ISSUES DISCUSSED IN THE SUPERVISORY BOARD PLENARY SESSIONS In the meeting of 16 February 2017, the Supervisory Board dealt comprehensively with the preliminary financial figures for the financial year 2016, the Board of Management’s dividend strategy, and the consideration of a share buy-back program. The appointed audit firm, KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG), Munich, reported in detail on the preliminary results of their audit. The Chief Compliance Officer then gave his annual report on the compliance organization and key compliance-related matters. In the further course of the meeting, the Supervisory Board also examined the portfolio strategy in growth markets, discussed the target achievement of the individual members of the Board of Management, and finally set their variable remuneration for the financial year 2016. In the course of the performance assessment, the fitness and propriety of the members of the Board of Management was also confirmed.
Wemmer and Dr. Zedelius. The committee also looked at other mandate matters for active and former members of the Board of Management and the target achievement among Board of Management members for 2016. Besides setting the targets for variable remuneration in 2018, the committee also prepared the adequacy assessment of the remuneration system. As a result, the committee identified the need to adjust the remuneration of the Chairman of the Board of Management. Furthermore, the Personnel Committee also dealt with the diversity concept for the Board of Management, including the legally required target for the percentage of women in the Board of Management.
Audit Committee: Dr. Friedrich Eichiner (Chairman), Sophie Boissard, Jean-Jacques Cette, Michael Diekmann,
GROUP COMPENSATION COMMITTEE Board members of Allianz SE and executives below Allianz SE Board level
The Supervisory Board regularly reviews the efficiency of its activities. The Supervisory Board discusses recommendations for improvements and adopts appropriate measures on the basis of recommendations from the Standing Committee. The self-assessment also includes an evaluation of the fitness and propriety of the individual members.
COMPLIANCE PROGRAM The sustained success of the Allianz Group is based on the responsible behavior of all Group employees, who embody trust, respect, and integrity. Through the global compliance program coordinated by its central compliance function, Allianz supports and follows internationally and nationally recognized guidelines and standards for rulescompliant and value-based corporate governance. These include the principles of the United Nations (UN Global Compact), the Guidelines of the Organization for Economic Co-operation and Development
Anti-Corruption Program of the Allianz Group ensures the continuous monitoring and improvement of the internal anti-corruption controls. More information on the Anti-Corruption Program can be found in the Sustainability Report on our website at www.allianz.com/sustainability.
Implementation Act (“SE-Ausführungsgesetz – SEAG”), which is based upon Article 59 (1) and (2) of the SE Regulation. A larger majority is required, inter alia, for a change in the corporate object or the relocation of the registered office to another E.U. member state (§ 51 SEAG).
“Restricted Stock Units” (RSUs) with a deferred payout after four years. The grant value of the RSUs allocated equals the annual bonus of the previous year, i.e. the grant value is also capped at 150 % of the respective target level. The number of RSUs allocated is derived by dividing the grant value by the fair market value of an RSU at the time of grant.
4_The equity-related remuneration that applied before 2010 consisted of two vehicles, virtual stock awards known as RSUs and virtual stock options known as “Stock Appreciation Rights” (SAR). Only RSUs have been awarded as of 1 January 2010. The remuneration system valid until December 2009 is disclosed in the Annual Report 2009 (starting on page 17). Whereas the RSU grants are automatically exercised at the vesting date, the GEI/SAR grants are exercised by the Board member within the exercise period following the vesting date. Hence the total payout from SARs depends on the individual decision by the Board member. SARs are released to plan participants upon expiry of the vesting period, assuming all other exercise hurdles are met. For SARs granted until and including 2008, the vesting period was two years and the exercise period five years. SARs can be exercised on the condition that the price of the Allianz SE stock is at least 20 % above the strike price at the time of grant. During the term of the plan, at least once on five consecutive trading days the Allianz SE stock must relatively appreciate at least 0.01 percentage points ahead of the appreciation of the Dow Jones EURO STOXX Price Index (600).
