031 5,621,689 – – 5,662,778 103,612 13,489,110

Debt securities held for trading – – – – 124,867 – 124,867

Positive fair value of derivatives 81,836 38,900 457 – 501,044 2,445 624,682


profit or loss not held for trading 5,352,194 1,985,007 – – 48,278,990 155 55,616,346

Debt securities not held for trading 543,116 1,115,755 – – 46,584,932 – 48,243,803

Equity securities not held for trading 4,809,078 869,252 – – 1,693,883 155 7,372,368

Other not held for trading – – – – 175 – 175

Loans and receivables 130,527 1,188,560 1,745,971 – 19,246,471 31,661 22,343,190

Loans and advances to banks 110,001 1,022,917 – – 13,028,911 – 14,161,829

Loans and advances to non-banks – – – – 8,725 – 8,725

Receivables 20,526 165,643 1,745,971 – 6,208,835 31,661 8,172,636

Cash and cash equivalents 41,503 20,107 3,652 – 1,097,656 8,180 1,171,098

Reinsurance assets – – 34,705 – 8,231,539 – 8,266,244

Total 8,935,963 9,067,449 1,784,785 1,305,096 91,114,833 439,286 112,647,412

During 2006, mainly as a result of split-off transaction, the Company has reduced its open position in assets denominated in EUR. New investments were

made most of all in CZK and USD.

ANNUAL REPORT 109


TCZK

Subsidiaries and associates 5,280,736 – 4,280 3,375,407 7,776,510 291,666 16,728,599

Financial assets 9,204,360 7,990,264 1,510,283 – 78,257,986 191,588 97,154,481

Financial assets available for sale – – – – 1,779,769 – 1,779,769

Equity securities – – – – 1,779,769 – 1,779,769

Financial assets held to maturity – – – – 1,870,728 – 1,870,728

Debt securities – – – – 1,870,728 – 1,870,728


profit or loss held for trading 2,390,627 5,386,742 4,656 – 4,270,649 2,199 12,054,873

Equity securities held for trading 2,003,264 5,222,148 – – 3,934,979 – 11,160,391

Positive fair value of derivatives 387,363 164,594 4,656 – 335,670 2,199 894,482


profit or loss not held for trading 6,350,520 2,200,585 – – 47,167,539 123,549 55,842,193

Debt securities not held for trading 420,488 1,205,070 – – 41,065,692 123,549 42,814,799

Equity securities not held for trading 5,930,032 995,515 – – 6,101,672 – 13,027,219

Other not held for trading – – – – 175 – 175

Loans and receivables 391,769 355,040 1,503,889 – 23,067,123 40,010 25,357,831

Loans and advances to banks – 192,704 – – 17,018,570 – 17,211,274

Loans and advances to non-banks – – – – 330,148 – 330,148

Receivables 391,769 162,336 1,503,889 – 5,718,405 40,010 7,816,409

Cash and cash equivalents 71,444 47,897 1,738 – 102,178 25,830 249,087

Reinsurance assets – – 6,196 – 7,882,566 – 7,888,762

Total 14,485,096 7,990,264 1,520,759 3,375,407 93,917,062 483,254 121,771,842



TCZK


contracts with DPF – – – – 1,308,480 – 1,308,480



Payables 31,103 93,247 1,321,179 – 7,835,057 16,750 9,297,336

Other liabilities – – – – 46,971 – 46,971


through profit or loss 215,602 4,785 – – 171,060 789 392,236

Negative market value of derivatives 215,602 4,785 – – 171,060 789 392,236

Liabilities to banks – – – – 277,129 – 277,129

Total 246,705 98,032 1,321,179 – 9,638,697 17,539 11,322,152

Net foreign currency position – 2006 8,689,258 8,969,417 463,606 1,305,096 81,476,136 421,747 101,325,260


TCZK





Subordinated liabilities – – – – 2,500,000 – 2,500,000

Other liabilities evidenced by paper – – – – 4,068,190 – 4,068,190

Payables 72,682 109,010 1,191,798 – 8,580,400 17,875 9,971,765

Other liabilities – – – – 38,635 – 38,635


through profit or loss 66,054 94,795 2,905 – 348,063 – 511,817

Negative market value of derivatives 66,054 94,795 2,905 – 348,063 – 511,817

Liabilities to banks – – – – 264,910 – 264,910

Total 138,736 203,805 1,194,703 – 16,866,122 17,875 18,421,241

Net foreign currency position – 2005 14,346,360 7,786,459 326,056 3,375,407 77,050,940 465,379 103,350,601

ANNUAL REPORT 111

The following table summarises, by major currency, the contractual amounts of the Company’s forward exchange, futures and option contracts, with details

of the contracted exchange rates and the remaining periods to maturity. Foreign currency amounts are translated at the rates ruling at the balance sheet date:

TCZK 2006 2005

Buy EUR

Less than three months 2,286,244 2,800,968

Between three months and one year 109,980 –

More than one year 12,895,155 –

Total 15,291,379 2,800,968

Sell EUR


Between three months and one year 219,960 29,005

More than one year 13,201,155 290,050

Total 22,894,121 12,858,313

Buy USD

Less than three months 15,657 3,387,653

Total 15,657 3,387,653

Sell USD


Between three months and one year – 526,183

More than one year 665,360 –

Total 9,474,016 11,483,548

Buy SKK

Less than three months 329,194 829,352


Total 549,154 1,581,603

Sell SKK

Less than three months 768,176 1,410,787


Total 878,156 2,163,038

Buy other

Less than three months 953,232 178,638

Total 953,232 178,638

Sell other

Less than three months 624,202 –

Total 624,202 –

E.2.3. CREDIT RISK

The Company is subject to credit risk through its trading, lending and investing activities and where it acts as an intermediary on behalf of policyholders or

other third parties.

The Company’s primary exposure to credit risk arises through the purchase of debt securities and through the provision of loans and advances. The amount

of credit exposure in this regard is represented by the carrying amounts of the assets in the balance sheet. The Company is exposed to credit risk on

various other financial assets, including derivative and debt investments and the current credit exposure in respect of these instruments is equal to the

carrying amount of these assets in the balance sheet. In addition, the Company is exposed to an off balance sheet credit risk through commitments to

extend issued credit and guarantees – for more details refer to note F.38.1.

The Company’s credit exposure at the balance sheet date arising from financial instruments held or issued for trading and non-trading purposes is

represented by the fair value of instruments with a positive fair value at that date, as recorded in the balance sheet. Notional amounts disclosed in the

notes to the financial statements do not represent the amounts to be exchanged by the parties to the derivatives and do not measure the

Company’s exposure to credit or market risks. The amounts to be exchanged are based on the terms of the derivatives.

The risk that the counterparties to the instruments might default on their obligations is monitored on an ongoing basis. In monitoring the credit risk

exposure, consideration is given to instruments with a positive fair value and to the volatility of the fair value of the instruments. To manage the level of

credit risk, the Company deals with counterparties with a good credit standing and enters into master netting agreements whenever possible. Master

netting agreements provide for the net settlement of contracts with the same counterparty in the event of default.

Concentrations of credit risk arise where groups of counterparties have similar economic characteristics that would cause their ability to meet their

contractual obligations to be similarly affected by changes in economic or other conditions.


The following tables show the economic and geographic concentration of credit risk:

TCZK 2006 2006 (%) 2005 2005 (%)

Economic concentration

Financial services 41,387,728 53.20 38,174,125 53.57

Public sector 26,076,260 33.52 22,137,183 31.06

Telecom providers 2,878 0.01 – –

Other 10,324,520 13.27 10,951,640 15.37

Total 77,791,386 100 71,262,948 100

Geographic concentration

Czech Republic 50,488,647 64.90 46,575,278 65.36

Slovak Republic 1,740,847 2.24 1,482,796 2.08

Russia 7,086 0.01 – –

Netherlands 6,084,659 7.82 4,112,780 5.77

Cyprus 994,955 1.28 697,187 0.98

Other EU countries 16,883,654 21.70 16,661,420 23.38

Other 1,591,538 2.05 1,733,487 2.43

Total 77,791,386 100 71,262,948 100

The amounts reflected in the tables represent the maximum accounting loss that would be recognised at the balance sheet date if counter parties failed

completely to perform as contracted and any collateral or security proved to be of no value. The amounts, therefore, greatly exceed expected losses, which

are included in the allowance for uncollectibility.

E.2.4. INSURANCE RISK

The Company is exposed to actuarial and underwriting risk through a wide range of life and non-life products offered to customers: participating and

non-participating traditional life products, unit-linked, fixed and variable annuities, universal life products, pension products, guaranteed investment

products and all lines of non-life products (fire, accident and health, automobile, third party liability and disability). Insurance risk relates to the uncertainty

of the insurance business.

The most significant components of actuarial risk are the premium risk and the reserve risk. These concern the adequacy of insurance premium rate levels

and the adequacy of provisions with respect to insurance liabilities and the capital base. The adequacy is assessed taking into consideration the supporting

assets (fair and book value, currency and interest sensitivity), changes in interest rates and exchange rates and developments in mortality, morbidity,

non-life claims frequency and amounts, lapses and expenses as well as general market conditions. Specific attention is paid to the adequacy of provisions

for the life business. For a detailed description of the liability adequacy test see note D.2.3.

E.2.4.1. Concentration of insurance risk

A key aspect of the insurance risk faced by the Company is the extent of concentration of insurance risk, which determines the extent to which a particular

event or series of events could impact significantly upon the Company’s liabilities. Such concentrations may arise from a single insurance contract or

through a number of related contracts where significant liabilities could arise. An important aspect of the concentration of insurance risk is that it could arise

from the accumulation of risks within a number of different insurance classes.

Concentrations of risk can arise in low frequency, high-severity events such as natural disasters; in situations where the Company is exposed to

unexpected changes in trends, for example, unexpected changes in human mortality or in policyholder behaviour; or where significant litigation or

legislative risks could cause a large single loss, or have a pervasive effect on many contracts.

E.2.4.2. Geographic and sectoral concentrations

The risks underwritten by the Company are primarily located in the Czech Republic.

Within non life insurance, the management believes that the Company has no significant concentration of exposure to any group of policyholders measured

by social, professional, age or similar criteria.

ANNUAL REPORT 113

E.2.4.3. Low frequency, high-severity risks

The most significant risk of natural disaster to which the Company is exposed is the risk of flooding in the Czech Republic. In the event of a major flood, the

Company expects the property portfolio to see high claims for structural damage to properties and contents, and high claims for business interruption while

transport links are inoperable and business properties are closed for repair. Apart from the risk of flooding other climatic phenomena, such as long lasting

snow-fall or strong tornados would have a similar effect.

The Czech Republic suffered major flooding in 2002 across a large part of Bohemia (affecting large industrial areas), including Prague. During the year 2006

there were two major flooding (a spring flooding and a summer flooding). The details relating to the spring flooding are disclosed in the table below. The

summer flooding was caused by heavy local rain fall. No comparative figures are available on the market in relation to this flooding. Changes which the

Company has made in its property portfolio and improvements in its mapping of high risk areas and regions to limit its exposure to flood claims had

a positive effect (see the table below).

Good risk diversification resulted in a situation, where a total gross insurance claims incurred in relation to 2006 flooding and heavy snow in amount of

CZK 1,977 million did not cause an increase in insurance claim expenses in comparison with the prior year (see F.28.) as it was in the case of impact

of 2002 flooding.

The table below shows the key characteristics of the floods in 2002 and 2006:

2002 Flooding 2006 Spring Flooding

Claims MCZK Claims MCZK

(in thousands) (in thousands)

Total damage (estimate published by the Czech Insurers Association) n/a 73,000 n/a n/a

Insured damage 82 36,811 14 780

The Company’s share – gross 52 8,888 10 369

The Company’s share – net 52 290 10 222

The Company’s net-share of total damage n/a 3.97% n/a n/a

The Company’s net-share of insured damage 63.41% 7.87% 71.43% 28.46%

E.3. HEDGING

The Company uses derivative financial instruments to manage the potential earnings impact of interest rate and foreign currency movements. Several

types of derivative financial instruments are used for this purpose, including interest rate swaps and currency swaps, options, forward contracts and other

derivatives. The purpose of the Company’s hedging activities is to protect the Company from the risk that the net cash inflows will be adversely affected by

changes in interest or exchange rates, credit ratings or market prices. The Company enters into transactions to ensure that it is economically hedged in

accordance with its asset-liability risk management policies.

Interest rate hedging derivatives are designated as economic hedges of benchmark interest rates for specified assets or groups of similar assets, liabilities

or groups of similar liabilities, or anticipated transactions. The Company’s risk management activities concentrate on economic hedging of the

Company’s net exposure based on its asset and liability positions. Therefore the Company monitors its interest rate risk exposures by reviewing the net

asset or liability gaps within the relevant reprising bands.

Where the Company economically hedges a portfolio of loans or liabilities (especially life insurance liabilities) in respect of the interest rate risk it classifies

the loans into homogenous groups, each with specific maturities.

The Company manages its use of hedging derivatives in response to changing market conditions as well as to changes in the characteristics and mix of the

related assets, liabilities and firm commitments.

E.4. RISK MANAGEMENT AND CONTROL

The Company dedicated the financial risk management to a professional department within the Company and the interest rate risk, FX risk, equity price

risk, liquidity risk, market risks and credit risk is managed by own experts. This enables the Company to concentrate on risk management policies, including

management of the insurance risks.


E.4.1. INTEREST RATE SENSITIVITY

The Company uses a duration analysis to estimate the degree of sensitivity to interest rate changes in respect of its trading and non-trading positions. The

duration of a bond is the life, in years, of a notional zero coupon bond whose fair value would change by the same amount as the real bond or portfolio in

response to a change in market interest rates. Financial instruments, including derivatives, used to manage asset-liability positions have the effect of

changing the net duration.

E.4.2. MARKET VALUE AT RISK

The market risk of the Company’s financial asset and liability trading positions is monitored, using a Value at Risk analysis and other methods (cash-flow

matching, duration analysis, etc.). The Value at Risk represents the potential losses from adverse changes in market factors for a specified time period and

confidence level. This approach, which is based on JP Morgan Risk Metrics methodology, calculates the Value at Risk using a covariance matrix of relative

changes in market factors and the net present value of trading positions assuming that these relative changes are normally distributed. Another method

used by the Company is the Monte Carlo simulation for non-linear instruments (e.g. options) based on simulating future changes of underlying assets using

the covariance from last period.

E.4.3. CREDIT VALUE AT RISK

To assess the credit Value at Risk the Company uses credit risk calculations based on the JP Morgan Credit Metrics methodology using transition matrices

and Monte-Carlo simulations of rating transitions.

E.4.4. INSURANCE RISK MANAGEMENT

The Company manages the insurance risk using internal guidelines for product design, reserving, pricing criteria, reinsurance strategy and guidelines for

underwriting. Monitoring of risk profiles, review of insurance-related risk control and asset/liability management are also carried out by senior management.

For those insurance contracts that contain high interest rate guarantees stochastic modelling is used to assess the risk of these guarantees. The pricing

reflects the cost of the guarantees and appropriate reserves are established accordingly.

New methods based on dynamic financial analysis are currently being developed and tested. These methods will be used, among others, to measure the

economic capital of insurance risks.

E.4.4.1. Underwriting strategy

The underwriting strategy is an integral part of the annual business plan that specifies the classes of business to be written within the planned period and

the target sectors of clients. Following approval by the Board of Directors, the strategy is cascaded to the individual underwriters in the form of

underwriting limits (each underwriter can write business by line size, class of business, territory and industry in order to ensure the appropriate risk

selection within the portfolio). The underwriters review all general insurance contracts (only non-life) on an annual basis and have the right to decline the

renewal or to change the terms and conditions of the contract.

