Solvency-II-Report W&W Group 2024

Solvency and Financial Condition Report (SFCR) 2024

Solvency II Group of

Wüstenrot & Württembergische AG

Summary

The insurance group Wüstenrot & Württembergische AG falls within the scope of Solvency II. In accordance with legal requirements, the Solvency II Group prepares and publishes an annual report on its solvency and financial condition. This report is intended to increase transparency regarding the economic situation of the Solvency II Group and to provide insight into the insurance group's net assets and solvency.

Formed in 1999 from the merger of the two long-established companies Wüstenrot and Württembergische, the W&W Group now develops and brokers the four building blocks of modern provision: insurance, home ownership, risk protection, and asset accumulation. It combines the business areas of home and insurance, thereby offering customers individual provision solutions. The W&W Group relies on omnichannel distribution, which ranges from its own sales force to cooperation and partner sales channels and brokerage activities to digital initiatives. The W&W Group operates almost exclusively in Germany. The "W&W Besser!" initiative will be continued in 2025 in order to further align products, services, and processes throughout the W&W Group with customer benefits.

Despite the weak economic environment in Germany and significant burdens from unusually high claims in our core business, the W&W Group remained fully on track in terms of operations in financial year 2024. Overall, the strengths we have built up in recent years in terms of substance, customer service, and flexibility and innovation in products and processes had a positive effect.

As announced, high costs weighed on our company's performance last year. In particular, the severe storms in southwestern Germany in the second and third quarters thwarted our conservative loss and earnings planning. Such losses are unprecedented in terms of frequency and extent. In addition, ongoing loss inflation, especially in the motor insurance segment, drove up the cost per claim significantly. We responded quickly and successfully in the Insurance business segment.

As a result, consolidated net income for 2024 in accordance with IFRS was €55,862 thousand, significantly below the previous year's figure of €140,557 thousand.

In addition to providers of ancillary services, companies from other financial sectors and other companies, the Solvency II Group comprises the following insurance companies in particular:

• Wüstenrot & Württembergische AG (W&W AG),

• Württembergische Versicherung AG,

• Württembergische Lebensversicherung AG,

• Württembergische Nrankenversicherung AG.

The listed company W&W AG, Nornwestheim, is the strategic management holding company of the W&W Group. There have been no significant changes to the shareholder structure of W&W AG.

Since the end of the Annual General Meeting on May 14, 2024, the Supervisory Board has consisted of only twelve members.

Jürgen Steffan retired from the Executive Board at the end of June 50, 2024. Since then, the Executive Board has consisted of only three members. The Executive Board's schedule of responsibilities has been adjusted accordingly.

Within the Solvency II Group, there are four key functions: risk management, compliance, internal audit, and actuarial. These folks have to meet certain regulatory requirements for professional qualifications and personal reliability.

The risk profile comprises the risk areas of market price risks, underwriting risks, counterparty risks, operational risks, business risks, and liquidity risks. According to the approach used for the company's own risk and solvency assessment, market price risks (48,2%), underwriting risks (26,6%) and counterparty risks (14,7%) account for the largest share of risk capital requirements. Risks were consistently in line with the risk strategy throughout the financial year and risk limits were adhered to at all times.

The solvency overview forms the basis for the further calculation of own funds. The following table compares the consolidated solvency overview of the Solvency II Group (based on Solvency II regulations) with the corresponding figures in the IFRS consolidated balance sheet:

Solvency II IFRS (book

Differences between Solvency II and IFRS result in particular from the fact that the Solvency II consolidation scope and the consolidation methods applicable under Solvency II differ from the corresponding IFRS requirements. Various companies (in particular Wüstenrot Bausparkasse AG and Allgemeine Rentenanstalt Pensionskasse AG) and funds are fully consolidated in the IFRS consolidated financial statements but not in Solvency II.

Further differences in measurement between Solvency II and IFRS arise primarily in the following areas:

Assets are recognized at fair value under Solvency II. Under IFRS, they are also recognized at amortized cost in some cases.

Under both Solvency II and IFRS 17, technical provisions are generally determined on the basis of market-consistent valuation. However, the two calculation models differ in their specific design; for example, unlike IFRS 17, Solvency II does not provide for a contractual service margin.

When calculating technical provisions, Württembergische Lebensversicherung AG uses the volatility adjustment in accordance with Section 82 of the Insurance Supervision Act (VAG) and the transitional provision in accordance with Section 552 VAG (provision transitional) within the Solvency II Group. The recalculation of the provision transitional at Württembergische Lebensversicherung AG in accordance with the BaFin order in a letter dated June 6, 2024, resulted in a deduction of zero.

