Annual Report

for 2021

This document is a translation of the original Croatian version and is intended to be used for informational purposes only. While every effort has been made to ensure the accuracy and completeness of the translation, please note that the Croatian original is binding.

Note: The report in PDF format is an unofficial report, while the official version of the annual report, in accordance with the Capital Market Act, has been prepared and publicly available in accordance with the unique electronic reporting format (ESEF - European Single Electronic Format).

Contents

Management Report for 2021…………..……………………………………………………………………..……………………..…3

Corporate Governance Statement………………………….……………………………………………………………………..…12

Consolidated and separate financial statements for 2021………………………..…………….…………………….….18

Statements prescribed by the Ordinance of the Croatian Financial Services Supervisory Agency.…..176

CROATIA osiguranje d.d.

Management Report for 2021

Insurance market of the Republic of Croatia in 2021

During 2021 the insurance market of the Republic of Croatia has recorded gross written premium increase of 10.9 percent (HRK 1.2 bn). On the market of the Republic of Croatia (including EU-based companies operating in the Republic of Croatia directly or through its subsidiaries), the increase in premiums amounted to 8.9 percent or HRK 893m and an increase is recorded in both segments. Premiums recorded in EU-based market, where operates nine insurance companies including CROATIA osiguranje d.d., recorded an increase by 41.7 percent or HRK 271m.

The total life insurance premium on the market of the Republic of Croatia in 2021 amounted to HRK 2.9 bn, which is 8.2 percent or HRK 222m higher than in the previous year. Classic life products premium increased by HRK 130m compared to the previous year, while insurance premium where the policyholder bears the investment risk has increased (UL products) by HRK 92m.

The total non-life insurance premium on the market of the Republic of Croatia in 2021 amounted to HRK 8.0 billion, which is an increase by 9.2 percent or HRK 672m compared to the previous year. Motor vehicles insurance (liability insurance, casco insurance and automobile assistance) increased by 6 percent compared to the previous year, property insurance increased by 13 percent, health insurance increased by 11 percent, while transport insurance premium increased by 8%. The most significant increase is achieved by loan insurance, as much as 39%, therefore the total premium exceeded the premium realized in 2019 (before the corona crisis). The decrease of premium is recorded only in accident insurance, by 1 percent.

CROATIA osiguranje d.d., Jagićeva 33, Zagreb (hereinafter: the Company), is still the leading company in the Republic of Croatia with a total market share of 25.7 percent, which is 0.9 percentage points lower than in the previous year.

Operating results and financial position of the Company and the Group

Company

CROATIA osiguranje d.d. with a market share of 25.7% continues to hold the leading market position on the Croatian insurance market, despite the decrease in market share by 0.9 percentage points. The decrease in market share was expected because the one of the major generators of market growth is the loan insurance premium in which CROATIA osiguranje d.d. participates in a significantly lower volume than in previous years.

Positive influence, through growth of the technical results, on CROATIA osiguranje d.d.'s operations in 2021 had an absence of the costs of the earthquake and the decision of the Supreme Court of the Republic of Croatia to increase orientation criteria and the amount of immaterial damages, which influenced the business in the previous year. The result was strengthened by a better investment result achieved through higher income from shares and investment funds.

As a market and digital leader, CROATIA osiguranje d.d. is currently investing more than HRK 200 million in digitalization and development of new products. In 2021, preparations for the major projects, as the euro introduction and changes in the accounting standard for insurance companies (IFRS 17), have intensified. The process of claims optimization, development of additional functionalities on the mobile application Moja Croatia, development of new services on the Company’s website and further strong support to Laqo osiguranje - the first Croatian 100 percent digital insurance, were continued.

In cooperation with Swiss RE, one of the largest reinsurers in the world, Croatia osiguranje d.d. launched the first crop insurance product against lack of soil moisture (drought). It is an index insurance that, as one of the most modern products of its kind on the market, uses advanced technology for measuring soil moisture via satellite, and the payment of damages takes place automatically, without the need for an appraiser to go to the field.

In cooperation with the global IT company Liferay, the development and implementation of an innovative digital platform for sales representatives (advanced agency portal) was launched, which will improve the user experience and increase the quality of customer service. A specialist postgraduate study Products, Digital Innovations and Technologies in Insurance (Insurtech), developed in cooperation with the Faculty of Electrical Engineering and Computing in Zagreb, continues with work.

CROATIA osiguranje d.d. has been going through a transformation process since the privatization in 2014. At the beginning, a financial restructuring was performed with a share capital increase amounting to HRK 840m, thus reaching a strong capital adequacy for the year 2021 of 272 percent for the Company. The organisational restructuring began in a situation where only about 23 percent of employees were in sales and by the end of 2021, this share increased to 62 percent in sales services. The process continues, so that in the coming years there will be 70 percent of those who work in sales services and are directly oriented to clients and the market.

The restructuring results are visible in the financial results. In 2021, CROATIA osiguranje d.d. reported profit before tax in the amount of HRK 392.6m (profit after tax of HRK 334.1m).

The total gross written premium (before adjustments for the net increase in the provision for premium receivables and related write-offs) increased by 5.6 percent and amounted to HRK 2,896m. Earned premiums amounted to HRK 2,599m and increased by 4.0 percent. The written premium in non-life insurance amounted to HRK 2,452m, which is an increase of 7.1 percent compared to the same period last year.

The largest nominal increase of premium is recorded in property insurance and insurance of various financial losses due to increased awareness of the need for earthquake insurance and insurance of financial losses due to work interruption, while the largest decrease of premium is recorded in life insurance.

From the non-life and life insurance investments, finance net result was realised in the amount of HRK 303m, which is an increase by 12.5 percent compared to the previous year.