E.4.4.2. Reinsurance strategy

The Company reinsures some of the risks it underwrites in order to control its exposures to losses and protect its capital resources. The Company has

based its reinsurance scheme on a complementary combination of contracts with external reinsurers (external reinsurance) and contracts with captive

reinsurance.

External reinsurance

The Company concludes a combination of proportionate and non-proportionate reinsurance treaties to reduce its net exposure. The maximum net exposure

limits for particular business lines are reviewed annually. To provide additional protection the Company uses facultative reinsurance for certain insurance

contracts.

As a part of its reinsurance strategy, the Company carries out regular monitoring of the financial position of its reinsurers. The main tools for managing the

reinsurers’ credit risk are published rating reports, in particular those published by Standard & Poor’s.

Captive reinsurance

For economic and business reasons the Company has added captive reinsurance to its reinsurance program effective from the beginning of 2005.

CP Reinsurance company Ltd., founded for this purpose, is the Company’s subsidiary (see chapter C). CP Reinsurance company Ltd. does not have a rating.

The reinsurance operations are centralized within one specialist department.

ANNUAL REPORT 115

E.4.4.3. Asset liability matching

The Company has established an Asset and Liability Management Committee. This is an advisory body in charge of monitoring the Company’s asset and

liability positions with the objective of ensuring that the Company can always meet its obligations – without incurring undue costs and in accordance with

the Company’s internal policies and regulatory capital requirements.

The key goal is to match the timing of the cash flows from the respective assets and liabilities.

The Company manages its financial position using an approach that balances quality, diversity, liquidity and return on investment. The desired result of the

investment process is to optimise the net of taxes, risk adjusted investment income and the risk-adjusted total return, whilst ensuring that the assets and

liabilities are managed on a cash flow and duration basis.

The Company assigns particular asset portfolios to major classes of liabilities/equity – i.e. non-life insurance liabilities, life insurance liabilities and

shareholder equity. The investment strategy is adjusted to the particular portfolios, taking into account the effective duration, yield curve, sensitivity,

liquidity, asset sector concentration, credit quality and regulatory limits.

E.4.5. OPERATIONAL RISKS

The operational risk management process is based primarily on analysing the risks and designing modifications to work procedures and processes to

eliminate, as far as possible, the risks associated with operational events (losses caused by risks other than market and credit risk). Work procedures

governing the investment and risk management processes constitute a part of the Company’s system of mandatory policies and procedures.

E.4.6. OPERATING SYSTEMS AND IT SECURITY MANAGEMENT

Organization of the Company’s IT is based on separating the IT security unit from IT operations and IT development. The rules set by the Company

regarding IT risk management and IT security are based on the rules and recommendations contained in ISO/IEC 17799:2000 Information Technology –

Code of practice for information security management. For key systems, the business continuity plans originally developed in 2002 – 2003 to ensure the

continuity of the IT systems’ operation in the event of an emergency situation were partially updated in 2005, as planned. These plans contain scenarios for

restoring individual key systems to normal operation sufficiently quickly to ensure that the Company's business is not threatened. The top priority is to

eliminate the negative impacts of any emergency situation on the clients' ability to access the Company’s services. An integral part of making changes to

the IT infrastructure and IT systems is comprehensive testing of their fitness for operation in the Company's internal and external networks. This testing is

conducted by an independent, specialist company and is mandatory for all new systems and changes to routine IT operations to ensure the high quality of

the Company's systems is maintained.

F. NOTES TO THE BALANCE SHEET AND INCOME STATEMENT

F.1. INTANGIBLE ASSETS

Intangible assets comprise the following:

2006 2006 2005

Software 1,403,367 1,417,358

Other intangible assets 32,735 7,697

Total intangible assets 1,436,102 1,425,055


F.1.1. SOFTWARE AND OTHER INTANGIBLE ASSETS

The following table shows the roll-forward of the remaining categories of intangible assets:

2006 Software Other Total

intangible

TCZK assets

Cost

Balance at 1 January 2,754,914 19,117 2,774,031

Additions 483,474 31,617 515,091

Disposals -144 – -144

Balance at 31 December 3,238,244 50,734 3,288,978

Amortisation and impairment losses


Amortisation charge for the year 497,428 6,579 504,007

Disposals -107 – -107


Carrying amount at 31 December 1,403,367 32,735 1,436,102

The amortization charge for the current period is recognized under “Other expenses” in the income statement.

2005 Software Other Total

intangible

TCZK assets

Cost


Additions 828,987 3,438 832,425

Disposals -113,810 -458 -114,268


Amortisation and impairment losses


Amortisation charge for the year 435,717 4,869 440,586

Disposals -113,809 -443 -114,252


Carrying amount at 31 December 1,417,358 7,697 1,425,055

ANNUAL REPORT 117

F.2. PROPERTY, PLANT AND EQUIPMENT

The following table shows the roll-forward of property, plant and equipment:

2006 Land and Other tangible Tangible Total Of which

buildings assets and assets under under finance

TCZK equipment construction leases

Cost

Balance at 1 January 4,072,233 2,765,049 357,792 7,195,074 40,044

Additions 111,044 304,327 191,004 606,375 15,718

Disposals -778,585 -267,945 – -1,046,530 -4,411

Transfer to/from investment property 296,119 – -235,905 60,214 –

Other movements -225,670 – -34,706 -260,376 –

Balance at 31 December 3,475,141 2,801,431 278,185 6,554,757 51,351

Depreciation and impairment losses

Balance at 1 January 1,163,574 2,057,077 4,373 3,225,024 19,065

Depreciation charge for the year 69,207 396,803 – 466,010 10,040

Impairment losses recognized 27,297 – – 27,297 –

Reversal of impairment losses -66 – – -66 –

Disposals -239,146 -191,878 – -431,024 -2,178


Carrying amount at 31 December 2,454,275 539,429 273,812 3,267,516 24,424

Other movements include reclassification of selected land and buildings into non-current assets held for sale with a total net book value of TCZK 260,376

(see F.5.) and transfers from tangible assets under construction in the amount of TCZK 34,706 to land and buildings.

2005 Land and Other tangible Tangible Total Of which

buildings assets and assets under under finance

TCZK equipment construction leases

Cost

Balance at 1 January 4,250,722 2 846,593 533,710 7,631,025 34,398

Additions 108,654 254,502 30,084 393,240 10,098

Disposals -162,422 -336,046 -467 -498,935 -4,452

Transfer to/from investment property -181,932 – -148,324 -330,256 –

Other movements 57,211 – -57,211 – –


Depreciation and impairment losses

Balance at 1 January 1,222,478 2,016,522 – 3,239,000 13,882

Depreciation charge for the year 71,488 368,254 – 439,742 7,943

Impairment losses recognized 142,545 – 4,373 146,918 –

Reversal of impairment losses -153,788 – – -153,788 –

Disposals -34,881 -327,699 – -362,580 -2,760

Transfer to investment property -84,268 – – -84,268 –


Carrying amount at 31 December 2,908,659 707,972 353,419 3,970,050 20,979


F.3. INVESTMENT PROPERTY

The following table shows the roll-forward of investment property:

TCZK 2006 2005

Balance at 1 January 3,230,699 3,551,067

Additions 62,218 268,637

Capitalized subsequent expenditure 235,905 148,324

Transfer to/from property, plant and equipment -296,119 97,664

Other movements – 52,415

Proceeds from disposals -259,330 -437,888

Realised gains from investment property 46,830 2,061

Realised losses from investment property -82,770 -3,286

Unrealised gains from investment property 109,070 128,329

Unrealised losses from investment property -134,892 -576,624

Balance at 31 December 2,911,611 3,230,699

The significant transfers to property, plant and equipment are the result of an internal reorganization. The Company is concentrating its offices in fewer

buildings so the occupancy ratio of some buildings has increased. Consequently the buildings and related land were transferred from investment property

to property, plant and equipment. The Company has also transferred land on which the new central office of the Company is being constructed.

The fair value of investment property is based on the valuation of an independent valuer who holds a recognised and relevant professional qualification and

has recent experience in the location and category of the investment property being valued.

The key variables used in this method are estimated market rental income (calculated based on inflation rate), capacity utilization, maintenance and renewal

expenses (based on the acquisition price, technical condition, useful life and discount rate depending on the conditions).

F.4. FINANCIAL ASSETS

Financial assets comprise the following:

TCZK 2006 2005

Financial assets available for sale 5,174,571 1,779,769

Financial assets held to maturity 1,886,610 1,870,728

Financial assets at fair value through profit or loss held for trading 14,238,659 12,054,873

Financial assets at fair value through profit or loss not held for trading 55,616,346 55,842,193

Loans and receivables 22,343,190 25,357,831

Cash and cash equivalents 1,171,098 249,087

Total financial instruments 100,430,474 97,154,481

F.4.1. FINANCIAL ASSETS AVAILABLE FOR SALE

TCZK 2006 2005

Bonds 4,264,452 –

Government bonds 4,051,266 –

Corporate bonds 213,186 –

Shares 910,119 1,779,769

Total financial assets available for sale 5,174,571 1,779,769

In 2006, in line with the investment strategy, the Company started to acquire selected bonds into the available for sale assets category.

During 2006 the Company sold selected equity securities. The most significant was the sale of shares in Modrá pyramida stavební spofiitelna, a.s. with

a net book value of TCZK 368,627 and the sale of shares in PraÏské sluÏby, a.s. with a net book value of TCZK 343,604.

ANNUAL REPORT 119

F.4.2. FINANCIAL ASSETS HELD TO MATURITY

Financial assets held to maturity comprise the following:

2006 Fair Amortised Carrying

TCZK value cost amount

Bonds 2,306,810 1,886,610 1,886,610

Government bonds 86,824 71,261 71,261

Corporate bonds 2,219,986 1,815,349 1,815,349

Total financial assets held to maturity 2,306,810 1,886,610 1,886,610

2005 Fair Amortised Carrying

TCZK value cost amount

Bonds 2,363,337 1,870,728 1,870,728

Government bonds 85,251 66,071 66,071

Corporate bonds 2,278,086 1,804,657 1,804,657

Total financial assets held to maturity 2,363,337 1,870,728 1,870,728

F.4.3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS HELD FOR TRADING

Financial assets at fair value through profit or loss held for trading comprise the following:

TCZK 2006 2005

Bonds 124,867 –

Other public-sector bonds 124,867 –

Shares 13,489,110 11,160,391

Equity securities 13,489,110 11,160,391

Positive fair values of derivatives 624,682 894,482

Total 14,238,659 12,054,873

All financial instruments held for trading are valued based on quoted market prices, except derivatives, which are valued based on generally accepted

valuation techniques depending on the product (i.e. discounted expected future cash flows, Black-Scholes model, etc.).

The following tables show the valuation of the various types of derivatives:

2006 Notional amount with remaining life of Fair values

TCZK Less than Between three More than Assets Liabilities

three months and one year

Interest rate derivatives months one year

OTC – products:

Interest rate swaps 3,000,000 200,000 29,907,680 251,869 351,911

Total 3,000,000 200,000 29,907,680 251,869 351,911





Currency derivatives months one year

OTC – products:

Forward exchange contracts 296,315 – – 2,679 5

Currency/cross currency swaps 19,127,468 – 971,360 358,225 15,346

Foreign exchange options (purchase) 1,121,190 109,980 – 11,909 –

Foreign exchange options (sale) 302,445 219,960 – – 13,092

Total 20,847,418 329,940 971,360 372,813 28,443




Other derivatives months one year

OTC – products – – 137,475 – 11,882

Total – – 137,475 – 11,882




Interest rate derivatives months one year

OTC – products:

Interest rate swaps 1,000,000 3,820,000 30,462,200 688,365 355,619

Total 1,000,000 3,820,000 30,462,200 688,365 355,619




Currency derivatives months one year

OTC – products:

Forward exchange contracts 33,356 – – – 147

Currency/cross currency swaps 30,132,994 2,231,039 306,000 206,117 140,784

Total 30,166,350 2,231,039 306,000 206,117 140,931




Other derivatives months one year

OTC-products – – 145,025 – 15,267

Total – – 145,025 – 15,267

All gains and losses on derivative contracts are recognised in the income statement.

ANNUAL REPORT 121

F.4.4. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS NOT HELD FOR TRADING

Financial assets at fair value through profit or loss not held for trading comprise the following:

TCZK 2006 2005

Bonds 48,243,803 42,814,799

Government bonds 20,499,036 20,336,626

Other public-sector bonds 1,261,253 1,290,501

Corporate bonds 26,483,514 21,187,672

Shares 7,372,368 13,027,219

Equity securities 162,425 158,152

Mutual funds investments 7,209,943 12,869,067

Other 175 175

Total 55,616,346 55,842,193

F.4.5. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (BOTH HELD FOR TRADING AND NOT HELD FOR TRADING) – BROKEN DOWN BY THE APPLIED VALUATION METHOD

TCZK 2006 2005

Market price 45,126,108 37,460,863

Net present value of future cash flows 17,558,236 17,409,809

Redemption price 7,170,661 13,027,394

Total 69,855,005 67,897,066

For puttable instruments such as open-ended mutual funds where the Company has the right to redeem its interest in the fund at any time for cash equal

to its proportional share of the fund’s asset value, this redemption price is considered to be the fair value of the instrument.

F.4.6. LOANS AND ADVANCES TO BANKS

Loans and advances to banks comprise the following:

TCZK 2006 2005

Term deposits at banks 11,973,455 13,285,683

Loans to banks 254,341 924,442

Loans and advances provided under repo operations 1,770,195 3,001,149

Other 163,838 0

Total loans and advances to banks 14,161,829 17,211,274

The following table shows gross loans and advances to banks and impairment losses thereon:

TCZK 2006 2005

Loans and advances to banks – performing 13,907,488 16,956,894

Loans and advances to banks – non-performing 4,044,516 4,044,516

Subtotal loans and advances to banks 17,952,004 21,001,410

Less impairment losses -3,790,175 -3,790,136

Total loans and advances to banks, net of impairments 14,161,829 17,211,274


F.4.7. LOANS AND ADVANCES TO NON-BANKS

Loans and advances to non-banks comprise the following:

TCZK 2006 2005

Loans to non-banks including policyholder loans 8,725 330,148

Total loans and advances to customers 8,725 330,148

The decrease in loans to non banks arises from repayment of a loan in the amount of TCZK 161,047 and capitalization of a loan in the amount of

TZCK 150,000 (see also note C[11]).

The following table shows gross loans and advances to non-banks and related impairment losses:

TCZK 2006 2005

Loans and advances to non-banks – performing 7,543 328,410

Loans and advances to non-banks – non-performing 5,357,438 5,943,701

Subtotal loans and advances to non-banks 5,364,981 6,272,111


Total loans and advances to non-banks, net of impairments 8,725 330,148

F.4.8. RECEIVABLES

Receivables comprise the following:

TCZK 2006 2005

Receivables arising out of direct insurance operations 5,580,860 5,311,047

Amounts owed by policyholders 5,538,416 5,253,025

Amount owed by intermediaries 42,444 58,022

Receivables arising out of reinsurance operations 3,319,391 3,232,282

Trade and other receivables 1,117,628 1,447,207

Tax receivables 13,349 23,556

Subtotal receivables (gross) 10,031,228 10,014,092


Total receivables, net of impairments 8,172,636 7,839,965

F.5. NON-CURRENT ASSETS HELD FOR SALE

Fourteen buildings previously occupied or partially occupied by the Company are presented as non-current assets held for sale based on the commitment

to sell the buildings made either in the sale contracts or during the final negotiations with the buyers at the balance sheet date. Efforts are being made to

sell the buildings, and a sale is expected in the first half of 2007. At 31 December 2006 the assets classified as held for sale amounted to TCZK 214,964

and the related deferred tax liability amounted to TCZK 22,730.