The following table summarizes the eligible own funds, the solvency capital requirement, and the solvency ratios with and without taking into account volatility adjustments and provision transitional amounts in accordance with Solvency II regulations as of December 51,2024:

The Solvency II Group met both the minimum capital requirement and the solvency capital requirement in the reporting period. The Solvency II Group calculates the solvency capital requirement using the Solvency II standard formula. No internal model or partial internal model is used. The decline in the solvency ratio compared with the previous year is primarily due to the recalculation of the provision transition at Württembergische Lebensversicherung AG and the associated new deduction of zero.

In the 2025 financial year, we expect a consolidated net income significantly above the previous year, particularly if the claims experience improves. Overall, high macroeconomic and geopolitical risks remain. In addition, the development of claims, particularly from natural events, represents a further risk factor. A deterioration in the general environment would also have an impact on the forecasts. Due to valuation effects from fair value measurement in accordance with IFRS 9 and 17, there is a risk of potentially volatile earnings.

The Executive Board of W&W AG approved this report and its publication on May 15, 2025.

A Business activities and operating results

The underwriting result (net and in accordance with IFRS) decreased to -€15,794 thousand (previous year: €121,758 thousand). In property/casualty insurance, high natural hazards and general claims inflation were the main factors leading to a sharp decline in earnings. In the life insurance segment, the underwriting result remained at the previous year's level.

In life insurance, the underwriting result (net) remained at the previous year's level at €101,701 thousand (previous year: €101,725 thousand). Insurance revenue (underwriting income) increased to €1,502,972 thousand (previous year: €1,227,258 thousand). Underwriting expenses rose to €1,186,727 thousand (previous year: €1,108,920 thousand).

In property and casualty insurance, the net underwriting result declined significantly to -€117,495 thousand (previous year: €19,282 thousand). Overall, new business, replacement business and premium adjustments led to encouraging growth in the insurance portfolio. As a result, insurance revenue (underwriting income) rose to €2,768,288 thousand (previous year: €2,580,797 thousand). Gross claims expense, on the other hand, increased due to inflation and the massive damage caused by storms in the summer months. The so-called natural disaster "Orinoco" and various regional storms in particular caused high cumulative losses. The reinsurance result fell to -€42,655 thousand (previous year: €1,622 thousand). In the previous year, higher relief for major losses was recorded, while the cumulative burdens in the current reporting period were not offset to the same extent by reinsurance. This led to a significant decline in the underwriting result overall. The combined ratio (net) according to IFRS 17 was 104.5% (previous year: 99.5%).

The following overview shows the premium income and claims expenses of the Solvency II Group for the financial years 2024 and 2025 (net and in accordance with HGB). The breakdown into the various business segments is in accordance with Solvency II; the data presented is based on the requirements of reporting form S.05.01.02.

Premium income recognized (net) Expenses for insurance claims

(net)

in € thousand 2024 2025 2024 2025

The breakdown by line of business in accordance with HGB is more granular than the breakdown by business segment in accordance with Solvency II. The individual reserve valuation lines in accordance with HGB are each allocated to a specific Solvency II business segment. This ensures that the data required for the calculations is available and that the results of the calculations can be used consistently for risk management and reporting purposes.

Further information on premiums, receivables and expenses by business segment can be found in the notes in reporting form S.05.01.02.

The core market of the W&W Group is Germany. More than 90% of total gross premiums written in the reporting period were attributable to Germany, meaning that reporting form S.05.02.04, which provides a geographical breakdown of premiums, receivables and benefits by country, does not need to be prepared.

A.5 Investment result

Capital markets

The economic environment for investments in 2024 was dominated by declining inflation rates, the resulting monetary policy expectations and geopolitical tensions. After interest rates stabilized at the end of the previous year, yields rose moderately at first. As the year progressed, falling inflation rates and disappointing economic data, which reinforced expectations of interest rate cuts, led to a predominantly downward trend in yields. Following an excellent year in 2025 for the leading global stock market indices, with double-digit price gains, 2024 was another strong year for equities. Overall, the Euro STOXX 50 rose by 8.5% during the reporting period, while the leading German index, the DAX, rose by as much as 18.9%.

Financial result

The following overview shows an allocation of the IFRS financial result, including property, plant, and equipment for own use, to the balance sheet items in accordance with the solvency overview for the financial years 2024 and 2025.

