On 4 May 2016, just before the AGM, the Board of Management briefed us on the first quarter 2016 performance and on the Group’s current situation, in particular the capital adequacy, the solvency ratio, and the planned sale of the life insurance business in South Korea. Because of Ms. Ira Gloe-Semler’s and Mr. Peter Denis Sutherland’s resignation from the Supervisory Board, a by-election for the committees had to be held. Ms. Martina Grundler was elected to the Audit Committee, Dr. Friedrich Eichiner to the Risk Committee, and Mr. Jim Hagemann Snabe to the Nomination Committee.
As already mentioned, the 2016 financial year also saw personnel changes within Allianz SE’s Board of Management. Mr. Jay Ralph and Dr. Maximilian Zimmerer stepped down from the Board of Management with effect from 30 June 2016 and 31 December 2016, respectively. Ms. Jacqueline Hunt was appointed as successor to Mr. Ralph with effect from 1 July 2016. Dr. Zimmerer was replaced by Dr. Günther Thallinger with effect from 1 January 2017.
Allianz S.p.A. until 22 July 2016 Allianz Sigorta A.S. Allianz Yasam ve Emeklilik A.S.
In the financial year 2016, there were the following Group committees: group Committees
Implementing Group investment strategy, including monitoring group-wide invest ment activities as well as approving invest- ment-related frameworks and guidelines and individual investments within certain thresholds.
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 efficiency review also includes an evaluation of the fitness and propriety of the individual members.
PUBLICATION OF DETAILS OF MEMBERS’ PARTICIPATION IN MEETINGS The Supervisory Board considers it good corporate governance to publish the details of individual members’ participation in plenary sessions and committee meetings.
4. Retirement age Members of the Supervisory Board may not, in general, be older than 70 years of age.
2. International character At least four of the members must, on the basis of their origin or function, represent regions or cultural areas in which Allianz sE conducts significant business.
RESTRICTIONS ON VOTING RIGHTS AND SHARE TRANSFERS; EXERCISE OF VOTING RIGHTS IN CASE OF EMPLOYEE EQUITY PARTICIPATIONS Shares may only be transferred with the consent of the company. An approval duly applied for may only be withheld if it is deemed necessary in the company’s interest on exceptional grounds. The applicant will be informed of the reasons.
These are documented for the upcoming financial year. Every three years, the MTB sustainability criteria, as described on page 25, are set for the following mid-term period. All variable awards are made under the rules and conditions of the “Allianz Sustained Performance Plan” (ASPP). The grant of variable remuneration components is related to performance and can vary between 0 % and 150 % of the respective target values. If performance was rated at 0 % no variable component would be granted. Consequently, the minimum total direct compensation for a regular member of the Board of Management equals the base salary of € 750 THou (excluding perquisites and pension contributions). The maximum total direct compensation (excluding perquisites and pension contributions) is € 4,125 THou: base salary € 750 THou plus € 3,375 THou (150 % of the sum of all three variable compensation components at target).
Details on the variable compensation components: − Annual bonus (short-term): A cash payment which rewards the achievement of quantitative and qualitative targets for the respective financial year and is paid in the year following the performance year. Under the “Inclusive Meritocracy” approach, the cultural change element of the Renewal Agenda, Group-related targets account for 50 % (equally divided between annual operating profit and annual net income). The other 50 % are linked to individual performance, which consists of quantitative and qualitative criteria. For members of the Board of Management with business division responsibilities, respective quantitative targets comprise operating profit, net income, Property-Casualty revenues and Life New Business Value. For members of the Board of Management with a functional focus, the divisional quantitative targets are determined based on their key responsibilities. The Chairman of the Allianz SE Board of Management does not have divisional quantitative targets. In all cases, the personal contribution to the Renewal Agenda is assessed alongside behavioral 24 Annual Report 2016 Allianz Group
Dr. Helga Jung (Appointed: 01/2012) Dr. Christof Mascher (Appointed: 09/2009) Jay Ralph7 (Appointed: 01/2010; End of service: 06/2016)
INTERNAL AND EXTERNAL BOARD APPOINTMENTS When a member of the Board of Management holds an appointment in another company within the Allianz Group, the full remuneration amount is transferred to Allianz SE. In recognition of the benefits to the organization, Board of Management members are allowed to accept a limited number of non-executive supervisory roles in appropriate external organizations. In these cases, 50 % of the remuneration received is paid to Allianz SE. A Board member retains the full remuneration only when the Supervisory Board qualifies the appointment as a personal one. Remuneration paid by external organizations is shown in the annual reports of the companies concerned. The remuneration relating to the external appointment is set by the governing body of the relevant organization.