Immediately before the transfer, the carrying amount of the assets was TCZK 260,376. An impairment loss of TCZK 45,412 arising from the measurement

of the disposal assets to the lower of their carrying amount and their fair value less costs to sell, has been recognised in other expenses.

ANNUAL REPORT 123

F.6. REINSURANCE ASSETS

Reinsurance assets comprise the following:

TCZK 2006 2005

Reinsurers' share of insurance liabilities 8,266,244 7,888,762

Of which: captive reinsurance 6,785,937 6,802,072

Total assets arising from reinsurance contracts 8,266,244 7,888,762

Current 4,491,942 4,544,561

Non-current 3,774,302 3,344,201

Total 8,266,244 7,888,762

The amounts included in reinsurance assets represent expected future claims to be recovered from the Company’s reinsurers and the reinsurers’ share in

unearned premiums.

Ceded reinsurance arrangements do not relieve the Company of its direct obligations to policyholders. Thus, a credit exposure exists with respect to

reinsurance ceded to the extent that any reinsurer is unable to meet the obligations assumed under the reinsurance agreements.

The following table shows percentage of reinsurance assets ceded to external reinsurers grouped according to their rating by Standard & Poor’s:

Rating Percentage share in re insurance assets

AAA 5%

AA+ to AA- 34%

A+ to A- 50%

worse than A- 0%

non-rated 11%

F.7. DEFERRED TAX

The next table shows the roll-forward of net deferred taxes:

TCZK 2006 2005

Net deferred tax asset/(liability) at 1 January -603,699 -893,608

Deferred tax (expense)/income for the period -130,481 292,038

Deferred tax recognised directly in equity 22,757 -2,129

Net deferred tax asset/(liability) at 31 December -711,423 -603,699


The recognized deferred tax assets and liabilities comprise the following:

TCZK 2006 2006 2005 2005

Deferred tax Deferred tax Deferred tax Deferred tax

liabilities assets liabilities assets

Intangible assets -3,613 – – 8,843

Ownership interests -265 – – 7,446

Financial assets -194,671 253,622 -213,824 323,455

Financial assets at fair value through profit or loss -114,010 – -115,009 –

Financial assets available-for-sale -67,373 – -85,526 –

Financial assets held-to-maturity -13,288 – -13,289 –

Loans and receivables – 253,622 – 323,455

Other assets -22,730 – – –

Investment property – 72,171 – 67,993

Property, plant and equipment -240,524 – -253,846 –

Prepayments and accrued income – 2,311 – 2,215

Insurance liabilities -601,355 – -563,069 –

Financial liabilities – 22,142 – 14,823

Provisions – 1,489 – 2,265

Deferred tax assets/(liabilities) -1,063,158 351,735 -1,030,739 427,040

Net deferred tax assets/(liabilities) -711,423 – -603,699 –

F.7.1. CURRENT TAX AND DEFERRED TAX RECOGNISED DIRECTLY IN EQUITY

The deferred tax recognised directly in equity comprises the following:

TCZK 2006 2005

Deferred tax – revaluation gain on property, plant and equipment -47,858 -52,462

Deferred tax – revaluation gain on financial assets at AFS -67,373 -85,526

Current tax – unrealized gain/losses on financial assets at AFS -7,141 -24,463

Total -122,372 -162,451

F.8. OTHER ASSETS

The other assets comprise the following:

TCZK 2006 2005

Works of art 55,912 56,670

Subtotal other assets 55,912 56,670

Less impairment losses – –

Total other assets 55,912 56,670

F.9. PREPAYMENTS AND ACCRUED INCOME

Prepayments and accrued income comprise the following:

TCZK 2006 2005

Rental 109,431 117,544

Prepayments and other deferrals 79,027 71,773

Deferred acquisition costs 563,468 487,571

Total prepayments and accrued income 751,926 676,888

ANNUAL REPORT 125

F.9.1. DEFERRED ACQUISITION COSTS (DAC)

The Company defers only non-life insurance acquisition costs. All deferred acquisition costs are usually to be released within one year.

F.10. CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise the following:

TCZK 2006 2005

Cash in hand 315 284

Balances with banks payable on demand 1,164,090 238,808

Other cash value 6,693 9,995

Total cash and cash equivalents 1,171,098 249,087

As at 31 December 2006 the Company had cash of TCZK 1,001,264 deposited in a special current account with preferential interest rate.

F.11. IMPAIRMENT LOSSES ON LOANS AND ADVANCES TO BANKS AND CUSTOMERS, RECEIVABLES, NON CURRENTASSETS HELD FOR SALE, INVENTORIES AND OTHER ASSETS RECOGNISED

The next table shows the roll-forward of the impairment losses on loans and advances to banks and non-banks, receivables and other assets recognised:

TCZK 2006

Balance at 1 January 11,906,226

Impairment losses on loans and advances to banks and non-banks 10,765

Reversal of impairment losses on loans and advances and receivables -62,439

Write-off impairment losses on disposal assets -523,229

Additions/release of adjustments to receivables -326,300

Impairment losses on non current assets held for sale 45,412

Total impairment losses 11,050,435

Reversals of impairment or impairment losses on receivables from direct insurance are recognised in the income statement. An increase of an impairment

is recorded as a decrease in the premium written, while a reversal of an impairment is recorded as an increase in the premium written.

TCZK 2005


Impairment losses on loans and advances to banks and non-banks and receivables 72,114

Reversal of impairment losses on loans and advances and receivables -10,840

Write-off impairment losses on disposal assets -451,588

Additions/release of adjustments to receivables 189,472

Total impairment losses 11,906,226


F.12. CAPITAL AND RESERVES

Capital and reserves attributable to the Company’s shareholders comprise the following:

TCZK 2006 2005

Issued capital 4,000,000 2,980,963

Reserves 3,874,691 4,094,378

Revaluation reserve 686,839 1,065,779

Legal and statutory reserves 682,478 682,478

Catastrophe and equalisation reserves 2,505,644 2,346,121

Retained earnings 9,202,536 13,787,834

Net profit for the year 8,293,200 4,641,276

Prior years retained earnings 909,336 9,146,558

Total attributable to equity holders of the Company 17,077,497 20,863,175

Capital and reserves represent the balance of the Company’s net assets after deducting all of its liabilities.

F.12.1. SHARE CAPITAL ISSUED

Issued capital represents capital in respect of which the shareholders’ liability in respect of an enterprise’s obligations towards its creditors is limited. The

amount is the current nominal capital approved by a shareholders’ resolution.

The following table provides details of authorised and issued shares:

pc 2006 2005

Number of shares authorised 40,000 2,980,963

Number of shares issued, out of which: 40,000 2,980,963

fully paid 40,000 2,980,963

Par value per share (CZK) 100,000 1,000

The general meeting of the Company held on 30 June 2006 decided to increase the share capital by TCZK 1,019,037 through a transfer from retained

earnings. The increase was registered in the Commercial Register on 15 August 2006.

The general meeting of the Company held on 19 September 2006 decided to increase the nominal value of the shares from CZK 1,000 per share to

CZK 100,000 per share.

The following table reconciles the number of shares outstanding at the beginning and at the end of the year:

pc Ordinary shares

2006 2005


Shares emited 1,019,037 –

Balance as at 15 August 4,000,000 –

Change in nominal value of the shares -3,960,000 –

Balance at 31 December 40,000 2,980,963

At 31 December 2006, the registered share capital comprised registered shares totalling TCZK 4,000,000 (2005: TCZK 997,469) and no bearer shares

(2005: TCZK 1,983,494).

ANNUAL REPORT 127

The owners of ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at meetings of the Company’s shareholders.

The sole shareholder of the Company is CZI Holdings N.V., 1017 CA Amsterdam, Herengracht 516, the Netherlands; registered on 6 December 2006, with

identification number 34245976.

F.12.2. REVALUATION RESERVE

The revaluation reserve represents the revaluation surplus, net of deferred tax, recognised on property transferred from property, plant and equipment to

investment property following a change in its use and changes in the fair value of financial assets available for sale, net of deferred and current tax.

F.12.3. LEGAL AND STATUTORY RESERVES

The creation and use of the statutory reserve fund is limited by legislation. The legal reserve fund is not available for distribution to the shareholders.

F.12.4. CATASTROPHE AND EQUALISATION RESERVES

Catastrophe and equalisation reserves are required under local insurance legislation and are classified as a separate part of equity within these accounts as

they do not meet the definition of a liability under IFRS. They are not available for distribution.

F.12.5. DIVIDENDS

At the Annual General Meeting on 30 June 2006 the shareholder approved the distribution of retained earnings in the form of a dividend in the amount of

CZK 2,684 per each share in nominal value of CZK 1,000 amounting to TCZK 8,000,904. The total profit generated in 2005 in the amount of TCZK 4,641,276

and the prior year profit in the amount of TCZK 3,359,628 was used for distribution.

At the General Meeting on 11 December 2006 the shareholder approved further distribution of retained earnings in the form of dividend of CZK 87,500 per

each share in nominal value of CZK 100,000, amounting to TCZK 3,500,000.

F.13. INSURANCE LIABILITIES

The insurance provisions (gross) comprise the following:

TCZK 2006 2005

Provision for unearned premiums (UPR) 5,839,985 5,350,182

Claims reported by policyholders but not settled (RBNS) 10,248,086 10,483,145

Claims incurred but not reported (IBNR) 5,332,327 5,489,445

Life assurance provision 66,499,418 65,865,548

Other insurance provisions 449,059 463,785

Total insurance provisions 88,368,875 87,652,105

F.13.1. PROVISION FOR UNEARNED PREMIUM

The next table shows the roll forward of the non-life provision for unearned premiums:

2006 Gross Reinsurance Net

TCZK

Balance at 1 January 5,350,182 -1,911,440 3,438,742

Added during the year 25,813,007 -1,908,793 23,904,214

Released to the income statement -25,323,189 1,911,440 -23,411,749

Foreign currency translation -15 – -15

Balance at 31 December 5,839,985 -1,908,793 3,931,192



TCZK


Additional entry into captive reinsurance – -536,434 -536,434

Added during the year 25,759,735 -1,375,006 24,384,729

Released to the income statement -25,478,362 1,345,812 -24,132,550

Foreign currency translation -344 – -344


F.13.2. CLAIMS REPORTED BY POLICYHOLDERS

The next table shows the roll forward of claims reported by policyholders:


TCZK


Plus claims incurred 13,365,332 -5,019,026 8,346,306

Current year 12,268,226 -4,629,043 7,639,183

Transfer from IBNR 1,097,106 -389,983 707,123

Less claims paid -13,556,011 4,707,745 -8,848,266

Foreign currency translation -44,380 -1,171 -45,551



TCZK



Plus claims incurred 14,704,211 -4,894,481 9,809,730

Current year 13,552,899 -4,566,917 8,985,982

Transfer from IBNR 1,151,312 -327,564 823,748

Less claims paid -13,008,978 4,474,145 -8,534,833

Foreign currency translation -41,392 – -41,392


F.13.3. CLAIMS INCURRED BUT NOT REPORTED

The next table shows the roll forward of claims incurred but not reported:


TCZK


Plus additions recognised during the year 928,426 -411,512 516,914

Less transfer to claims reported provision -1,097,106 389,983 -707,123

Foreign currency translation 11,562 – 11,562


ANNUAL REPORT 129


TCZK



Plus additions recognised during the year 1,419,886 -440,231 979,655

Less transfer to claims reported provision -1,151,312 327,564 -823,748

Foreign currency translation -2,678 – -2,678


The next table describes the development of claims reported by policyholders:

TCZK Prior 2001 2001 2002 2003 2004 2005 2006 Total

Estimate of cumulative claims

at the end of underwriting year x 9,606,000 21,130,000 11,086,000 12,668,823 13,342,816 14,821,967 x

One year later x 9,426,000 20,378,000 11,176,324 12,704,785 12,702,152 x x

Two years later x 9,402,000 20,399,744 11,026,799 12,385,503 x x x

Three years later x 9,319,556 20,454,492 10,834,057 x x x x

Four years later x 9,256,950 20,368,472 x x x x x

Five years later 9,221,933 x x x x x x

Estimate of cumulative claims x 9,221,933 20,368,472 10,834,057 12,385,503 12,702,152 14,821,967 80,334,084

Cumulative payments x 8,559,348 19,433,366 9,844,785 10,806,494 10,669,000 9,187,071 68,500,064

Provisions for outstanding claims

not distinguished by accident year – – – – – – – 843,675

Claims handling cost – – – – – – – 1,030,770

Value recognised

in the balance sheet 1,871,948 662,585 935,106 989,272 1,579,009 2,033,152 5,634,896 15,580,413

F.13.4. LIFE INSURANCE PROVISIONS


TCZK

Balance at 1 January 65,865,548 -782,555 65,082,993

Premium allocation 9,344,851 – 9,344,851

Release of liabilities due to benefits paid, surrenders and other terminations -8,113,104 – -8,113,104

Fees deducted from account balances -2,049,817 – -2,049,817

Unwinding of discount/accretion of interest 2,102,426 – 2,102,426

Changes in unit-prices 5,454 – 5,454

Change in liability arising from liability adequacy test -818,435 – -818,435

Allocation of discretionary bonus (DPF) 99,827 – 99,827

Change in IBNR and RBNS 131,110 -52,940 78,170

Of which captive reinsurance – -52,940 –

Change in UPR -68,442 6,268 -62,174

Of which captive reinsurance – 6,268 –

Balance at 31 December 66,499,418 -829,227 65,670,191


The life insurance provisions include the liability inadequacy (the other life insurance technical provision) of TCZK 3,038,449 (2005: TCZK 3,857,790), arising

mainly from the difference between the anticipated revenues from financial investments and the technical interest rate used to calculate premium rates.

The most important factors affecting the level of the other life insurance technical provision in 2006 were the development of the portfolio of insurance

contracts and the projected level of expenses. The development of the portfolio reduced the provision by TCZK 541,261, while the change in expenses,

including the effect of inflation reduced the provision by TCZK 332,327.

Other significant assumptions which had an impact on the level of the provision were the movement in the risk free interest rates used for discounting and

the change in the value of the guaranteed interest rate option. General economic changes, including movement in the risk free interest rates, have a direct

impact on the expected volatility of significant financial parameters used in stochastic modelling and valuations. The total impact on the provision amounted

to TCZK -75,530. The change in the value of the guaranteed interest rate option had increased the provision by TCZK 127,344.

Other assumptions such as persistency rates, mortality and morbidity and correlation of all factors influencing the level of the other life insurance technical

provision had a negligible impact and increased the provision by TCZK 3,340.


TCZK

Balance at 1 January 64,002,226 -521,964 63,480,262

Premium allocation 10,819,908 – 10,819,908

Release of liabilities due to benefits paid, surrenders and other terminations -10,617,575 – -10,617,575

Fees deducted from account balances -1,889,343 – -1,889,343

Unwinding of discount/accretion of interest 2,242,366 – 2,242,366

Changes in unit-prices -2,161 – -2,161

Change in liability arising from liability adequacy test 1,057,303 – 1,057,303

Allocation of discretionary bonus (DPF) 44,613 – 44,613

Change in IBNR and RBNS 239,589 -253,789 -14,200

Of which captive reinsurance – -253,789 –

Change in UPR -31,378 -6,802 -38,180

Of which captive reinsurance – -6,802 -6,802

Balance at 31 December 65,865,548 -782,555 65,082,993

The most important parameters affecting the level of the premium deficiency reserve in 2005 were the movement in the risk free interest rates used for

discounting and the change in value of the guaranteed interest rate option. The movement in the risk free interest rates has a direct impact on the

expected volatility of significant financial parameters used in stochastic modelling and valuations. The total impact on the premium deficiency reserve

amounted to TCZK 1,377,272.