Financial result including property, plant, and equipment for own use

Share of financial result including property, plant, and equipment for

own use

The IFRS financial result of the W&W Group declined from €582,079 thousand to €476,167 thousand in the financial year 2024. The rise in interest rates led to higher net interest income. Interest income from construction loans and

bonds increased in particular. This was offset by an increase in interest expense on deposits. Shares, investment funds, and investments for unit-linked life insurance policies continued to perform well in . In addition, there was an increase in the currency result. The result from property, plant, and equipment for own use amounted to

-€45 049 thousand (previous year:-€57 757 thousand). The financial result including tangible assets for own use thus amounts to €455 118 thousand (previous year: €544,545 thousand).

The largest share of the financial result including property for own use is attributable to bonds (€995,191 thousand) and loans and mortgages (€570,575 thousand). The decline in other income and expenses by €255,426 thousand to

€-1,561,781 thousand is mainly due to the negative technical financial result of €-1,526,541 thousand (previous year:

€-1,094,186 thousand). The result from assets for index-linked and unit-linked contracts is included under other income/expenses. It comprises the current financial result of €28,585 thousand and the increase in the valuation result from €580,294 thousand to €410,728 thousand.

Due to the decline in the financial result, the percentage shares of the individual balance sheet items in the financial result, including property, plant, and equipment for own use, have also changed significantly compared with the previous year. As the financial result for other income and expenses is negative, the share of positive income drivers (e.g. government and corporate bonds, loans, and mortgages) in the financial result is in the mid to high double-digit percentage range.

Consolidated statement of comprehensive income

Consolidated total comprehensive income amounted to €22,585 thousand as of December 51, 2024 (previous year:

€155,555 thousand). It comprises consolidated net income plus other comprehensive income (OCI).

OCI amounted to -€15,279 thousand in the financial year 2024 (previous year: -€5,004 thousand). Due to largely constant interest rates, there were only minor changes in the market value of fixed-income securities and registered securities. The unrealized gain on these securities with an impact on OCI amounted to €-85,615 thousand (previous year: €915,959 thousand). This was offset by the decline in interest rates in the measurement of technical liabilities/provisions under IFRS 17. The unrealized gain from this amounted to €65,051 thousand (previous year: -

€847,725 thousand). The actuarial gain from defined benefit plans for retirement benefits amounted to €6,558 thousand (previous year: €-75,055 thousand). In the same period of the previous year, interest rates had declined slightly, resulting in gains on investments and losses on provisions.

Securitizations

The solvency overview as of December 51, 2024, did not include any securitizations in the direct portfolio of the insurance companies belonging to the Solvency II Group.

The forecasts for the W&W Group are based on estimates that are supported by relevant analyses and publications, as well as on the Group-wide planning process. We anticipate subdued overall economic development and inflation that will remain largely constant compared with 2024.

For 2025, we expect minor changes in interest rates, particularly in the long-term segment. At the same time, we anticipate limited gains on the European stock markets and a better claims experience compared with 2024, although it will remain under pressure. It will not yet return to the level of previous years. The inverse interest rate structure of recent years continues to weigh on the results of operations of Wüstenrot Bausparkasse AG.

Overall, high economic and geopolitical risks remain. In addition, the development of claims, particularly from natural events, represents a further risk factor. A deterioration in the economic environment would also affect the forecasts. Due to valuation effects from fair value measurement in accordance with IFRS 9 and 17, there is a risk of potentially volatile earnings. Taking into account our estimates, we expect consolidated net income for the 2025 financial year to be significantly higher than in the previous year, particularly if the claims experience improves.

Apart from the facts presented in the preceding sections, there is no other material information.

B Governance system

The individual members of the Executive Board ensure regular communication with the key function holders.

The necessary powers, resources, and operational independence of the key function holders, as well as the manner in which they report to and advise the administrative, management, or supervisory body of the insurance or reinsurance company (hereinafter referred to as "AMSB"), are described below. Detailed descriptions of how the functions have been implemented within the group can be found in sections B.5 to B.6.

Risk management function

The Risk Management department at W&W AG is responsible for risk management at group level and at the level of W&W AG. A division manager in the Risk Management department acts as the responsible key function holder in accordance with § 26 of the Insurance Supervision Act (VAG). The holder of the risk management function has full and unrestricted access to information and a reporting line to the responsible member of the Executive Board in order to perform his duties. The Risk Management department has adequate working capacity. The Executive Board ensures that the risk management function is adequately equipped with personnel and material resources in terms of the nature and scope of its tasks.