Gross paid claims amounted to HRK 1,828m representing an increase of 6 percent compared to the previous year.

Total administrative costs amounted to HRK 396m, recording an increase of 1.7 percent compared to 2020. Acquisition costs amounted to HRK 534m, recording an increase of 11.8 percent compared to the previous year. Higher costs are result of higher service costs influenced by implementation of new regulative and business digitalization.

The following is a summary of key business indicators which the Company monitors as alternative performance indicators which together with other measures defined by International Financial Reporting Standards provide useful information regarding the Company's operational performance.

They are calculated based on HANFA reports, but according to the formulas shown below:

* Claims ratio = (Income from commissions and fees + Other insurance-technical income + Net claims incurred + Change in mathematical provisions and other technical provisions + Cost for premium returns + Other technical expenses) / Net Earned premiums

** Cost ratio = Acquisition costs and administrative expenses / Net Earned premiums

The combined ratio represents a sum of claims and cost ratio and is the most important financial operative performance indicator for non-life insurance. It is normally presented as percentage, and ratio below 100 percent indicates profitable insurance result, while result above 100 percent represents non-profitable result. Combined ratio amounted to 92.9 percent in 2021, which is an improvement of 2.4 percentage point compared to the same period of 2020. The claims ratio has decreased by 3.9 percentage points and amounted to 52.3 percent. The cost ratio amounted to 40.6 percent which is 1.5 percentage points higher than in 2020.

Total assets of the Company as at 31 December 2021 amounts to HRK 12.1 billion, which represents an increase of 4.7 percent compared to 31 December 2020.

Technical provisions amounted to HRK 6.9 billion and are 1.3 percent lower than the technical provisions as of 31 December 2020.

The structure of financial assets (HRK billion)

Group

In 2021, the CROATIA osiguranje d.d. group (hereinafter: the Group) generated consolidated profit after tax and non-controlling interest in the amount of HRK 363m.

In 2021, the total gross written premium (before adjustments for the net increase in the provision for premium receivables and related write-offs) at the Group level amounted to HRK 3,436m, which represents an increase by 6.0 percent. The gross written premium of non-life insurance amounted to HRK 2,895m which represents an increase by 7.7 percent, while gross written premium of life insurance amounted to HRK 541m which represents a decrease by 1.9 percent.

Earned premiums in the reporting period amounted to HRK 3,091m which represents an increase by 3.8 percent compared to the same period last year.

From the non-life and life insurance investments, the Group generated finance income in the amount of HRK 481m which represents a decrease of 3.6 percent, with a finance cost of HRK 154m which represents an increase of 3.7 percent.

Gross claims in 2021 amounted to HRK 2,081m, which is an increase of 6.5 percent compared to the same period last year.

Acquisition costs and administrative expenses amounted to a total of HRK 1,273m and represent an increase by 9.6 percent, in which administrative expenses increased by 5.1 percent, and acquisition cost increased by 14.2 percent. The increase in acquisition costs is primarily result of an increase in commission costs due to an increase in premiums and salaries of sales employees due to an increase in the number of the sales employees.

***Only members of the Group performing insurance and reinsurance activities were taken into consideration while calculating Group ratios.

Combined ratio for 2021 is 94.0 percent, which is an improvement of 1 percentage point compared to the same period in 2020. The claims ratio improved by 2.8 percentage points to 53.0 percent. The cost ratio is 41.0 percent or 1.8 percentage points higher than in 2020.

Total assets of the Group as at 31 December 2021 amount to HRK 14.0 billion, which represents an increase by 4.7 percent compared to 31 December 2020.

Technical provisions amounted to HRK 8.0 billion, which represents a decrease by 0.3 percent compared to the technical provisions as at 31 December 2020.

Significant business events in the reporting period

Approvals from the Croatian Financial Services Supervisory Agency to perform the functions of members of the Supervisory Board

The Governing Board of the Croatian Financial Services Supervisory Agency (HANFA) held a session on 14 July 2021 and issued a decision approving Željko Lovrinčević to perform the function of a member of the Supervisory Board of CROATIA osiguranje d.d. for a term starting from 20 September 2021 to 20 September 2025.

The Croatian Financial Services Supervisory Agency (HANFA), at its meeting of the Governing Board held on 7 October 2021, issued a resolution authorising Zoran Barac to act as a member of the Supervisory Board of CROATIA osiguranje d.d. for a term of 4 years, with the beginning of the term from the date of receipt of the decision of HANFA, ie from 11 October 2021.

Impact of the COVID-19 outbreak on the Company's operations

Due to the further course of the COVID-19 pandemic, the Group is continuously monitoring the situation and no significant negative impacts on the Group's operations have been identified in 2021, which is confirmed by the Group’s results and high solvency ratio of the Company of 272% and the Group of 227%. Despite this, Group continues to assess the possible effects of pandemic on its operations. Negative financial effects caused directly by the COVID-19 pandemic could occur in the event of a new deterioration of the epidemiological situation if it would cause re-closures and reduction of economic activities. In addition, there are risks indirectly caused or triggered by the COVID-19 pandemic. This primarily refers to supply chain disruptions that continue to have negative impact on certain segments of economic activities as well as occurrence of increased inflation, which in the event of prolonged retention could have negative effects on the Group’s operations if there is a significant decrease of consumer purchasing power. A negative impact could occur if there is a sharp increase in interest rates in financial markets, which could primarily be effected with the lower market valuations and decrease in value of financial instruments.

The mentioned effects of the pandemic impact could be realized in the future and therefore the Group will continue to have the special emphasis on monitoring the situation and taking timely measures to mitigate the potential negative consequences on its operations.