Furthermore, the level of this reserve was affected by the change in the insurance portfolio, which resulted in a decrease of TCZK 277,031, and by the

change in annuitants’ mortality assumptions, which increased the reserve by TCZK 217,187.

The other assumptions such as the projected increase in expense levels taking into account inflation, lapses and correlation of all factors influencing the

level of premium deficiency reserve had a total impact (decrease) of TCZK 260,125.

F.13.5.OTHER INSURANCE PROVISIONS

The development of other insurance provisions was as follows:

2006 Aging Contractual Total

provision non-discretionary

TCZK bonuses

Gross

Balance as at 1 January 29,054 434,731 463,785

Creation of provisions – 460,879 460,879

Utilization of provisions -29,054 -446,551 -475,605

Balance of gross provisions as at 31 December – 449,059 449,059

Balance of reinsurance as at 31 December – -2,130 -2,130

Balance of net provisions as at 31 December – 446,929 446,929

ANNUAL REPORT 131

2005 Aging Contractual Total

provision non-discretionary

TCZK bonuses

Gross

Balance as at 1 January 40,713 444,721 485,434

Creation of provisions 13,563 416,707 430,270

Utilization of provisions -25,222 -426,697 -451,919

Balance of gross provisions as at 31 December 29,054 434,731 463,785

Balance of reinsurance as at 31 December – -2,654 -2,654

Balance of net provisions as at 31 December 29,054 432,077 461,131

F.13.6. REMAINING MATURITIES OF INSURANCE LIABILITIES AND FINANCIAL LIABILITIES FOR INVESTMENTCONTRACTS

2006 Less than Between 1 Between 5 Between 10 Between 15 More than Total

TCZK 1 year and 5 years and 10 years and 15 years and 20 years 20 years

Insurance liabilities 13,925,112 8,594,537 18,471,443 16,036,570 12,805,003 18,536,210 88,368,875

UPR 5,382,005 457,980 – – – – 5,839,985

RBNS & IBNR 6,855,382 3,895,103 1,480,139 1,324,335 1,090,629 934,825 15,580,413

Life assurance provisions 1,238,666 4,241,454 16,991,304 14,712,235 11,714,374 17,601,385 66,499,418

Other insurance provisions 449,059 – – – – – 449,059


contracts with DPF – 584,654 284,840 31,664 69,261 338,061 1,308,480



2005 Less than Between 1 Between 5 Between 10 Between 15 More than Total

TCZK 1 year and 5 years and 10 years and 15 years and 20 years 20 years

Insurance liabilities 14,122,035 8,640,715 17,742,884 17,028,030 12,798,225 17,320,256 87,652,105

UPR 5,224,072 126,110 – – – – 5,350,182

RBNS & IBNR 7,347,392 4,152,873 1,437,533 1,277,807 958,355 798,630 15,972,590

Life assurance provisions 1,115,611 4,359,206 16,299,050 15,742,341 11,833,886 16,515,454 65,865,548

Other insurance provisions 434,960 2,526 6,261 7,882 5,984 6,172 463,785





F.14. FINANCIAL LIABILITIES FOR INVESTMENT CONTRACTS WITH DPF

Financial liabilities for investment contracts with DPF comprise liabilities from contracts that do not meet the definition of insurance contracts and contain

a discretionary participation feature (DPF).

The carrying amount is the accumulated deposit increased by allocated interest. If future premiums and benefits are contractually agreed, the method of

valuation is the same as for the life assurance provision within insurance liabilities.

Financial liabilities for investment contracts with DPF comprise the following:

TCZK 2006 2005

Guaranteed liability for investment contracts with DPF 1,308,480 1,065,924

Total financial liabilities for investment contracts with DPF 1,308,480 1,065,924


2006 Gross

TCZK


Premium allocation 337,898

Release of liabilities due to benefits paid, surrenders and other terminations -108,601

Fees deducted from account balances -24,098

Unwinding of discount/accretion of interest 33,267

Allocation of discretionary bonus (DPF) 4,090

Balance at 31 December 1,308,480

2005 Gross

TCZK

Balance at 1 January 753,259

Premium allocation 411,221

Release of liabilities due to benefits paid, surrenders and other terminations -110,020

Fees deducted from account balances -16,201

Unwinding of discount/accretion of interest 26,004

Allocation of discretionary bonus (DPF) 2,331

Balance at 31 December 1,065,924

F.15. SUBORDINATED LIABILITIES

The subordinated liabilities comprise the following:

TCZK 2006 2005

Subordinated loans – 2,500,000

Total subordinated liabilities – 2,500,000

On 10 June 2003, under a subordinated loan agreement, the Company accepted a loan of TCZK 2,500,000 from the PPF Group N.V. maturing in 2018. The

fixed interest rate is 7.51% p.a.

On 1 July 2003, PPF, a.s. acquired part of the Company’s subordinated loan from the PPF Group N.V. in the amount of TCZK 365,000.

The Company was transformed via a split-off with the incorporation of a new company Home Credit Grand Holding a.s. on 19 July 2006. All liabilities from

the subordinated loan from PPF Group N.V. and PPF a.s. were transferred to the new company. See also note C.

F.16. OTHER LIABILITIES EVIDENCED BY PAPER

In accordance with the conditions of the issue as disclosed in the prospectus, the Company repaid the Bonds with a nominal value of TCZK 4,000,000 on

15 July 2006.

The next table shows the residual maturity of bonds issued by the Company:

2005 Total Less than Between 1 Between 2 More than

TCZK 1 year and 2 years and 5 years 5 years

Deposit bill of exchange 30,500 30,500 – – –

Bonds, rate 2.6% 4,037,690 4,037,690 – – –

Total bonds issued 4,068,190 4,068,190 – – –

The bonds issued by the Company were variable interest rate bond. The interest rate shown in the table above was the average rate as at the year end.

The amortisation of any discount or premium and interest related to other liabilities evidenced by paper are recognised in interest expense and similar charges.

ANNUAL REPORT 133

F.17. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial liabilities at fair value through profit or loss comprise the following:

2006 Fair

TCZK value

Negative fair value of derivatives 392,236

Interest rate derivatives 351,911

Currency derivatives 28,443

Other derivatives 11,882

Total liabilities at fair value through profit or loss 392,236

2005 Fair

TCZK value

Negative fair value of derivatives 511,817

Interest rate derivatives 355,619

Currency derivatives 140,931

Other derivatives 15,267

Total liabilities at fair value through profit or loss 511,817

F.18. LIABILITIES TO BANKS

Liabilities to banks comprise the following:

TCZK 2006 2005

Bank loans received under repo operations 277,129 264,910

Total liabilities to banks 277,129 264,910

Interest arising on liabilities to banks is recognised in interest expense and similar charges.

F.19. PROVISIONS

Provisions comprise the following:

TCZK 2006 2005

Restructuring 6,203 9,436

MTPL deficit 2,139,410 2,146,750

Other provisions 147,235 119,653

Total other provisions 2,292,848 2,275,839

TCZK 2006 2005


Provisions created during the year 237,788 83,729

Provisions used during the year -213,429 -93,061

Provisions released during the year -7,340 -1,744

Balance at 31 December 2,292,848 2,275,839

Non-current (>1 years) 2,165,307 2,184,208

Current (<1 year) 127,541 91,631

Total 2,292,848 2,275,839


Provision for MTPL deficit

On 31 December 1999, statutory MTPL insurance was replaced by contractual MTPL insurance in the Czech Republic. All rights and obligations arising

from statutory MTPL insurance prior to 31 December 1999, including the deficit of received premiums to cover the liabilities and costs, were transferred to

the Czech Bureau of Insurers (“the Bureau“).

On 12 October 1999, the Company obtained a license to write contractual MTPL insurance in the Czech Republic and as a result, the Company became

a member of the Bureau.

Each member of the Bureau guarantees the appropriate portion of the Bureau’s liabilities based on the member’s market share for this class of insurance.

Based on information publicly available and information provided by members of the Bureaux, the Company created a provision adequate to cover the cost

of claims likely to be incurred in relation to the liabilities ceded. However, the final and exact amount of the incurred cost of claims will only be known in

several years.

F.20. PAYABLES

Payables comprise the following:

TCZK 2006 2005

Payables arising out of insurance contracts 1,668,844 1,858,817

Trade payables 884,648 941,643

Payables arising out of reinsurance operations 5,116,002 6,037,169

Payables arising out of employers liability insurance 494,283 475,438

Finance lease liabilities 16,535 14,583

Wages and salaries 329,886 257,562

Social security and health insurance 132,668 116,577

Taxes payable 568,592 216,254

Retauning from contract for work garbage - disposal 3,815 5,414

Received advanced payments 10,150 9,246

Other 71,913 39,062

Total payables 9,297,336 9,971,765

F.20.1. FINANCE LEASE LIABILITIES

2006 Payments Interest Finance lease

TCZK liabilities

Finance lease liabilities:

Less than one year 8,278 -926 7,352

Between one and five years 9,858 -675 9,183

Total finance lease liabilities 18,136 -1,601 16,535

2005 Payments Interest Finance lease

TCZK liabilities

Finance lease liabilities:

Less than one year 6,247 -611 5,636

Between one and five years 9,806 -859 8,947

Total finance lease liabilities 16,053 -1,470 14,583

ANNUAL REPORT 135

F.21. ACCRUALS AND DEFERRED INCOME

TCZK 2006 2005

Accrued agent commissions 1,107,481 1,099,915

Deferred reinsurance commission 64,279 52,159

Uninvoiced supplies 340,888 163,071

Total accruals and deferred income 1,512,648 1,315,145

F.22. NET INSURANCE PREMIUM REVENUE

Net premium revenue in life and non-life insurance comprises the following:

TCZK 2006 2005

Non-life insurance

Gross premium written 25,124,447 25,246,957

Of which: direct insurance business 24,823,092 24,888,042

Reinsurance business assumed 301,355 358,915

Premium ceded (outward reinsurance premium) -10,011,091 -11,822,040

Of which: captive reinsurance -7,646,714 -9,468,427

Change in unearned premiums (gross) -489,803 -281,029

Change in unearned premiums (reinsurance share) -2,647 565,628

Total Premium Income Net, (earned) from non-life insurance 14,620,906 13,709,516

Life insurance


Of which: direct insurance business 13,199,563 14,995,655

Reinsurance business assumed 1,880 6,106

Premium ceded (outward reinsurance premium) -1,042,396 -1,166,540

Of which: captive reinsurance -1,030,514 -1,150,583

Total Premium Income Net, (earned) from life insurance 12,159,047 13,835,221

Grand Total Premium Income, Net (earned) 26,779,953 27,544,737

The above table shows the gross premium after impairment and reversal of impairment losses related to premium receivables in the total amount of

TCZK 125,722 (2005: TCZK 140,984 ).

F.22.1. GROSS PREMIUM ANALYSIS

Gross premiums from direct insurance business (including both life and non-life) are set out below by country:

TCZK 2006 2005

Czech Republic 38,085,565 39,937,649

Netherlands 1,032 1,110

Slovak Republic 175,398 260,712

Other states EU 35,298 41,695

Other 28,597 7,552

Gross premiums 38,325,890 40,248,718


The following table shows a breakdown of gross life insurance premiums.

TCZK 2006 2005

Individual premiums 13,186,736 14,983,960

Premiums under group contracts 14,707 17,801

Gross life insurance premiums 13,201,443 15,001,761

Periodic premiums 11,795,367 11,279,144

Single premiums 1,406,076 3,722,617


Premium from contracts without profit sharing 83,160 90,154

Premium from contracts with profit sharing 12,955,370 14,833,308

Premium from contracts where policyholders bear the investment risk 162,913 78,299


The following table provides a breakdown of non-life insurance according to the specific insurance classes:

TCZK 2006 2005

Accident and health insurance

Gross premium written 528,355 483,678

Gross premium earned 542,031 479,652

Gross claims expenses -117,221 -201,036

Gross operational expenses -89,393 -66,207

Outwards reinsurance result -121,809 -71,411

Motor vehicle lability and carrier’s liability insurance


Gross premium earned 8,759,824 8,990,999

Gross claims expenses -4,887,133 -6,086,388

Gross operational expenses -1,316,233 -1,153,742


Other motor






Marine, aviation and transport






Fire and property





Outwards reinsurance result -1,121,143 -1,605,790

ANNUAL REPORT 137

TCZK 2006 2005

Liability






Credits and guarantees

Gross premium written 1,004,733 487,596


Gross claims expenses 624,480 -727,976



Travel assistance






Miscellaneous financial loss




Gross operational expenses -192 -7,760


Active reinsurance





Outwards reinsurance result 19,955 -43,139




Gross operational expenses -3,661,690 -3,107,851

Outwards reinsurance result -2,587,761 -2,794,916

F.23. INTEREST INCOME AND SIMILAR INCOME

TCZK 2006 2005

Financial instruments held to maturity 139,865 138,366

Financial instruments available-for-sale 14,547 –

Financial instruments at fair value through profit or loss held for trading -20,260 61,019

Financial instruments at fair value through profit or loss not held for trading 1,921,275 1,737,683

Loans and receivables 467,384 685,643

Other 18,545 19,287

Total interest and similar income 2,541,356 2,641,998


F.24. OTHER INCOME FROM FINANCIAL ASSETS

Other income from investments comprises the following:

TCZK 2006 2005

Realised gains 856,722 56,793

Reversals of impairment losses on financial assets 77,423 19,403

Dividends 292,025 132,863

Net trading income 2,814,013 2,710,226

Net fair value gains on financial assets and liabilities at fair value through profit or loss not held for trading 639 1,563,299

Total other income from investments 4,040,822 4,482,584

F.24.1. REALISED GAINS

The realised gains comprise the following:

TCZK 2006 2005

Financial instruments held-to-maturity – 45,133

Financial instruments available-for-sale 639,396 –


Total realised gains 856,722 56,793

The most significant transaction during 2006 was the sale of the shares in Modrá Pyramida stavební spofiitelna, a.s. on which the Company made a profit of

TCZK 623,840 (see also F.4.1.).

The Company was paid a receivable in the amount of TCZK 201,529 relating to an out-of-court arrangement in 2006. The receivable was fully impaired in

previous accounting periods.

F.24.2. REVERSALS OF IMPAIRMENT LOSSES ON FINANCIAL ASSETS

Reversals of impairment losses comprise the following:

TCZK 2006 2005


Other Receivables (except for policyholders) 14,984 8,563

Total reversals of impairment losses on investments 77,423 19,403

F.24.3. NET TRADING INCOME

Net trading income comprises the following:

TCZK 2006 2005

Securities trading 1,925,626 1,807,755

Debt securities -7,735 5,405

Equity securities 1,933,361 1,802,350

FX trading 1,329,609 -9,072

Derivatives -441,222 911,543

Total net trading income 2,814,013 2,710,226

ANNUAL REPORT 139

F.24.4. NET FAIR VALUE GAINS ON FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSSNOT HELD FOR TRADING

TCZK 2006 2005

Fair value gains on financial assets and liabilities at fair value through profit or loss not held for trading 963,862 1,905,392

Debt securities 570,639 1,127,098

Equity securities 393,223 778,294

Fair value losses on financial assets and liabilities at fair value through profit or loss not held for trading -963,223 -342,093

Debt securities -813,389 -300,737

Equity securities -149,834 -41,356

Total net fair value gains on financial assets and liabilities at fair value through profit or loss not held for trading 639 1,563,299

F.25. INCOME FROM INVESTMENT PROPERTY

TCZK 2006 2005

Realised gains 46,830 2,061

Unrealised gains 109,070 128,329

Rental income from investment property 185,124 167,135

Balance at 31 December 341,024 297,525

F.26. NET FEE AND COMMISSION INCOME, AND INCOME FROM SERVICE ACTIVITIES

Fee and commission income, and income from service activities comprises the following:

TCZK 2006 2005

Payments transactions 1,079 2,487

Commission income 214,269 207,170

Securities lending fees 3 42

Other 43,304 34,924

Total fee and commission income 258,655 244,623

Most of the commission income is generated by the administration of compulsory employer’s liability insurance.