To avoid conflicts of interest, the risk management function is strictly separated from risk-taking units. The risk management function is involved in decision-making both at the organizational level, through its inclusion in the committee structure, and at the procedural level, within the framework of the operational implementation of the risk management system, risk reporting, and the implementation and further development of the risk management system.

The Executive Board of W&W AG is advised by the Group Board Risk on decision-making on risk-related issues. The key function holder is a member of the Group Board Risk and is therefore structurally involved in decision-making on risk-related issues. The regular flow of information on the risk situation is ensured in particular by the annual update of the risk strategy and further guidelines, the setting of limits, internal risk reporting, risk-bearing capacity calculations, the report on the company's own risk and solvency assessment, and the results of the risk inventory.

The Supervisory Board and the Risk and Audit Committee are informed by the Executive Board, in particular through the presentation of the risk strategy, the internal risk report, the report on the company's own risk and solvency assessment, and ad hoc reports on the risk situation.

The risk management function has the following main tasks:

• Developing the risk strategy and guidelines for risk management,

• Participating in strategic asset allocation,

• Implementing risk limit planning,

• Carrying out risk inventory,

• Calculating solvency, including further developing the risk-bearing capacity model,

• Carrying out and documenting the Own Risk and Solvency Assessment (ORSA),

• Preparation of internal and external risk reports (regular and ad hoc),

• Implementing measures to promote risk culture, and

• Carrying out special projects on risk topics.

Compliance function

The compliance function of the W&W Group, which is part of the Compliance and Money Laundering department (until July 2024: Risk and Compliance), is an essential component of its compliance management system. It is part of the internal control system (ICS). The W&W Group follows the three lines of defense concept. The first line consists of the business units responsible for decentralized risk management. The second line comprises the risk management function, the compliance function, and the actuarial function. The internal audit function forms the third line.

The key compliance function holders of the individual companies concerned are supported in the implementation of their tasks by the compliance function of W&W AG, to which the key function is outsourced. Its main tasks include monitoring the relevant requirements, advising the Executive Boards and management on compliance with the requirements, monitoring the relevant requirements, and identifying and assessing compliance risks. In order to perform its tasks objectively, fairly, and independently, the compliance function has an unrestricted right to information. It must also be granted access to all premises and IT systems. In the event of significant violations of internal and external regulations and rules, in particular in cases of fraud, it must be informed immediately and without being asked of all information and findings by the decentralized compliance contact persons, sales compliance officers or, if necessary, other compliance interfaces. This takes place regularly within the framework of the central Group Compliance Committee or on an ad hoc basis.

The Executive Boards and management ensure that the central compliance function is adequately equipped in terms of personnel and material resources, taking into account the nature, complexity, and scope of its tasks. The central compliance function has its own work capacity with the necessary professional qualifications to perform its Group-wide compliance tasks as of the reporting date. Additional work capacities are assigned to decentralized units with compliance tasks. If the matter to be investigated by the compliance function requires the involvement of external third parties, it may commission them on behalf of the company concerned. The employees of the central compliance function are exclusively responsible for compliance.

The person responsible for the key function is directly employed by W&W AG and reports directly to the Executive Board. He or she has no authority to issue instructions to the units monitored, but is equally free from instructions in relation to these units. If the person responsible for the key function or the compliance function is prevented from performing a task properly, they shall inform the members of the Executive Board or Supervisory Board of the W&W Group responsible for compliance.

The person responsible for the key function also reports annually and ad hoc to the responsible management boards of the W&W Group as part of regular meetings, as well as (annually and ad hoc) to the supervisory boards through corresponding compliance reports. In addition, they report on compliance incidents and developments within the framework of the Group Board Risk. Furthermore, the person responsible for the key function or the compliance function also performs a training and advisory function for management boards, executive boards, and supervisory boards, particularly in relation to significant issues.

Further details on the independent compliance function are provided in section B.4 "Compliance"

Internal audit

Internal auditing for W&W AG is performed by the Group Audit department. The Group Audit department provides auditing services for W&W AG and the companies of the W&W Group in Germany. The head of the department is the holder of the audit function. He reports directly to the CEO of W&W AG.

As the "third line" and central function of internal corporate monitoring, the audit department is responsible for reviewing and assessing the effectiveness and appropriateness of risk management, the internal control system (ICS), and the regularity of all activities and processes of the company in a risk-oriented and process-independent manner. Security and economic efficiency aspects must also be taken into account. As the Group's internal audit department, it also ensures compliance with audit requirements. To this end, it has the necessary audit and information rights as well as the right to issue technical instructions.