Significant events after the end of the reporting date

Approvals from the Croatian Financial Services Supervisory Agency to perform the functions of members of the Supervisory Board

In accordance with the Capital Market Act and the Rules of the Zagreb Stock Exchange, on 18 January 2022 CROATIA osiguranje held its General Assembly on which the Decision on the election of the members of the Supervisory Board CROATIA osiguranje d.d. was adopted. By the mentioned decision Roberto Škopac and Hrvoje Patajac were elected as members of the Supervisory Board of CROATIA osiguranje d.d. for a term of 4 years, starting from the 24 April 2022, subject to obtaining an approval to perform the function of a member of the Supervisory Board issued by the Croatian Financial Services Supervisory Agency. The Governing Board of the Croatian Financial Services Supervisory Agency (HANFA) held a session on 17 February 2022 and issued a decision approving Roberto Škopac and Hrvoje Patajac to perform the function of a member of the Supervisory Board of CROATIA osiguranje d.d. for a term starting from 24 April 2022 to 24 April 2026.

Employee representative to the Supervisory Board of CROATIA osiguranje d.d.

In March 2022, the Company held elections for the employee representative to the Supervisory Board of CROATIA osiguranje d.d. and for a member of the Supervisory Board of CROATIA osiguranje d.d. is elected employee Pero Kovačić from Zagreb, for a term of 4 years, starting from 10 March 2022.

The Russian-Ukrainian crisis

The ongoing military operation in Ukraine and the related sanctions targeted against the Russian Federation may have impact on the European economies and globally. The Group has no direct operations in insurance and reinsurance business with Russia and Ukraine (nor with reinsurance companies, brokers, MGA agencies, etc.). In addition, reinsurance contracts through the Sanction & Embargo clause exempt reinsurance transactions with states under any sanctions and the terms of insurance on the direct side exclude war damage. The Group has an exposure to insurance policyholders who are members of certain companies (related to entities from Russia) and does not expect a significant adverse effect on the ability to collect these receivables in the short term, ie. as a direct consequence of the war in Ukraine. In case of collection receivables inability, the Group can activate collateral instruments in the form of mortgage on real estate. The Group does not have direct business operations in Russia or Ukraine.  However, the Group’s certain investments are to some extent exposed to operations in Russia - investments in shares and investments in debt instruments of EU banking groups that have a slightly more exposed part of operations in Russia. These exposures are not material in terms of business threats and given the size of the total investment portfolio. The aforementioned indirect exposures may have a negative impact on the Group's results in the event of escalation, which cannot be precisely quantified due to uncertainty and market volatility. However, based on the internal analysis of the impact of the Russian-Ukrainian crisis, as well as the sanctions imposed on Russia, the Group expects to maintain financial stability and a further high level of solvency (SCR ratio). In addition, at the date of these financial statements the Group continues to meet its obligations as they fall due and therefore continues to apply the going concern basis of preparation.

This is also described in Note 34 Events after the balance sheet date of the Consolidated and separate financial statements for 2021.

Expected development in the future

Negative effects and trends are expected to increase in the future. In addition to the already present effect of delays in the delivery of new vehicles (waiting from six months to a year or more) due to the global problem in supply chains, there are also strong inflationary pressures. Rising prices of basic groceries, as well as energy prices (gas, oil) will reduce the amount of the household disposable income for essentials, which includes some insurance products such as voluntary insurance. The negative effects will be partially mitigated by the increase in the minimum wage in the Republic of Croatia as well as the pressure on wage growth in general, which will potentially affect the increased amount of claims due to rising labour costs and repairs that may lead to price corrections.

The potential rise in interest rates could revive the life insurance market, which has grown much slower in recent years due to the pandemic and low interest rates.

At the beginning of 2023, two major regulatory changes are taking place: the introduction of the euro as the official currency of the Republic of Croatia and changes in the accounting standard for insurance companies (IFRS 17). Accordingly, 2022 will be a year of major IT investments and changes, which due to the state of available resources in the IT market will be a significant challenge for all insurance companies in the Republic of Croatia.

During 2021, new transformation initiatives were launched with the aim of further improving and optimizing the business processes necessary to achieve the set goals in 2022.

In accordance with the above, the Group will improve and refine digital communication channels in the coming period:

•development of a new services on the company website

•additional functionalities of the mobile application Moja Croatia

•further claims optimization process – both front and back end

In the forthcoming period, the goal is to continue the best practice of transferring operational excellence from the parent to subsidiaries in the region, as well as help by the parent in the adoption on new accounting regulations (in those countries where it enters into force).

New sources of growth in the future are combinations of organic and acquisition activities. New acquisitions are aimed at strengthening the insurance business and further development of healthcare offering in addition to using the synergies arising from the insurance offer.

Research and development activities

Customer focus and continuous innovations are the values of the Group that underlie research activities and new product development. The aim is to provide fast and quality service and increasing client satisfaction.

During 2021, strong support for the introduction of Laqo insurance continued, both in marketing and functional terms. The LaqoPrevent program is part of the offer of Croatia's LAQO insurance, the first fully digital insurance solution in this area. LaqoPrevent promotes safe driving and responsible traffic behaviour by using an advanced telematics technology solution, available as part of the LAQO application.

In cooperation with Swiss RE, one of the largest reinsurers in the world, Croatia osiguranje also launched the first crop insurance product against lack of soil moisture (drought). Thanks to this high-tech product, Croatia osiguranje has so far paid HRK 12.6m in compensation for drought damage. Index moisture protection in the soil is the most modern product of its kind on the market, which uses advanced technology for measuring soil moisture via satellite, and the payment of damages takes place automatically, without the need for an appraiser to go to the field. So far, more than 1,000 farmers have received the payment, and 90% of the compensation has been paid in just two weeks. According to estimates, Croatia osiguranje will pay out a total of HRK 13.7m to insured farmers.

