Notes to the Financial Statements for the Year Ended 31 December 2010

1. General Information

1.1. Description of the Business and Principal Activities of the Company

Komerční pojišťovna, a.s., (hereinafter the “Company” or “KP”) was incorporated following its registration in the Commercial Register kept by the Municipal Court in Prague, Section B, File 3362, on 1 September 1995.

The principal operations are as follows

As of 31 December 2010, the Company is licensed to undertake insurance activities and activities relating to insurance activities as follows:

1. Insurance activities pursuant to Section 13 (1) of Insurance Act No. 277/2009:

  • to the extent of life insurance segments I, II, III, VI, VII and IX as set out in Part A of Appendix 1 to the Insurance Act,
  • to the extent of non-life insurance segments 1, 2, 3, 4, 7, 8, 9, 10c, 13, 14, 15, 16 and 18 as set out in Part B of Appendix 1 to the Insurance Act

2. Activities relating to insurance and reinsurance pursuant to Section 13 (1) of the Insurance Act:

  • agency activities undertaken in connection with insurance activities under the Insurance Act,
  • advisory activities relating to insurance of individuals and legal entities under the Insurance Act,
  • investigation into insurance claims undertaken on a contractual basis with an insurance company under the Insurance Act
  • mediation of financial services listed under (a) to (e):
    a) agency services in respect of building society savings programmes;
    b) agency services in respect of retirement benefit programmes;
    c) agency services in respect of the arrangement of consumer and mortgage loans;
    d) agency services in respect of the arrangement of credit cards;
    e) leasing agency services.
  • training activities for insurance brokers and independent loss adjusters.

Share capital

The share capital amounts to CZK 904,152,000 and consists of 6,580 ordinary registered shares with a nominal value of CZK 111,900 in the book-entry form and 3,000 ordinary registered shares with a nominal value of CZK 55,950 in the book-entry form. The Company’s share capital is fully paid.

Shareholders as of 31 December 2010

Komerční banka, a.s., having its registered office at Prague 1, Na Příkopě 33/969, 114 07, incorporated with the Municipal Court in Prague, Section B, File 1360, Corporate ID: 45 31 70 54; a 48.96 percent shareholder.

SOGECAP S.A.,

having its registered office at 50, Avenue du Général de Gaulle, 92093 Paris, La Défense Cedex, identification number: 086380730 R.C.S. NANTERRE; a 51.06 percent shareholder.

Registered Office of the Company

Karolinská 1/650

186 00, Prague 8

1.2. Board of Directors and Supervisory Board as of 31 December 2010

Position Name
Board of Directors Chairman Laurent Dunet
Member Zdeněk Zavadil
Member Stéphane Corbet
Member Šárka Šindlerová
Member Philippe Carlier
Statutory Board Chairman Philippe Perret
Member Henri Bonnet
Member Pascal Bied-Charreton
Member Pavel Čejka
Member Tomáš Mareda
Member Jiří Novotný

As of 8 February 2010, the four-year mandate of Radovan Gregor for acting as a Member of the Supervisory Board expired.

As of 25 March 2010, Tomáš Mareda was elected a Member of the Supervisory Board by the Company’s employees.

As of 27 April 2010, Philippe Perret was elected a Member of the Supervisory Board of Komerční pojišťovna, a.s., by the General Meeting for another four-year term.

As of 18 May 2010, Philippe Perret was elected Chairman of the Supervisory Board.

Acting on behalf of the Company

The Board of Directors acts on behalf of the Company. No less than two members of the Board of Directors act jointly on behalf of the Board of Directors. The act of signing is conducted in such a manner that no less than two members of the Board of Directors attach their signatures to the written or printed name of the Company or the Company’s stamp.

1.3. Equity Holdings in Other Businesses

The Company held no equity investments in other businesses as of 31 December 2010.

1.4. Changes and Amendments to the Commercial Register

As of 15 July 2010, the following changes were made:

a) registration of
– the new nominal value of shares,
– the new amount of the registered share capital

b) removal of
– the initial nominal value of shares,
– the initial amount of the registered share capital.

As of 23 July 2010, the following changes were made:

a) registration of
– the subject-matter of business according to Insurance Act 277/2009 Coll.,
– the change in the permanent residency address of Jiří Novotný, a Member of the Supervisory Board,
– electing Philippe Perret a Member of the Supervisory Board for the next term,
– electing Philippe Perret Chairman of the Supervisory Board,
– electing Tomáš Mareda a Member of the Supervisory Board

b) removal of
– Radovan Gregor from the position of a Member of the Supervisory Board,
– Philippe Perret from the position of Chairman and Member of the Supervisory Board in the original term of office.

1.5. Legal Relations

As of the balance sheet date, all of the Company’s legal relations comply with the Insurance Act including the related implementation regulations. The Company operates both in life and non-life insurance segments.

1.6. Movements in Equity

The Extraordinary General Meeting held on 30 June 2010:

  • after approving the financial statements for 2009, decided to increase the registered share capital of the Company by CZK 301,384,000, i.e. from the initial amount of CZK 602,768,000 to CZK 904,152,000, using the Company’s own resources,
  • and, in relation to increasing the registered share capital, the General Meeting decided to increase the nominal value of shares in the following manner:
    • a) for 6,580 pieces of shares with a nominal value of CZK 74,600 by CZK 37,300 per each share; it means that the nominal value has changed from CZK 74,600 per share to CZK 111,900 per share,
    • b) for 3,000 pieces of shares with a nominal value of CZK 37,300 by CZK 18,650 per each share; it means that the nominal value has changed from CZK 37,300 per share to CZK 55,950 per share.

2. Accounting Policies

2.1. Basis of Accounting

In maintaining its accounting books and records and in preparing the financial statements, the Company complied with Accounting Act No. 563/1991 Coll., as amended, Decree No. 502/2002, which provides implementation guidance on certain provisions of the Accounting Act No. 563/1991 Coll., as amended, for reporting entities that are insurance companies (hereinafter “Decree 502”), and with Czech Accounting Standards for reporting entities that maintain their accounts under Decree 502.

The Company’s accounting books and records are maintained in such a manner so as to ensure that the financial statements prepared on the basis of the accounting books and records give a true and fair view of assets, liabilities, equity and the financial position of the Company while complying with the prudence and going concern principles.

The financial statements are prepared on the accruals basis of accounting whereby the effects of transactions and other events are recognised when they occur and are reported in the financial statements of the periods to which they relate. Assets that are not remeasured at fair value and suffered impairment are stated at net recoverable amount.

The reporting currency used in the financial statements is the Czech crown (“CZK”) with accuracy to CZK thousand, unless indicated otherwise. The financial statements were prepared as of and for the year ended 31 December 2010.

2.2. Tangible and Intangible Fixed Assets

Tangible fixed assets include assets with an acquisition cost greater than CZK 40,000 on an individual basis and an estimated useful life exceeding one year. Tangible assets costing less than CZK 40,000 are expensed in the year of acquisition.

Intangible fixed assets include start-up costs greater than CZK 20,000 and other intangible assets with an acquisition cost greater than CZK 60,000 on an individual basis and an estimated useful life exceeding one year. Intangible assets costing less than CZK 60,000 are expensed in the year of acquisition.

The Company creates provisions against tangible and intangible fixed assets if the inventory count highlights that their fair value is lower than their carrying value and the impairment is temporary. No provisions were recognised against fixed assets in the year ended 31 December 2010.