Fee and commission expenses, and expenses from service activities comprises the following:

TCZK 2006 2005

Brokerage fees -92,404 -12,131

Asset management fee -153,226 -184,239

Underwriting and corporate finance fees -12,037 -16,587

Payments transactions -101,437 -115,130

Other -15,984 -13,020

Total fee and commission expenses -375,088 -341,107

Total net fee and commission income, and income from service activities -116,434 -96,484

In 2006 brokerage fees include two extraordinary items in the total amount of TCZK 83,471. It includes brokerage fees for the sale of e-Banka, a.s. and

brokerage fee related to the sale of the shares in Modrá pyramida stavební spofiitelna, a.s.


F.27. OTHER INCOME

Other income comprises the following:

TCZK 2006 2005

Reversal of impairment losses 66 153,788

Gain on disposal of property, plant, equipment, and intangible assets 176,986 8,471

Foreign currency gains 330,670 550,021

Rental income from operating lease 137,056 124,262

Other income 58,731 54,709

Total other income 703,509 891,251

Based on the decision of the management of the Company selected buildings and related land were sold during 2006. The Company made a profit on the

sale of 28 operational buildings.

F.28. NET INSURANCE CLAIMS AND BENEFITS

Net insurance claims and benefits comprise the following:

TCZK 2006 2005

Life insurance 9,207,396 12,823,561

Benefits and surrenders 8,425,016 11,030,667

Changes in life insurance technical provisions 703,606 1,735,123

Other 78,774 57,771

Non-life insurance 8,586,513 9,486,707

Claims paid 8,848,266 8,534,833

Changes in non life insurance technical provisions -726,158 383,738

Changes in other technical provisions 425,885 365,434

Other 38,520 202,702

Total net insurance claims and benefits 17,793,909 22,310,268

F.28.1. BENEFITS AND SURRENDERS

Benefits and surrenders comprise the following:

TCZK 2006 2005

Gross benefits and surrenders 8,701,011 11,300,446

Reinsurers’ share -275,995 -269,779

Total benefits and surrenders 8,425,016 11,030,667

The decrease in gross benefits and surrenders is a result of the prior year activities, in particular the Company has carried out special activities to improve

the insurance portfolio (the impact of the activities was TCZK 2,241,601 in 2005). As a result survival insurance payments were also lower by TCZK 970,241

in 2006. However, this is compensated by increased surrender payments and extraordinary withdrawals (higher by TCZK 537,041 in 2006).

F.28.2. NON-LIFE INSURANCE CLAIMS PAID

Paid non-life insurance claims comprise the following:

TCZK 2006 2005

Gross claims paid 13,556,011 13,008,978

Reinsurers’ share -4,707,745 -4,474,145

Of which captive reinsurance -4,404,795 -3,964,766

Total non-life insurance claims paid 8,848,266 8,534,833

ANNUAL REPORT 141

F.28.3. CHANGES IN NON-LIFE INSURANCE TECHNICAL PROVISIONS

The changes in non-life insurance technical provisions comprise the following:

TCZK 2006 2005

Change in claims reported by policyholders -235,059 1,653,841

Change in claims reported by policyholders reinsurers’ share -312,452 -940,386

Change in IBNR -157,118 265,896

Change in IBNR, reinsurers’ share -21,529 -595,613

Total changes in non-life insurance technical provisions -726,158 383,738

The change is caused mainly by an adjustment of the provision for MTPL claims (regularly paid out as a fixed income) in 2005. The adjustment increased

the provision in order to reflect risks related to changes in legislation. In addition an annual review of all legal claims resulted in 2006 in a reduction of the

insurance provision in 2006.

F.29. INVESTMENT CONTRACTS BENEFITS

Investment contract benefits comprise the following:

TCZK 2006 2005

Change in financial liabilities for investment contracts with DPF

Guaranteed benefits 242,556 312,666

Total investment contracts benefits 242,556 312,666

F.30. INTEREST AND SIMILAR EXPENSE

TCZK 2006 2005

Subordinated liabilities 102,362 187,730

Liabilities evidenced by paper 60,525 109,718

Finance lease liabilities 1,120 1,051

Liabilities to banks 28,974 3,530

Liabilities to non-banks 8,542 –

Other 7,197 43,180

Total interest expense and similar expenses 208,720 345,209

F.31. OTHER EXPENSES FROM FINANCIAL ASSETS

The other expenses from financial assets comprises the following:

TCZK 2006 2005

Realised losses 44,183 –

Impairment losses on financial assets 115,562 220,856

Total other expenses from financial assets 159,745 220,856

The Company realized a loss on the sale of the shares in PraÏské sluÏby a.s in the amount of TCZK 44,183 (see also F.4.1.).

F.31.1. IMPAIRMENT LOSSES ON FINANCIAL ASSETS

Impairment losses comprise the following:

TCZK 2006 2005


Other Receivables (except for policyholders) 104,797 148,742

Total impairment losses on financial assets 115,562 220,856


F.32. EXPENSES FROM INVESTMENT PROPERTY

Other expenses from investment property comprises the following:

TCZK 2006 2005

Realised losses 82,770 3,286

Unrealised losses 134,892 576,624

Other expenses from investment property 88,277 70,853

Total expenses from investment property 305,939 650,763

F.33. ACQUISITION COSTS AND OTHER OPERATING EXPENSES

Acquisition costs and other operating expenses comprise the following:

TCZK 2006 2005

Acquisition costs 4,412,137 4,526,644

General administrative expenses 4,532,829 4,181,169

Reinsurance commissions and profit participation -2,645,963 -2,700,230

Total acquisition costs and other operating expenses 6,299,003 6,007,583

F.33.1. ACQUISITION COSTS

Acquisition costs include the following:

TCZK 2006 2005

Commissions 3,052,331 3,023,582

Staff costs 937,168 935,963

Marketing and advertising 449,734 407,702

Other 48,801 76,847

Change in deferred acquisition costs -75,897 82,550

Total acquisition costs 4,412,137 4,526,644

F.33.2. GENERAL ADMINISTRATIVE EXPENSE

General administrative expenses comprise the following:

TCZK 2006 2005

Staff costs 1,127,485 1,023,751

Technology and system costs 992,074 923,879

Rental, maintenance and repair expense 291,638 277,787

Advertising 390,277 393,128

Intermediary services 286,899 312,351

Advisory 393,138 258,984

Miscellaneous services 604,587 575,989

Consumption of energy 126,539 117,016

Landlords expenses 73,153 49,227

Change in other provission -7,340 -43,407

Other 254,379 292,464

Total general administrative expenses 4,532,829 4,181,169

Technology and system costs in general administrative expenses include staff costs of TCZK 281,863 (2005: TCZK 260,933).

ANNUAL REPORT 143

F.33.2.1. Staff costs

The next table shows details of staff costs:

TCZK 2006 2005

Wages and salaries 2,044,921 1,892,762

Compulsory social security contributions 695,052 693,751

Other 96,373 116,322

Total staff costs 2,836,346 2,702,835

Total remuneration included in staff cost for directors and executive officers 215,813 155,851

Staff costs are included in the sections Acquisition costs, Claims handling costs (2006: TCZK 479,175, 2005: TCZK 458,904), General administrative

expenses and Other expenses.

Other expenses include the costs of the Company’s health and social program (e.g. health program for managers, medical check-up for employees and

social benefits).

The average number of employees as at 31 December was as follows:

2006 2005

Directors and executive officers 1) 43 38

Other employees 5,208 5,524

Total average number of employees 5,251 5,562

1) this category includes employees – members of the Board of the Directors and directors or executive officers which are established by general direktor.

F.34. OTHER EXPENSES

Other expenses comprise the following:

TCZK 2006 2005

Amortisation on software and other intangible assets 504,007 440,586

Depreciation on property, plant and equipment 466,010 439,742

Foreign currency losses 496,663 425,945

Impairment losses on property, plant and equipment 27,297 146,918

Impairment losses on non-current assets held for sale 45,412 –

Loss on disposal of property, plant, equipment and intangible assets 168,673 78,083

Management of investment 23,602 35,240

Staff costs 10,655 23,224

Sundry expenses 48,352 11,403

Total other expenses 1,790,671 1,601,141


F.35. NET INCOME FROM INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES

TCZK 2006 2005

Dividends 1,920,671 1,755,228

Realised gains 1,240,160 –

Total income 3,160,831 1 755,228

Realised losses 147,201 229,699

Impairment losses recognised 150,143 1,165

Total expenses 297,344 230,864

Total net income 2,863,487 1,524,364

The Company sold its interest in the subsidiary e-Banka, a.s. and made a profit of TCZK 946,576. The Company subsequently sold its whole interest in

PPF Banka, a.s. with a profit of TCZK 293,584. The Company’s interest in âP Finanãní holding, a.s. was also sold with a loss of TCZK 117,873.

An impairment loss in the amount of TCZK 150,000 has been recorded for the interest in První Callin agentura, a.s. See also note C.

F.36. INCOME TAX EXPENSES

The income tax expense comprises the following:

TCZK 2006 2005

Current tax expense 1,929,493 1,488,251

Deferred tax expense 130,481 -292,038

Total income tax expense 2,059,974 1,196,213

F.36.1. RECONCILIATION OF THE EFFECTIVE TAX RATE

The following table reconciles the tax expense:

TCZK 2006 2005

Tax rate 24% 26%

Profit from operations (before taxation) 10,353,174 5,837,489

Computed taxation using applicable tax rate -2,484,762 -1,517,747

Tax non-deductible expenses -318,001 -155,200

Non-taxable income 671,942 519,663

Changes in tax rates 3,188 39,000

Adjustments to prior years tax charges -1,681 -5,761

Income taxed at different rates 24,723 14,978

Tax credits 1,150 1,535

Other 43,467 -92,681

Total income tax expense/income -2,059,974 -1,196,213

ANNUAL REPORT 145

F.37. REPURCHASE AND RESALE AGREEMENTS

The Company raises funds by selling financial instruments under agreements to repurchase them at future dates at the same price plus interest at

a predetermined rate.

At 31 December assets sold under repurchase agreements were as follows:

TCZK 2006 2006 2005 2005

Fair value of Carrying amount Fair value of Carrying amount

underlying of corresponding underlying of corresponding

assets liabilities assets liabilities

Financial assets at fair value through profit or loss 275,366 277,129 264,544 264,910

Total assets 275,366 277,129 264,544 264,910

The Company also purchases financial instruments under agreements to resell them at future dates (“reverse repurchase agreements”). The seller

commits to repurchase the same or similar instruments at an agreed future date. Reverse repurchases are entered into as a means of providing funds to

customers. At 31 December assets purchased subject to agreements to resell them were as follows:

TCZK 2006 2006 2005 2005

Carrying amount Fair value of Carrying amount Fair value of

of receivables assets received of receivables assets received

as collateral as collateral

Loans and advances to banks 1,770,195 1,768,257 3,001,149 2,938,812

Total loans and advances 1,770,195 1,768,257 3,001,149 2,938,812

F.38. OFF BALANCE SHEET ITEMS

F.38.1. COMMITMENTS AND CONTINGENT LIABILITIES

The contractual amounts of commitments and contingent liabilities are set out in the following table by category. The amounts reflected in the table for

guarantees and letters of credit represent the maximum accounting loss that would be recognised at the balance sheet date if the counterparties failed

completely to repay the debt.

TCZK 2006 2005

Guarantees:

Payment guarantees 127,072 149,618

Total commitments and contingent liabilities 127,072 149,618

These commitments and contingent liabilities carry an off balance-sheet credit risk because only organisation fees and accruals for probable losses are

recognised in the balance sheet until the commitments are fulfilled or expire. Many of the contingent liabilities and commitments will expire without being

advanced either in whole or in part. Therefore, the amounts do not represent the expected future cash flows.


F.38.2. OTHER CONTINGENCIES

F.38.2.1. Legal

The Company is involved in 2 court cases with a minority shareholder relating to resolutions of the General Meetings held in 1996, and 2000. As yet, none

of these proceedings have been finally resolved although the Company was successful in first instance and appellate procedures. Based on past court

proceedings and a review of Company procedures and legal analyses carried out by external legal counsel, the management of the Company believes that

it is unlikely that any of these cases will be concluded in favour of the plaintiff.

The Company is also involved in 4 cases concerning the decision of the general meeting of the Company in 2005 approving a squeeze-out of minority

shareholders. Based on legal analyses carried out by external legal counsel, management of the Company believes that it is unlikely that any of these cases

will be concluded in favour of the plaintiff however the outcome of the cases is dependent on the decision of the Constitutional Court on the applicability of

specific paragraphs of the Commercial Code.

F.38.2.2. Participation in nuclear pool

As a member of the Czech Nuclear Pool, the Company is jointly and severally liable for the obligations of the pool. This means that, in the event that one or

more of the other members are unable to meet their obligations to the pool, the Company would take over the uncovered part of this liability, pro-rata to its

own net retention used for the contracts in question. The management does not consider the risk of another member being unable to meet its obligations

to the pool to be material to the financial position of the Company. In addition the potential liability of the Company for any given insured risk is contractually

capped at twice the Company’s net retention for that risk.

F.38.2.3. Membership in the Czech Insurance Bureau

As a member of the Czech Insurance Bureau (“the Bureau”) related to MTPL insurance the Company is committed to guarantee the MTPL liabilities of the

Bureau. For this purpose the Company makes contributions to the guarantee fund of the Bureau based on the calculations of the Bureau.

In the event of a fellow member of the Bureau being unable to meet its liabilities arising from MTPL due to insolvency, the Company may be required to

make additional contributions to the guarantee fund. The management does not believe the risk of this occurring is material to the financial position of the

Company.

F.38.2.4. âeská poji‰Èovna – Litigation

The Company is a party to litigation with the National Property Fund of the Czech Republic (the “NPF”), in which the NPF is seeking compensation under

an Agreement to enter into a future agreement, which was entered into by the Company and the NPF on 8 October 1997. The Company’s position in the

dispute is that the NPF’s alleged claim has no foundation. Based on the course of the litigation to date, the information known, and legal analyses carried

out to-date, the management of the Company is of the opinion that the plaintiff will not be successful in this action.

F.38.3. GUARANTEES RECEIVED

Guarantees received were as follows:

TCZK 2006 2005

Guaranties –- received 7,365 847,026

Value of property received as a collateral 34,659 34,976

Receivables on shares, bonds and promissory notes 465,457 528,871

Total contingent assets 507,481 1,410,873

F.39. RELATED PARTIES

F.39.1. IDENTITY OF RELATED PARTIES

As at 30 December PPF Group N.V. was the owner of the Company. On 31 December 2006 the new shareholder replaced PPF Group N.V. within a process

of reorganisation of the PPF Group. As at 31 December 2006 CZI Holdings N.V. is the sole shareholder of the Company. The ultimate parent company is

PPF Group N.V.

