Mercedes 2006 Annual Report Download - page 73

Management of pension funds comprises the optimal invest-
ment in terms of the risk-return profile of pension assets to cover
the corresponding pension liabilities. The major part of pension
assets is held in separate pension funds and is not available for
general business purposes. The funds are allocated to different
asset classes such as equities and bonds based on an optimi-
zation process which takes into account the expected growth of
pension liabilities. The performance of the asset management
is measured by comparing with defined benchmark indices.
Decisions on ordinary and extraordinary capital contributions
to the pension funds are centralized worldwide in the Global
Pension Committee. Further information on pension liabilities is
given in Note 24a of the Notes to the Consolidated Financial
Statements.
The risk volume which is subject to credit risk management
includes all worldwide creditor positions of DaimlerChrysler with
financial institutions, issuers of securities and end customers.
Credit risks with financial institutions and issuers of securities arise
primarily from the trading of derivative financial instruments
and the investments executed as part of our liquidity management.
The management of these credit risks is mainly based on an
internal limit system, which reflects the creditworthiness of the
respective bank or issuer. The credit risk with end customers
results from granting them a payment period for goods and services
delivered. Similarly, an internal assessment of customers’
creditworthiness provides the basis for quantifying the associated
risk. In order to hedge these risks, bank guarantees are often
demanded before delivery is initiated. The credit risk with end
customers in the Financial Services business is managed on
the basis of a standardized risk management process. This process
defines minimum requirements for the sales-financing and
leasing business and sets standards for the credit processes as
well as for the identification, measurement and management
of risks. The main elements for the management of credit risks
are appropriate creditworthiness assessments, supported by
statistical analyses and evaluation methods, as well as structured
portfolio analysis and monitoring.
Financial country risk management includes various risk aspects:
the risk from investments in subsidiaries and joint ventures,
the risk from the cross-border financing of Group companies in risk
countries, and the risk from direct sales to end customers in
these countries. DaimlerChrysler has developed an internal limit
system that divides all countries with DaimlerChrysler operations
into risk categories. Credit volumes are restricted according to the
country classification or higher guarantees are considered.
Available instruments for hedging country risk such as Hermes
insurance are sometimes employed. In addition, a committee
sets and restricts the level of hardcurrency credits to Financial
Services companies in risk countries.
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