Africa ◼ Benin ◼ ◼ Burkina Faso ◼ ◼ Cameroon ◼ Central Africa ◼ Congo Brazzaville ◼ Ghana ◼ ◼ Ivory Coast ◼ ◼ Kenya ◼ ◼ Madagascar ◼ Mali ◼ Morocco ◼ ◼ Senegal ◼ Togo
Business Environment Economic environment 20161 In 2016 the global economy proved to be remarkably resilient in the face of heightened political and economic uncertainty. Neither concerns about a slowdown of the Chinese economy, which prompted some turmoil on the equity markets in early 2016, nor major political surprises – including the outcome of the Brexit vote in June and the U.S. presidential elections in November – managed to derail the global economy from its moderate growth path. Compared with 2015, economic growth in the industrialized countries decelerated in 2016. Real gross domestic product rose by 1.6 % (2015: 2.1 %). In the United States, the loss in economic momentum in 2016, compared to the average pace in the current cycle, primarily reflects weakness in business investment. By contrast, private consumption continued to grow robustly. In the Eurozone, the economic recovery continued, albeit at a slightly slower pace than in 2015. Real gross domestic product expanded by 1.7 % (2015: 1.9 %). Private consumption was supported by both low inflation and a gradual labor market improvement. With an increase of 1.9 %, the German economy recorded a slightly higher growth rate than the Eurozone as a whole.
1 Consists of the underwriting-related part (aggregate policy reserves and other insurance reserves) of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 28 to the consolidated financial statements.
Impact of change in DAC (48) (158) 110 Operating loss – South Korea1 (82) (244) 162 Operating profit 4,148 3,796 352 1 The 2016 figure represents the operating loss of the first quarter only, as the negative result for the rest of 2016 was considered as non-operating.
OPERATING PROFIT BY LINES OF BUSINESS3 operAting profit by lines of business € MN
Guaranteed savings & annuities 2,306 2,090 216 Protection & health 672 764 (93) Unit-linked without guarantee 339 381 (41) Capital-efficient products 913 805 109 Operating loss – South Korea1 (82) (244) 162 Operating profit 4,148 3,796 352 1 The 2016 figure represents the operating loss of the first quarter only, as the negative result for the rest of 2016 was considered as non-operating.
Favorable effects from Market and Other4 amounted to € 76 bn, which made them the biggest driver of the upswing in total AuM. Again, much of this development was due to PIMCO, where the effects amounted to € 64 bn, and mainly concerned fixed income assets.
Operating investment result reached € 21.3 BN, as lower interest and similar income was compensated by higher realized gains.
properTy-CasualTy Growth in gross premiums written: approximately 2 % on a nominal basis. Operating profit in the range of € 5.0 BN to € 5.6 BN. Progress towards our combined ratio ambition of 94 % or better by 2018. Pressure on operating investment income (net) to continue due to reinvestments in a consistently low interest rate environment.
PROPERTY-CASUALTY LIABILITIES As of 31 December 2016, the business segment’s gross reserves for loss and loss adjustment expenses and discounted loss reserves amounted to € 65.7 bn, compared to € 65.1 bn at year-end 2015. On a net basis, our reserves, including discounted loss reserves were almost unchanged at € 57.3 bn.1
PROPERTY-CASUALTY Our Property-Casualty insurance businesses are mainly exposed to premium risk and reserve risks as part of the underwriting risk.
Natural disasters, such as earthquakes, storms and floods, represent a significant challenge for risk management due to their accumulation potential and occurrence volatility. In order to measure such risks and better estimate the potential effects of natural disasters, we use special modeling techniques in which we combine portfolio data (such as the geographic distribution and characteristics of insured objects and their values) with simulated natural disaster scenarios 1 Credit Risk Platform.