The Company has a related party relationship with its parent company which is CZI Holdings N.V. as at the year end and during the year with PPF Group N.V.,

together with their fellow subsidiaries.

The Company also has a related party relationship with its subsidiaries and associates.

ANNUAL REPORT 147

The key management personnel of the Company and its parent, their close family members and other parties which are controlled, jointly controlled or

significantly influenced by such individuals and entities in which such individuals hold significant voting power are also considered related parties.

Key management personnel of the Company comprise the members of the Board of Directors and the Supervisory Board.

In considering each possible related party relationship, attention is directed to the substance of the relationship and not merely the legal form.

F.39.2. TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL

TCZK 2006 2005

Shortdterm employee benefits 40,853 28,150

Post-employment benefits – –

Other long-term benefits 66,735 20,201

Termination benefits – –

Share based payment – –

Short-term employee benefits include wages, salaries and social security contributions, allowances provided for membership of the statutory bodies,

bonuses and non-monetary benefits such as medical care and cars.

Other long-term benefits include income under group life insurance.

The change in other long term benefits is caused by the group life insurance of key management personnel maturing in 2006. Short-term employee

benefits have increased due to higher bonuses paid to the members of the Board of Directors in 2006 as a result of the good financial results and due to

changes in the Supervisory board structure.

As at 31 December 2006 and 31 December 2005 the members of the statutory bodies held no shares of the Company.

F.39.3. RELATED PARTY TRANSACTIONS

The related party transactions were carried out on terms equivalent to those that would apply in similar transactions with unrelated parties.

The related parties are fall into the following groups:

Group 1 – subsidiaries and associates directly consolidated within the Company’s group;

Group 2 – enterprises directly consolidated within the group of the ultimate parent company;

Group 3 – other related parties or the Company’s non-consolidated subsidiaries or associates.

F.39.3.1. Parent Company

The Company entered into no transactions and had no outstanding balances with its parent company CZI Holdings N.V. As at 31 December 2005 the

Company had a liability to PPF Group N.V. in respect of a subordinated debt in the amount of TCZK 2,135,000.

During the course of the year the Company had the following significant transactions with the ultimate parent company PPF Group N.V.:

TCZK 2006 2005

Other income 11,549 –

Total income 11,549 –

Interest expense and similar charges -87,417 -160,318

Total expenses -87,417 -160,318


F.39.3.2. Related parties

At the balance sheet date the Company has the following balances with other related parties:

2006 Group 1 Group 2 Group 3

TCZK

Assets

Financial assets 3,471,201 9,129,543 938,607

Financial assets at fair value through profit and loss i 721,184 5,213,296 936,287

Loans and receivables ii 2,750,017 3,880,840 2,320

Cash and cash equivalents – 35,407 –

Reinsurance assets iii 6,785,937 – –

Prepayments and accrued income 19,843 – 5,000

Total assets 10,276,981 9,129,543 943,607

Liabilities

Insurance liabilities 421,085 954,287 –

Financial liabilities 4,419,242 328,001 2,272

Payables iv 4,414,970 50,872 2,272

Financial liabilities at fair value through profit and loss 4,272 – –

Liabilities to banks – 277,129 –

Accruals and deferred income 9,284 4,426 –

Total liabilities 4,849,611 1,286,714 2,272

Notes:i. The balances with companies in Group 1 comprise units issued by âP INVEST, a.s. (DYK-P Akciov˘ fond, âPI Fond globálních znaãek) in the amount of TCZK 721,184, in

Group 2, bonds issued by Home Credit Group companies in the amount of TCZK 5,213,296 and in Group 3, units issued by âP INVEST, a.s. (other funds) in the amount of TCZK 936,287.

ii. The balances with companies in Group 1 comprise receivables from reinsurance (receivables from âeská poisÈovna – Slovensko a.s. and CP Reinsurance company Ltd.) in theamount of TCZK 2,702,976. Group 2 comprises of receivables from repo transactions with PPF Banka, a.s in the amount of TCZK 1,770,195, bank deposits with PPF Banka a.s. in the amount of TCZK 1,348,094 and insurance receivables from the Home Credit Group companies in the amount TCZK 736,198.

iii. The balance represents captive reinsurance (see F.6.).iv. The balances with companies in the Group 1 comprise reinsurance liabilities (liabilities to âeská poisÈovna – Slovensko a. s. and CP Reinsurance company Ltd.) in the amount

of TCZK 4,397,860.

ANNUAL REPORT 149


TCZK

Assets

Property, plant and equipment 1,355 – 1,924

Financial assets 10,788,895 16,240 12,015

Financial assets at fair value through profit and loss i 3,881,065 – –

Loans and receivables ii 6,705,414 16,240 12,015

Cash and cash equivalents 202,416 – –

Reinsurance assets iii 6,802,072 – –

Prepayments and accrued income 14,868 – –

Total assets 17,607,190 16,240 13,939

Liabilities

Insurance liabilities 962,718 – 568

Financial liabilities 5,990,304 437,930 4,300

Liabilities evidenced by paper 351,208 – –

Subordinated debt – 365,000 –

Payables iv 5,372,795 72,930 4,300

Financial liabilities at fair value through profit and loss 1,391 – –

Liabilities to banks 264,910 – –

Accruals and deferred income 9,317 3,570 –

Total liabilities 6,962,339 441,500 4,868

Notes:i. The balances with subsidiaries include bonds issued by Home Credit Holding a.s. in the amount of TCZK 2,240,061 and units issued by âP INVEST, a.s. in the amount of

TCZK 1,478,043.ii. The balances with subsidiaries include loans related to repurchase operations with PPF Banka, a. s. in the amount of TCZK 3,001,149, receivables from direct insurance and

reinsurance (related mainly to âeská poisÈovna – Slovensko a.s., âeská poji‰Èovna ZDRAVÍ a. s. and Home Credit Holding a. s.) in the amount of TCZK 1,956,261, subordinateddeposits and bank deposits (mainly related to PPF Banka a.s. and E Banka a.s.) in the amount of TCZK 876,890 and receivables from captive reinsurance in the amount ofTCZK 696,591.

iii. The balance represents captive reinsurance (see F.6.).iv. Payables arising from direct insurance operations (mainly due to âeská poji‰Èovna ZDRAVÍ a.s., âeská poisÈovna – Slovensko a.s., Home Credit Holding a.s.) in the amount of

TCZK 1,545,062.


During the course of the year the Company had the following significant transactions with other related parties:


TCZK

Revenue

Premium Income Net i -8,376,862 292,434 64,605

Net income from investments in subsidiaries, associates and joint ventures ii 1,920,671 – –

Interest and similar income 167,265 168,638 79,434

Other income from financial assets -212,133 -6,849 17,339

Net trading income -196,593 – –

Net fair value gains on financial assets and liabilities at fair value through

profit and loss not held for trading -15,540 -6,849 17,339

Income from investment property 48,401 – –

Fee and commission income 7,619 722 1,928

Other income 44,593 47,685 5,821

Total revenues -6,400,446 502,630 169,127

Expenses

Insurance technical charges 4,625,185 -49,776 –

Life Insurance 321,706 – –

Non-life Insurance iii 4,303,479 -49 776 –

Interest and similar expenses -15,985 -14,945 -760

Acquisition costs -97,755 – –

General administrative expenses -27,306 -156,011 -73,833

Reinsurance commissions and profit participation iv 2,192,367 – –

Fee and commission expense -86,983 -108,874 -64,303

Other expenses -1,002 -2,229 –

Total expenses 6,588,521 -331,835 -138,896

Notes:i. The balances in Group 1 comprise captive reinsurance (see F.22.) and transactions with HC Group companies up to the split-off date (see note C [1]) in the amount of

TCZK 174,074. Transactions after the split-off date are included in Group 2 in the amount of TCZK 290,637.ii. The balances with subsidiaries include dividends received from CP Reinsurance company Ltd. in the amount of TCZK 1,597,928.iii. The balances in Group 1 include captive reinsurance (see note F.28.2.).iv. The balances comprise the reinsurance provision from CP Reinsurance company Ltd. in the amount of TCZK 2,192,367.

ANNUAL REPORT 151


TCZK

Revenue

Premium Income Net i -9,311,705 2,662 7,482

Net income from investments in subsidiaries, associates and joint ventures ii 1,754,409 – –

Interest and similar income 236,283 – 20,077

Other income from financial assets 494,871 – 1,012,237

Net trading income iii 326,271 – 1,012,237

Net fair value gains on financial assets and liabilities at fair value through

profit and loss not held for trading 168,600 – –

Income from investment property 48,800 – –

Fee and commission income 27,114 – –

Other income 162,910 27,351 –

Total revenues -6,587,318 30,013 1,039,796

Expenses

Insurance technical charges 5,500,586 -535 -2,384

Life Insurance 527,777 – –

Non-life Insurance iv 4,972,809 -535 -2,384

Interest and similar expenses -54,854 -27,412 –

Other expenses from financial assets – – –

Acquisition costs -78,299 – –

General administrative expenses -35,067 -410,610 -18,444

Reinsurance commissions and profit participation v 2,205,324 – –

Fee and commission expense -280,400 – –

Other expenses -53,380 – -2,705

Total expenses 7,203,910 -438,557 -23,533

Notes:i. The balances in Group 1 comprise mainly of captive reinsurance (see F.22.). ii. The balances with subsidiaries include dividends received from CP Reinsurance company Ltd. in the amount of TCZK 830,864, PPF Banka a.s. in the amount of TCZK 568,225

and CP Strategic investments in the amount of TCZK 355,320.iii. The income in Group 3 comprises realised profit of trading with the securities of PPF Cyprus Ltd. iv. The balances in Group 1 include captive reinsurance (see note F.28.2.).v. The balances comprise of reinsurance commission from captive reinsurance.

The Company did not issue nor receive any guarantees from related parties in 2006 or in 2005.

F.40. EARNINGS PER SHARE

The next table shows the earnings per share:

TCZK 2006 2005

Net income 8,293,200 4,641,276

Weighted average number of shares 40,000 40,000

Earnings per share (CZK) 207.330 116.032

The earnings per share figure is calculated by dividing the net income by the weighted average number of common shares outstanding.

The general meeting of the Company held on 30 June 2006 decided to increase the share capital by TCZK 1,019,037 as a transfer from retained earnings

together with an issue of new shares to parent company.

The general meeting of the Company held on 19 September 2006 decided to change the nominal value of the shares with corresponding decrease in the

number of shares issued. The nominal value was increased from CZK 1,000 per share to CZK 100,000 per share. In respect of both of these changes the

number of shares for the reported period and the comparative period has been adjusted.


F.41. FAIR VALUE OF ASSETS AND LIABILITIES

The next table compares the carrying and fair value of financial assets:

2006 2005

Carrying amount Fair value Carrying amount Fair value

Subsidiaries and associates 3,950,694 n/a 16,728,599 n/a

Investment property 2,911,611 2,911,611 3,230,699 3,230,699

Financial assets 100,430,474 100,850,674 97,154,481 97,617,618

Financial assets available-for-sale 5,174,571 5,174,571 1,779,769 1,779,769

Equity securities 910,119 910,119 1,779,769 1,779,769

Financial assets held-to-maturity 1,886,610 2,306,810 1,870,728 2,363,337

Debt securities 1,886,610 2,306,810 1,870,728 2,363,337

Financial assets at fair value through profit or loss held for trading 14,238,659 14,238,659 12,054,873 12,054,873

Debt securities held for trading 124,867 124,867 – –

Equity securities held for trading 13,489,110 13,489,110 11,160,391 11,160,391

Positive market values of derivatives 624,682 624,682 894,482 894,482


or loss not held for trading 55,616,346 55,616,346 55,842,193 55,842,193

Debt securities not held for trading 48,243,803 48,243,803 42,814,799 42,814,799

Equity securities not held for trading 7,372,368 7,372,368 13,027,219 13,027,219

Other not held for trading 175 175 175 175

Loans and receivables 22,343,190 22,341,177 25,357,831 25,328,359

Loans and advances to banks 14,161,829 14,159,816 17,211,274 17,181,802

Loans and advances to non-banks 8,725 8,725 330,148 330,148

Receivables 8,172,636 8,172,636 7,816,409 7,816,409

Cash and cash equivalents 1,171,098 1,171,098 249,087 249,087

Total financial assets 107,292,779 n/a 117,113,779 n/a

The fair value of a financial instrument is defined as the amount for which a financial instrument could be exchanged between two willing parties in the

ordinary course of business. The fair value is based on market prices. If market prices are not available the fair value is calculated by using the present value

of future cash flows method.

ANNUAL REPORT 153

A comparison between the fair value and carrying value of financial liabilities is shown below:

TCZK 2006 2005

Carrying amount Fair value Carrying amount Fair value

Financial liabilities for investment contracts with DPF 1,308,480 n/a 1,065,924 n/a

Guaranteed liability for investment contracts with DPF 1,308,480 n/a 1,065,924 n/a

Financial liabilities 10,013,672 10,012,884 17,355,317 17,510,749

Subordinated liabilities – – 2,500,000 2,652,679

Other liabilities evidenced by paper – – 4,068,190 4,070,943

Bonds and notes issued – – 4,037,690 4,040,443

Bills of exchange outstanding – – 30,500 30,500

Financial liabilities at fair value through profit or loss 392,236 392,236 511,817 511,817

Negative market values of derivatives 392,236 392,236 511,817 511,817

Liabilities to banks 277,129 276,341 264,910 264,910

Payables 9,297,336 9,297,336 9,971,765 9,971,765

Other liabilities 46,971 46,971 38,635 38,635

Total financial liabilities 11,322,152 n/a 18,421,241 n/a

The fair value of the guaranteed liability for investment contracts with DPF cannot be reliably measured.

F.42. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that

are believed to be reasonable under the circumstances.

The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related

actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities

within the next financial year are discussed below.

F.42.1. ASSUMPTIONS USED TO CALCULATE INSURANCE LIABILITIES

The Company uses certain assumptions when calculating its insurance liabilities. The process used to determine the assumptions that have the greatest

effect on the measurement of the items in the Company’s financial statements, and the effects of changes in the assumptions that would have a material

effect on the recognised amounts, are discussed in part D.2.4.

F.42.2. IMPAIRMENT OF LOANS AND RECEIVABLES

At each balance sheet date the Company assesses whether there is objective evidence that any loan or receivable or the related debtor is impaired. A loan

or receivable is impaired if there is objective evidence of impairment as a result of one or more events that have occurred since its initial recognition and

the resulting loss event (or events) has an impact on the estimated future cash flows from the loan or receivable or the related debtor that can be reliably

estimated.

Objective evidence that any loan or receivable or the related debtor is impaired includes observable data that comes to the attention of the Company about

the following loss events:

a) significant financial difficulty of the issuer or obligor;

b) a breach of contract, such as default on interest or principal payments;

c) the disappearance of an active market for that financial asset due to financial difficulties of the debtor.

The Company first assesses whether objective evidence of impairment exists individually for any loans or receivables that are individually significant, and

individually or collectively for any loans or receivables that are not individually significant. For the purposes of the collective evaluation of impairment, loans

and receivables are grouped on the basis of similar credit risk characteristics.


Future cash flows from loans and receivables are estimated on the basis of contractual cash flows and historical loss experience for loans and receivables

with similar credit risk characteristics. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current

conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that

do not exist currently. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Company to reduce any

differences between loss estimates and actual loss experience.

F.42.3. INCOME TAXES

Significant judgement is required in determining the provision for income taxes. There are transactions and calculations for which the ultimate tax

determination is uncertain during the ordinary course of business. The Company recognises liabilities for anticipated tax audit issues based on estimates of

whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such

differences will impact on the income tax and deferred tax provisions in the period in which such determination is made.