EQUITY-RELATED REMUNERATION In accordance with the approach described earlier, in March 2018 a number of RSUs were granted to each member of the Board of Management, which will vest and be settled in 2022.
Arrangements for termination of service including retirement are as follows: 1. Board members who were appointed before 1 January 2010, and who have served a minimum of five years, are eligible for a sixmonth transition payment after leaving the Board of Management.
3. Special terms – which are also in accordance with the German
We continuously monitor our business performance against these targets through monthly reviews – which cover key operational and financial metrics – to ensure we can move quickly and take appropriate measures in the event of negative developments. The Allianz Group uses operating profit and net income as key financial performance indicators across all its business segments. Other indicators include segment-specific figures, such as the combined ratio for
(in nominal terms and adjusted for foreign currency translation effects ). Global industry profitability remained challenging as the low yield environment continued in 2017. On the other hand, market volatility was generally low and stock markets performed very well.
Business environment 2017 for the asset management industry As the global economy continued growing, 2017 also was an excellent year for equity markets. Leading indices showed a very strong performance. Especially U.S. equities rallied toward year-end, fueled by the anticipation of a corporate tax reform.
3_Prior year figures changed in order to reflect the roll-out of profit source reporting to Turkey.
€ 50 bn were due to PIMCO and mainly related to fixed-income assets. The remaining € 23 bn stemmed from AllianzGI’s equities and from multi-assets, albeit to a lesser extent.
U.S. Dollar against the Euro. Despite these negative effects, total AuM
(31 December 2016: 57.8 %), while separate accounts6 were at 40.6 %
development was due to strong growth in Europe, whereas the U.S.
2_In light of the new operating-profit definition, restructuring charges are reported outside of operating profit. Prior-year figures have been adjusted accordingly.
6_Mutual funds are investment vehicles (in the United States, investment companies subject to the U.S. code; in Germany, vehicles subject to the “Standard-Anlagerichtlinien des Fonds” Investmentgesetz) where the money of several individual investors is pooled into one account to be managed by the asset manager, e.g. open-end funds, closed-end funds.
Overview: 2017 results versus previous year’s outlook1 2017 results versus previous year outlook for 2017
ALLIANZ GROUP Operating profit of € 11.1 bn, plus or minus € 0.5 bn.
Overall, we expect our 2018 operating profit to be in the range of € 5.1 bn to € 5.7 bn (2017: € 5.1 bn).
Through prudent capital management, Allianz Group aims to maintain a healthy balance between an attractive yield and investment in profitable growth. We will continue to return 50 % of
2_For further information, please refer to note 19 to the consolidated financial statements 3_Excluding self-originated German private retail mortgage loans. For 3 %, no ratings were available.
SHORT-TERM DEBT FUNDING Short-term funding sources available are the Medium-Term Note
Income from financial assets and liabilities carried at fair value through income (net)2 20 14
We closely monitor the capital position and risk concentrations of the Group and its related undertakings along each of these dimensions, and apply regular stress tests (including standardized, historical and reverse stress test scenarios as well as monthly stress scenarios focusing on current and possible future developments). This allows us to take appropriate measures to ensure our continued capital and solvency strength.
OPERATIONAL RISK Operational risks represent losses resulting from inadequate or failed internal processes and can stem from a wide variety of sources, for example: − “Clients, Products & Business Practices” potential losses due to a failure to meet a professional obligation or from the design of a product. Examples include misselling, non-compliance with internal or external requirements related to products, anti-trust behavior, data protection, sanctions and embargoes, etc. These losses tend to be of a lower frequency but with a potentially high financial impact.
Smaller related undertakings within the European Economic Area which are not covered by the group internal model are reflected with their standard formula results. At Group level, the solvency capital requirements for smaller insurance undertakings outside the
Group’s risk profile are accounted for by means of book value deduction. 5
personal lines of property and casualty risk). Ultimately, diversification is driven by the specific features of the investment or insurance products in question and their respective risk exposures. For example, an operational risk event at an Australian entity can be considered to be highly independent of a change in credit spreads for a French government bond held by a German entity.