The specialist postgraduate study Products, Digital Innovations and Technologies in Insurance (Insurtech) developed in cooperation with the Faculty of Electrical Engineering and Computing in Zagreb continues with work. The aim of the study is to further improve the insurance profession through the education of experts who will handle the development of industry in Croatia and the region.

More than 200 employees enrolled in the "Elements of AI" training. The goal is to use new knowledge and ideas to improve various business processes and services to ensure and increase the satisfaction of both customers and employees of the company.

In addition to the regular educational programs that employees attend to improve their professional competencies, in 2021 Croatia osiguranje will continue to work on initiatives aimed at internal sharing of knowledge and learning from the experience of other colleagues. During the year, all employees had the opportunity to participate in some form of training, including internal, external, and training through the e-learning system. In addition, e-learning as an important educational platform has been further developed and provides constantly available educational content for all employees, so that more than 57,000 hours of e-learning were spent on professional knowledge education.

Company branch

As at 31 December 2021, the Company has one registered branch (Branch Ljubljana). In its legal transactions, the branch operates under CROATIA osiguranje d.d. branch Ljubljana, in Croatian, and under CROATIA ZAVAROVANJE d.d. branch Ljubljana, in Slovenian. 

Financial risk management

Financial risk management is described in Note 2.38. Financial risk management to the Consolidated and separate financial statements for 2021.

Other

In accordance with the statutory obligation and the permitted exemption pursuant to Art. 21.a of the Accounting Act, the Company has prepared a nonfinancial report to be published as part of the annual financial report of the parent company Adris Grupa d.d.

During 2020, PricewaterhouseCoopers d.o.o. (PwC) provided educational services while in 2021 it provided advisory services. During 2021, Deloitte d.o.o. provided tax advisory services.

Corporate Governance Statement

CROATIA osiguranje d.d., PIN 26187994862, Vatroslava Jagića 33, Zagreb (hereinafter: the Company), applies the Corporate Governance Code, which was jointly adopted by the Croatian Financial Services Supervisory Agency (HANFA) and Zagreb Stock Exchange and is available on their web sites.

By applying the provisions of the Corporate Governance Code, Rules of the Zagreb Stock Exchange (which are available Zagreb Stock Exchange’s website), the Companies Act (Official Gazette 111/93, 34/99, 121/99, 52/00, 118/03, 107/07, 146/08, 137/09, 125/11, 152/11, 111/12, 68/13, 110/15; 40/19) and the Capital Market Act (Official Gazette 65/18, 17/20, 83/21), the Company makes its operations and operating results transparent and accessible to the public. All explanations and possible deviations from the above rules are going to be published in the Compliance Questionnaire, in accordance with the Corporate Governance Code.

In order to take the necessary measures to achieve its business objectives, the Company has established a system of internal controls as a totality of elements: an adequate organisational structure, an implemented management system with the establishment of key and control functions, prescribed control activities for portfolio management, administrative and accounting procedures, security and adequate information system including a reporting system at all levels of the Company.

The system of internal controls in financial reporting ensures that the Company’s financial statements present its financial results and financial position with reasonable accuracy and that they comply with International Financial Reporting Standards (IFRS).

The Company’s accounting policies represent the principles, rules and practices that the Company applies in preparing and presenting financial statements. The Company’s accounting policies are defined by a special Rulebook. A summary of significant accounting policies is disclosed in the Company's financial statements.

The internal accounting control procedures include the control of formal, substantive and computational accuracy of an accounting document:

- Control of formal accuracy of an accounting document determines whether the document has been prepared in accordance with applicable regulations,

- Substantive control of an accounting document determines whether the business changes actually occurred and in the range as indicated,

- Control of computational accuracy of an accounting document means the control of mathematical operations (division, multiplication, addition and subtraction), based on which the results are obtained in the document. 

The control of accounting documents is carried out in accordance with the Company's organizational structure and internal regulations by a person holding authorisation to do so as defined in the internal documents of the Company. The organisational chart is located on the internal network and is available to all employees. The control of formal, substantive and computational accuracy is confirmed by a physical and/or electronic signature of the person who has signed it.

In accordance with the provisions of the Insurance Act, the Company has formed an internal audit function at the highest organizational level which structurally reports directly to the Management Board and functionally to the Audit Committee and the Supervisory Board. Activities of the internal audit function are based on the work plans adopted by the Supervisory Board following a positive opinion of the Management Board. The internal audit function analyses and evaluates the activities of the Company and provides expert advice, recommendations and advice on controls. Internal audit assists the Company in meeting the set goals by introducing a systematic and disciplined approach to assessing and improving the effectiveness of risk management, control and corporate governance.

The Company has established a risk management function in the form of an independent organisational unit directly responsible to the Management Board. This function established a risk management system consisting of a set of internal acts, procedures and methodologies to identify, estimate or measure, control and report risks. The risk management system is regularly being improved in line with best market practices and the requirements of external regulations. More detailed information on risk management can be found in the Notes to the financial statements.

In accordance with the Insurance Act, the Company has formed an effective compliance function which includes advising and reporting to the Management Board and Supervisory Board on Company compliance with the Insurance Act and other regulations governing the operation of an insurance company, carrying out an assessment of the possible impact of changes in the legal environment on Company operations, and determining and assessing compliance risk.

