104 Chap. 3 CONSOLIDATED FINANCIAL STATEMENTS NOTES 5 Management of underwriting and building-society risks as well as financial risks The focus of the business activities of the AMB Generali Group is the distribution and management of insurance products in all established classes of life and health insur- ance as well as property and casualty insurance, primarily in direct business. Assumed reinsurance business is written to a very limited extent only. In addition, our Group operates in building-society business and as a provider of financial services. Within the scope of these activities the Group assumes in particular underwriting and investment risks. The Group encounters these risks with a variety of measures. The underwriting risk lies in the possibility that payment flows which are material for insurance business may differ from the level expected. While premiums are collected at the beginning of an insurance term, the claims and benefits contractually agreed, which often ­ such as in life insurance ­ have to be paid over a long period of time, are of a stochastic nature and thus involve risks. These risks include the risks of change, error and fortuity: · The risk of change consists in future changes of risk factors. It involves the danger of a difference between the actual experience and the calculated level expected of claims and benefits. · The risk of error exists above all for new types of insurance cover when established findings about the exposure involved are not yet available. · The fortuity risk describes the possible deviations of claims and benefits from the estimated amount expected because fortuitously there may be a particularly high/ low number of insurance claims and/or because fortuitously there may be individual claims and benefits of a particularly high/low amount (fortuitous fluctuations). The smaller the insurance portfolio, the higher the fortuity risk. The building-society risks of Deutsche Bausparkasse Badenia comprise the risks resulting from an erroneous assessment of future developments (interest, customer behaviour). In particular, these risks also include the consequential risks of a negative development of new business. Investment risks are composed of market, currency and concentration risks which may generate losses as a result of adverse changes of market prices or factors influenc- ing the price ­ such as changes of interest rates, share prices or currency fluctuations ­ or due to an insufficient diversification in the portfolio. In addition, credit risks and liquidity risks have to be observed. Interest-bearing investments are both subject to the risk of interest change and to the cash-flow risk. Risks of property and casualty insurance business and sensitivity analysis The underwriting risk consists in the fact that covers are granted for possible claims the occurrence and amount of which are uncertain. In addition, the insurer may experience an unfavourable concentration of claims at one location. Examples for this are events leading to a large amount of claims expenditure as a result of adverse natural events, such as storms or floods. The property and casualty insurers of our Group encounter these risks by making active use of the instruments of premium differentiation and underwriting policy. Basically this means that for risks with a tendency of a higher risk exposure a correspondingly