4_The stated market value includes all assets whose market value is sensitive to equity movements (excluding unit-linked business) reflecting the Solvency II framework, and therefore is not based on classifications given by accounting principles.
In the Property-Casualty business segment, fixed-income securities tend to be short- to mid-term, due to the nature of the business, which explains the lower credit risk consumption in this segment.
Proceeds from the issuance of certificated liabilities and subordinated liabilities 7,463 7,059
OTHER ASSETS Other assets primarily consist of receivables, accrued dividends, interest and rent as well as own-used property and equipment. Depreciation is generally computed using the straight-line method over the estimated useful lives of the assets.
RESERVING PROCESS For Life/Health and Property-Casualty, the central oversight process around reserve estimates includes the setting of group-wide stand-
Allianz Group has designed a two-stage reserving process: Stage one: Life/Health reserves are calculated by qualified local staff experienced in the subsidiaries’ business. Actuaries in the local entities also conduct tests of the adequacy of the premiums and reserves to cover future claims and expenses (liability adequacy tests). The process follows group-wide standards for applying consistent and plausible assumptions. The appropriateness of the reserves and their compliance with group-wide standards is confirmed by the local actuary.
Pensions and similar obligations are measured at present value and presented net of plan assets by applying the provisions of IAS 19.
The Allianz Group records financial liabilities where non-controlling investors have the right to put their equity instruments back to the
IFRS 9, issued by the IASB in July 2014, will fully replace IAS 39 and provides a new approach on how to classify financial instruments based on their cash flow characteristics and the business model under which they are managed. Furthermore, the standard introduces a new forward looking impairment model for debt instruments and provides new rules for hedge accounting.
IDENTIFICATION OF REPORTABLE SEGMENTS The business activities of the Allianz Group are first organized by product and type of service: insurance activities, asset management activities, and corporate and other activities. Due to differences in the nature of products, risks, and capital allocation, insurance activities are further divided into the business segments Property-Casualty and
CORPORATE AND OTHER The reportable segment Holding & Treasury includes the management and support of the Allianz Group’s businesses through its strategy, risk, corporate finance, treasury, financial reporting, controlling, communication, legal, human resources, technology, and other functions. The reportable segment Banking consists of the banking activities in Germany, France, Italy, the Netherlands (until July 2017), and
Changes in the consolidated subsidiaries of the Allianz Group - 2
(CAPM) and appropriate eternal growth rates. The assumptions, including the risk-free interest rate, market risk premium, segment beta, and leverage ratio used to calculate the discount rates, are in general consistent with the parameters used in the Allianz Group’s planning and controlling process. The discount rates and eternal growth rates for the CGUs in the Property-Casualty business segment are as follows: Discount rates and eternal growth rates for the CGUs in the Property-Casualty business segment1 %
Balance carry forward of discounted loss reserves 4,055 (298) 3,757 3,882 (332) 3,550
Changes in the consolidated subsidiaries of the Allianz Group - - - 272 (7) 265
Prior years’ net loss and loss adjustment expenses incurred reflect the changes in estimation charged or credited to the consolidated income statement in each year with respect to the reserves for loss and loss adjustment expenses established as of the beginning of that year. During the year ended 31 December 2017, the Allianz Group recorded additional income of € 1,927 mn (2016: € 2,084 mn) net in respect of losses occurring in prior years. During the year ended 31 December 2017, this amount, expressed as a percentage of the net balance of the beginning of the year, was 3.4 % (2016: 3.6 %).
Calendar year premiums earned and ultimate loss ratios for the individual accident years at the respective reporting date (net)
Changes in the consolidated subsidiaries of the Allianz Group - (10,287)
prepare individual financial statements based on local laws and regulations. Local regulations establish additional restrictions on the minimum level of capital and the amount of dividends that may be paid to shareholders. The respective local minimum capital requirements are based on various criteria including, but not limited to, the volume of premiums written or claims paid, amount of insurance reserves, investment risks, mortality risks, credit risks, and underwriting risks.