The powers of the Internal Audit department are governed by the Internal Audit Rules of Procedure, which have been adopted by all management boards throughout the Group. In particular, these rules establish an unrestricted right to information and audit all companies within the Group. Accordingly, all organizational units must immediately notify Internal Audit of any significant deficiencies, significant financial losses, or concrete suspicions of irregularities. The rules of procedure also stipulate that audit staff may only be assigned audit tasks. The audit department has no authority to issue instructions to the audited units, except for any immediate measures that may be necessary in the interests of the W&W Group companies.

As of the reporting date, the Group Audit department has adequate working capacity and the necessary professional qualifications. In addition, the Group Audit department can also call on external expertise if necessary, while maintaining the independence requirements. At least once a year, the internal audit department determines the training needs of individual employees in order to ensure that their knowledge is up to date.

The Internal Audit department prepares a written report on each audit in a timely manner, which is addressed to the responsible member of management. The audit reports list all deficiencies identified, along with the measures to be taken and the deadlines for completion.

In addition, the Internal Audit department informs the relevant member of the W&W AG Executive Board on a monthly basis of any audit measures that may be due within their area of responsibility. Overdue measures are also reported monthly to the CEO of the W&W Group.

In addition, the Audit Department reports quarterly on its audit activities, compliance with the audit plan, and any postponements or new audits to be scheduled for the entire W&W Group and thus also for W&W AG.

In addition, an annual report is prepared on the audit activities in the past year, any significant or serious deficiencies identified, the status of implementation of measures to remedy these deficiencies, and compliance with and changes to the audit plan. In addition, Internal Audit comments on whether the quantitative and qualitative resources allocated to Internal Audit in terms of personnel and material are appropriate for the nature and scope of its tasks.

Both the quarterly and annual reports are also submitted to the Supervisory Board of the parent company. In addition, the head of Internal Audit reports at the meetings of the Supervisory Board's Audit Committee. Furthermore, the chair of the supervisory body or the Audit Committee is entitled to obtain information directly from the head of Internal Audit, with the involvement of the management.

Actuarial function

The actuarial function for the W&W Group is located in the Actuarial Function department of W&W AG. The key function holder is supported in her tasks by the holders of the actuarial functions of the individual companies and the employees reporting to them.

• The responsible owner of the actuarial functions at W&W AG and Württembergische Versicherung AG heads the Actuarial & Reinsurance Composite department at Württembergische Versicherung AG and the Actuarial Function division at W&W AG.

• The responsible holder of the actuarial function at Württembergische Lebensversicherung AG and the W&W Group reports directly to the company's Executive Board. She heads the "Actuarial Function" division at Württembergische Lebensversicherung AG.

• The responsible holder of the actuarial function at Württembergische Nrankenversicherung AG reports directly to the company's Executive Board.

The actuarial function depends on being provided with the information it needs to perform its tasks. Accordingly, all necessary information and documents must be made available to the actuarial function upon request.

The Executive Board ensures that the actuarial function is provided with personnel and material resources appropriate to the nature and scope of its tasks. The actuarial function of the W&W Group is supported by the actuarial functions of the individual companies. This applies in particular to the key function holders of the life insurance companies of the W&W Group and their subordinate employees.

In order to ensure the independence of the actuarial function, the Group takes care to allocate tasks with potential for conflicts of interest to different persons and to keep them separate.

The actuarial function prepares an annual report for the Executive Board, which contains important information on the calculation of technical provisions as well as statements on the underwriting and acceptance policy and the adequacy of reinsurance arrangements.

The actuarial functions of the Group and of all individual companies in the Group meet at least once a year in a committee to exchange information and compare the status of their work. This ensures that a consistent approach is taken across the Group when designing the actuarial function.

Significant changes to the governance system

The Annual General Meeting of W&W AG on May 25, 2025, resolved to amend the Articles of Association to reduce the number of members of the Supervisory Board from sixteen to twelve for the period beginning with the end of the Annual General Meeting that approves the actions of the Supervisory Board for the 2025 financial year. This took place on May 14, 2024. Since its expiry, the Supervisory Board has consisted of only twelve members. There was a change in the composition of the Executive Board during the 2024 financial year. Jürgen Steffan left the Executive Board at the end of June 50, 2024. Since then, the Executive Board has consisted of only three members. The associated changes to the Executive Board's allocation of responsibilities are presented in section B.1.

The declaration of conformity with the German Corporate Governance Code was updated with effect from December 2024 and is published in the 2024 Annual Report of W&W AG.

Significant transactions in the reporting period

There were no significant changes in the shareholder structure of W&W AG. Furthermore, there were no significant transactions with shareholders, persons exercising significant influence over the company, or members of the Executive Board or Supervisory Board during the reporting period.

Remuneration guidelines and practice

Remuneration guidelines

The remuneration guidelines for insurance companies subject to Solvency II are in line with the business and risk strategy of the W&W Group. The Group business strategy is the central document governing the strategic orientation of the W&W Group. It contains the objectives and plans for the main business activities and forms the framework for the Group risk strategy. The strategy process pays particular attention to consistency between the Group business strategy and the business strategies of the individual companies within the W&W Group. Consistency between the business strategy of the Group and that of the individual companies is ensured by a strategy process that is coordinated in terms of timing and content.

The remuneration guidelines and remuneration practices pursue the same objectives as the business and risk strategies and are also geared toward the sustainable development of the respective companies. The remuneration guidelines of the W&W Group are based on the following principles: The remuneration systems comply with the respective legal requirements, in particular Article 275 of Delegated Regulation (EU) 2015/55 (DVO) and the English Corporate Governance Code.

In accordance with the W&W Group's risk strategy, the remuneration systems are consistent with the business strategy, the risk strategy, and the Group Risk Policy. They are designed to prioritize the safeguarding of the existence, long-term success, and prosperity of the W&W Group. These must be designed in such a way that they promote a group-wide risk culture and avoid negative incentives that conflict with the risk strategy and the risk appetite adopted therein. In the spirit of a risk culture that is put into practice, harmful incentives and rewards for misconduct must be avoided. The remuneration systems support the achievement of the strategic goals and are aligned with them. This means that target agreements are derived from the strategic goals. The target cascade Supervisory Board Executive Board Employees should ensure this at all times. The total remuneration of the members of the Executive Board and the employees is competitive, i.e., it is designed in such a way as to attract, retain, and motivate the members of the Executive Board and the employees in the best possible way. The remuneration systems are modern, up-to-date, fair, non-discriminatory, and gender-neutral. The structure of the total remuneration of the members of the Executive Board and the employees ensures appropriate incentive structures in line with a group-wide risk culture. The ratio between fixed and variable remuneration is set in such a way that the variable component represents a human resources incentive on the one hand and does not encourage the members of the Executive Board and the employees to take disproportionately high risks on the other. The remuneration systems support the strategic goals of the W&W Group's business and risk strategies by taking into account sustainable aspects in the areas of the environment, social affairs, and governance. The remuneration systems and the respective corporate goals are known within the W&W Group, documented, and available for viewing in the personnel portal. The appropriateness of the remuneration systems is reviewed annually by the Remuneration Committee as part of a defined process and adjusted if necessary.

Remuneration practice

The members of the Supervisory Board receive only fixed remuneration for their work on the Supervisory Board and its committees, as well as attendance fees. The amount is determined by the Annual General Meeting.

The remuneration of the Executive Board consists of a non-performance-related component (80%) and a performance-related component (20%). The conservative structure of the total remuneration of the members of the Executive Board, with a ratio of 4:1 between fixed and variable remuneration components, was chosen in order to avoid incentives for individuals to take disproportionate risks. The proportion of fixed remuneration is high enough to allow the company to pursue a flexible remuneration policy when determining variable remuneration, up to and including the complete elimination of variable remuneration in the event of negative contributions to earnings. Due to the remaining fixed remuneration, those affected are always able to maintain an appropriate standard of living. The non-performance-related component is fixed remuneration consisting of a fixed salary (pensionable) and an allowance. The performance-related component is granted in the form of a target bonus.

The performance-related remuneration is paid out in installments as follows: 40% is paid immediately in the year following the determination of the degree to which the targets have been achieved, while the remaining 60% of the performance-related remuneration component is retained for a period of three years and subject to forfeiture clauses (sustainability criterion). The retained amount is only paid out if the W&W Group reports average IFRS earnings after taxes of at least €140 million in the three years in question and does not report a loss in any of the three years. If the average consolidated net income falls below the threshold of €140 million or if the Group reports a loss in one or more years, the amount retained for the relevant financial year shall be forfeited in full and permanently.

When determining the remuneration of members of the Executive Board, the Supervisory Board ensures that the total remuneration is appropriate to the situation of the W&W Group and to the tasks and expected performance of a member of the Executive Board.

Remuneration comparisons are carried out to determine the appropriate remuneration for a member of the Executive Board. A comparison with domestic companies in the same industry and of similar size and complexity shows that the total remuneration is in line with market conditions.

The remuneration of senior executives in the first management level in internal services below the Executive Board is composed of a fixed salary and a performance-related target bonus in a ratio of 82.5% fixed to 17.5% variable. The remuneration of senior employees below the first management level in internal sales generally consists of a fixed salary and a performance-related target bonus in a ratio of 87.5% fixed to 12.5% variable. For salaried employees in the field, remuneration is generally divided in a ratio of 2/5 fixed to 1/5 variable or 70% fixed to 50% variable.

The structure of the total remuneration between fixed and variable components was chosen to avoid incentives to take disproportionate risks. At the same time, the ratio ensures that employees are not significantly dependent on variable remuneration. The proportion of variable remuneration increases with increasing responsibility, rising to 17.5% for office staff and 55% for field staff. Fixed remuneration is determined taking into account the position, tasks and performance of the individual, as well as market comparisons and the situation of the company. The total remuneration is therefore competitive and offers sufficient incentive in terms of human resources management.

The remuneration of employees of insurance companies is based on the collective agreement for the private insurance industry. The vast majority of employees covered by the collective agreement do not receive any individual variable remuneration.

However, in addition to the fixed remuneration regulated by collective agreements, employees are generally entitled to a variable company-specific component amounting to 50% of their gross monthly salary in accordance with a Group works agreement, provided they belong to the group of eligible persons. The variable component for employees without individual contractual agreements results exclusively from this Group works agreement. The bonus is calculated based on the degree to which the Group's target results are achieved. This applies uniformly to all employees of the Group companies. The target value for the Group's results as derived from the medium-term planning is therefore also the target value for the employee bonus, thus harmonizing the goals of the employees with the company's planning. The entitlement to payment is excluded if and to the extent that there are mandatory regulatory reasons at Wüstenrot & Württembergische AG, Württembergische Versicherung AG, Württembergische Lebensversicherung AG or Wüstenrot Bausparkasse AG that prevent payment in a financial year.

Some of the employees in internal and external sales who are not covered by collective agreements receive additional individual variable remuneration based on target agreements in addition to the aforementioned collective remuneration components. This is regulated by the works agreement on the "Introduction and structuring of variable remuneration based on target agreements", the total proportion of variable remuneration is generally less than 20%. For employees in field service, the proportion of variable remuneration is generally between 50% and 55%.

Variable remuneration below the Executive Board level is paid in full once the degree of target achievement has been determined in the second quarter of the following year.

The remuneration practice for key function holders does not differ from the remuneration practice described above.

Individual and collective performance criteria

The performance-related bonus for members of the Executive Board is linked to a target agreement system. The amount of the bonus allocated to a member of the Executive Board for a past financial year depends on the achievement of the relevant corporate and individual targets. The corporate targets correspond to the annual plan approved by the Supervisory Board of W&W AG. They consist of key figures such as consolidated and individual company results, administrative expenses, consolidated customers, and employee satisfaction. The individual targets, which are derived in particular from strategic programs, relate to the organizational unit and to individual contributions to success and are agreed between the individual member of the Executive Board and the Supervisory Board. The targets are increasingly focused on sustainability. On the one hand, the targets are based on sustainable business indicators, and on the other hand, they relate to the areas of environment, social affairs, and governance. The corporate goals derived from the business strategy, such as achieving a sustainable return (annual result for the Group under IFRS, annual result for the company under HGB), a competitive cost level and cost ratios (cost efficiency / administrative expenses), and increasing employee satisfaction and customer loyalty (market performance), ensure the continuation of the company. Profitable growth combined with the creation of leaner and more efficient structures and processes enable us to secure sustainable earnings power. By setting a target for the annual result "per company/busi-ness segment" after taxes (HGB), the current and future equity requirements from profits (internal financing) are to be generated on a sustainable basis.

The entitlement to payment of the portion of variable remuneration dependent on the company's performance (company targets) is excluded if and to the extent that mandatory regulatory reasons at W&W AG, Württembergische Versicherung AG, Württembergische Lebensversicherung AG or Wüstenrot Bausparkasse AG prevent payment in a financial year.

The overall concept allows for performance-related measurement of the variable remuneration component based on operational and sustainable targets, thereby ensuring that remuneration is appropriately performance-related.

The variable remuneration of senior executives is also linked to a target agreement system. At least 50% of the total variable remuneration is determined on the basis of sustainable criteria. These criteria are derived from the targets of the respective Executive Board members, taking into account their tasks and functions, and include both economic and environmental criteria. For senior executives, 40% of the variable remuneration is determined on the basis of the achievement of annually specified corporate targets. With regard to the corporate targets, the comments on the Executive Board members apply.

60% of variable remuneration is dependent on the achievement of annually agreed quantitative and qualitative individual or organizational unit targets. Care is taken to ensure that individual targets are set that support sustainable success, taking into account the tasks and functions of the individual. At the same time, no exclusively volume-ba-sed targets are agreed in sales. In contrast to the remuneration of the members of the Executive Board/managing directors, there is currently no deferred payment. This also applies to the remuneration of key function holders. This takes into account the interpretation decision of the Federal Financial Supervisory Authority (BaFin) of December 20, 2016, on "Aspects of remuneration" within the framework of the requirements of Art. 275 DVO (EU) 2015/55.

No shares or share options are issued as variable remuneration for the Executive Board or for senior executives.

The structure of the individual and collective performance-related remuneration of key function holders does not deviate from the model described above.

Supplementary pension or early retirement arrangements

No supplementary pension or early retirement arrangements have been agreed with the members of the Executive Board or the members of the Supervisory Board.

The pension plan for members of the Executive Board consists of a defined-contribution pension plan in the form of retirement and survivor's pensions and a defined-benefit plan in the event of disability. The defined-contribution pension plan is linked to a reinsurance policy. The annual contribution amounts to 25% of the pensionable fixed salary. Due to a change in the reinsurance system, the pension benefits for members of the Executive Board in office on December 51, 2019, differ from those for members of the Executive Board appointed to office on January 1, 2020:

Lifetime pension Lump-sum payment with option to choose a pension

In the event of death after retirement:

60% of the retirement pension as a widow's pension, 15% or 20% of the retirement pension as an orphan's pension.

In the event of death during active service:

60% of the old-age pension as a widow's pension received based on the notional old-age pension at age 60,

15 or 20% of the old-age pension as an orphan's pension on the notional old-age pension at age 60.

In the event of death after retirement:

Continued payment of the old-age pension for 20 years (calculated from the date on which the old-age pension was first received).

Alternatively: Upon transfer of the pension, it is possible to include a survivor's pension at the expense of the old-age pension.

In the event of death during active service:

As a rule, 500% of the pensionable fixed salary as a minimum death benefit in the form of a lump-sum payment. This benefit can also be converted into a pension at the request of the surviving dependents.

Lifetime pension equal to the notional old-age pension at age 60.

Pension until age 65 amounting to 50% of the fixed salary. Benefit from age 65: retirement capital based on the reinsurance policy financed up to the date of occupational disability or corresponding retirement pension

No additional pension or early retirement arrangements have been agreed with key function holders.

Employees receive a company pension plan if they accept the offer to join the plan. The employer-financed company pension plan consists of defined contribution plans, with contributions calculated as a percentage of the current pensionable income. Survivors' benefits and disability pensions differ historically due to different insurance rates and different commitments regarding benefits in the event of disability. Old-age pensions are generally granted upon retirement at the age of 65 or 67, or earlier if the statutory pension is claimed at the same time. For reasons of grand-fathering, there are also benefit commitments for old-age, survivors' and disability benefits. Old-age pensions are granted upon retirement at the age of 65 or earlier if the statutory pension is drawn at the same time. Survivors' benefits generally comprise a widow's / widower's pension of 60% of the retirement pension and orphans' pensions ranging from 15% to 50% of the retirement pension.

Additional information at group level

The uniform implementation of risk management and internal control systems as well as reporting within the Group is ensured by appropriate organizational and procedural regulations:

The Group Board Risk is the central body responsible for coordinating risk management across the Group. Further details are provided in section B.5.

The group-wide internal control system is coordinated by the Group Customer Data Protection and Operational Security department. Further details are provided in section B.4.

Intra-group transactions are eliminated during consolidation. Further information can be found in section D.

With regard to the legal structure and the governance and organizational structure at Group level, reference is made to the previous sections, in particular A.1 and B.1. For a description of the subsidiaries and significant associated companies belonging to the Group, reference is also made to the presentation in section A.1.

The organizational and operational structure established in accordance with the principle of proportionality enables the requirements for risk management and internal control systems as well as reporting to be implemented in a manner appropriate to the Group's needs.