F.42.4. FAIR VALUE OF DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS

The fair value of financial instruments that are not traded on an active market (for example, over-the-counter derivatives) is determined using valuation

techniques. The Company uses its judgement to select a variety of methods and makes assumptions that are mainly based on the market conditions

existing at each balance sheet date.

G. SUBSEQUENT EVENTS

The Company has recognized these important non-adjusting events that have occurred since the balance sheet date up to 30 March, 2007:

G.1. MERGER OF CP REINSURENCE COMPANY LTD. AND FOX CREDIT SERVICES LTD.

On 1 February 2007 the Board of Directors of the Company approved a plan to merge of the subsidiaries CP Reinsurance company Ltd. and FOX Credit

Services Ltd. The plan for the merge was approved by the statutory bodies of both merging companies on 22 January 2007.

G.2. THE PROJECT FOR THE SALE OF SIGNIFICANT LAND AND BUILDINGS

On 16 February 2007 the Board of Directors of the Company approved a project for the sale of portfolio of selected significant land and buildings. The

property will be sold as a group of assets to a selected investor. The sale project is expected to be realized by the end of the first half of the year. The

approved conditions of the sale project provide that none of the land or building will be sold significantly below its net book value as recorded in the

financial statements as at 31 December 2006. The Company will lease back the relevant space in the sold building for the next 10 years and will have the

option to prolong the term of lease for up to a further 5 years (differentiated in respect of buildings) for its operational purposes.

G.3. HURRICANE KYRRIL

On 18 and 19 January 2007 an unusually violent windstorm with hurricane-strength winds (named Kyrril) moved across almost the whole of the Czech

Republic. This natural disaster has resulted in insurance claims with an estimated value of CZK 800 million. The Company expects that about 70% of the

claims will be covered by reinsurance.

G.4. âSOB SQUEEZE OUT

At the balance sheet date the Company owns 57 711 shares of âeskoslovenská obchodní banka, a.s. (âSOB) representing a 1.13% share. On March 8 2007,

the Czech National Bank approved the proposal of KBC Bank, N.V. (KBC Bank) to convene an extraordinary general meeting of âSOB to decide on a buy-out

(squeeze-out) of minority shareholders for a consideration amounting to CZK 36,298 per share. This approval is a necessary step towards initiating the

squeeze-out procedure to buy-out the minority shareholders. Currently the Company is in negotiation with KBC Bank to sell its entire stake in âSOB prior to

completion of the squeeze-out procedure for the same consideration.

ANNUAL REPORT 155155 ANNUAL REPORT 2006

Report on Relations Among Related Parties, 2006 Accounting Period

The Company: âeská poji‰Èovna a.s., with its registered office at Spálená 75/16, Prague 1, postal code 113 04, ID: 45272956, is required to compile, for the

2006 accounting period, a “Report on Relations Among Related Parties” pursuant to Section 66a(9) of Act No. 513/1991 Coll., the Commercial Code, as

amended.

DESCRIPTION OF RELATIONS BETWEEN THE COMPANY AND “RELATED PARTIES”

During the 2006 accounting period, the Company entered into the following contracts with related parties:

• With AB – CREDIT a.s., registered office Prague 4, Na Pankráci 1658, postal code 140 21, ID 40522610, the following:

– Purchase agreement on sale of movable property dated 2 January 2006,

– FX swap dated 4 January 2006,

– FX swap dated 6 February 2006,



– FX swap dated 20 March 2006,

– Agreement on reimbursement of telephone fee costs,

– Agreement on reimbursement of wages,

– Aggregated motor insurance contracts.

• With CP Reinsurance company Ltd., registered office Florinis, 11, office no. 502, Nicosia, Republic of Cyprus, ID 148685, the following:

– Property and Casco Reinsurance Agreement dated 16 February 2006,

– Motor Third Party Liability Reinsurance Agreement dated 16 February 2006,

– Personal Accident Reinsurance Agreement dated 16 February 2006,

– Medical Expenses Reinsurance Agreement dated 16 February 2006,

– Securities Purchase Agreement & Mutual Setoff Agreement dated 17 February 2006.

• With CP Strategic Investments B.V., registered office Herengracht 450, 1017CA Amsterdam, Netherlands, ID 34124690, the following:

– Share purchase agreement dated 8 August 2006.

• With âeská poisÈovÀa – Slovensko, akciová spoloãnosÈ, abbreviated name: âPS, a. s., registered office Plynárenská 7/C, Bratislava, postal code 824 79,

Slovak Republic, ID 31354327, the following:

– Reinsurance contract on reinsurance of non-life insurance in 2006 dated 4 April 2006,

– Stop Loss reinsurance contract to cover non-life insurance in 2006 dated 4 April 2006,

– Reinsurance contract to cover life and retirement (annuity) insurance and dread disease insurance risks in 2006 dated 4 April 2006,

– Agreement on reimbursement of costs of participation in winter sports games.

• With âeská poji‰Èovna ZDRAVÍ a.s., registered office Prague 10, Litevská 1174/8, postal code 100 00, ID 49240749, the following:

– Reinsurance contract to cover accident insurance risks in 2006 dated 9 November 2006,

– Facultative reinsurance slip dated 30 October 2006,

– Purchase agreement on sale of furniture and fittings dated 20 January 2006,

– Liability insurance contract.


• With âP DIRECT, a.s., registered office Prague 4, Na Pankráci 1658, postal code 140 21, ID 25635191, the following:

– Agreement on assignment of receivable and acceptance of debt dated 1 February 2006 (Company transferred car lease to a new lessee),

– Purchase agreement on sale of mobile telephone dated 3 March 2006,

– Amendments to agreement on non-exclusive sales representation dated 18 April 2005,

– Amendment no. 1 to professional liability insurance contract,

– Aggregated motor insurance contracts.

• With âP finanãní holding a.s., registered office Prague 4, Na Pankráci 1658, postal code 140 21, ID 26116731, the following:

– Agreement on transfer of securities dated 29 September 2006.

• With âP finanãní servis a.s. in liquidation, registered office Prague 4, Na Pankráci 1658, postal code 140 21, ID 26116723, the following:

– Agreement on purchase-sale of stake in Finansovy servis o.o.o. dated 11 December 2006,

– Agreement on storage of archive dated 18 December 2006,

– Purchase agreement on sale of movables dated 26 September 2006,

– Agreement on termination of lease dated 2 January 2006 (in building at the address Na Pankráci 1658/121, Prague 4),

– Agreement dated 15 August 2006 on termination of Services Agreement dated 10 September 2001.

• With âP INVEST investiãní spoleãnost, a.s., registered office Prague 1, PurkyÀova 74/2, postal code 110 00, ID 43873766, the following:

– Sales Representation Agreement dated 11 July 2006,

– Lease of parking garage spaces dated 13 February 2006 (in building at the address Vladislavova 17, Prague 1),

– Amendment no. 2 dated 22 November 2006 to lease of parking garage spaces dated 1 February 2005 (in building at the address Vladislavova 17, Prague 1),

– Amendment no. 2 dated 22 February 2006 to lease of non-residential space dated 31 January 2005 (in building at the address PurkyÀova 74/2, Prague 1),

– Lease of non-residential space dated 31 May 2006 (in building at the address PurkyÀova 74/2, Prague 1),

– Agreement on termination of garage lease dated 22 November 2006 (in building at the address Vladislavova 17, Prague 1),

– Agreement dated 31 May 2006 on termination of lease of non-residential space (in building at the address PurkyÀova 74/2, Prague 1),

– Agreement dated 25 October 2006 on termination of lease of non-residential space (in building at the address PurkyÀova 74/2, Prague 1),

– Amendment no. 2 dated 1 September 2006 to lease of non-residential space dated 22 March 2005 (in building at the address Ra‰ínova 7, Brno),

– Lease of non-residential space dated 28 November 2006 (in building at the address Ra‰ínova 7, Brno),

– Amendment no. 1 dated 21 February 2006 to lease of non-residential space dated 5 September 2005 (in building at the address PraÏská 1280, âeské

Budûjovice),

– Agreement on reimbursement of expert services costs,

– Agreement on reimbursement of costs incurred to support “Financial Consulting” project,

– Agreement on reimbursement of costs of participation in winter sports games,

– Agreement on reimbursement of postage costs,

– Agreement on reimbursement of telephone fees,

– Motor insurance contracts,

– Insurance contract – property insurance for businesses,

– Insurance contract – accident insurance for employees.

• With eBanka, a.s., registered office Prague 1, Na Pfiíkopû 19, postal code 117 19, ID 562246, the following:

– Agreement on clearing cash deposit processed by security agency dated 1 February 2006,

– Amendment no. 12 dated 30 March 2006 to Account agreement on fees charged on cash deposits,

– Amendment no. 1 dated 26 June 2006 on termination of Agreement on mutual cooperation in providing services to clients who are legal entities,

dated 25 March 2006,

– Agreement dated 29 June 2006 on termination of Agreement on provision of payments system with incentive function for âeská poji‰Èovna a.s. sales

personnel,

– Agreement dated 4 September 2006 on termination of Agreement on acting as an intermediary for âP employee savings,

– Amendment no. 2 dated 4 September 2006 to the Agreement on acting as a financial services intermediary dated 28 February 2003,

– Opening accounts for Conseq Investment management, a.s.,

– Amendment no. 13 dated 7 June 2006 and Amendment no. 14 dated 16 November 2006 to the Agreement on bank and other services covering the

opening and maintenance of a Company Account,

– Agreement on provision of an eBanka payments system dated 30 November 2006,

– Agreement on cooperation in insurance for executives dated 30 March 2006,

ANNUAL REPORT 157

– Amendment no. 3 dated 5 January 2006 to lease of non-residential space dated 4 April 2001 (in building at the address Dr. Bechera 23, Karlovy Vary),

– Amendment no. 2 dated 8 June 2006 to lease of non-residential space dated 21 October 2004 (in building at the address Dr. Bechera 24, Karlovy Vary),

– Amendment no. 2 dated 16 January 2006 to lease of non-residential space dated 29 January 2004 (in building at the address U Stromovky 9, Havífiov),

– Lease of non-residential space dated 7 March 2006 (in building at the address ·kolní 1054, Chomutov),

– Lease of non-residential space dated 13 March 2006 (in building at the address Komenského 4, Cheb),

– Lease of parking garage spaces dated 27 March 2006 (in building at the address PraÏská 1280, âeské Budûjovice),

– Sub-lease of non-residential space dated 28 July 2006 (in building at the address Tfiída 9. kvûtna 542, Tábor),

– Natural hazards insurance contract, for building Charles Square Center, Karlovo nám. 10, Prague 2,

– Insurance contract – property insurance for businesses,

– Amendment nos. 1 – 4 to insurance contract on property insurance for businesses,

– Amendment no. 5 to natural hazards insurance contract,

– Amendment nos. 12 – 13 to insurance contract for insurance of buildings, movables other than motor vehicles, electronic equipment (natural hazards,

theft, liability, insurance of electrical equipment),

– Termination of Account Agreement dated 30 August 2006.

• With EURONEWS, a.s., registered office Prague 5, Holeãkova 103, postal code 150 00, ID 25690272, the following:

– Framework agreement on supply of goods and services dated 14 April 2006,

– Insurance contract for natural hazards, theft of electronics, insurance of movables,

– Amendment to insurance contract for natural hazards, theft of electronics, insurance of movables,

– Liability insurance contract.

• With FOX Credit Services Ltd., registered office Florinis, 11, office no. 504, Nicosia, Republic of Cyprus, ID 132843, the following:

– Loan Agreement, dated 1 September 2006,

– Mutual Setoff Agreement, dated 19 October 2006.

• With HC Holding a.s., registered office Brno, Moravské námûstí 249/8, postal code 602 00, ID 26978601, the following:

– Agreement on subscription of shares dated 13 April 2006.

• With Home Credit a.s., registered office Brno, Moravské námûstí 249/8, postal code 602 00, ID 26978636, the following:

– Cooperation agreement dated 1 March 2006,

– Framework agreement on marketing cooperation dated 24 March 2006,

– Amendment no. 1 dated 31 October 2006 to agreement on acting as a financial services intermediary dated 15 January 2004,

– Amendment no. 1 dated 1 November 2006 to cooperation agreement dated 3 January 2005,


– Property insurance contract,

– Motor damage insurance contract,

– Operations insurance contract.

• With Home Credit B.V., Herengracht 450, 1017CA Amsterdam, Netherlands, ID 34126597, the following:

– Agreement on subscription and sale of bonds dated 15 June 2006.

• With Home Credit International a.s., registered office Prague 1, Ovocn˘ trh 8/1096, postal code 117 19, ID 60192666, the following:

– Agreement on purchase of movables dated 30 June 2006,

– Travel insurance contracts.

• With OPEN GATE – Boarding school, osmileté gymnázium v Babicích, s.r.o., registered office Babice 5, ¤íãany, postal code 251 01, ID 27089941, the

following:

– Motor insurance contracts,



• With Penzijní fond âeské poji‰Èovny, a.s., registered office Prague 1, Truhláfiská 1106/9, postal code 110 00, ID 61858692, the following:

– Framework agreement on marketing cooperation dated 3 April 2006,

– Lease of non-residential space dated 14 February 2006 (in building at the address Slovanská alej 24A, PlzeÀ),

– Agreement on reimbursement of travel expenses,



– MTPL and motor damage insurance contracts,

– Property insurance contracts,

– Termination of lease of non-residential space (in building at the address Slovanská alej 24A, PlzeÀ),

• With PPF a.s., registered office Prague 4, Na Pankráci 1658, postal code 140 21, ID 25099345, the following:

– Agreement on presentation of partner dated 22 May 2006,

– Agreement on acting as intermediary in the sale/purchase of securities dated 10 January 2006,

– Agreement on acting as intermediary in the sale/purchase of securities dated 16 January 2006,

– Movables lease dated 27 April 2006,

– Vehicle lease dated 10 March 2006,

– Vehicle lease dated 10 April 2006,

– Vehicle lease dated 12 May 2006,

– Vehicle lease dated 5 June 2006,

– Vehicle lease dated 23 June 2006,

– Vehicle lease dated 1 August 2006,

– Vehicle lease dated 10 August 2006,

– Vehicle lease dated 8 September 2006,

– Vehicle lease dated 5 October 2006,

– Two vehicle leases dated 2 October 2006,

– Three agreements on assignment of receivable and acceptance of debt dated 18 April 2006,

– Purchase agreement for passenger car dated 1 August 2006,

– Three purchase agreements for passenger car dated 18 April 2006,

– Purchase agreement for mobile telephones dated 7 July 2006,

– Purchase agreement for Sherlog security system Sherlog dated 1 May 2006,

– Amendment no. 7, Amendment no. 8 and Amendment no. 9 to Services Agreement dated 21 April 2004,

– Amendment no. 1 dated 30 March 2006 and Amendment no. 2 dated 27 September 2006 to lease of non-residential space (in building at the address

Na Pankráci 1658/121, Prague 4),

– Agreement on reimbursement of costs of entrance tickets,

– Agreement on reimbursement of costs of refreshments,

– Agreement on reimbursement of costs of office supplies,

– Agreement on reimbursement of air fares,

– Agreement on reimbursement of travel expenses,

– Agreement on reimbursement of BUPA insurance costs,

– Agreement on reimbursement of training and accommodation costs,

– Agreement on reimbursement of administrative fee,

– Agreement on reimbursement of contractual penalty,

– Agreement on reimbursement of costs of SmartClose project,

– Agreement on reimbursement of costs of electrical energy analysis,

– Agreement on reimbursement of meal voucher costs,

– Agreement on reimbursement of CCS costs,

– Agreement on reimbursement of extraordinary security guard costs,

– Agreement on reimbursement of moving costs,

– Agreement on reimbursement of costs of tour guide and transportation costs,

– Agreement on reimbursement of cash flow costs,

ANNUAL REPORT 159


– Agreement on reimbursement of parking fees,

– Agreement on provision of vacation and reimbursement of wage compensation paid for vacation provided,

– Agreement on reimbursement of costs of TMP event,

– Agreement on reimbursement of course fees,

– Agreement on reimbursement of costs of winter sports games,

– Aggregated motor insurance contracts,

– Property insurance contract.