The Company has established an effective actuarial function that according to the Insurance Act coordinates calculation of technical reserves, ensures the appropriateness of methodologies and models, evaluates the adequacy and quality of data needed to evaluate technical reserves, compares the assumptions and experience, and gives its opinion to the Management Board and Supervisory Board about calculating technical reserves, insurance risk takeovers, the appropriateness of the reinsurance program and participation of actuarial function in the implementation of the Company’s risk management system.

In accordance with the Insurance Act, the Company has appointed a certified actuary who verifies data, methods and underlying documents for the calculation of technical provisions according to accounting regulations, and whether the technical provisions and premiums are designed to enable a permanent fulfilment of all Company obligations under the insurance or reinsurance contract regarding which the actuary provides an Opinion and Report to the Management Board and Supervisory Board.

Under the Insurance Act, the Company applies internal control systems to Group companies involved in the insurance part of business, while the companies concerned apply systems of internal controls in accordance with its legal framework.

As at 31 December 2021, significant direct holders of shares in the Company are:

•  ADRIS GRUPA d.d. with a share of 66.91% and
•  Restructuring and Sales Centre, for the Republic of Croatia, with a share of 30.1%.

The data on the 10 largest shareholders is available on the website of the Central Depository and Clearing Company.

According to the Company’s applicable Articles of Association, the limitation of voting rights of shareholders or partial restriction of voting rights does not exist.

The members of the Management Board and the Supervisory Board are not shareholders of the Company.

The Company does not own treasury shares, and the General Assembly did not authorise the Company to acquire treasury shares.

The bodies of the Company are the General Assembly, the Supervisory Board and the Management Board.

General Assembly

The General Assembly of the Company consists of all shareholders of the Company.

The General Assembly of the Company, in accordance with the provisions of the Articles of Association, makes decisions by public voting at sessions, convened usually by the Management Board and the Supervisory Board only when it deemed this necessary for the benefit of the Company. The powers of the General Assembly are regulated by the Company's Articles of Association and do not deviate from the powers which General Assembly of a public limited company has under the Companies Acts. A shareholder has the right to participate and vote at the General Assembly only if he / she has registered his / her participation in writing to the Management Board no later than six days before the General Assembly.

The Company's Articles of Association may be amended at the General Assembly in accordance with the provisions of the Companies Act, and the Supervisory Board is authorized to amend the provisions of the Articles of Association based on the decision of the General Assembly to the extent of editorial changes.

Supervisory Board

The right to appoint individual members of the Supervisory Board are set out in Article 24 of the Articles of Association in favour of the Republic of Croatia and employees of the Company. In accordance with the provisions of the Articles of Association, and in connection with the provision of Article 256, paragraph 3 of the Companies Act, the Republic of Croatia has the right to directly appoint two members of the Supervisory Board, as long as it holds at least 25% of the Company's ordinary shares plus one ordinary share; however, as long as it holds at least 10% of ordinary shares of the Company, pursuant to the same statutory provisions, and in connection with the provision of Article 256 paragraph 3 of the Companies Act, the Republic of Croatia has the right to directly appoint one member of the Supervisory Board. One member of the Supervisory Board is appointed by the work council of the Company, i.e. by employees, through direct and secret elections in the manner prescribed for the election by the work council, and they are entitled to this right as long as the conditions prescribed by the Labour Act are met. The remaining 4 (four) members, ie the remaining 5 (five) members of the Supervisory Board are elected by the General Assembly of the Company.

The Supervisory Board has competencies prescribed by law and the Company's Articles of Association.

In the period from 1 January 2021 to 31 December 2021, the Supervisory Board of the Company consisted of:

* The previous mandate of Željko Lovrinčević, PhD ended on 19 September 2021, appointed by the decision of the Center for Restructuring and Sale for a new mandate starting from 20 September 2021

** Zoran Barac was elected as a member of the Supervisory Board at the General Assembly of the Company held on 9 September 2021 with the beginning of the mandate from 11 October 2021

During 2021, the Supervisory Board held a total of 14 meetings, and all members of the Supervisory Board attended all meetings of the Supervisory Board during 2021.

The Supervisory Board formed the Audit Committee and the Nomination and Remuneration Committee.

The Audit Committee consists of three members appointed by the Supervisory Board from among its members.

In the period from 1 January 2021 to 31 December 2021, the Audit Committee consisted of:

* By the decision of the Supervisory Board on the appointment of a member of the Audit Committee of CROATIA osiguranje d.d. from 7 September 2021, Željko Lovrinčević was appointed as a member of the Audit Committee for a new mandate, from 20 September 2021 to 20 September 2025

•  Report on the work of the Audit Committee for the period from 1 January 2021 to 31 December 2021.

The Audit Committee is an expert body that provides support to the Supervisory Board in terms of improving the quality of supervision that the Supervisory Board is obliged to conduct in accordance with the prescribed competencies.

The Audit Committee performs the tasks determined by the Audit Committee’s Rules and Procedures, and in accordance with the provisions of the Audit Act, Regulation (EU) no. 537/2014, Code of Corporate Governance of the Zagreb Stock Exchange d.d. and the Croatian Financial Services Supervisory Agency and other applicable regulations. The task description of the Audit Committee is publicly available, free of charge, on the website of CROATIA osiguranje d.d.

The organization and manner of work of the Audit Committee are regulated in more detail by the Audit Committee’s Rules and Procedures. During 2021, the Audit Committee held a total of 9 sessions and all members of the Audit Committee attended all sessions of the Audit Committee during 2021.