We measure these risks within our partial internal risk capital model by distinguishing between the different sub-components whenever relevant or material: absolute level, trend, volatility around best-estimate assumptions, and pandemic risks. Depending on the nature and complexity of the risk involved, our health business is represented in the partial internal model, according to PropertyCasualty or Life/Health calculation methods, and is therefore included in the relevant Property-Casualty and Life/Health figures accordingly. However, most of our health business is attributable to the Life/ Health business segment.
Furthermore we validate the model and parameters through sensitivity analyses, independent internal peer reviews and, where appropriate, independent external reviews, focusing on methods for selecting parameters and control processes. To ensure proper validation we established an Independent Validation Unit (IVU) within Group Risk responsible for validating our partial internal model within a comprehensive model validation process. Overall, we believe that to the extent possible our validation efforts are effective and that the model adequately assesses the risks to which we are exposed.
REAL ESTATE RISK Despite the risk of decreasing real estate values, real estate is a suitable addition to our investment portfolio, due to good diversification benefits as well as to the contribution of relatively predictable cashflows in the long term. As of 31 December 2016, about 3.3 % (2015: 3.5 %) of the total pre-diversified risk was related to real estate exposures.
AlliAnz Group: riSk profile – AllocAted credit riSk by buSineSS SeG- Ment (totAl portfolio before tAx And non-controllinG intereStS) pre-diversified as of 31 December 2016 2015
Credit risk comprises risks resulting from the investment portfolio, from the reinsurance portfolio, and from our credit insurance business.
BBB+ to BBB- 0.12 0.08 Non-investment grade – – Not assigned 1.99 1.76 1 Represents gross exposure broken down by reinsurer.
BUSINESS RISK Business risks include cost risks and policyholder behavior risks and are mostly driven by the Life/Health business segment and to a lesser extent by the Property-Casualty business segment. Cost risks are associated with the risk that expenses incurred in administering policies are higher than expected or that new business volume decreases to a level that does not allow Allianz to absorb its fixed costs.
Basic earnings per share (€) 42 15.14 14.56 Diluted earnings per share (€) 42 15.00 14.55 79Annual Report 2016 Allianz Group
The Allianz Group has recognized all rights and obligations related to issued insurance contracts according to its accounting policies, and thus has not separately recognized an unbundled deposit component in respect of any of its insurance contracts.
Operations, − Annual Improvements to IFRSs 2010 – 2012 Cycle, − Annual Improvements to IFRSs 2012 – 2014 Cycle.
1 For further details regarding deferred tax assets, please refer to note 34 Income taxes.
Asset management activities represent a separate reportable segment. Due to differences in the nature of products, risks and capital allocation, corporate and other activities are divided into three reportable segments: Holding & Treasury, Banking and Alternative Investments. In total, the Allianz Group has identified 16 reportable segments in accordance with IFRS 8.
Financial assets carried at fair value through income 539 643 7,427 6,431 63 64 701 625 (398) (495) 8,333 7,268
Claims and insurance benefits incurred (net) (30,576) (30,721) (22,584) (20,986) – – – – 5 5 (53,156) (51,702) Change in reserves for insurance and investment contracts (net)2 (561) (460) (12,477) (13,550) – – – – (135) (55) (13,173) (14,065)
Additions are mainly related to goodwill arising from the acquisition of Allianz Maroc S.A. (formerly Zurich Assurance Maroc S.A.), Casablanca, effective 3 November 2016, Allianz C.P. General Insurance, Bangkok, effective 3 October 2016, Rogge Global Partners Ltd., London, effective 31 May 2016, several insurance portfolios in the Netherlands and several windparks.
− Insurance Asia Pacific, − Insurance Central and Eastern Europe, including Bulgaria, Croatia,
The carrying amounts of goodwill are allocated to the Allianz Group’s CGUs as of 31 December 2016 and 2015, as follows: allocatIon oF carryIng amounts oF goodwIll to cgus € mn as of 31 December 2016 2015
Accident year as of 31 December 1 Includes effects from foreign currency translation adjustments and other changes. 2 The total development 2016 to 2015 of € 1,951 MN represents the cumulative surplus from reestimating the ultimate loss for prior year claims. Considering foreign currency translation adjustments of net € (41) MN as well as changes in the consolidated subsidiaries of the Allianz Group and other changes of in total € 174 MN, this leads to an effective run-off result of net € 2,084 MN, which can be found in the table “Change in the reserves for loss and loss adjustment expenses” within this note.
Accrued interest and rent 564 579 Unearned income 440 374 Provisions
In most of these markets, the effective interest rates earned on the investment portfolio exceed these guaranteed minimum interest rates. In addition, the operations in these markets may also have significant mortality and expense margins. However, the Allianz Group’s Life/Health operations in Switzerland, Belgium and Taiwan have high guaranteed minimum interest rates on older contracts in their portfolios and, as a result, may be sensitive to declines in investment rates or a prolonged low interest rate environment.
ISSUED CAPITAL Issued capital as of 31 December 2016 amounted to € 1,170 mn divided into 457,000,000 registered shares. The shares have no-par value but a mathematical per-share value of € 2.56 each as a proportion of the issued capital.
In July 2016, Allianz SE purchased 1,189,514 treasury shares at an average price of € 122.08 for the purpose of hedging obligations from the Allianz Equity Incentive Program. For reasons of hedge accounting, Allianz SE reduced this position of treasury shares in August 2016 by 816,529 shares at an average price of € 129.78 and, at the same time, entered into corresponding forward transactions on Allianz shares at an identical reference price. As of 31 December 2016, the remaining treasury shares of Allianz SE held as a hedge for obligations from the Allianz Equity Incentive Program amounted to 1,026,029 shares.
Change in unearned premiums (net) (550) (522) – (1,073) Premiums earned (net) 46,588 23,769 – 70,357
CoRPoRate and otHeR Service agreements (526) (410) Investment advisory and banking activities (299) (335)
Items that may never be reclassified to profit or loss Actuarial gains and losses on defined benefit plans 148 (228)
For the year ended 31 December 2016, the write-down of deferred taxes on tax losses increased the tax expenses by € 103 mn (2015: € 113 mn). The reversal of write-down of deferred tax assets on tax losses carried forward resulted in deferred tax income of € 9 mn (2015: € – mn). Due to the use of tax losses carried forward, for which deferred tax assets were previously written off, the current income tax expenses decreased by € 1 mn (2015: € 3 mn). Deferred tax income increased by € 32 mn (2015: € 28 mn) due to the use of tax losses carried forward, for which deferred tax assets were previously written off. The above-mentioned effects are shown in the reconciliation statement as “effects of tax losses”.
36 – Fair values and carrying amounts of financial instruments Certain risk disclosure requirements of IFRS 7 are reflected in the following sections of the Risk and Opportunity Report within the Group Management Report: − Internal risk capital framework including all subsections, − Risk based steering and risk management, − Allianz risk profile and management assessment, − Market risk, credit risk and liquidity risk in the section quantifiable risks and opportunities by risk category.
Quantification of significant non-market observable inputs The following table shows the quantitative description of the valuation technique(s) and input(s) used for the level 3 portfolios described above: Quantitative Description of valuation techniQue(s) anD non-market observable input(s) useD € mn
INDEMNIFICATION CONTRACTS Indemnification contracts are executed by the Allianz Group with various counterparties under existing service, lease or acquisition transactions. Such contracts may also be used to indemnify counterparties under various contingencies, such as changes in laws and regulations or litigation claims.
Due in 1 year or less 5 5 Due after 1 year and up to 5 years 22 22 Due after 5 years 1,092 192
Pension increases apart from AVK and APV are guaranteed at least with 1 % p.a. Depending on legal requirements, some pension increases are linked to inflation. In AVK the complete surplus share of the retirees is used to increase their pension. The period in which a retirement benefit can be drawn is usually between age 60 and age 67.
Additionally, the Allianz Group offers a deferred compensation program, “Pensionszusage durch Entgeltumwandlung (PZE)”, for active employees. Within some boundaries they convert at their discretion parts of their gross income and receive in exchange a pension commitment of equal value. PZE is qualified as a defined benefit plan with minor risk exposure.
Changes in demographic assumptions (9) 20 – – – – (9) 20 Changes in financial assumptions 1,382 (664) – – – – 1,382 (664)
6 As of 31 December 2016, € 8,071 mn (2015: € 7,857 mn) of the defined benefit obligation are wholly unfunded, while € 15,245 mn (2015: € 14,470 mn) are wholly or partly funded.
The sum of the total remuneration of the Allianz SE Board of Management for 2016, excluding the notional accruals of the MTb 2016 – 2018 and excluding the pension service cost, amounts to € 26 Mn (2015, including the payout of the MTb 2013 – 2015: € 57 Mn).
Associates Adriatic Motorways d.d., Zagreb 33.3 Allianz EFU Health Insurance Ltd., Karachi 49.0 Allianz Europe Small Cap Equity, Senningerberg 21.9 5 Allianz Fóndika S.A. de C.V., Mexico City 26.8 Allianz France Investissement IV, Paris 73.3 5,9 Allianz Invest Vorsorgefonds, Vienna 29.1 5 Allianz Saudi Fransi Cooperative Insurance Company, Riyadh 32.5 Allianz Securicash SRI, Paris 17.0 5,9 Archstone Multifamily Partners AC JV LP, Wilmington, DE 40.0 Archstone Multifamily Partners AC LP, Wilmington, DE 28.6 Areim Fastigheter 2 AB, Stockholm 23.3 Areim Fastigheter 3 AB, Stockholm 26.2 Assurcard N.V., Haasrode 20.0 Autoelektro tehnicki pregledi d.o.o., Vojnić 49.0 AWP Insurance Brokerage (Beijing) Co. Ltd., Beijing 100.0 9 Bajaj Allianz General Insurance Company Ltd., Pune 26.0 Bajaj Allianz Life Insurance Company Ltd., Pune 26.0 Bazalgette Equity Ltd., London 34.3 Berkshire Hathaway Services India Private Limited, New Delhi 20.0 Berkshire India Private Limited, New Delhi 20.0 Broker on-line de Productores de Seguros S.A., Buenos Aires 30.0 Brunei National Insurance Company Berhad Ltd., Bandar Seri Begawan 25.0 Carlyle China Realty L.P., George Town 15.0 5,9 Carlyle China Rome Logistics L.P., George Town 63.3 5,9 Chicago Parking Meters LLC, Wilmington, DE 49.9 CPIC Allianz Health Insurance Co. Ltd., Shanghai 22.9 Data Quest SAL, Beirut 36.0 Douglas Emmett Partnership X LP, Wilmington, DE 28.6 Dr. Ignaz Fiala GmbH, Vienna 33.3 E.ON Distributie România S.A., Târgu Mures 30.0 European Outlet Mall Fund FCP-FIS, Luxembourg 25.8 5 Four Oaks Place LP, Wilmington, DE 49.0 Helios Silesia Holding B.V., Amsterdam 45.0 Henderson UK Outlet Mall Partnership LP, Edinburgh 19.5 9 IPE Tank and Rail Investment 1 S.C.A., Luxembourg 48.8 Lennar Multifamily Venture LP, Wilmington, DE 13.5 9 Medgulf Allianz Takaful B.S.C., Seef 25.0 New Path S.A., Buenos Aires 40.0 NGI Group Holdings LLC, Wilmington, DE 30.0 OeKB EH Beteiligungs- und Management AG, Vienna 49.0 OVS Opel VersicherungsService GmbH, Vienna 40.0 PGREF V 1301 Sixth Holding LP, Wilmington, DE 24.5 Professional Agencies Reinsurance Limited, Hamilton 14.0 9 Residenze CYL S.p.A., Milan 33.3 SAS Alta Gramont, Paris 49.0 SCI Bercy Village, Paris 49.0 SK Versicherung AG, Vienna 25.8 SNC Alta CRP Gennevilliers, Paris 49.0 SNC Alta CRP La Valette, Paris 49.0 SNC Société d'aménagement de la Gare de l'Est, Paris 49.0 Solveig Gas Holdco AS, Oslo 30.0 Tellsid Holdings Limited, Saint Helier 16.7 9 Wildlife Works Carbon LLC, San Francisco, CA 10.0 9