Depreciation of fixed assets is recorded on a straight line basis for accounting purposes. Accounting depreciation is based on the expected useful life of the tangible and intangible assets. The depreciation period is indicated below:

Category of assets Depreciation period in years
Cars 4
Furniture and fixtures 7-10
Software 4
AIA Software 5
Start-up costs 5

As a result of binding statutory requirements regarding the presentation of financial statements of insurance companies, the components of fixed assets shown above are classified on the face of the balance sheet as of 31 December 2010 as follows:

  • Intangible fixed assets, including acquisition, are presented in lines 2-4; and
  • Tangible fixed assets (both depreciable and non-depreciable), including acquisition, are presented in line 29.

The Company recognised tax depreciation charges for intangible assets in 2010.

2.3. Financial Placements

Deposits

Deposits placed with financial institutions are measured at their nominal value upon acquisition. As of the year-end, these assets are revalued at fair value. The fair value of short-term deposits placed with financial institutions is the nominal value including accrued interest. Deposits denominated in foreign currencies are retranslated into Czech crowns at the ruling exchange rate of the Czech National Bank and any foreign exchange rate difference is included in the valuation. Revaluation is recognised through the profit and loss account.

Debt Securities

Debt securities are stated at cost upon acquisition. Purchased accrued interest income is added to the cost of the investment. The difference between the cost of the jacket of debt securities and their nominal value is recorded to income or expense over the remaining maturity of these securities using the effective interest rate method. Accrued interest income on securities is reflected directly in the relevant account of these securities. The same types of securities are valued using a price determined by the FIFO method. Debt securities denominated in foreign currencies are retranslated into Czech crowns at the ruling exchange rate of the Czech National Bank and any foreign exchange rate difference is included in the fair value revaluation.

The Company revalues individual components of financial placements at fair values as of the balance sheet date, excluding the securities held until maturity and issued by an OECD member state (refer to below). The fair value of publicly tradable securities is defined as the value at which the security is traded on the Prague Stock Exchange or quoted by major securities dealers, as appropriate.

The gains or losses from the revaluation of securities are charged against equity (account 404) as all the securities held by the Company are not intended for trading.

The securities held until maturity, which were issued by an OECD member state and the rating of which, stated by at least two internationally recognised rating agencies, was defined at the level of the Czech Republic or higher, have been measured at amortised cost.

Derivatives

As part of the implemented investment strategy, KP hedges cash flows from foreign currency debt securities using cross-currency swaps. The purpose of hedging derivatives is to eliminate the currency risk posed by the holding of foreign-currency debt securities. Pursuant to the current legislation, KP classifies these derivatives as hedging derivatives and the gains or losses from the revaluation of swaps at their fair value are recognised in equity accounts. The fair value of swaps is calculated using the net present value of the fixed future cash flows from these derivatives.

Other Financial Placement Components

The gains or losses from the revaluation of other financial placement components, if any, are recognised in the profit and loss account (accounts 539 and 639).

The structure of the financial placement portfolio follows the obligatory limits set out in Insurance Act No. 277/2009 Coll. and Finance Ministry Decree No. 434/2009 Coll., which provides implementation guidance on certain provisions of the Insurance Act.

2.4. Receivables

Receivables are stated at nominal value.

Following the analysis of the recoverability of past due debts undertaken by the Company, individual groups of receivables were assigned specific coefficients for provisioning. The Company used coefficients of similar product groups for the newly sold products.

In determining debt provisioning levels, the risk (the number of past due days) attached to all amounts due from a specific debtor is considered to be equal to the risk (the number of past due days) of the oldest of these receivables.

2.5. Permanent or Long-Term Impairment of Assets

At the balance sheet date, the Company assesses whether there is any indication that assets, which are not measured at fair value or assets that are fair valued but the revaluation differences are included in the balance sheet, may be impaired.

2.6. Cash and Cash Equivalents

Cash comprises cash on hand and current bank accounts designed to secure the Company’s operations. Term deposits, with the exception of foreign currency term deposits, which are also used to finance the Company’s operations, are reported as a component of financial placements.

Cash equivalents comprise labels, meal vouchers, stamps and Prague public transport tickets.

Cash and cash equivalents are stated at nominal value.

2.7. Technical reserves

The Company records technical reserves pursuant to Insurance Act No. 277/2009 Coll., as amended, as follows:

Life Insurance Reserve

The life insurance reserve is created as a sum of reserves calculated under individual life insurance policies and represents the sum of the Company’s liabilities net of the value of future premiums. The technical reserve includes the allocated share of profit and the costs associated with insurance administration. The life insurance reserve for traditional life insurance products is calculated using the “Zillmer” method where negative values are substituted with zero.

Unearned Premiums Reserve

The unearned premium reserve represents actual (or estimated as appropriate) written premiums that do not relate to the current reporting period and are calculated using a daily ‘pro rata’ method of the aggregate written premiums according to the number of days that relate to the current reporting period and to the following reporting periods.

Reserve for Outstanding Claims

The claim reserve, for both life and non-life insurance, consists of a reserve for insurance claims reported but not settled during the year (‘RBNS’) and a reserve for insurance claims incurred but not reported during the year (‘IBNR’).

The claim reserve also reflects the amount of the estimated claims handling costs associated with settling claims.

The RBNS is recognised as equal to the sum of reserves for anticipated insurance payments for individual reported, but unsettled claims according to estimated damage amounts arising from claims recorded as of the balance sheet date.

The IBNR is determined using actuarial methods based on an analysis of available information that includes, but is not limited to:

  • Supporting evidence underlying the insurance portfolio split by classes of individual insurance activities;
  • Historical series relating to individual classes of insurance activities that monitor the moment of claim origination and the moment of claim settlement (the Chain-Ladder method applied to paid claims development triangles and/or RBNS) – it is typically used for non-life insurance activities;
  • The estimated aggregate claims ratio;
  • The estimated claims need for a determined period of time is usually used for life insurance activities.

While the Board of Directors considers the balance of the reserve for outstanding claims to be fairly presented on the basis of the information available at the balance sheet date, the ultimate balance of liabilities may differ as a result of subsequent information and events and can result in significant changes in the final amounts. Changes in the reserve balance are reflected in the financial statements for the period in which they occur. The adopted approaches and estimates are assessed on a regular basis.

Reserve for Bonuses and Rebates

The reserve for bonuses and discounts is recorded to cover costs of bonuses and rebates provided to the policy holders and the insured under insurance policies.

In respect of life insurance, this reserve also reflects a portion of income from financial placements held for anticipated but not yet awarded profit shares.

In 2010, the Company increased its reserve for bonuses and rebates by CZK 165 million up to the aggregate amount of CK 280 million in accordance with Section 63 (2) of the Insurance Act. The amount reflects the obligation of the Company to provide relevant insurance indemnity payments to policy holders and cannot be used for any other purposes. The Company undertakes to allocate the amount to individual policies by the relevant resolution of the Company, adopted within the Company’s full authority complying with the profit-sharing provisions of insurance policies, in the following years, but within eight years of the recognition of this reserve at the latest, to those persons who will be policy holders of the particular products that constitute the right to a profit share for the policy holder as at the last day of the calendar year in which the Company takes such a decision.

If the Company does not take the above decision within eight years of the recognition of the reserve, it undertakes to allocate this amount (or its so far unallocated part) to the policies (i.e. products that constitute the right to a profit share for the policy holder) of individual policy holders who will be policy holders on the last day of the eighth year following the recognition of the reserve. Each such a policy holder should receive an amount calculated as an average balance of the reserve of life insurance of the relevant policy holder during the eighth calendar year following the recognition of this reserve for bonuses and rebates /(divided by) the total average value of the life insurance reserve of these policy holders (i.e. policy holders of those products that constitute the right to a profit share for the policy holder) during the eighth calendar year following the recognition of the reserve for bonuses and rebates *(multiplied by) the reserve for bonuses and rebates recognised in the year of recognition, or more precisely its unpaid part.