At its sessions during 2021, the Audit Committee discussed the following:

• – Report on own risk and solvency assessment for 2020,
• – Report on the adequacy of the procedures and effectiveness of the internal control system,
• – strategic and annual internal audit plan,
• – internal audit reports,
• – actuarial function reports,
• – consolidated and non-consolidated financial statements,
• – Solvency and financial condition report of the CROATIA osiguranje Group,
• – auditor's questionnaire regarding the Auditor's Report on the report on the relations of the company CROATIA osiguranje d.d. with affiliated companies,
• – audit engagement for 2021,
• – annual risk management report,
• – non-audit engagement of Deloitte d.o.o.,
• – Risk management strategies,
• – Risk management policy,
• – Working policy of key risk management function,
• – Own risk and solvency assessment policy,
• – investment limits of the Company.

The Audit Committee regularly reported to the Supervisory Board on the recommendations made at its meetings in form of the submitted minutes of the Committee meetings.

The Nomination and Remuneration Committee consists of three members appointed by the Supervisory Board from among its members.

In the period from 1 January 2021 to 31 December 2021, Nomination and Remuneration Committee consisted of:

•  Report on the work of the Nomination and Remuneration Committee for the period from 1 January 2021 to 31 December 2021.

The Nomination and Remuneration Committee is an expert body that provides support to the Supervisory Board in terms of improving the quality of supervision that the Supervisory Board is obliged to carry out in accordance with the prescribed competencies.

The Nomination and Remuneration Committee performs tasks determined by the Decision of the Supervisory Board on the establishment of the Nomination and Remuneration Committee and the appointment of the members of the Committee, and in accordance with the provisions of the Corporate Governance Code of the Zagreb Stock Exchange and the Croatian Financial Services Supervisory Agency applicable to the role of the Board. The task description of the Nomination and Remuneration Committee is publicly available, free of charge, on the website of CROATIA osiguranje d.d.

The Committee on Appointments and Remuneration shall apply the Rules of Procedure of the Supervisory Board to the manner of work, as well as to other issues that are important for the work of the Committee.

During 2021, the Nomination and Remuneration Committee held a total of 8 sessions, and all members of the Nomination and Remuneration Committee attended all sessions of the Nomination and Remuneration Committee in 2021.

At its sessions during 2021, the Nomination and Receipts Committee performed the following tasks:

• – consideration of the Policy on selection and assessment of the existence of conditions for performing the function of a member of the Supervisory Board,
• – consideration of the suitability and expertise of candidates for members of the Supervisory Board,
• – consideration of the proposal of the Decision on the adoption of the Report on renumeration for 2020 and consideration of the proposal of the Decision of the General Assembly on the approval of the Report on remuneration for 2020,
• – consideration of the proposal of the Decision of the General Assembly on remuneration for the members of the Supervisory Board of CROATIA osiguranje d.d.,
• – consideration of the regular annual assessment of the existence of conditions for performing the function of members of the Management Board of CROATIA osiguranje d.d.,
• – consideration of the proposal of the Decision on payment of bonuses for 2020 to the members of the Management Board of CROATIA osiguranje d.d.,
• – consideration of the proposal of the Decision on the election of the vice president of the Supervisory Board of CROATIA osiguranje d.d.,
• – consideration of the proposal of the Decision on the appointment of a member of the Audit Committee of CROATIA osiguranje d.d.,
• – consideration of the proposal of the Decision on adoption of Remuneration policies for members of the Management Board,
• – consideration of the Analysis of Applicable KPIs for Management Board Members in the Financial Industry and Market Trends.

The Nomination and Remuneration Committee regularly reported to the Supervisory Board on the recommendations made at its meetings, in form of the submitted minutes from the Committee meetings.

Management Board

According to the Company's Articles of Association, the Management Board consists of a minimum of three and a maximum of seven members, one of whom is the President of the Management Board. As of December 31, 2021, the Management Board consisted of four members.

The Management Board of the Company manages all the affairs of the Company jointly, and the Company is represented jointly by at least two members of the Management Board. Members of the Management Board, in conducting the Company's affairs, must adhere to the restrictions prescribed by positive legal regulations, the Company's Articles of Association, decisions of the Supervisory Board and the General Assembly of the Company.

In the period from 1 January 2021 to 7 April 2022, the Management Board of the Company operated as follows:

During 2021, the Company actively implemented measures to promote gender equality at the Company's overall level. The focus was placed on equal terms in terms of sex and age in the implementation of the recruitment process as well as internal redistribution of workers. Equal criteria applied to the recruitment of employees for management positions of the Company. There are also no differences in salaries for the same type of work or work of equal value. On all levels we are recording equal representation of experts regardless of sex and age parameters. With respect to the professional criteria, the Company applies the strategy of recruiting and developing the management functions of the appropriate profession and level of education in relation to the nature of the function and its requirements. The Company also continuously carries out education and training of employees for the purpose of further improvement and development of competencies.

Consolidated and separate financial statements

for 2021

Responsibility for the financial statements

The Management Board of the Company is required to prepare separate and consolidated financial statements for each financial year which give a true and fair view of the financial position of the Company and the Group and the results of their operations and cash flow, in accordance with applicable accounting standards, and is responsible for keeping proper accounting records so that it can, at any time, enable the preparation of financial statements. The Management Board has a general responsibility for taking such steps as are reasonably available to safeguard the assets of the Company and Group and to prevent and detect fraud and other irregularities.

The Management Board is responsible for selecting suitable accounting policies that are in accordance with the International Financial Reporting Standards as adopted in the European Union and then applying them consistently; adopting reasonable and prudent judgments and estimates; and preparing the financial statements on the going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business.

In accordance with Accounting Act, the Management Board is obliged to prepare an Annual report of the Company and the Group comprising the Annual financial statements, Management Report and Corporate Governance Statement. Management Report and Corporate Governance Statement have been prepared in line with the requirements of Article 21, 22 and 24 of the Accounting Act.

