Your AlliAnz 93 Business Operations and Markets 106 Our Strategy 109 Our Progress in Sustainable Development
Revenues remained stable at € 52.3 BN. Operating profit grew by 22.1 %.
Multichannel reporting 1 You can also scan the QR-Code to get directly to the specific allianz app you wish to download from the apple app Store.
AGCS AG is rated annually by Standard & Poors, the global rating agency. The current rating is : inSurer financial STrengTh raTing aa
policyholders and insurers. The long-term damage an insured party can suffer from being unable to meet contractual obligations to clients may be even worse than the destruction caused by an earthquake, hurricane or other catastrophe. “It’s not unusual that a business has to declare bankruptcy after a major loss or gets bought out by a competitor because it was out of the market for too long,” explains Shell, who has been adjusting industrial losses for Allianz for 20 years, and has headed Property Insurance claims adjustment at AGCS since 2006. If a policyholder can no longer meet delivery obligations, he says, competitors often take over the unfulfilled orders. Then they try to keep the client for themselves with long-term supply agreements. Titan Italia was facing such a prospect. To keep it from becoming a reality, Allianz covers additional costs – for example if deliveries have to be made from a different production site. Staff overtime is also covered, so the insured party can meet contractual delivery obligations to its own clients and thus reduce the cost of lost operations.
Wilson’s second challenge was to set the course for risk management to take in the future, based on two key objectives. First, he introduced a stable, efficient and controlled risk reporting system in order to “get the numbers” and meet the future Solvency II requirements. Secondly, r ecognizing that numbers are not enough, he plans for the company to continue moving from risk measurement to even better risk management. “But that works only because risk management is understood as a culture that begins with business operations. After all, there’s no amount of risk controlling or risk reporting that can compensate for an inadequately underwritten portfolio or a poorly conceived life insurance product,” he says.
And that has reconfirmed our belief in our core strategy: with excellent employees, top-notch operating performance, financial strength and the goal to always be a trustworthy partner, we are on the way to becom- ing the world’s strongest financial community.
After the elections to the Supervisory Board at the 2012 AGM, we used the inaugural meeting on 9 May 2012, to appoint Dr. Perlet as Chairman of the Supervisory Board and Dr. Cromme and Mr. Zimmermann as Deputy Chairmen. We also held elections for Board committees and appointed Dr. Bernotat and Mr. Landau as the independent financial experts in the meaning of § 100 (5) of the German Stock Corporation Act (“Aktiengesetz”). The Supervisory Board further agreed to increase the frequency of meetings from four to six in the 2013 fiscal year.
Peter koSSuBek until 9 May 2012 Employee of Allianz Deutschland AG
igor lanDau Member of the Board of Directors of Sanofi S.A.
Dr. Helga Jung Insurance Iberia & Latin America, Legal & Compliance, M & A
Based on the strong 2012 performance we continue to propose an attractive dividend of € 4.50 to the Annual General Meeting (AGM). This corresponds to a dividend yield of 4.3 %. The payout ratio, based on net income1 for the year, is 40 %2.
Return on equity after income tax 3,5 % 10.5 5.7 11.9 12.5 9.9 1 In comparison with EURO STOXX 50; source: Bloomberg. 2 Proposal. 3 Based on net income from continuing operations after non-controlling interests.
Communication with investors is very important to us. At numerous roadshows in Europe, the United States, Canada and Asia, members of the Board of Management and our Investor Relations (IR) team presented Allianz’s strategic direction and business development in 2012. Overall, we held more than 400 meetings with institutional investors and analysts, including meetings at our headquarters in Munich. The analysts’ conference covering the annual results for the previous fiscal year and the telephone conferences on the quarterly figures, were broadcast live on the internet. We held our annual Capital Markets Day at our Milan offices where we discussed Allianz’s business in Southern Europe. At this event, the management from France, Italy, Spain and Turkey presented local activities to analysts and investors. In addition to the meetings we hosted, Board members and experts represented Allianz at 15 inter national investor conferences. Dialogue with private shareholders is another key component of our IR work. As in the previous year, we processed around 8,500 enquiries in 2012.
The Board of Management reports regularly and comprehensively to the Supervisory Board on business development, the financial position and earnings, budgeting and achievement of objectives, business strategy and risk exposure. In line with the Code’s recommendation, the Supervisory Board has issued reporting guidance which more clearly defines the information and reporting requirements of the Board of Management.
The Supervisory Board regularly reviews the efficiency of its activities. The plenary Supervisory Board discusses recommendations for improvements and adopts appropriate measures on the basis of recommendations from the Standing Committee. www
3. Diversity and appropriate representation of women The members of the Supervisory Board shall appoint new members taking into account their background, professional experience and specialist knowledge, in order to provide the Supervisory Board with the most diverse sources of experience and specialist knowledge possible.
B Corporate Governance 63 Corporate Governance Report 69 Statement on Corporate Management pursuant to § 289a of the HGB 71 Takeover-related Statements and Explanations 74 Remuneration Report
The following chart illustrates the potential value of the variable remuneration – excluding pension and perquisites – according to different performance outcomes (minimum, target and maximum). In addition, it shows the proportions delivered through fixed and variable remuneration.
1 Operating profit targets were set for Dr. Christof Mascher for overseeing Allianz Global Assistance.
3 According to his contract, Dr. Paul Achleitner receives a transition payment of € 1,027.5 ThoU after leaving the Allianz SE Board of Management. The payment is calculated based on six months of the latest Base salary and a final lump-sum payment of 25 % of the target variable remuneration. This amount is included in the Total for 2011.
7 Gary Bhojwani’s RSu grant will be based on his Annual bonus amount of uSD 1,068 Thou. The number of RSu will be calculated in line with the process for other uSD participants by application of the 2012 fourth quarter uSD/EuR exchange rate of 1.29706.
An Allianz pension, where immediately payable, is taken into account in adjusting transition payment amounts. SEVERANCE PAYMENT CAP Payments to Board members for early termination with a remaining term of contract of more than two years are capped at two year’s compensation: A regular Board member with last year Base salary of 700 and target variable remuneration of 2,100
Whereby the annual compensation Two years compensation: a. is calculated on the basis of the previous year’s annual Base salary plus 50 % of the target variable remuneration (Annual bonus + annualized Three-year bonus + Equity-related remuneration); and
= 5,600 In case the remaining term of contract is less than two years the payment is prorated according to the remaining term of the contract.
Based on the example from above (severance payment cap at 3,500) and assuming a remaining term of contract of only half a year: Severance payment cap (3,500) prorated to half a year = 875
France We serve the French market through Allianz France S.A., a major participant in insurance and financial services. We offer a broad range of property-casualty and life/health products for individuals and corporate customers, including property, casualty and liability insurance, health and disability cover as well as investment and savings products. We offer our customers access to these products via a wide variety of sales channels, including agents, life consultants, health consultants, brokers and independent financial advisors, as well as numerous external partners. In addition to these traditional sales channels, our customers can research and buy products online, either through our eAllianz offer or via our direct sales channel AllSecur.
After strong growth in 2010 and 2011, Allianz Belgium kept life insurance premiums constant in a shrinking market in 2012. Against a backdrop of low interest rates and macroeconomic uncertainty in Europe, we were among the first in the Belgian market to reduce guaranteed rates to secure long-term security and profitability.
While the first half of 2012 was a benign year in the U.S. property-casualty insurance market, the second half was impacted by a severe drought in the Midwest as well as Storm Sandy that hit the East Coast. At FFIC ongoing portfolio action to address profitability concerns and change the business mix led to a shrinking portfolio during 2012. In addition, the state of the economy, the low interest rate environment and only moderate price increases continued to put pressure on profits. Finally, adverse loss emergence in liability lines led to significant reserve increases, resulting in a challenging year for the company.
gloBal insurance lines & anglo markets gloBal insurance lines & anglo markets C 008
Bancassurance is a significant distribution channel for our life insurance business in Asia. In 2012, we signed a 10-year bancassurance distribution agreement: Our life insurance products will be distributed by HSbC in China, Indonesia, Malaysia, Australia, Sri Lanka and Taiwan and by strategic partners of Allianz in Brunei and the Philippines. This underlines our global excellence in providing tailor made products across markets while reaching an additional segment of retail banking customers.
Malaysia Both our life/health and property-casualty insurance lines have enjoyed consistently strong growth over the past years. While Allianz General continues to be the leading
China Over the past years most of Allianz’s business lines have established a presence in China, where we are able to provide customers with many types of insurance solutions, ranging from life, property-casualty, travel, medical to commercial insurance. In addition, we offer customized fund products via the Joint Venture of Allianz Guotai Junan Fund Management. Together with our strategic partner, China Pacific Insurance Group, we further strengthened local cooperation on products such as credit insurance and assistance services.
Allianz Egypt remains a leader in bancassurance. Through its partnerships with top banks we offer a wide range of life assurance products. Our strategy to develop the corporate channel brought positive results in 2012.
Our key strategic lever is having the best people. Only qualified and motivated employees will serve our clients well and thus safeguard the success of Allianz. In our business lines, in our operating entities and in our support functions, we aim to attract and nurture the best talent, to engage our employees and to develop our professional skills and expertise. We regularly collect feedback from our workforce around the world, following a widely used methodology that enables us to compare ourselves with our peers and helps our leaders define and take actions.
Oliver Bäte (until 31 December 2012) Dr. Dieter Wemmer (as of 1 January 2013)
Your Allianz 93 Business Operations and Markets 106 Our Strategy 109 Our Progress in Sustainable Development www.allianz.com/sustainability
− In the area of sustainability, Allianz once again came out on top of the Interbrand 50 Best Global Green Brands ranking in the category of financial services.
2 KPMG Wirtschaftsprüfungsgesellschaft AG has provided limited assurance on the 2012 environmental performance information. For further information, please refer to www.allianz. com/sustainability. 3 CO2 emissions are reported based on CO2 equivalents, including all Kyoto greenhouse gases.
1 Solvency according to the E.U. Financial Conglomerates Directive. Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request; Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the solvency ratio would be 188 % (2011: 170 %; 2010: 164 %).
Our Property-Casualty business generated operating profit of € 4,719 mn, € 523 mn higher than in the previous year. Our combined ratio improved by 1.5 percentage points to 96.3 %. Lower losses from natural catastrophes, the favorable pricing environment and positive impacts from our underwriting strategies drove the improvement.
Changes in segment structure, presentation and accounting policies In 2012, Allianz Group changed its structure. We implemented an additional business division – Insurance Iberia & Latin America, Legal & Compliance, Mergers & Acquisitions
2 Based on the average exchange rates in 2012 compared to 2011.
In Italy we recorded gross premiums of € 4,045 MN, up 1.4 % mainly due to tariff increases in our retail motor business. Our non-motor business declined slightly as a result of the difficult economic environment. The price effect was positive at about 1.6 %.
In 2012, total expenses stood at € 11,673 MN, compared to € 11,115 MN in the previous year. Our expense ratio increased slightly by 0.1 percentage points to 28.0 %, including the effect of newly acquired business in 2012. Excluding this effect, the underlying ratio trend was flat.
Margin on reserves 2 increased from 58 to 67 basis points, mainly due to the improved operating profit.
Operating realized gains and losses (net) amounted to € 3,044 mn, an increase of € 856 mn. This was entirely driven by higher realizations on debt investments, particularly in Germany following the duration extension program, and compensated by slightly lower realized gains on equity securities and real estate investments.
Global Insurance Lines & Anglo Markets 484 374 314 484 374 425 343 307
Our net interest, fee and commission result increased by € 9 mn to € 578 mn due to a higher net interest result, which grew by € 9 mn to € 369 mn as a result of lower funding costs and short­term investments in bonds offering higher yields. At € 209 mn, net fee and commission income remained un­ changed.
Overview: 2012 results versus previous year outlook 1 2012 results versus previous year outlook for 2012 C 055 outlook 2012 - as per annual report 2011 results 2012 allianz Group Operating profit of € 8.2 bn, plus or minus € 0.5 bn. Strong operating profit of € 9.5 bn. Average u.s. Dollar to Euro exchange rate of 1.36. Average u.s. Dollar to Euro exchange rate of 1.29. Protect capital, solvency ratios and the investments of our shareholders.
In the life sector, we expect premium growth to recover somewhat. In mature markets, low interest rates might continue to limit sales and profitability, but growth in emerging markets is likely to accelerate considerably as China and India finally come to grips with regulatory changes passed in 2010 and 2011. All in all, we expect that global premium revenue will rise in the 4.5 – 6.5 % range per annum in 2013 and 2014.
asset ManaGeMent Moderate growth in total assets under management and continued net inflows, especially into fixed income products. Operating profit in the € 2.7 bn to € 3.1 bn range. Cost-income ratio at or below 60 %.
In principle, but also given the inherent uncertainties de­ scribed above and the susceptibility of our non­operating results to adverse capital market developments, we do not provide a precise outlook for net income. However, since our outlook presumes no major disruptions of capital mar­ kets, we nevertheless expect a stable or slightly increasing net income for 2013.
1 Before policyholder participation and taxes. 2 After policyholder participation and taxes; based on 31 December 2012, balance sheet figures reflected in accumulated other comprehensive income.
Impairments (net) fell € 2,727 mn to € 934 mn. Thereof, impairments on equities amounted to € 827 mn (31 December 2011: € 2,515 mn), which mainly stemmed from our investments in the financial sector. Impairments on debt securities totaled € 89 mn (31 December 2011: € 1,125 mn). In 2011, we recorded impairments on Greek sovereign bonds of € 1,023 mn.
Loans and advances to banks and customers 94.1 98.0 Financial assets for unit-linked contracts 4 71.2 63.5 Life/Health asset base 472.3 427.5 1 This comprises assets of € 1.7 bn and € 1.9 bn and liabilities (including the market value liability option) of € (5.2) bn and € (6.3) bn as of 31 December 2012 and 31 December 2011, respectively.
Asset Management liabilities Liabilities in our Asset Management segment decreased by € 1.3 bn to € 4.3 bn, mainly due to a decrease in provisions and the reduction in Group internal financing.
Equity funding As of 31 December 2012, the issued capital registered at the Commercial Register was € 1,167,232,000. This was divided into 455,950,000 registered shares with restricted transferability. As of 31 December 2012, Allianz SE held 2,777,438 (2011: 2,754,556) own shares.
Interest expenses on senior bonds increased to € 306.8 MN (2011: € 262.5 MN) driven by additional volumes raised in 2012. For subordinated bonds interest expenses decreased amounting to € 614.1 MN (2011: € 624.2 MN) due to lower funding costs on new issuances in 2012 compared to the bonds redeemed in 2012.
currencY aLLOcatIOn OF aLLIanz se’s senIOr anD suBOrDInateD BOnDs C 075 nominal value in € mn as of 31 December 2012 2011
3 The terms of the subordinated bonds do not explicitly provide for early termination rights in favor of the bondholder. Interest payments are subject to certain conditions which are linked, inter alia, to our net income, and may have to be deferred. Nevertheless, the terms of the relevant bonds provide for alternative settlement mechanisms which allow us to avoid an interest deferral using cash raised from the issuance of specific newly issued instruments.
Net cash flow provided by operating activities amounted to € 17.8 bN, up by € 1.2 bN compared to the previous year. Net cash flow provided by operating activities is comprised of net income plus adjustments for non­cash charges, credits and other items included in net earnings and cash flows related to the net change in operating assets and liabilities. Net income after adding back non­cash charges and similar items, which were driven by a lower level of impairments on our available­for­sale investments, declined from € 9.6 bN in 2011 to € 8.5 bN in 2012, representing a decrease of € 1.1 bN. However, there was a growth in operating cash flows of € 2.3 bN from the net change in operating assets and liabilities – from € 7.0 bN in 2011 to € 9.3 bN in 2012. This in­ crease was mainly driven by higher reserves for insurance and investment contracts in our Life/Health business, mainly in Germany, Italy and France. We also recorded positive net changes from our operating receivables/pay­ ables. Lower reserves for losses and loss adjustment ex­ penses in our Property­Casualty business – especially in Australia and Allianz Global Corporate & Specialty (AGCS) – and net cash outflows from financial assets and liabilities held for trading partially offset these positive effects.
However, in 2012 Allianz continued to be exposed to two external forces which adversely affected our risk profile and would not normally be associated with our core operating activities: the European sovereign debt crisis and regulatory developments – especially the European solvency directive, Solvency II.
In addition to continuously monitoring these developments, our management has responded decisively to these external events. During 2012, we executed a derisking program focused primarily on our peripheral sovereign exposures and our exposure to financial institutions. Further more, we developed and implemented operational contingency planning for Allianz SE and its operating entities. Finally, we made adjustments to our product design and pricing in the Life/Health segment with respect to guarantees and surrender conditions. Looking forward, our robust action to deal with the Euro crisis has bolstered our financial and operational resilience to strong shock scenarios. Continuous monitoring remains a priority to ensure the sustained effectiveness of our contingency measures.
Regulatory developments Although details of future regulatory requirements, especially Solvency II and those defining systemically relevant financial institutions, are becoming clearer, the final rules are still evolving. As well as leading to delays in the introduction of the Solvency II framework, the lack of final rules for both Solvency II and systemically relevant financial insti tutions creates uncertainties for our business and in terms of the ultimate capital requirements for Allianz.
Valuation assumption: replicating portfolios Since efficient valuation and advanced, timely analysis is desired, we use a replicating portfolio technique to represent the liabilities of our Life/Health insurance business via standard financial instruments. Using the replicating portfolio we determine and revalue these liabilities under 50,000 potentially adverse Monte Carlo scenarios, including guarantees embedded in these products.
Diversification and correlation assumptions Our internal risk capital model considers concentration and correlation effects when aggregating results at the Group level, in order to reflect the fact that not all potential worst case losses are likely to materialize at the same time. This effect is known as diversification and forms a central element of our risk management framework.
Internal risk capital related to our European banking operations is allocated to the Corporate and Other segment, based on the approach applied by banks under the Basel II standards. It represents an insignificant amount of approximately 1.6 % of total pre-diversified internal risk capital. Therefore, risk management with respect to banking operations is not further discussed.
The internal risk capital model used for most of our major insurance operations only allows for the modeling of common derivatives such as equity calls, puts, forwards and interest rate swaps and options. For internal risk capital calculations, non-standardized instruments – such as derivatives embedded in structured financial products – are represented by the most comparable standard derivative types, because the volume of non-standard instruments is not material at either the local or the Group level. A more precise modeling of these instruments might change the fair value and resulting internal risk capital for these derivatives. However we also believe that any such change would not be material.
Interest rates down by 1 % Equity markets down by 30 %
Credit spread risk Our internal model framework fully acknowledges the risk of declining market values for our fixed income assets – such as bonds – due to the widening of credit spreads. However, for internal risk management and appetite, we take into account the underlying economics of our business model – for example, the fact that the cash flows of our insurance liabilities are to a large degree predictable, limiting to a large extent the risk that we are forced to sell these bonds prior to maturity at a loss and allowing us to keep the bonds as a long-term investor till the maturity date. As a consequence, we reflect this in our model using a Counter Cyclical Premium approach and view the more relevant risk to be credit default rather than credit spread.
For the Life/Health segment, credit risk is typically linked to fixed income securities, whereas the Property-Casualty segment has a significant exposure to reinsurance counterparts as well. In the life business, policyholder participation plays a significant role for credit risk assessment since potential losses from credit events can be shared to a certain extent with the policyholder. The credit insurance business of Euler Hermes is integrated in the Allianz Group model to capture the concentration and diversification effects. Cash positions and strategic partnerships are main drivers for the credit risk of the Corporate and Other segment. Credit risk related to our banking operations is not considered to be significant at the Group level.
Premium risk is actively managed by the Allianz Group and its local operating entities. Assessing the risks as part of the underwriting process is a key element of our risk management framework. There are clear underwriting limits and restrictions are centrally defined and in place across the Group. Specialty lines risk carriers such as Allianz Global Corporate & Specialty pool specific risks which require expert knowledge. In addition to the centrally defined underwriting limits, the local operating entities have limits in place that take into account their business environments.
Major failures and disasters which could cause a severe disruption to our working environment, facilities and personnel, represent significant operational risks for the Allianz Group and its operating entities. Our Business Continuity Management (bCM) framework strives to protect critical business functions from these shocks and enables them to carry out their core tasks on time and at the highest standard. Regularly enhanced, bCM activities and knowledge are embedded in the company’s culture.
The main goal of planning and managing Allianz SE’s liquidity position is to ensure that we are always able to meet payment obligations. To comply with this objective, the liquidity position of Allianz SE is monitored and forecasted on a daily basis. Strategic liquidity planning over time horizons of 12 months and 3 years is reported to the Board of Management regularly. The main tools to meet unforeseen liquidity requirements are committed credit lines from banks, commercial paper facilities, medium-term debt issuance programs, a centrally managed, highly-liquid bond portfolio with direct access to the market of sale and repurchase agreements (the so-called “Repo market”), as well as internal resources in the form of intra-group loans and an international cash pooling infrastructure.
Regarding our Asset Management business, forecasting and managing liquidity is a regular process, designed to meet both regulatory requirements and Group standards. This process is supported by the liquidity management framework implemented in Allianz Asset Management.
For the benefit of shareholders and policyholders alike, our risk management framework adds value to Allianz SE and its operating entities through the following four primary components: Risk underwriting and identification: A sound risk underwriting and identification framework forms the foundation for adequate risk taking and management decisions such as individual transaction approvals, new product approvals and strategic or tactical asset allocations. The framework includes risk assessments, risk standards, valuation methods and clear minimum standards for underwriting.
Non-current assets and assets of disposal groups classified as held for sale 14 15 14
2 As of 31 December 2012, € 2,460 mn (2011: € 2,541 mn) are pledged to creditors and can be sold or repledged.
Interest and similar income 27 21,084 20,502 19,428 Income from financial assets and liabilities carried at fair value through income (net) 28 (511) (1,287) (38) Realized gains/losses (net) 29 4,327 3,435 3,708 Fee and commission income 30 9,812 8,406 7,920
Cash and cash equivalents at end of period 12,437 10,492 8,747 cash flow from operating activities
Transactions with non-controlling interests, i.e. changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control, are accounted for as equity transactions. Losses are allocated to a non-controlling interest even if they exceed the non-controlling interest’s share of equity in the subsidiary. Any retained non-controlling investment at the date that control is lost is remeasured to fair value.
Business combinations including acquisitions and disposals of non-controlling interests A business combination occurs when the Allianz Group obtains control over a business.
Investment contracts with policyholders Fair values for investment and annuity contracts are determined using the cash surrender values of policyholders’ and contract holders’ account balances.
Available-for-sale equity securities are measured at fair value when the ownership interest is less than 20 % and no significant influence exists, and the fair value is reliably measurable. Available-for-sale equity securities include investments in limited partnerships. The Allianz Group records its investments in limited partnerships at cost, where the ownership interest is less than 20 %, and when the limited partnerships do not have a quoted market price and fair value cannot be reliably measured.
Certificated liabilities, participation certificates and subordinated liabilities Certificated liabilities, participation certificates and subordinated liabilities are subsequently measured at amortized cost, using the effective interest method to amortize the premium or discount to the redemption value over the life of the liability.
For universal life-type contracts, participating life insurance contracts and investment contracts with discretionary participation features, DAC is amortized over the contract life of a book of contracts based on estimated gross profits (EGP) or estimated gross margins (EGM), as appropriate, based on historical and anticipated future experience, which is evaluated at the end of each reporting period.
Methods and corresponding percentages for participation in profits by the policyholders are set out below for the most significant countries for latent reserves: participatioN iN profits BY policYHolders D 008
iNcoMe taXes Income tax expense consists of current taxes on taxable income actually charged to the individual Allianz Group companies and changes in deferred tax assets and liabilities. Expense and income from interest and penalties to or from tax authorities are included in current taxes. The calculation of deferred taxes is based on tax loss carry forwards, unused tax credits and on temporary differences between the Allianz Group’s carrying amounts of assets or liabilities in its consolidated balance sheet and their tax bases. The tax rates used for the calculation of deferred taxes are the local rates applicable in the countries concerned; changes to tax rates which have been substantively enacted prior to or as of the consolidated balance sheet date are taken into account. Deferred tax assets on losses carried forward are recognized only to the extent it is probable that sufficient future taxable income will be available for their realization.
reserVes for loss aNd loss adJustMeNt eXpeNses, iNsuraNce aNd iNVestMeNt coNtracts aNd deferred acQuisitioN costs As of 31 December 2012, the Allianz Group reported:1
− € 266,915 MN of the financial assets and € 71,949 MN of the financial liabilities carried at fair value are classified within Level 1 of the fair value hierarchy (quoted prices in active markets)
− € 9,872 MN of the financial assets and € 5,413 MN of the financial liabilities carried at fair value are classified within level 3 of the fair value hierarchy (valuation technique with significant input being non-observable). Level 3 financial assets represent less than 2 % of the Allianz Group’s total financial assets carried at fair value 1 Please refer to the consolidated financial statements note 2 Summary of significant accounting policies, note 37 Impairments of investments (net), and note 44 Financial instruments, for further details regarding financial instruments and impairments.
Goodwill represents the excess of the cost of a business over the fair value of net assets acquired. Upon acquisition, goodwill is allocated to the cash generating units (CGU) that are expected to benefit from the acquisition. Since goodwill is not amortized, the Allianz Group must evaluate at least annually whether the carrying value per CGU is deemed recoverable. This is assumed as long as the carrying value is not in excess of the unit’s estimated recoverable amount (present value of expected cash flows). If it is not deemed recoverable, the excess goodwill will need to be impaired. The determination of a CGU’s recoverable amount requires significant judgment regarding the selection of appropriate valuation techniques and assumptions. These assumptions include selection of appropriate discount rates, planning horizons, capitalization requirements and the expected future business results. Assumptions may need to change as economic, market and business conditions change. As such, the Allianz Group continuously evaluates external conditions and the operating performances of the CGUs.
Due to changing market and economic conditions the underlying assumptions may differ from actual developments. Potential financial impacts from deviations in certain critical assumptions based on respective sensitivity analyses are disclosed in note 47.
Recently ISSued AccountIng pRonouncementS effective on or after 1 January 2013 and not adopted early
The total consideration paid in cash amounted to € 160 mn. Acquisition-related costs in the amount of € 20 mn are included in administrative expenses.
The goodwill of € 67 mn arising from the acquisition reflects mainly the market position and growth potential of the acquired business and the French property-casualty insurance market. The goodwill is expected to be deductible for tax purposes in case of impairment or disposal of the acquired business.
The gross premiums written, total revenues and net income of the combined entity ( Allianz Group including the insurance activities acquired from Mensura CCA) for the year ended 31 December 2012 would have been € 72,223 mn, € 106,520 mn and € 5,513 mn, respectively, if the acquisition date was 1 January 2012.
The fair value of the contingent consideration arrangement is € 1 mn.
Phenix Compagnie d’assurances sur la vie SA, Lausanne 11/1/2010 219 PropertyCasualty
Expense ratio 7 in % 26.8 26.9 26.5 26.9 26.8 26.9 Combined ratio 8 in % 96.1 101.0 99.6 91.8 96.0 100.5 1 In 2012, Münchener und Magdeburger Agrarversicherung AG was transferred from Consolidation and Other to German Speaking Countries. Prior year figures have not been adjusted.
Operating income from financial assets and liabilities carried at fair value through income (net) (1) 1 (2) – 1 2 (46) 48 18
Claims and insurance benefits incurred (net) (13,942) (14,944) (12,974) (3,804) (3,691) (3,908) (595) (571) (603) Changes in reserves for insurance and investment contracts (net) (9,277) (6,378) (8,640) (2,377) (1,880) (2,249) (127) (33) 7 Interest expenses (97) (119) (114) (27) (39) (33) (3) (3) (2) Loan loss provisions – – (3) – – – – – – Operating impairments of investments (net) (231) (914) (274) (193) (762) (150) – (1) (1) Investment expenses (512) (470) (422) (179) (202) (199) (7) (6) (7) Acquisition and administrative expenses (net) (1,303) (1,524) (1,381) (1,677) (1,698) (1,715) (207) (158) (149) Fee and commission expenses (18) (17) (30) (171) (161) (194) (1) (1) – Operating restructuring charges (16) (1) (8) – – – – – – Other expenses (78) (72) (51) (10) (4) (2) – – – Operating expenses (25,474) (24,439) (23,897) (8,438) (8,437) (8,450) (940) (773) (755)
Insurance Western & Southern Europe mCev: eur swap curve minus 10 bps credit risk adjustment plus 33 bps illiquidity premium tev: 9.56 % for Allianz S.p.A.
Sensitivity analysis Sensitivity analyses were performed with regard to discount rates and key value drivers of the business plans.
18 – Unearned premiums unearned premiums D 068 € mn as of 31 December 2012 2011
The run-off triangle, also known as the “loss triangle” is a tabular representation of loss-related data (such as payments, loss reserves, ultimate losses) in two, time-related dimensions. One of these is the calendar year, while the other is the accident year (year of loss occurrence). Run-off triangles – as the basis for measuring loss reserves – demonstrate how the loss reserves change over the course of time due to payments made and new estimates of the expected ultimate loss at the respective balance sheet date.
Calendar year premiums earned and ultimate loss ratio for the individual accident years at the respective reporting date (net)
Aggregate policy reserves 350,244 338,318 Reserves for premium refunds 40,033 22,868 Other insurance reserves 710 768 aggregate policy reserves aggregate policy reserves D 082 € mn as of 31 December 2012 2011
change in a&e gross reserves For loss and loss adjustment expenses D 080 € mn
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. As a result, as of 31 December 2012 and 2011, the Allianz Group does not believe that it is exposed to a significant risk of premium deficiencies in its Life/Health segment. However, the Allianz Group’s Life/Health operations in Switzerland, Belgium, South Korea 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.
changes in the number oF issued shares outstanding number oF issued shares outstanding D 094
On 1 January 2005, the Financial Conglomerates Directive, a supplementary European Union (E.U.) directive, became effective in Germany. Under this directive, a financial conglomerate is defined as any financial parent holding company that, together with its subsidiaries, has significant cross-border and cross-sector activities. The Allianz Group is a financial conglomerate within the scope of the directive and the related German laws. The directive requires that the financial conglomerate calculates the capital needed to meet the respective solvency requirement on a consolidated basis.
foreign currency gains and losses (net) Foreign currency gains and losses are reported within income from financial assets and liabilities carried at fair value through income (net). These foreign currency gains and losses arise subsequent to initial recognition on all assets and liabilities denominated in a foreign currency, that are monetary items. This excludes exchange differences arising on financial assets and liabilities measured at fair value through profit or loss, which do not have to be disclosed separately. The Allianz Group uses freestanding derivatives to hedge against foreign currency fluctuations, for which it recognized income of € 20 mn (2011: expenses of € 251 mn; 2010: expenses of € 267 mn) for the year ended 31 December 2012.
Deferred tax assets Financial assets carried at fair value through income 34 103
Examples of derivatives include contracts for future delivery in the form of futures or forwards, options on shares or indices, interest rate options such as caps and floors, and swaps relating to both interest rate and non-interest rate markets. The latter include agreements to exchange previously defined assets or payment series.
At the local level, Allianz subsidiaries are obliged to assess whether the criteria for hedge accounting are met, in particular whether the hedge relationships are highly effective in offsetting changes in fair values or cash flows between the hedging instrument and the hedged item. Furthermore, the Allianz subsidiaries have to prepare the required hedge documentation. At inception of all hedge relationships, the conclusions reached by the Allianz subsidiaries must be approved at Group level to ensure that all hedge requirements are fulfilled and the hedge documentation is complete.
Financial liabilities for unit-linked contracts 61,082 2,235 183 63,500 Derivative financial instruments and firm commitments included in other liabilities – 237 – 237 Financial liabilities for puttable equity instruments 2,799 33 49 2,881 Liabilities held in trust 241 – 25 266 1 Excludes universal life-type contracts.
3 The amount of € 2,916 mn is gross of € 121 mn related to subleases, which represent cash inflow to the Allianz Group.
Business relations with joint ventures and associated enterprises are set on an arm’s length basis.
Letters of credit and other financial guarantees The majority of the Allianz Group’s letters of credit and other financial guarantees are issued to customers through the normal course of banking business in return for fee and commission income, which is generally determined based on rates subject to the nominal amount of the guarantees and inherent credit risks. Once a guarantee has been drawn upon, any amount paid by the Allianz Group to third parties is treated as a loan to the customer, and is, therefore, principally subject to collateral pledged by the customer as specified in the agreement.
As of 31 December 2012, the Allianz Group has received collateral, consisting of fixed income and equity securities, with a fair value of € 931 mn (2011: € 799 mn), which the Allianz Group has the right to sell or repledge. For the years ended 31 December 2012 and 2011, no previously received collateral was sold or repledged by the Allianz Group.
As of 31 December 2012, the Allianz Group took possession of cash collateral with a carrying amount of € 65 mn (2011: € – mn).
The actual return on plan assets during the year ended 31 December 2012, amounted to € 941 mn (2011: € 420 mn; 2010: € 507 mn).
A summary of amounts related to defined benefit plans is as follows: summaRy of amounts RelateD to DefineD benefit plans D 133 € mn
Expected long-term return on plan assets 4.4 4.8 5.0 Rate of compensation increase 2.0 2.2 2.4 Rate of pension increase 1.7 1.4 1.5 Rate of medical cost trend 3.8 4.1 4.1
Plan assets do not include equity securities issued by the Allianz Group and include the amount of € 7.9 mn real estate used by the Allianz Group.
AllianzGI aims to create a globally integrated investment business, with one global leadership team, one global product strategy and an alignment of investment capabilities. This significant change to the organization and the business activities will enable AllianzGI to improve efficiency and positioning for growth.
otheR RestRuctuRing plans Other restructuring plans include restructuring provisions of Allianz Global Corporate and Speciality in USA and Germany (€ 13 mn), Allianz Compania de Seguros in Spain (€ 8 mn), Allianz Suisse Versicherung (€ 7 mn) and Allianz IARD together with Allianz Vie in France (€ 6 mn).
Kpmg worldwide thereof: Kpmg ag and affiliated entities 1 1 As of 31 December 2012, KPMG AG and affiliated entities comprised KPMG operations in Belgium, Germany, Kazakhstan, Luxembourg, the Netherlands, Russia, Spain, Switzerland, Turkey, Ukraine and the United Kingdom.
2 The relevant share price used to determine the final number of RSU granted is only available after sign-off by the external auditors, thus numbers are based on a best estimate.
Associated entities Allianz dit Strategiefonds Wachstum Plus, Frankfurt am Main 46.4 3 Allianz RCM Deep Value Europe, Frankfurt am Main 51.9 3,8 AV Packaging GmbH, Munich 51.0 8 Bürgel Braunschweig GmbH, Braunschweig 25.1 Capiton IV ConFlex Co-Investment GmbH & Co. KG, Berlin 25.0 esa EuroShip GmbH & Co. KG Underwriting for Shipping, Bad Friedrichshall 40.0 Fondsdepot Bank GmbH, Hof 49.0 Mühl Product & Service und Thüringer Baustoffhandel Beteiligungs- und Verwaltungs GmbH, Kranichfeld 25.0 PrintCity GmbH, Augsburg 25.0 PrintCity GmbH & Co. KG, Augsburg 27.9 Reisegarant GmbH, Hamburg 24.0 Scandferries Holding GmbH, Hamburg 47.7 Umspannwerk Putlitz GmbH & Co. KG, Putlitz 25.4
Arcalis Assur 5, Paris 99.3 3 Arcalis SA, Courbevoie 100.0 Arcalis UN, Paris 100.0 3 Arges Investments I N.V., Amsterdam 100.0 Arges Investments II N.V., Amsterdam 100.0 AS Selecta s.r.o., Bratislava 100.0 Aspley AVT Pty Limited, Sydney 66.7 Assistance Courtage d'Assurance et de Réassurance S.A., Paris 100.0 Associated Indemnity Corporation, Novato, CA 100.0 Assurance Vie et Prévoyance (AVIP) SA, Courbevoie 100.0 Automaty Servis Selecta s.r.o., Prague 100.0 Avip Actions 100, Paris 99.6 3 Avip Actions 60, Paris 100.0 3 Avip Top Croissance, Paris 68.6 3 Avip Top Defensif, Paris 96.5 3 Avip Top Harmonie, Paris 95.2 3 AZ Euro Investments II S.à r.l., Luxembourg 100.0 AZ Euro Investments S.à r.l., Luxembourg 100.0 AZ Jupiter 4 B.V., Amsterdam 100.0 AZ Jupiter 8 B.V., Amsterdam 100.0 AZ Jupiter 9 B.V., Amsterdam 100.0 AZ Servisni centar d.o.o., Zagreb 100.0 AZ Vers US Private REIT GP LLC, New York, NY 100.0 AZ Vers US Private REIT LP, New York, NY 100.0 AZGA Insurance Agency Canada Ltd., Waterloo, ON 100.0 AZGA Service Canada Inc., Waterloo, ON 100.0 AZL PF Investments Inc., Minneapolis, MN 100.0 AZOA Services Corporation, Novato, CA 100.0 Baladau, Paris 100.0 3 BAWAG Allianz Vorsorgekasse AG, Vienna 50.0 2 Beleggingsmaatschappij Willemsbruggen B.V., Rotterdam 100.0 Bilan Services S.N.C., Nanterre 66.0 BMM Harmonie, Marseille 67.7 3
Dr. H. c. Walter ScHeel until 31 December, 2012 Former President of the Federal Republic of Germany
Dr. Jürgen HamBrecHt Former Chairman of the Board of Executive Directors, BASF SE
AllowAnce for loAn losses The overall volume of provisions includes allowances for credit losses – deducted from the asset side of the balance sheet – and provisions for risks associated with contingencies, such as guarantees, loan commitments or other obligations, which are stated as liabilities.
deferred Acquisition costs Expenses of an insurance company which are incurred in connection with the acquisition of new insurance policies or the renewal of existing policies. They include commissions paid, underwriting expenses and policy issuance costs.
deferred tAx Assets/ liAbilities The calculation of deferred tax is based on tax loss carry forwards, tax credit carry forwards and temporary differences between the carrying amounts of assets or liabilities in the published balance sheet and their tax base, and on differences arising from applying uniform valuation policies for consolidation purposes. The tax rates used for the calculation are the local rates applicable in the countries of the enterprises included in the consolidation; changes to tax rates already adopted on the balance sheet date are taken into account.
gross/net In insurance terminology the terms gross and net mean before and after deduction of reinsurance, respectively. In the investment terminology the term “net” is used where the relevant expenses (e. g. depreciations and losses on the disposal of assets) have already been deducted.
held-to-mAturity investments Held-to-maturity investments comprise debt securities held with the intent and ability that they will be held-to-maturity. They are valued at amortized cost.
reinsurAnce Where an insurer transfers part of the risk which he has assumed to another insurer.
reserves for loss And loss AdJustment expenses Reserves for the cost of insurance claims incurred by the end of the year under review but not yet settled.
segment reporting Financial information based on the consolidated financial statements, reported by business segments (Property-Casualty, Life/Health, Asset Management and Corporate and Other) as well as by reportable segments.
C 094 Impact of selected credit scenarios on internal credit risk capital (pre-diversified) 200