The reserve for bonuses and rebates was recognised in addition to the profit shares that were allocated to individual policies and that became part of the life insurance reserve upon the allocation of shares for 2010.

Of the similar increase of CZK 115 million made in 2009, no part was used in 2010.

Equalisation Reserve

With effect from 1 September 2010, the Company does not recognise any equalisation reserve. It has fully released the equalisation reserve recorded in previous years in accordance with Section 140 (2) of the Insurance Act.

Reserve for the Coverage of Obligations from the Used Technical Interest Rate and Other Numerical Parameters (Deficiency Reserve)

The Company creates a reserve for obligations resulting from life insurance contracts. At the balance sheet date, the Company undertakes a test of the adequacy of life insurance technical reserves (the “liability adequacy test”) designed to verify the sufficiency of the total sum of amounts of the stated life insurance reserves. The basic testing method is the model of discounted financial cash flows.

The result of the liability adequacy test is the minimum value of liabilities to the policy holders calculated when using the best estimate of the presumptions of the future development of input parameters adjusted for an additional charge reflecting risk and uncertainty.

The reserves are insufficient when the minimum value of insurance liabilities is greater than the amount of life provisions decreased by the corresponding outstanding acquisition costs. If the result of the liability adequacy test shows insufficiency of technical reserves, the Company creates a reserve equivalent to this deficiency.

The methodology for creating and using reserves for the coverage of obligations from the used technical interest rate is in accordance with Special Directive No. 3 of the Czech Society of Actuaries as of 22 September 2003.

Life Insurance Reserve where the Investment Risk is Assumed by the Policy Holder

This reserve is held to cover obligations of the insurance company to the policy holders for the life insurance products where it is the policy holder who bears the investment risk on the basis of the insurance contract; the Company has been recognising this reserve since 2006 when the sale of these products began.

The reserve amount is determined as a sum of the liabilities to the policy holders in the amount of their shares of allocated premiums from individual contracts according to the principles specified in insurance contracts.

In compliance with Section 67 (3) of the Insurance Act, a reserve is recognised for a portion of liabilities from the insurance contracts which arise from (a) covering the risk of death, and (b) funds placed in the guaranteed fund, in accordance with Section 65 of the Insurance Act.

2.8. Reserves for Other Risks and Losses

The Company creates other reserves for risks that are not directly related to its insurance activities.

Specifically, the Company recorded a reserve for anticipated risks and losses associated with legal disputes and similar cases, a reserve for outstanding vacation days, a reserve for audit costs, annual client letters, annual report and a restructuring reserve.

Restructuring Reserve

Following the reporting of significant losses in the year ended 31 December 2001 and in prior years, the parent company initiated a restructuring of the Company in 2002.

Based upon an analysis of anticipated costs resulting from this restructuring, the Company recorded, in 2002 and 2003, a reserve for the portion of those costs that can be recognised in the current period under applicable accounting regulations. This reserve is released to expenses as the actual costs are incurred.

2.9. Payables

Payables are stated at nominal value.

Payables to the policyholders principally comprise insurance premium prepayments and overpayments, and received payments temporary unmatched with the related receivables at the balance sheet date.

2.10. Temporary Assets and Liabilities

Temporary assets and liabilities principally comprise:

  • Deferred expenses – primarily deferred acquisition costs of insurance policies;
  • Accrued income – particularly accrued revenues from term deposits;
  • Estimated receivables – primarily estimated funds to be collected from reinsurers (shares of insurance claims, commissions and profit shares) and an estimate for premiums not yet written in the operating systems; and
  • Estimated payables – primarily estimated balances of anticipated premiums ceded to the reinsurers, unpaid commissions, fees and unbilled supplies.

2.11. Gross Written Premiums

Gross written premiums include all premiums amounts stated in insurance policies during the period, regardless of whether these amounts relate partly or wholly to the following accounting periods.

Income from written premiums is recognised on an accruals basis by recording a reserve for unearned premiums in accordance with accounting procedures for insurance companies (refer to Note 2.7.).

2.12. Costs of Insurance Claims

Costs of insurance claims are recorded as equal to the amounts awarded for the settlement of claims and also include external costs of the Company incurred in processing claims. Costs of insurance claims are reduced by claims of recourse or other similar claims of the Company.

The cost is recognised in the current period when the level of a payable to a client is acknowledged.

The costs of insurance claims (specifically life insurance claims) include not only the claims incurred (non-life insurance, death or endowment in respect of life insurance) but also client payments from capital life insurance accounts and the lump-sum settlement when this insurance is cancelled.

In settling non-life insurance claims the Company cooperates with WILLIS, s.r.o., AXA Assistance CZ, s.r.o., Gras Savoye and Mondial Assistance in respect of organisational, economic and technical advice, including investigations into insured events, preparation of full documentation in support of examining and settling these insured events.

2.13. Acquisition Costs of Insurance Policies

Acquisition costs of insurance policies include all direct and indirect costs incurred in acquiring insurance policies. Acquisition costs of insurance policies principally comprise:

  • Commission paid to insurance policy acquirers; and
  • Other acquisition costs, such as costs of materials consumed in direct relation to the arrangement of insurance policies, payment for medical assessments, advisory costs, or advertising costs.

Non-life insurance commissions are deferred in line with the proportion of the unearned premiums to premiums written or reflect the estimated period of validity of the policy to which the commission relates.

Acquisition costs of traditional life insurance products are deferred in the form of Zillmer life insurance reserves.

Life insurance commissions where the investment risk bearer is the policy holder are deferred in line with the unearned premiums reserve or reflect the estimated period of validity of the policy to which the respective commission relates.

2.14. Administrative Costs

Administrative costs consist of costs that are not directly involved in entering into insurance policies, such as consumption of material and fuel, travel expenses, rental expenses, advisory services, postal fees, other fees, wages and other social costs, or depreciation of assets. Until 2009, administrative costs also included shares in profit from insurance policies that have been reported as part of other technical costs since 2010 as a result of the change in the policy disclosed in Note 2.23.

If administrative costs are clearly identifiable, they are charged directly to the relevant technical life or non-life accounts during the year.

Other unallocated administrative costs are primarily posted to non-technical cost accounts and, at the year-end, they are re-allocated to life and non-life insurance technical accounts in a proportion that matches the allocation based on the ABC (Activity Based Costing) method, regulating the matching of costs to individual types of insurance. The proportion was 17.2% for non-life insurance and 82.8% for life insurance.

2.15. Financial Placement Costs and Income Recognition

Recognition of Costs and Income from Financial Placements and their Allocation between Life and Non-life Insurance

In 2010, the Company divided its portfolio into two parts as follows:

i) portfolio of securities covering non-life insurance reserves,
ii) portfolio of securities covering life insurance reserves and the Company’s equity.

Income from and costs of financial placements are recorded separately but primarily on the life insurance technical accounts. At the year-end, net income not related to life insurance is re-allocated to the non-technical accounts and the relevant amount of income is re-allocated from the non-technical accounts to the non-life insurance technical accounts.

The Company uses the proportion of the average balances of life insurance technical reserves and equity as a basis for re-allocating non-technical expenses and income from financial placements.

Accounting Treatment for the Realisation of Financial Placements

The Company’s accounts for the realisation of financial placements on a gross basis and accordingly records separately all the revenues arising from realisation as equal to the selling value of the relevant financial placement instruments and the costs as equal to their carrying value.

2.16. Other Costs and Income

Clearly identifiable costs and income are recorded directly on the life and non-life technical accounts during the year.

Costs that are not clearly identifiable are primarily recorded on the non-technical accounts and subsequently reallocated to the technical life or non-life accounts.
As a basis for reallocating the costs and income, the Company uses separate coefficients for life and non-life insurance (refer to Note 2.14).

This treatment does not apply to taxes and fees, and other expenses not related to insurance and reinsurance.

2.17. Reinsurance

Under the terms of reinsurance arrangements, the reinsurer’s share of premiums is calculated, invoiced and paid based on the premiums collected from reinsured policies. At the balance sheet date, the Company records an estimated payable in respect of the anticipated reinsurer’s share of premiums not yet billed.

Under the terms of reinsurance arrangements, the reinsurer’s share of claims is calculated and paid based on the actually settled insurance claims. The Company recognises estimated receivables in respect of the anticipated but not yet paid reinsurer’s share of recorded insurance claims.

Under the terms of reinsurance arrangements, reinsurance commissions are calculated and paid based on the paid reinsurer’s share of premiums reflecting loss experience. At the balance sheet date, the Company records an estimated receivable in respect of expected commissions from the reinsurer’s share of premiums not yet collected.

The Company recognises its share of the reinsurer’s profit when the entitlement to this profit share can be determined and ascertained with reasonable certainty. No profit shares were recognised as of 31 December 2010.

The reinsurer’s share of reserves is determined pursuant to the reinsurer’s share of collected premiums or insurance claims taking into account other relevant factors.

2.18. Income Taxation

The income tax for the relevant period consists of the due tax and the change in the deferred tax. The due tax consists of the tax calculated from the tax base using the tax rate valid in the current year and all additionally assessed taxes and refunds of the overpaid taxes of previous periods, as well as the reserve for the due tax, including the independent tax base (dividends received from abroad).

2.19. Deferred Income Tax

Deferred income tax is provided using the balance sheet method for all temporary differences arising between the tax basis of assets and liabilities and their carrying values for financial reporting purposes. Deferred income tax is determined using tax rates effective in the periods in which the temporary tax difference is expected to be realised.

The principal temporary differences arise from depreciation on tangible fixed assets, provisions against receivables, reserves and tax losses carried forward.

Deferred tax assets related to the tax losses carried forward are recognised to the extent to which it is probable that future taxable profit will be available. The Company recognised a deferred tax asset arising from tax losses carried forward in 2010.

2.20. Foreign Currency Retranslation

Transactions during the year were retranslated at the Czech National Bank’s exchange rate prevailing as of the transaction date or at the rate at which the transaction was realised. Assets and liabilities denominated in foreign currencies at the year-end are retranslated using the Czech National Bank’s exchange rate prevailing as of that date. Foreign exchange rate gains and losses are recognised through the profit and loss account, except for the foreign-currency debt securities for which these foreign exchange gains or losses are included in revaluation at fair value.

2.21. Consolidation

These financial statements have been prepared on an unconsolidated basis. The Company’s financial information is included in the consolidated financial statements of Komerční banka, a.s., having its registered office at Na Příkopě 33/969, Prague 1, 114 07, and SOGECAP S.A., having its registered office at 50, avenue du Général De Gaulle, 92093 Paris la Defense Cedex, which can be obtained at the same place.

2.22. Use of Estimates

The presented financial statements for the year ended 31 December 2010 are based on the best estimates available as of the reporting period-end which specifically relate to the determination of fair values of financial instruments, impairment of assets and determination of reserves. Management of the Company believes that the financial statements give the truest and fairest view of the Company’s financial results and financial position using all relevant and available information at the financial statements date.

2.23. Changes in Accounting Policies

In view of the nature of the costs relating to shares in profit from insurance policies, the Company decided to change the policy of their accounting and reporting. The new treatment matches the treatment used for other technical costs (refer to Note 3.20). In 2009, the Company accounted for and reported the above specified costs as administrative overhead costs.

2.24. Changes in Accounting Estimates

As a result of changes in economic assumptions, specifically the steeper yield curve, there was an increase in the reserve for the coverage of obligations from the used technical interest rate (Deficiency Reserve) and in other arithmetic parameters of CZK 60 million during 2010. In testing the adequacy of reserves, the Company used the risk-free yield curve derived from the yields of government bonds and recommended by the Czech Society of Actuaries.

The yield curve derived from swaps was used in previous periods. The impact of this change on the reserve calculated as of 1 January 2010 represented a reduction of approximately CZK 110 million.

3. Additional Information on the Financial Statements

3.1. Tangible and Intangible Fixed Assets

Acquisition cost (CZK thousand)

Additions Disposals 31 December 2010 31 December 2009
Depreciated tangible assets 4,605 6,337 50,891 52,623
of which: cars 1,920 2,440 8,898 9,418
hardware 1,911 1,976 30,920 30,985
office equipment 774 1,921 8,940 10,087
furniture and fixtures 0 0 2,133 2,133
Amortised intangible assets 3,123 0 194,032 190,909
Non-depreciated tangible assets 0 0 236 236
Acquisition of assets 5,681 7,004 420 1,743
of which: intangible assets 1,868 2,693 420 1,245
tangible assets 3,813 4,311 0 498
Total 13,409 13,341 245,579 245,511

Accumulated Depreciation (CZK thousand)

Additions Disposals 31 December 2010 31 December 2009
Depreciated tangible assets 7,930 6,336 36,912 35,318
of which: cars 1,598 2,440 4,991 5,833
hardware 5,427 1,975 24,599 21,147
office equipment 626 1,921 6,148 7,443
furniture and fixtures 279 0 1,175 896
Amortised intangible assets 30,260 0 156,230 125,970
Total 38,190 6,336 193,142 161,288

Net Book Value (CZK thousand)

31 December 2010 31 December 2009
Depreciated tangible assets 13,980 17,305
of which: cars 3,907 3,585
hardware 6,322 9,838
office equipment 2,793 2,644
furniture and fixtures 958 1,237
Amortised intangible assets 37,801 64,939
Non-depreciated tangible assets 236 236
Acquisition of assets 420 1,743
of which: intangible assets 420 1,245
tangible assets 0 498
Total 52,437 84,223

The assets shown in the tables above represent tangible and intangible fixed assets reported within the following balance sheet lines:

(CZK thousand) 31 December 2010 31 December 2009
Intangible assets (line 2) 38,221 66,184
Tangible movable assets (line 29) 14,216 18,039
Total 52,437 84,223

Depreciation of fixed assets charged to expenses for the year ended 31 December 2010 amounted to CZK 39,550 thousand (2009: CZK 37,221 thousand). In 2010, principal additions to tangible depreciated assets included the purchase of cars (CZK 1,920 thousand) and hardware (CZK 1,911 thousand).

As for amortised intangible assets, the most significant item was the purchase of the new software (Prezentace 2, Auto SYS, etc.) (CZK 2,116 thousand). Disposals of depreciated tangible assets predominantly included the retirement of small office devices (CZK 1,975 thousand) and the sale of cars (CZK 2,440 thousand).

3.2. Financial Placements

Fair Value of Financial Placements

Group of assets (CZK thousand) 31 December 2010 31 December 2009
Debt securities issued by an EU member state or its central bank 11,112,225 7,376,466
Debt securities issued by banks of EU member states 4,069,655 3,562,754
Listed bonds issued by EU businesses 2,571,061 1,795,032
Listed municipal bonds 194,423 198,252
Listed debt securities issued by banks and trading companies of non-EU member states 500,094 491,228
Debt securities issued by EIB, ECB, EBRD or IBRD 0 0
Provision against securities 0 0
Total fixed income securities 18,447,458 13,423,732
Shares 145,559 124,580
Deposits with banks 440,048 123,000
Other financial placements – Cross Currency Swap −116,593 −112,675
Total securities and deposits 18,916,472 13,558,637

The financial placement of assets originated from the Company’s technical reserves complies with the requirements set out in respect of the structure of financial placements by the Insurance Act and Decree No. 434/2009 Coll., which provides implementation guidance on the Insurance Act.

More than 52 percent (2009: 55 percent) of financial placements are allocated to government bonds issued by the Czech Republic. Financial placements have also been allocated to debt securities issued by banks, bonds issued by businesses (registered both in the Czech Republic and abroad), municipal bonds, shares and bank deposits.

Investments in shares represent an additional instrument added to the portfolio at the beginning of 2007. The limit for these investments is 1 percent of the total volume of the portfolio. At the end of 2010, the volume of stock investments amounted only to 0.76 percent (2009: 0.89 percent).

In 2010, in addition to the bonds denominated in CZK (acquisition cost of CZK 5 billion), other eight bonds denominated in EUR and USD were purchased and included in the investment portfolio at the total acquisition cost of EUR 104 million and USD 19 million (an equivalent to CZK 3 billion). The future foreign currency cash flows from these investments were hedged against the currency risk by the retranslation of cash flows from the foreign-currency bonds to Czech crowns at a previously stipulated exchange rate using the cross-currency swaps. The foreign-currency bonds were purchased because of their higher yield offered by issuers on the European financial market compared to the domestic market.

KP portfolio investments

KP portfolio investments

3.3. Receivables

Analysis of receivables

(CZK thousand) 31 December 2010 31 December 2009
Receivables from direct insurance from policy holders 123,393 193,502
Receivables from agents (brokers) 0 0
Amounts due from reinsurance transactions 6,249 6,350
Other receivables from direct insurance and reinsurance 11,034 22,504
Total receivables from direct insurance and reinsurance 140,676 222,356
Operating prepayments 43,185 59,579
Other debtors 262,228 280,202
Amounts due from employees 7 17
Prepaid income tax 0 0
Total receivables 446,096 562,154

As of 31 December 2010, other receivables from direct insurance and reinsurance arise from the delay between the transfer of insurance claim payments through the client payment check system and their settlement (i.e. the settlement of receivables against the related account payables to the policy holders).

As of 31 December 2010, operating prepayments totalling CZK 43,185 thousand (2009: CZK 59,579 thousand) primarily included prepayments for the share in the profit of collective contracts of CZK 33,439 thousand (2009: CZK 49,818 thousand), a prepayment of CZK 1,701 thousand provided to AXA ASSISTANCE (2009: CZK 1,715 thousand) and a rental guarantee payment of CZK 7,348 thousand (2009: CZK 7,478 thousand).

As of 31 December 2010, other debtors primarily consist of the receivables from the outstanding principal and the coupon of the security amounting
to CZK 258,125 thousand (2009: CZK 258,125 thousand).

Aging Analysis of Receivables from Direct Insurance for Policy Holders:

(CZK thousand) Months past due date 2010
0-3 4-6 7-12 Over 12 Total
Industry and business 0 0 84 26,903 26,987
Merlin, Merlin Profi 83 494 4,345 0 4,922
Patron, Patron Profi 2,434 49 159 819 3,461
Other non-life products 486 56 160 755 1,457
Vital Invest 6,182 112 149 722 7,165
Vital 9,197 1,002 1,016 4,376 15,591
Other life insurance products 15,318 23,613 5,326 19,553 63,810
Total 33,700 25,326 11,239 53,128 123,393
(CZK thousand) Months past due date 2009
0-3 4-6 7-12 over 12 Total
Industry and business 0 0 84 26,976 27,060
Merlin, Merlin Profi 68 865 11 0 944
Patron, Patron-Profi 3,089 2,622 161 545 6,417
Other non-life products 328 49 141 1,343 1,861
Vital Invest 61,790 751 929 645 64,115
Vital 18,317 4,377 3,147 10,891 36,732
Other life insurance products 30,879 11,491 2,196 11,807 56,373
Total 114,471 20,155 6,669 52,207 193,502

Provisions against Receivables from Direct Insurance

(CZK thousand) Months past due date 2010
0-3 4-6 7-12 Over 12 Total
Industry and business 0 0 84 26,903 26,987
Merlin, Merlin Profi 0 0 0 0 0
Patron, Patron-Profi 0 10 80 819 909
Other non-life products 0 49 156 756 961
Vital Invest 0 107 142 721 970
Vital 0 918 1,009 4,376 6,303
Other life insurance products 0 1,129 2,301 19,553 22,983
Total 0 2,213 3,772 53,128 59,113
(CZK thousand) Months past due date 2009
0-3 4-6 7-12 Over 12 Total
Industry and business 0 0 84 26,976 27,060
Merlin, Merlin Profi 0 0 0 0 0
Patron, Patron-Profi 0 16 80 545 641
Other non-life products 0 42 139 1,343 1,524
Vital Invest 47,165 574 730 507 48,976
Vital 3,704 1,487 1,371 7,654 14,216
Other life insurance products 0 1,070 1,987 11,807 14,864
Total 50,869 3,189 4,391 48,832 107,281

In addition to the provisions against receivables from policy holders, the Company also recognised provisions against other receivables.

As of 31 December 2010, a provision for the principal and 2 coupons of the Landsbanki bond 4.40/09 in the amount of CZK 239,360 thousand (2009: CZK 239,360 thousand) was recognised in respect of other receivables.

Receivables Arising from Reinsurance Transactions

The amount of receivables arising from reinsurance transactions is CZK 6,249 thousand (2009: CZK 6,350 thousand). Receivables predominantly include unsettled shares of the reinsurer in insurance claims and unsettled commissions from the reinsurer.

3.4. Cash and Cash Equivalents

Year (CZK thousand) 2010 2009
Current accounts 5,292 4,016
Cash on hand 48 76
Cash equivalents 469 397
Provision against UB −67 −77
Total 5,742 4,412

The Company recognised a full provision against its current account maintained with Union banka, amounting to CZK 96 thousand in 2003. In 2004 and 2010 this outstanding receivable was partly settled by the amount of CZK 29 thousand. The underlying provision was reduced by the same amount. The Company will record the provision until the liquidation of Union banka is completed.

3.5. Temporary Assets

Analysis of temporary assets

(CZK thousand) 31 December 2010 31 December 2009
Deferred acquisition costs 12,381 7,601
of which: Non-life insurance commissions 11,218 7,557
of which: Life insurance commissions 1,162 44
Other deferred expenses 3,281 3,308
Accrued income 8 12
Estimated receivables 37,552 48,450
of which: Premiums 31,025 39,701
Reinsurer´s commission and share in claims 3,199 8,394
Other 3,328 355
Total 53,222 59,370

The balance of estimated premium receivables as of 31 December 2010 in the amount of CZK 31,025 thousand (2009: CZK 39,701 thousand) represents premiums under policies that have been entered into but not recorded in the operating system by the closing date.

The balance of estimated receivables from the reinsurer’s commission and share of reinsurer as of 31 December 2010 of CZK 3,199 thousand (2009: CZK 8,394 thousand) results from the settlement of reinsurance balances mainly for the last quarter of 2010.

For further details about reinsurance balances refer to Note 3.25.

3.6. Equity

(CZK thousand) 31 December 2010 31 December 2009
Share capital 904,152 602,768
Other capital funds 101,609 83,680
– valuation gains and losses of securities 125,444 103,307
– deferred tax −23,834 −19,628
Statutory reserve fund 32,985 29,398
Other funds (Loss Prevention Fund) 0 0
Retained earnings 204,429 437,665
Accumulated losses brought forward 0 0
Profit/(loss) for the period 139,116 71,736
Total 1,382,292 1,225,247

3.7. Technical Reserves

Name of reserve (CZK thousand) 31 December 2010 31 December 2009
Gross balance Reins. share Net balance Net balance
Life insurance reserve 16,363,107 0 16,363,107 11,342,163
Life insurance reserve where the investment risk is assumed by the policy holder 2,530,139 0 2,530,139 582,360
of which:  
Vital Invest 2,530,139 0 2,530,139 582,360
IBNR reserve 96,176 6,156 90,020 87,535
of which:  
Non-life insurance 70,956 5,675 65,281 62,106
PpaP (industrial and business insurance) 0 0 0 0
P&C (property and casualty insurance) 921 424 497 495
Card insurance 33,609 5,251 28,358 19,920
Merlin, Merlin Profi 786 0 786 2,972
Patron, Patron Profi 2,300 0 2,300 3,501
Other non-life insurance 33,340 0 33,340 35,218
Life insurance 25,220 481 24,739 25,429
Vital 201 0 201 420
Mortgages 9,791 0 9,791 9,188
Insurance of consumer loans and credit cards 13,095 0 13,095 11,097
Other life insurance 2,134 481 1,652 4,724
RBNS reserve 327,343 82,321 245,022 380,239
of which:  
Non-life insurance 197,180 81,664 115,516 113,334
PpaP (industrial and business insurance) 135,971 65,159 70,813 70,979
P&C (property and casualty insurance) 2,502 1,400 1,102 1,334
Card insurance 53,474 15,105 38,368 34,733
Merlin, Merlin Profi 2,254 0 2,254 3,746
Patron, Patron Profi 2,448 0 2,448 2,249
Other non-life insurance 531 0 531 293
Life insurance 130,163 657 129,507 266,905
Vital 95,228 0 95,228 240,011
Mortgages 7,876 −71 7,947 758
Insurance of consumer loans and credit cards 9,238 0 9,238 8,316
Other life insurance 17,821 727 17,094 17,820
Reserve for bonuses and discounts 355,694 0 355,694 178,701
of which:  
Non-life insurance 865 0 865 5,957
PpaP (industrial and business insurance) 0 0 0 4,991
P&C (property and casualty insurance) 865 0 865 966
Life insurance 354,829 0 354,829 172,744
Vital 74,829 0 74,829 50,989
Vital Invest 0 0 0 3,879
Other life insurance 280,000 0 280,000 117,876
Equalisation reserve 0 0 0 39,435
P&C (property and casualty insurance) 0 0 0 373
Card insurance 0 0 0 15,705
Merlin, Merlin Profi 0 0 0 14,491
Patron, Patron Profi 0 0 0 5,645
Other non-life insurance 0 0 0 3,221
Reserve for unearned premiums 44,052 295 43,757 34,838
of which:  
Non-life insurance 26,563 164 26,398 21,634
P&C (property and casualty insurance) 491 164 327 88
Card insurance 0 0 0 0
Patron, Patron Profi 18,527 0 18,527 19,893
Other non-life insurance 7,544 0 7,544 1,653
Life insurance 17,489 131 17,358 13,204
Vital Invest 1,326 0 1,326 947
Vital 646 0 646 718
Mortgages 2,051 0 2,051 1,936
Other life insurance 13,465 131 13,335 9,603
Reserve for the coverage of obligations from the used TIR 247,625 0 247,625 187,291
Vital 240,900 0 240,900 183,558
Life insurance 6,725 0 6,725 3,733

3.8. Result of Non-Life Insurance Claims Settlement – Run-Off Analysis (Net)

(CZK thousand) 2010 2009
Balance of the reserve for claims as of 1 January 145,222 135,733
Claims paid in the current period arising from claims from the prior period 14,210 25,427
Balance of the reserve for claims as of 31 December 104,568 102,391
Result of claims settlement 26,443 21,093


3.9. Result of Life Insurance Claims Settlement – Run-off Analysis (Net)

(CZK thousand) 2010 2009
Balance of the reserve for claims as of 1 January 2,356 2,540
Claims paid in the current period arising from claims from the prior period 659 629
Balance of the reserve for claims as of 31 December 1,084 1,491
Result of claims settlement 613 420

The run-off analysis (net) of life insurance products is presented for accident riders. The run-off in respect of insurance capital products is neutral.

3.10. Reserve for Other Risks and Losses

(CZK thousand) 31 December 2010 31 December 2009
Reserve for legal disputes and similar risks 13,065 12,114
Restructuring reserve 7,500 7,500
Total reserve for other risks and losses 20,565 19,614

The reserve for legal disputes and similar risks represents a reserve for estimated losses from pending litigations and other estimated losses on transactions entered into by the year-end, specifically in relation to industrial and business insurance. Based on all information available, management of the Company established and updated this reserve as an appropriately prudent estimate of the ultimate balance of costs associated with the matters referred to above.

As of 31 December 2010, the balance of the reserve for legal disputes and similar risks was CZK 13,065 thousand (2009: CZK 12,114 thousand). The increase in the reserve in 2009 predominantly includes the recognition of the reserve for audit fees, internal IT audit, annual client letters and annual report in the amount of CZK 4,454 thousand (2009: CZK 3,505 thousand).

The balance of the restructuring reserve as of 31 December 2010 was the same as o1 December 2009. During the reporting period, the reserve was not released in relation to the sales network agent settlement.

3.11. Payables

(CZK thousand) 31 December 2010 31 December 2009
Payables from direct insurance to the policy holders 102,204 172,972
Payables to agents 8 76
Payables from reinsurance transactions 1,986 4,885
Other payables from direct insurance and reinsurance 0 1,429
Total payables from direct insurance and reinsurance 104,198 179,362
Payables to staff from dependent activities 7,142 7,149
Settlement balances with social security and health insurance institutions 4,141 3,605
Payables to financial institutions 0 0
Other payables 18,132 9,168
Other direct taxes 2,570 1,994
Other indirect taxes and fees 1,955 48
Total payables 138,138 201,326

None of the Company’s payables were secured by a pledge or any other encumbrance as of 31 December 2010.

As of 31 December 2010, the Company records overdue payables from direct insurance to the policy holders (older than 5 years, in the amount of CZK 9,447 thousand; 2009: CZK 7,202 thousand). These consist of unpaid claims and overpayments of premiums.

Other payables that do not relate to insurance predominantly include unpaid invoices (older than 5 years: CZK 0 thousand).

3.12. Temporary Liabilities

Analysis of Temporary Liabilities

(CZK thousand) 31 December 2010 31 December 2009
Deferred income 0 95
Estimated payables 283,856 219,933
of which: Reinsurer’s share in premiums 3,674 6,370
Commissions to acquirers 215,730 148,557
Insurance claims 604 1,039
Other 63,848 63,967
Total temporary liabilities 283,856 220,028

Estimated commissions payables to acquirers of CZK 215,730 thousand (2009: CZK 148,557 thousand) represent an estimate of unpaid commissions for the acquisition of insurance policies. This balance predominantly consists of commissions not paid to ESSOX amounting to CZK 65,699 thousand (2009: CZK 60,999 thousand) and commissions not paid to Komerční banka, a.s., in the total amount CZK 102,259 thousand (2009: CZK 68,063 thousand).

Other temporary liabilities of CZK 63,847 thousand (2009: CZK 63,967 thousand) principally comprise unbilled supplies of CZK 55,241 thousand (2009: CZK 54,882 thousand) and costs of staff bonuses for 2010 amounting to CZK 7,928 thousand (2009: CZK 7,624 thousand).

3.13. Taxation

Due Income Tax

In the 2010 fiscal year, the Company utilised the accumulated losses carried forward and the due tax arising from the stand-alone tax base amounts to CZK 1,123 thousand.

Deferred Tax

The Company’s deferred tax liability amounted to CZK 1,648 thousand as of 31 December 2010, of which CZK 16,835 thousand were recognised in equity and CZK (18,483) thousand in the profit and loss account in 2010.

Deferred tax arising from (CZK thousand): 31 December 2010 31 December 2009
Net book value of tangible and intangible fixed assets 11,361 7,389
Non-current financial assets −23,834 −19,628
Tax loss of previous years 10,825 33,280
Reserve 0 0
Total deferred tax −1,648 21,041

3.14. Non-Life Insurance

(CZK thousand) 2010 2009
Gross written premiums 292,379 266,237
PpaP (industrial and business insurance) 83 8,081
P&C (property and casualty insurance) 1,957 2,202
Card insurance 93,297 62,301
Merlin, Merlin Profi 134,137 131,182
Patron, Patron Profi 41,215 44,959
Other non-life insurance 21,690 17,512
Gross earned premiums 287,554 315,591
PpaP (industrial and business insurance) −141 8,081
P&C (property and casualty insurance) 2,003 3,246
Card insurance 93,298 109,589
Merlin, Merlin Profi 131,047 131,137
Patron, Patron Profi 42,581 46,469
Other non-life insurance 18,766 17,069
Gross costs of insurance claims 38,609 72,710
PpaP (industrial and business insurance) 657 2,762
P&C (property and casualty insurance) 3,241 3,636
Card insurance 26,114 47,856
Merlin, Merlin Profi 3,874 13,011
Patron, Patron Profi 2,580 3,470
Other non-life insurance 2,143 1,975
Reinsurance balance −3,106 9,892
Acquisition costs of insurance policies 73,871 85,050
– commissions 72,730 80,636
– other acquisition costs 4,197 3,848
– release of deferred expenses and accrued income 0 0
– recognition of deferred expenses and accrued income −3,056 566

3.15. Life insurance

(CZK thousand) 2010 2009
Gross written premiums 8,689,260 4,558,373
Earned premiums 8,685,273 4,558,495
Gross costs of insurance claims 1,782,406 2,212,509
Reinsurance balance −5,944 −8,333
Acquisition costs of insurance policies 183,828 87,533
– commissions 175,576 80,867
– other acquisition costs 9,370 6,744
– deferred expenses and accrued income −1,118 −78

Summary of life insurance, written premiums

(CZK thousand) 2010 2009
Individual contracts 8,488,822 4,360,785
of which: insurance contracts where the investment risk is assumed by the policy holder 3,782,373 1,635,773
Collective contracts 200,438 197,588
Life insurance – total 8,689,260 4,558,373
Single premiums 7,835,291 3,673,983
of which: insurance contracts where the investment risk is assumed by the policy holder 3,724,856 1,538,063
Regular premiums 853,969 884,390
of which: insurance contracts where the investment risk is assumed by the policy holder 57,517 33,957
Life insurance – total 8,689,260 4,558,373
Insurance contracts without premium 0 0
Insurance contracts with premium 8,689,260 4,558,373
of which: insurance contracts where the investment risk is assumed by the policy holder 3,782,373 1,635,773
Life insurance – total 8,689,260 4,558,373

In 2010, the Company reported a significant increase in written premiums amounting to CZK 8,981,639 thousand (for life and non-life insurance; 2009: CZK 4,824,610 thousand).

This increase principally relates to Vital Premium of CZK 3,756,178 thousand (2009: CZK 1,723,032 thousand) and Vital Invest of CZK 3,847,370 thousand (2009: CZK 1,635,773 thousand), both are life insurance products.

3.16. Territorial Analysis of Total Premiums Written

The Company entered into insurance contracts in the Czech Republic, Slovakia, Bulgaria, Romania and Germany.

Written premiums arise from contracts into which the Company entered (CZK thousand): 2010 2009
in the EU member state where it has its registered office 8,968,273 4,821,851
in other EU member states 13,366 2,759
Total premiums written 8,981,639 4,824,610

3.17. Summary of Commissions

For the year ended 31 December 2010, the aggregate balance of commissions in respect of direct insurance was CZK 248,306 thousand (2009: CZK 161,501 thousand) and was segmented as follows:

(CZK thousand) Life insurance Non-life insurance
Year 2010 2009 2010 2009
Expenses on commissions 175,576 80,867 72,730 80,636

Commissions in 2010 were predominantly billed by Komerční banka, a.s., in the amount of CZK 228,477 thousand (2009: CZK 141,612 thousand) – cumulatively for both life and non-life insurance.

3.18. Financial Placements Income and Expense

For the year ended 31 December 2010, the net income on the Company’s financial placements amounted to CZK 710,985 thousand (2009: CZK 492,470 thousand), of which the net income from assets generated from technical reserves amounted to CZK 650,359 thousand (2009: CZK 444,481 thousand).

As discussed in Note 2.15, income and expense from financial placements are recorded primarily on the life insurance technical account during the reporting period. At the year-end, net financial income unrelated to life insurance is re-allocated to the non-technical accounts and subsequently re-allocated to the non-life insurance technical accounts. For the year ended 31 December 2010, this re-allocated balance was CZK 16,473 thousand (2009: CZK 13,304 thousand).

Year (CZK thousand) 2010 2009
Life insurance Non-life insurance Life insurance Non-life insurance
Year-end net balances of reserves 19,668,572 295,564 12,591,847 357,832
Income from reserves 633,886 16,473 431,178 13,304

3.19. Administrative Expenses

The total amount of administrative expenses was CZK 238,176 thousand in 2010 (2009: CZK 275,748 thousand). The administrative expenses are analysed as follows:

(CZK thousand) 2010 2009
Staff cost (wages, social security and health insurance) 120,881 114,998
Rent 18,268 20,544
Advisory services 6,825 47,394
Telecommunication 3,349 3,486
Training 3,677 2,671
Banking and postal fees 9,505 10,362
IT costs 15,962 18,745
Depreciation 38,190 37,221
Other administrative costs 21,521 20,327
Total 238,178 275,748

The costs of the audit of the financial statements amounted to CZK 1,706 thousand in 2010 (2009: CZK 1,523 thousand).

3.20. Other Technical Income and Expenses and Non-Technical Account

Other income from non-life insurance primarily includes the use of provisions against receivables in the amount of CZK 1,144 thousand (2009: CZK 1,247thousand).

Other technical expenses of non-life insurance amounting to CZK 43,363 thousand (2009: CZK 13,567 thousand) include the shares in profit from policies amounting to CZK 41,881 thousand (2009: CZK 6,713).

Other technical income of life insurance primarily includes the use of provisions in the amount of CZK 106,218 thousand (2009: CZK 56,049 thousand).

Other technical expenses of life insurance include balances relating to the charge for the shares in profit from policies in the amount of CZK 97,442 thousand
(2009: CZK 93,015 thousand).

Other income from the non-technical accounts amounted to CZK 6,159 thousand (2009: CZK 14,535 thousand), of which the principal balances involved foreign exchange rate gains of CZK 2,023 thousand (2009: CZK 11,280 thousand) and the release of the reserve for risks in the amount of CZK 1,656 thousand (2009: CZK 1,631 thousand).

Other costs of the non-technical accounts amounted to CZK 4,972 thousand (2009: CZK 19,958 thousand), of which the principal balances related to the charge for the reserve for outstanding vacation days in the amount of CZK 1,413 thousand (2009: CZK 1,628 thousand), the cost of audit, annual report and annual letters to clients in the amount of CZK 1,394 thousand (2009: CZK 3,505) and foreign exchange losses of CZK 1,360 thousand (2009: CZK 14,121 thousand).

3.21. Reallocation of Costs between Technical and Non-Technical Accounts

The aggregate balance of costs re-allocated between the life insurance technical accounts, the non-life insurance technical accounts and the non-technical accounts on the basis as disclosed in Note 2.16 was CZK 253,354 thousand (2009: CZK 278,681 thousand) as of 31 December 2010.

3.22. Transactions with Related Parties

2010 2009 Text
Amounts owed to the Group entities 276,343 150,693
of which: Komerční banka, a.s. 71,473 43,729 Estimated accrued expenses – Profit sharing
12,171 1,741 Billed commissions for insurance arrangement
71,380 42,452 Estimated accrued expenses – Commissions
1,020 0 Not billed trade payables
219 239 Bank fees
184 314 Trade payables
of which: Essox, s.r.o. 64,822 59,482 Estimated accrued expenses – Profit sharing
208 12 Billed commissions for insurance arrangement
of which: Essox SK, s.r.o. 877 1,517 Estimated accrued expenses – Profit sharing
of which: MPSS 2,010 1,207 Estimated accrued expenses – Commissions
of which: IKS 636 0 Not billed trade payables
635 0 Trade payables
of which: SG 6,056 0 Not billed trade payables
of which: Sogecap 41,533 0 Not billed trade payables
of which: SGEB 369 0 Estimated accrued expenses – Profit sharing
553 0 Estimated accrued expenses – Commissions
of which: BRD 1,854 0 Estimated accrued expenses – Commissions
of which: BRD Finance 1 0 Estimated accrued expenses – Profit sharing
342 0 Estimated accrued expenses – Commissions
Amounts due from the Group entities 567,586 261,235
of which: Komerční banka, a.s. 441,919 125,580 Current accounts and deposits
6,715 7,206 Accrued commissions
19,762 30,970 Estimated accrued income – premiums
8,415 24,483 Receivables from insurance
23 22 Prepayments
8 8 Trade receivables
of which: Essox, s.r.o. 31,819 48,198 Prepayments
37,590 15,357 Receivables from insurance
9,066 7,842 Estimated accrued income – premiums
333 243 Accrued commissions
of which: IKS, a.s. 50 56 Commissions for purchase of participation certificates
of which: SG 3,838 682 Trade receivables
of which: Komerční banka Bratislava, a.s. 711 588 Current accounts and deposits
of which: BRD 1,614 0 Accrued commissions
1,068 0 Estimated accrued income – premiums
345 0 Current accounts and deposits
of which: BRD Finance 396 0 Accrued commissions
141 0 Estimated accrued income – premiums
of which: SGEB 1,177 0 Accrued commissions
597 0 Estimated accrued income – premiums
1,999 0 Current accounts and deposits
Expenses with the Group entities 408,409 255,136
of which: Komerční banka, a.s. 72,191 31,643 Expenses on profit sharing
10,294 6,530 Use of trademark + advertising
3,445 3,795 Bank fees
491 0 Accrued commissions
2,648 2,651 Offices lease related expenses
4,484 2,097 Financial investment related expenses
228,477 141,612 Commissions
87 97 Forms
133 0 Consultancy
of which: IKS, a.s. 6,914 0 Consultancy
of which: SG 5,674 0 Consultancy
of which: Komerční banka Bratislava, a.s. 11 11 Bank fees
of which: Essox, s.r.o. 64,250 60,021 Expenses on profit sharing
of which: Essox SK, s.r.o. 919 1,422 Expenses on profit sharing
of which: MPSS 6,378 5,257 Commission
of which: BRD 2 0 Bank fees
172 0 Commission
of which: BRD Finance 1 0 Expenses on profit sharing
109 0 Commission
of which: SGEB 7 0 Bank fees
369 0 Expenses on profit sharing
1,353 0 Commission
Income with the Group entities 461,981 299,936
of which: Komerční banka, a.s. 3,975 292 Interest from current accounts and deposits
352,363 213,309 Written premiums
of which: Essox, s.r.o. 91,174 84,562 Written premiums
of which: Essox SK, s.r.o. 1,069 1,773 Written premiums
of which: MPSS 5,258 0 Written premiums
of which: BRD 2,331 0 Written premiums
of which: BRD Finance 637 0 Written premiums
of which: SGEB 5,047 0 Written premiums
of which: Sogecap 127 0 Consultancy

3.23. Profit/(Loss)

(CZK thousand) 2010 2009
Non-life insurance 143,444 109,665
Life insurance −46,504 −19,640
Non-technical account (before tax) 42,208 −18,254
Profit/(loss) before tax 139,148 71,771
Other taxes 32 −35
Profit/(loss) for the accounting period 139,116 71,736

3.24. Staff Costs and Similar Costs

Staff and similar costs paid by the Company were as follows:

2010
(CZK thousand) Average recalculated headcount Wages and salaries Social security and health insurance Other staff costs Total staff costs
Staff 144 74,097 24,978 2,087 101,162
Management 5 16,573 2,902 244 19,719
Total 149 90,670 27,880 2,331 120,881
2009
(CZK thousand) Average recalculated headcount Wages and salaries Social security and health insurance Other staff costs Total staff costs
Staff 146 69,612 22,967 1,953 94,532
Management 5 15,236 1,922 215 17,373
Total 151 84,848 24,889 2,168 111,905

Bonuses paid to administrative, management, supervisory and other bodies

(CZK thousand) 2010 2009
Bonuses to the Supervisory Board 31 24
Bonuses to the Board of Directors 1,117 1,117

As of 31 December 2010, thirteen employees of the Company have been provided with business cars for both business and private purposes. The Company has provided no other advances, borrowings or loans to the members of its statutory, executive and supervisory bodies in addition to this benefit.

3.25. Reinsurance

The aggregate reinsurance result

(CZK thousand) 2010 2009
Reinsurer’s share of premiums −18,941 −18,221
Reinsurer’s share of insurance claims 7,771 18,118
Commissions 2,120 1,662
Reinsurance balance −9,050 1,559
Reinsurer’s share in the creation and use of reserves −28,342 4,536
Reinsurance result −37,392 6,095

The amounts due from and to reinsurers

(CZK thousand) 31 December 2010 31 December 2009
Receivable from reinsurers 6,249 6,350
Estimated receivable 3,199 8,394
Payable to reinsurers −1,986 −6,314
Estimated payable −3,674 −6,371
Net receivable (payable) from reinsurers 3,788 2,059

4. Off-Balance Sheet Commitments

The Company is not aware of any off-balance sheet commitments.

5. Post Balance Sheet Events

At the financial statements date, management of the Company is not aware of any events that would require adjustment of the Company’s financial statements.