The Management Board is responsible for submitting the Annual report of the Company and the Group, which includes the Annual financial statements, to the Supervisory Board, following which the Supervisory Board should approve these for submitting to the General Assembly for acceptance.

The separate and consolidated financial statements which have been prepared in accordance with the International Financial Reporting Standards as adopted in the European Union and which are presented on the following pages, as well as the forms, prepared in accordance with the Ordinance on the structure and content of financial statements and additional reports of insurance and reinsurance companies (Official Gazette 37/16, 96/18, 50/19 and 98/20) adopted by the Croatian Financial Services Supervision Agency were approved by the Management Board on 7 April 2022 and submitted for issue to the Supervisory Board. In acknowledgment, the financial statements have been signed by the Company’s authorized persons, as follows.

Independent Auditor’s Report

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Croatia osiguranje d.d., Zagreb

Report on the Audit of the Financial Statements

Opinion

We have audited the non-consolidated and consolidated financial statements of Croatia osiguranje d.d. (the Company) and its subsidiaries (the Group) which comprise the non-consolidated and consolidated statement of financial position as at 31 December 2021, non-consolidated and consolidated statement of comprehensive income, non-consolidated and consolidated statement of changes in equity and non-consolidated and consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies (the financial statements).

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at 31 December 2021, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs).

Basis for Opinion

We conducted our audit in accordance with the Audit Act and International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company and the Group in accordance with the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code) and we have fulfilled our ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

This version of the auditor`s report is translation from the original, which was prepared in the Croatian language. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of the report takes precedence over this translation.

INDEPENDENT AUDITOR’S REPORT (continued)

Report on the Audit of the Financial Statements (continued)

Key Audit Matters (continued)

For accounting policies please see description of key judgments and estimates regarding the calculation of technical and . Liability adequacy test („LAT“) which is presented in Notes 2.22.Technical provisions, 2.23. Technical life insurance provisions where the policy holder bears the investment risk and 2.25 Liabilities and related assets under liability adequacy test that have a significant material effect on the amount, timing and uncertainty of future cash flows of the financial statements.

INDEPENDENT AUDITOR’S REPORT (continued)

Report on the Audit of the Financial Statements (continued)

Key Audit Matters (continued)

INDEPENDENT AUDITOR’S REPORT (continued)

Report on the Audit of the Financial Statements (continued)

Other Matter

The financial statements of the Company and the Group for the year ended 31 December 2020 were audited by another auditor, which expressed an unmodified opinion on the financial statements on 7 April 2021.

Other Information

Management is responsible for the other information. The other information comprises the information included in the Annual Report but does not include the financial statements and our auditor’s report.

Our opinion on the financial statements does not cover the other information.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. With respect to the Management Report of the Company and the Group and the Corporate Governance Statement, which are included in the Annual Report, we have also performed the procedures prescribed by the Accounting Act. These procedures include examination of whether the Management Report and Corporate Governance Statement include required disclosures as set out in the Articles 21, 22 and 24 of the Accounting Act and whether the Corporate Governance Statement includes the information specified in the Articles 22 and 24 of the Accounting Act.

Based on the procedures performed during our audit, to the extent we are able to assess it, we report that:

• 1) Information included in the other information is, in all material respects, consistent with the attached financial statements.
• 2) Management Report has been prepared, in all material respects, in accordance with the Articles 21 and 24 of the Accounting Act.
• 3) Corporate Governance Statement has been prepared, in all material aspects, in accordance with the Article 22, paragraph 1, items 3 and 4 of the Accounting Act, and includes also the information from the Article 22, paragraph 1, point 2, 5, 6 and 7 and the Article 24, paragraph 2.

Based on the knowledge and understanding of the Company and the Group and its environment, which we gained during our audit of the financial statements, we have not identified material misstatements in the other information.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRSs and for such internal control as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, Management is responsible for assessing the Company’s and the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless Management either intends to liquidate the Company and the Group’s or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s and the Group’s financial reporting process.

INDEPENDENT AUDITOR’S REPORT (continued)

Report on the Audit of the Financial Statements (continued)

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit 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 Company's and the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management.
• Conclude on the appropriateness of Management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's and the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company's and the Group’s to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

INDEPENDENT AUDITOR'S REPORT (continued)

Report on Other Legal and Regulatory Requirements

Report based on the requirements of Delegated Regulation (EU) No. 2018/815 amending Directive No. 2004/109/EC of the European Parliament and of the Council as regards regulatory technical standards for the specification of the uniform electronic format for reporting (“ESEF”)

Auditor’s reasonable assurance report on the compliance of annual non-consolidated and consolidated financial statements (the financial statements), prepared based on the provision of Article 462 (5) of the Capital Market Act by applying the requirements of the Delegated Regulation (EU) 2018/815 specifying for the issuers a single electronic reporting format (“ESEF Regulation”). We conducted a reasonable assurance engagement on whether the financial statements of the Company and the Group for the financial year ended 31 December 2021 prepared to be made public pursuant to Article 462 (5) of the Capital Market Act, contained in the electronic file croatiaosiguranjedd-2021-12-31-en, have been prepared in all material aspects in accordance with the requirements of the ESEF Regulation.

Responsibilities of the Management and Those Charged with Governance

Management is responsible for the preparation and content of the financial statements in line with the ESEF Regulation.

In addition, Management is responsible for maintaining the internal controls system that reasonably ensures the preparation of financial statements without material discrepancies with the reporting requirements from the ESEF Regulation, whether due to fraud or error.

Furthermore, Company Management is responsible for the following:

• public disclosure of financial statements presented in the annual report in valid XBRL format
• selection and use of XBRL markups in line with the requirements of the ESEF Regulation.