• With PPF Art a.s., registered office Prague 1, PurkyÀova 74/2, PSâ 113 04, ID 63080672, the following:

– Services Agreement dated 10 January 2006,

– Purchase agreement for movables dated 1 February 2006,

– Purchase agreement for cargo trailer dated 20 March 2006,

– Agreement dated 9 January 2006 on termination of Agreement on presentation of partner dated 14 December 2004,

– Agreement dated 9 January 2006 on termination of lease of non-residential space dated 14 May 2004,

– Agreement on termination of lease of non-residential space dated 14 August 2003,

– Agreement on transfer of rights and obligations under lease of non-residential space dated 12 August 2003,

– Agreement on sale of intangible property,

– Property insurance contracts,

– Liability insurance contracts,

– Motor damage insurance contract.

• With PPF Asset Management a.s., registered office Prague 4, Na Pankráci 121/1658, postal code 140 21, ID 25629123, the following:

– Amendment no. 9 dated 15 March 2006 to “Management Contract,”

– Aggregated motor insurance contracts,


• With PPF banka a.s., registered office Prague 4, Na StrÏi 1702/65, postal code 140 62, ID 47116129, the following:

– Framework agreement on cooperation dated 4 January 2006,

– Agreement on acting as intermediary for syndicated loan dated 3 April 2006,

– Agreement on arranging share issue dated 25 July 2006,

– Agreement on Implementation of Settlement of Mutual Rights and Obligations dated 4 September 2006,

– Agreement on sale of securities dated 9 May 2006,

– Agreements on opening and maintenance of current accounts,

– Amendment nos. 1 and 2 to Agreements on opening and maintenance of current accounts,

– Bank guarantee agreement dated 12 January 2006,

– Bank guarantee agreement dated 27 January 2006,

– Bank guarantee agreement dated 24 February 2006,

– Bank guarantee agreement dated 4 April 2006,

– Bank guarantee agreement dated 2 May 2006,

– Bank guarantee agreement dated 12 May 2006,

– Bank guarantee agreement dated 31 July 2006,

– Bank guarantee agreement dated 7 November 2006,

– Bank guarantee agreement dated 23 November 2006,

– Two Bank guarantee agreements dated 20 October 2006,

– Two Bank guarantee agreements dated 26 October 2006,

– Purchase agreement for passenger car dated 21 August 2006,

– Purchase agreement for mobile telephones dated 29 August 2006,

– Sub-lease of non-residential space dated 29 September 2006 (in building at the address Na StrÏi 1702/65, Prague 4),

– Amendment no. 1 dated 30 June 2006 to sub-lease of non-residential space dated 30 December 2004 (in building at the address Na StrÏi 1702/65, Prague 4),

– Amendment no. 1 dated 31 January 2006 to agreement on provision of consultancy services dated 16 August 2005,

– Amendment no. 4 dated 29 September 2006 to Cooperation Agreement dated 5 February 2004,


– Agreement on termination of agreement on provision of consultancy services,

– Agreement on termination of sub-lease of non-residential space,

– Agreement on reimbursement of costs of providing bank letter of reference,

– Agreement on reimbursement of costs of winter sports games,



– Agreement on reimbursement of costs of âP syndicate concluding dinner,

– Statutory executive liability insurance contract,

– Motor vehicle fleet insurance contract,

– Termination of account agreement dated 30 August 2006,

• With PPF burzovní spoleãnost a.s., registered office Prague 4, Na Pankráci 1658, postal code 140 21, ID 60196211, the following:


– MTPL and motor damage insurance contract,

– Property insurance contract.

• With PPF Group N.V., registered office Herengracht 450 – 454, 1017CA Amsterdam, Netherlands, ID 33264887, the following:

– Memorandum of understanding regarding subordinated loan dated 3 May 2006,

– Agreement on stabilizing of âeská poji‰Èovna shareholder structure upon split-off dated 9 May 2006,

– Agreement on transfer of securities for consideration dated 19 December 2006,

– Loan Agreement dated 10 July 2006.

• With První Callin agentura a.s., registered office Prague 4, Na Pankráci 121/1658, postal code 140 21, ID 27108562, the following:

– Agreement on subscription of shares dated 27 September 2006,

– Agreement on set-off of receivables dated 29 September 2006,

– Vehicle lease dated 1 February 2006,



– Lease of non-residential space dated 5 June 2006 (in building at the address Tfi. Míru 2647, Pardubice),

– Sub-lease of non-residential space dated 4 January 2007(in building at the address Türkova 9, Prague 4),

– Amendment no. 1 dated 14 June 2006 to Loan Agreement dated 15 June 2005,

– Amendment no. 1 dated 1 August 2006 to agreement on sales representation,

– Amendment no. 2 to movables lease,


– Agreement on reimbursement of seminar participation fee,

– Liability insurance contract,

– Agreement on reimbursement of MTPL insurance premium.

• With Public Picture & Marketing a.s., registered office Prague 1, PurkyÀova 74/2, postal code 113 04, ID 25667254, the following:

– Amendment no. 6 dated 1 February 2006 to Services Agreement dated 1 September 2000,

– Agreement on reimbursement of visa arrangement costs,

– Agreement on reimbursement of air fares,


– Insurance contracts – liability insurance for businesses,

– Insurance contract – natural hazards insurance of movables,

– Aggregated motor insurance contract.

• With REFICOR s.r.o., registered office Prague 4, Na Pankráci 1658, postal code 140 21, ID 25600958, the following:

– Purchase agreement for movable property dated 31 July 2006,

– Movables lease dated 30 June 2006,

– Movables lease dated 31 July 2006,

– Vehicle lease dated 7 December 2006,

ANNUAL REPORT 161

– Lease of non-residential space dated 28 June 2006 (in building at the address nám. 28 October 20, Hradec Králové),

– Lease of non-residential space dated 1 August 2006 (in building at the address Spálená 75/16, Prague 1),

– Lease of parking garage spaces dated 25 July 2006 (in building at the address nám. 28 October 20, Hradec Králové),


– Agreement on reimbursement of meal voucher costs,

– Agreement on reimbursement of costs of franking machine,

– Agreement on reimbursement of mail-related costs,

– Agreement on maintenance of telephone exchange,

– Agreement on reimbursement of customer travel costs.

• With TERMIZO a.s., registered office Liberec, Dr. Milady Horákové 571, postal code 460 06, ID 64650251, the following:

– Liability insurance contract,

– Insurance contract – insurance of computer equipment,

– Insurance contract – machinery insurance,

– Insurance contract – insurance against theft,

– Insurance contract – insurance of movables against natural hazards.

• With Univerzální správa majetku a.s., registered office Prague 4, Na Pankráci 1658, postal code 140 21, ID 60192330, the following:

– Professional liability insurance contracts,

– Insurance contract – insurance of valuables against theft or robbery,

– Insurance contract – insurance of movables against natural hazards,

– Aggregated motor insurance contract.

• With é·˘ecÚ‚Ó Ò Ó„‡ÌË˜ÂÌÌÓÈ ÓÚ‚ÂÒÚ‚ÂÌÌÓÒÚ¸˛ «îËÌ‡ÌÒÓ‚˚È ÒÂ‚ËÒ», registered office Russian Federation, 123022, Moscow, ul. Pravdy, building

no. 8, str. 1, ID 7703304510, the following:

– Agreement on transfer of securities dated 11 December 2006.

All of the above agreements were entered into at arm’s length. Likewise, all consideration provided and received under these agreements was provided

and received under arm’s length terms and none of these agreements resulted in any injury to the Company.

During the 2006 accounting period, no measures or other legal actions were taken in the interests of or at the instigation of any related parties.

The statutory body hereby declares that it compiled this report with the use of due care, and that the information presented in this report is correct and

complete.

Prague, 30 March 2007

Ladislav Bartoníãek


Jan JeÏdík

Member of the Board of Directors


Organization and Contactsas at Annual Report compilation date

âESKÁ POJI·ËOVNA BASIC ORGANIZATION CHART

General Meeting

Supervisory Board

Board of Directors

CEO Executive Chairman Executive Board Member Executive Board Member

for Development of L&P for Strategy and

Activities Organizational

Development

ORGANIZAâNÍ SCHÉMA CENTRÁLY

ALM Motor

Insurance

Life Assurance

Operations Support

Life and Non-life

Policy

Administration

Alternative

Distribution

Consolidation CRM

Treasury Property &

Casualty

Insurance

Non-life and

Payment Systems

Development

Communications

Center

Sales of Personal

Lines

Accounting, Taxes,

and Financial

Reporting

Marketing

Non-life Risk

Analysis and

Control

Life and

Commission

Systems

Development

Payments Sales Management

Support

Controlling L&P Product

Development

Non-life Actuarial

Mathematics

IT Operations Personnel Sales Through

External Partners

Responsible

Actuaries

Life Product

Management

Sales of Business

Lines

CEO Lard Friese

Executive Board Executive Board Executive Board Executive Board Executive Board Executive Board Executive Board

Member for Member for Member for IT Member for Member for Sales Member for Member for

Investment Policy Business Risks Operations and Financial Marketing and Client

Human Resources Management Segmentation

Non-life Operations

Support

IT Strategy and

Architecture

Economics Regions Life Actuarial

Mathematics and

Analysis

PMV Product

Management

Underwriting Non-life Claims Agencies Property Insurance

Product

Management

ANNUAL REPORT 163

Executive Board Internal Audit Communications Risk Legal Program

Member for and Investigations and Compliance Management Office

Reinsurance and

International

Underwriting

Reinsurance

Administration

Office of the Czech

Nuclear Pool


Persons Responsible for the Annual Report

STATEMENTWe hereby declare that the information presented in this Annual Report is factual and that no material information has been omitted that could influence an

accurate and precise assessment of the issuer and the securities issued by it.

Ladislav Bartoníãek


Jan JeÏdík

Member of the Board of Directors

AUDIT OF THE FINANCIAL STATEMENTSSince 1993, the Company's financial statements have been audited by KPMG âeská republika Audit, s.r.o. The audit of the 2006 financial statements was

completed on 30 March 2006.

ID: 49619187

Registered office: PobfieÏní 648/1a, 186 00 Prague 8

Statutory audit firm: no. 71

Auditor-in-charge: Franti‰ek Dostálek

License: no. 176

ANNUAL REPORT 165

DIRECTORY OF SELECTED COMPANIES OF THE âESKÁ POJI·ËOVNA FINANCIAL GROUP

âeská poisÈovÀa – Slovensko, akciová spoloãnosÈ

Address: Plynárenská 7/C, 824 79 Bratislava

Slovak Republic

Tel.: +421 258 276 666

Fax: +421 258 276 100

E-mail: [email protected]

Website: www.cps.sk

Penzijní fond âeské poji‰Èovny, a.s.

Address: Truhláfiská 1106/9, 110 00 Praha 1

Tel.: +420 221 109 111

Fax: +420 221 109 518


Website: www.pfcp.cz

âeská poji‰Èovna ZDRAVÍ a.s.

Address: Litevská 1174/8, 100 05 Prague 10

Info-line: +420 841 111 132

Tel.: +420 267 222 515

Fax: +420 267 222 936


Website: www.zdravi.cz

âP INVEST investiãní spoleãnost, a.s.

Address: PurkyÀova 74/2, 110 00 Prague 1

Info-line: +420 844 111 121

Tel.: +420 224 052 148

Fax: +420 224 052 273


Website: www.cpinvest.cz

PPF banka a.s.

Address: Na StrÏi 1702/65, 140 62 Prague 4

Tel.: +420 221 611 310

Fax: +420 221 611 780


Website: www.ppfbanka.cz

PPF Asset Management a.s.

Address: Na Pankráci 121/1658, 140 21 Prague 4

Tel.: +420 224 555 201

Fax: +420 224 555 304


Website: www.ppf.cz

âe‰skaya strachovaya kompaniya o.o.o.

Address: ul. Pravdy 8, building no. 1, 125 040 Moscow

Russian Federation

Tel.: +7 (495) 785 82 00

Fax: +7 (495) 785 82 09


Website: www.czins.ru


DIRECTORY OF âESKÁ POJI·ËOVNA HEAD OFFICE, REGIONS, AND AGENCY OFFICES

âeská poji‰Èovna a.s.

Registered office: Spálená 75/16

113 04 Prague 1

Head office: Na Pankráci 121

140 21 Prague 4

âP Client Services: +420 841 114 114

Assistance service for motorists: +420 224 557 004

Telephone: +420 224 051 111

Fax: +420 224 052 200


Internet: www.ceskapojistovna.cz

Prague Region

Address: Regionální fieditelství

PurkyÀova 74/2

113 06 Prague 1

Tel.: +420 224 052 113

Agencies: Revoluãní 2, Hráského 2231, ·tefánikova 10, Molákova 11, Sokolovská 55, Litevská 8, Kaplanova 8

South Bohemia Region


PraÏská 1280

370 04 âeské Budûjovice

Tel.: +420 387 738 111

Agencies: âeské Budûjovice, Jihlava, JindfiichÛv Hradec, Strakonice, Tábor, Tfiebíã, Îìár nad Sázavou

West Bohemia Region


Slovanská alej 24A

326 63 PlzeÀ

Tel.: +420 377 414 111

Agencies: Bene‰ov, Beroun, DomaÏlice, Karlovy Vary, Kladno, Klatovy, PlzeÀ, Pfiíbram, Tachov

North Bohemia Region


Felberova 4/8

460 95 Liberec

Tel.: +420 485 344 611

Agencies: âeská Lípa, Dûãín, Chomutov, Liberec, Litomûfiice, Mûlník, Mladá Boleslav, Most, Rakovník, Teplice, Turnov,

Ústí nad Labem

ANNUAL REPORT 167

East Bohemia Region


nám. 28 October 20

500 02 Hradec Králové

Tel.: +420 466 814 111

Agencies: Hradec Králové, Chrudim, Jiãín, Kolín, Náchod, Nymburk, Pardubice, Svitavy, Vrchlabí, Vysoké M˘to

South Moravia Region


Ra‰ínova 7

601 66 Brno

Tel.: +420 542 181 111

Agencies: Blansko, Brno, Bfieclav, Hodonín, KromûfiíÏ, Uherské Hradi‰tû, Vy‰kov, Zlín, Znojmo

North Moravia Region


28 October 60

702 00 Ostrava

Tel.: +420 596 271 111

Agencies: Fr˘dek-Místek, Havífiov, Hranice, Nov˘ Jiãín, Olomouc, Opava, Ostrava, ·umperk, Vsetín

Company name: âeská poji‰Èovna a.s.

Registered office: Spálená 75/16, 113 04 Praha 1

Head office: Na Pankráci 121, 140 21 Praha 4

Phone: +420 224 051 111

Fax: +420 224 052 200


Internet: www.ceskapojistovna.cz

Bankers: Komerãní banka, a.s.

account No.: 17433-021/0100

Consultation of content, design, and production:

© B.I.G. Prague, Hill & Knowlton Associate, 2007

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