FAIR VALUE HEDGES The Allianz Group uses fair value hedges to hedge the exposure to changes in the fair value of financial assets due to movements in interest or exchange rates and to hedge its equity portfolio against equity market risk. As of 31 December 2017, the derivative financial instruments used for the related fair value hedges of the
HEDGE OF NET INVESTMENT IN FOREIGN OPERATIONS As of 31 December 2017, the Allianz Group hedges part of its foreign currency net investments through the issuance of several foreign currency denominated liabilities and the use of forward sales. The total positive fair value in 2017 was € 149 mn (2016: € 6 mn).
Financial assets held for trading 347 2,716 13 3,076 447 2,451 9 2,907
Financial liabilities for puttable equity instruments 2,377 87 175 2,640 2,657 92 145 2,894 1_Quoted prices in active markets.
FINANCIAL LIABILITIES FOR PUTTABLE EQUITY INSTRUMENTS Financial liabilities for puttable equity instruments are generally required to be recorded at the redemption amount with changes recognized in income. The fair value is based on the net asset value or the use of present value techniques.
The Allianz Group engages in some business activities that involve the use of entities that meet the above-mentioned definition of structured entities. Primarily, the Allianz Group is involved with such entities due to its investment activities in the insurance business and due to its asset management activities. Furthermore, structured entities are used by the Allianz Group to source out certain risks to investors as part of its reinsurance business. Generally, the classification of an entity as a structured entity may require significant judgment.
For the year ended 31 December 2017, rental expenses totaled € 333 mn (2016: € 352 mn), net of sublease rental income received of
Securities and the contingent payment obligation of Allianz accordingly. Since June 2017, the annual coupon is the 12-month EURIBOR
plus a margin of 2.0 % p.a., the coupon payable on 30 June 2018 is 1.842 % p.a. The securities have no scheduled maturity and the security holders have no right to call for their redemption. Since June 2017, the securities may be redeemed annually on 30 June at the option of the issuer. Allianz expects not to be obliged to make a payment in the foreseeable future. However, it is not possible for Allianz to predict the ultimate payment obligations at this point in time.
The insurance guarantee scheme for life insurers levies annual contributions and, under certain circumstances, special contributions.
Thereof allotted to: 1_The asset ceiling is determined by taking the reduction of future contributions into account.
5_As of 31 December 2017, € 5,527 mn (2016: € 8,071 mn) of the defined benefit obligation are wholly unfunded, while € 18,071 mn (2016: € 15,245 mn) are wholly or partly funded.
VVaG, Munich, which is not part of the Allianz Group. Plan assets do not include any real estate used by the Allianz Group and include only € 40.4 mn of own transferable financial instruments.
As of 31 December 2017, the aggregate intrinsic value of share options outstanding was € 200 mn (2016: € - mn).
Audit services by KPMG AG primarily relate to services rendered for the audit of the Allianz Group’s consolidated financial statements as well as the audit of the statutory financial statements of Allianz SE
Beykoz Gayrimenkul Yatirim Insaat Turizm Sanayi ve Ticaret A.S., Ankara 100.0
KEY AUDIT MATTERS IN THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the financial year from 1 January 2017 to 31 December 2017. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, we do not provide a separate opinion on these matters.
The carrying amount of total financial assets as at 31 December 2017 corresponds to EUR 792,703 million. This includes financial assets that are measured at fair value on a recurring basis in the amount of EUR 648,252 million. As at 31 December 2017, the
The asset 'deferred acquisition costs' is judged at contract inception in respect of recoverability over the contract duration. The deferred acquisition costs are amortised proportionally over the scheduled duration of the contracts. Depending on the type of contract, this is carried out in proportion to premium income or in proportion to expected gross margins or expected gross profits. The deferred acquisition costs are included in the aforementioned Liability Adequacy
− We analysed the development of the aggregate policy reserves and deferred acquisition costs relative to the prior year, in particular taking into consideration that the development of changes in assumptions is consistent with business development and our expectations resulting from market observations.