Those charged with governance are responsible for supervising the preparation of financial statements in ESEF format as part of the financial reporting process.

Auditor’s Responsibilities

It is our responsibility to carry out a reasonable assurance engagement and, based on the audit evidence obtained, give our conclusion on whether the financial statements have been prepared without material discrepancies with the requirements from the ESEF Regulation. We conducted our reasonable assurance engagement in accordance with the International Standard on Assurance Engagements 3000 (Revised) – Assurance Engagements Other than Audits or Reviews of Historical Financial Information (ISAE 3000). This standard requires that we plan and perform the engagement to obtain reasonable assurance for providing a conclusion.

Quality assurance

We have conducted the engagement in compliance with independence and ethical requirements as provided by the Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants. The code is based on the principles of integrity, objectivity, professional competence and due diligence, confidentiality, and professional conduct. We comply with the International Standard on Quality Control (ISQC 1) and accordingly maintain an overall management control system, including documented policies and procedures regarding compliance with ethical requirements, professional standards, and applicable legal and statutory requirements.

INDEPENDENT AUDITOR'S REPORT (continued)

Report on Other Legal and Regulatory Requirements (continued)

Report based on the requirements of Delegated Regulation (EU) No. 2018/815 amending Directive No. 2004/109/EC of the European Parliament and of the Council as regards regulatory technical standards for the specification of the uniform electronic format for reporting (“ESEF”) (continued)

Procedures performed

As part of the selected procedures, we have conducted the following activities:

• We have read the requirements of the ESEF Regulation;
• We have gained an understanding of internal controls of the Company, relevant for the application of the ESEF Regulation requirements;
• We have identified and assessed the risks of material discrepancies with the ESEF Regulation due to fraud or error;
• We have devised and designed procedures for responding to estimated risks and obtaining reasonable assurance in order to give our conclusion.

Our procedures focused on assessing whether:

• Financial statements included in the non-consolidated and consolidated annual report have been prepared in valid XHTML format;
• Data included in the non-consolidated and consolidated financial statements required by the ESEF Regulation have been marked up and meet all of the following requirements:
  • XBRL has been used for markups;
  • Core taxonomy elements stipulated in the ESEF Regulation with the closest accounting meaning were used unless an extension taxonomy element was created in line with the Annex IV of the ESEF Regulation;
  • Markups comply with the common rules on markups in line with the ESEF Regulation.

We believe the evidence we obtained to be sufficient and appropriate to provide a basis for our conclusion.

Conclusion

We believe that, based on the procedures performed and evidence obtained, the financial statements of the Company and the Group presented in the ESEF format, contained in the aforementioned electronic file, and based on the provision of Article 462 (5) of the Capital Market Act, have been prepared to be made public, in all material aspects in accordance with the requirements of the ESEF Regulation Article 3,4 and 6 for the year ended 31 December 2021.

Our conclusion does not represent an opinion on the truthfulness and fair view of the financial statements presented in the electronic form. Furthermore, we do not provide any assurance on other information published together with the documents in ESEF format.

In addition to this conclusion, as well as the opinions contained in this Independent Auditor's Report for the accompanying financial statements and annual report for the year ended 31 December 2021, we do not express any opinion on the information contained in these representations or other information contained in the above file.

INDEPENDENT AUDITOR’S REPORT (continued)

Report on Other Legal and Regulatory Requirements (continued)

Other reporting obligations as required by Regulation (EU) No. 537/2014 of the European Parliament and the Council and the Audit Act

We were appointed as the statutory auditor of the Company and the Group by the shareholders on General Shareholders’ Meeting held on 18^th June 2021 to perform audit of accompanying financial statements. Our total uninterrupted engagement has lasted one year and covers period 1^st January 2021 to 31^st December 2021.

We confirm that:

• our audit opinion on the accompanying financial statements is consistent with the additional report issued to the Audit Committee of the Company on 6^th April 2022 in accordance with the Article 11 of Regulation (EU) No. 537/2014 of the European Parliament and the Council;

• no prohibited non-audit services referred to in the Article 5(1) of Regulation (EU) No. 537/2014 of the European Parliament and the Council were provided.

There are no services, in addition to the statutory audit, which we provided to the Company and the Group and its controlled undertakings, and which have not been disclosed in the Annual Report.

In line with the Ordinance on the structure and content of the financial statements of insurance companies or reinsurance companies (OG No. 37/16, 36/18, 50/19, 98/20 “the Ordinance”), the Management Board of the Company designed forms shown in the Appendix to these financial statements on pages 176 to 198, containing the non- consolidated and consolidated statement of comprehensive income, non-consolidated and consolidated statement of financial position, non-consolidated and consolidated statement of changes in equity, non-consolidated and consolidated statement of cash flows, and notes on reconciliation. These forms and relevant notes on reconciliation are the responsibility of the Management board of the Company, and they do not form an inseparable part of these financial statements, which are shown on pages 31 to 175, but are required by the Ordinance.

The engagement partner on the audit resulting in this independent auditor’s report is Marina Tonžetić.

Statement of comprehensive income

for 2021

The accompanying notes form an integral part of these financial statements.

Statement of comprehensive income (continued)

for 2021

The accompanying notes form an integral part of these financial statements.

Statement of financial position

as at 31 December 2021

The accompanying notes form an integral part of these financial statements.

Statement of changes in equity

for 2021

The accompanying notes form an integral part of these financial statements.

Statement of changes in equity (continued)

for 2021

The accompanying notes form an integral part of these financial statements.

Cash flow statement

for 2021

The accompanying notes form an integral part of these financial statements.

Cash flow statement (continued)

for 2021

Continued: