Investments

In view of the low yield level on government bonds and the reduced risk premiums on corporate bonds, any increase in investment income will be driven largely by the anticipated further growth in asset holdings. Although indications are emerging that money market rates will remain low on a sustained basis, we believe that there is an increased probability of a rise in yields – especially at the long end of the yield curve, with corresponding effects on equity from medium- and long-dated bonds. We shall counter this with a slightly reduced interest rate positioning and by expanding the balance sheet protection for our shareholders’ equity through recognition at cost.

Bearing in mind the current economic expectations, we shall moderately increase our equity allocation in the current year. However, since we anticipate substantially greater volatility on equity markets, we shall manage this asset class particularly tightly according to risk considerations. The above notwithstanding, we shall counteract a potential increase in volatility through broad diversification of asset classes and individual debtors.

Our strategy of progressively stepping up investments in real estate will continue in 2011. We anticipate further attractive opportunities here in our focus markets of Germany and the United States. Within the bounds of our investment strategy we shall make active use of other types of alternative investments in order to diversify our risks and boost returns.