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Investments are mixed, i.e. of different types, and have a broad geograph- ical spread. Exchange rate risks are reduced by ensuring congruent cover: wherever possible, liabilities in a particular currency are covered by counter-items in the same currency.

Insolvency risk is defined as the risk of sustaining a loss or being unable to realize a profit due to the financial failure of an issuer or contract- ing partner.

For fixed-interest securities and loans, monitoring the solvency of debtors is a continuous process. One important aspect considered by portfolio managers making investment decisions is the rating accorded by external rating agencies, such as Standard & Poor’s or Moody’s. Investment in assets with a high risk/opportunity profile is also admis- sible to a limited extent.

Liquidity risk is the risk of not being able to meet payment obligations – especially obligations arising from insurance policies – because of time lags between incoming and outgoing cash flows.

Our operative cash management system calls for liquidity plans to be drawn up at regular intervals for all the companies of the Gerling Group as a means of monitoring current liquidity. These liquidity plans are updated each month and adjusted as required.

Operational risks

Operational risks occur in connection with business systems or processes, predominantly as business process risks or legal risks. Business process risks may be rooted in human error, technical failure or external factors; legal risks result from contracts or underlying legal conditions.

For all processes, mandatory security standards are in place to reduce business process risks. These standards are considered a minimum requirement for ensuring smooth business operations. One important element of security is the Internal Monitoring System, comprising the whole catalogue of finely attuned checks, measures and rules. Effi- cient and secure data processing is a matter of primary importance for our operational processes. From conception to implementation, major information technology projects are closely supervised by a central staff department of the Gerling holding company and the top manage- ment itself.

Legal risks which extend beyond the day-to-day business of the individual insurance companies are managed centrally by a staff unit reporting directly to the executive board chairman of the Gerling holding company.

Gerling-Konzern Globale Rückversicherungs-AG/Management Report 59

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