Your AlliAnz 49 Business Operations and Markets 56 Strategy and Steering 59 Progress in Sustainable Development
MAnAGeMent Discussion AnD AnAlYsis 64 Business Environment 66 Executive Summary of 2013 Results 71 Property-Casualty Insurance Operations 78 Life/Health Insurance Operations 82 Asset Management 85 Corporate and Other
92 Balance Sheet Review 99 Liquidity and Funding Resources 104 Reconciliations risk AnD opportunitY report AnD FinAnciAl control 105 Risk and Opportunity Report 123 Controls over Financial Reporting and Risk Capital
D Consolidated Financial Statements 126 Content 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of Changes in Equity 131 Consolidated Statements of Cash Flows 134 Notes to the Consolidated Financial Statements
Net income from continuing operations 4 € Mn 6,344 14.1 % 5,558 2,853 5,209 4,650 4,268 7,991 69 Net income (loss) from discontinued operations, net of income taxes 4 € Mn – – – – – (395) (6,373) 723 –
Balance sheet as of 31 December 1 thereof: Reserves for insurance thereof: Reserves for loss and loss
Share price as of 31 December € 130.35 24.4 % 104.80 73.91 88.93 87.15 75.00 147.95 22 Market capitalization as of 31 December € Mn 59,505 24.5 % 47,784 33,651 40,419 39,557 33,979 66,600 23
Other data Return on equity after income tax 1,7,8 % 11.9 0.8 % -p 11.1 5.9 11.9 12.5 9.9 15.0 23
8 Based on net income from continuing operations after non-controlling interests. 9 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 as of 31 December 2013 would be 173 % (2012 (as published): 188 %). The conglomerate solvency ratio decreased by approximately 16 percentage points as of 1 January 2013 due to amendments to IAS 19.
On pages 249 to 252, you will find a glossary of selected accounting, insurance and financial market terms used in this report.
Allianz is a globAl compAny that operates in more thAn 70 countries. our experience and expertise in insurance and asset management make us one of the world’s strongest finAnciAl communities. with our broad portfolio of products and first-class service, we create tailor-made solutions for a changing world.
Group profile shareholders’ equity page 92 AA standard & poor's rating since 2007 total revenues page 67 net income attributable to shareholders page 69 € bn110.8 dividend per share (proposal) page 22 operating profit page 68 conglomerate solvency page 92 € Mn10,066
Our customers are at the heart of everything we do. Our in-depth knowledge of the markets and the variety of our products enable us to find the best solutions for their individual needs. We safeguard our customers and take advantage of global financial opportunities with them.
With these results we held up very well not only against our international competitors. We also continued to further improve our financial strength as evidenced by one of the best ratings of all insurance companies from the rating agency Standard & Poor’s. Furthermore, our AA rating outlook was updated to “stable” by the same rating agency. This represents an outstanding assessment of our capital strength and solidity. The message is that your money is well invested in Allianz shares.
It was a difficult year for all regions of the world, with growth hampered by the need for structural adjustments, the fiscal consolidation in the Eurozone, the fiscal gridlock in the United States and sizeable political risks
Even so, we succeeded in making positive headlines for the second year in a row. The Property-Casualty business posted an increase in operating profit of 14.2 %, despite considerable losses from natural catastrophes. We were more than able to make up for these losses with a big improvement at our U.S. Property-Casualty subsidiary Fireman’s Fund and an excellent contri - bution to operating profit from Allianz Italy.
5 Letter to the Investors 10 Supervisory Board Report 17 Supervisory Board 18 Board of Management 20 International Executive Committee 21 Allianz Share following the debate in the United States on a gradual reduction of asset purchases by the Federal Reserve Bank.
For the coming year, we believe that Allianz is well equipped to further boost its competitive position despite the challenges we face.
Alongside regulation, another increasingly important theme is the digitali- zation of our business models. New technologies are enabling us to meet the evolving needs of our clients, develop new products and tariffs and become more efficient and competitive. In this context, keeping our clients’ and company’s data secure has been given top priority. Digitalization is a long-term project. We have already achieved a great deal in recent years, but there is still a lot of work to do if we are to take full advantage of the potential available to us.
We are pleased to note that our shareholders have also benefited from our success. We see the increase of 24.4 % in Allianz’s share price in 2013 as a sign that the markets agree with our strategy and our earnings stability. For 2014, we are aiming for an operating profit of € 10.0 BN. Due to ongoing market volatility, however, we believe that this result may ultimately rise or fall by up to € 500 mN. We will continue to work hard to justify your trust in us.
In addition, we were extensively involved in the Board of Management’s planning for both the 2014 fiscal year and the medium term. At various meetings, the Chief Executive Officers (CEOs) of Euler Hermes, Allianz Lebensversicherungs-AG and PIMCO presented the performance and strategic positioning of their entities.
The Board of Management’s reports were supplemented by documents which each member of the Supervisory Board received in preparation for each meeting. Likewise, the annual financial statements of Allianz SE, the consolidated financial statements and the auditor’s reports were also made available to us in time for the relevant meeting. The half-yearly and quarterly financial reports, and the results of the auditor’s review were provided in advance to members of the Audit Committee.
In the 2013 fiscal year, the Supervisory Board held six meetings. The meetings took place in February, March, May, August, October and December.
In our meeting on 1 August 2013 the Board of Management reported in depth on the half-yearly results. We examined Allianz Turkey’s business activities and the security of client data in the wake of the NSA disclosures. We also dealt with the issuance of Allianz Shares to employees of Allianz Group. We were given a presentation on the performance of Allianz Lebensversicherungs- AG and had a thorough discussion about the challenges posed by persistently low interest rates and about product initiatives featuring a new guarantee concept. In the executive session, we agreed to a reduction in the thresholds regarding transactions in equity holdings which require our approval as well as to the respective amendment of our Rules of Procedure.
At the meeting of 2 October 2013, we dealt extensively with the strategy of the Allianz Group, including risk strategy and risk management, capital management and digitalization. We were also given a presentation on the business performance and further development of the business model at PIMCO and discussed the outflows of funds from fixed income investments. The meeting was followed by a separate information session for members of the Supervisory Board where Allianz managers gave presentations on current topics.
Annual Report 2013 Allianz Group 13 tion of the Board of Management with effect from 1 January 2014, to set the yearly premiums for pension schemes for members of the Board of management, and set out their targets for 2014. We also reviewed and approved the appropriateness of the remuneration of the Board of Management by means of a vertical and horizontal comparison. In line with a new recommendation of the Code, the “upper management” and “relevant workforce” groups were defined for the vertical comparison. In addition, we intensively discussed the Supervisory Board’s efficiency review, which we carried out for the first time in 2013 with the aid of an external advisor, and we discussed potential improvements in the way the Supervisory Board operates.
DeCLArATiON OF CONFOrMiTY wiTH THe GerMAN COrPOrATe GOverNANCe CODe The Supervisory Board dealt with the new version of the Code dated 13 May 2013.
On 12 December 2013 the Board of Management and the Supervisory Board issued the Declaration of Conformity in accordance with § 161 of the German Stock Corporation Act (“Aktiengesetz ”). The Declaration was posted on the company website, where it is available to shareholders at all times. Allianz SE fully complies and will continue to fully comply with the recommendations of the German Corporate Governance Code Commission made in the Code’s version of 13 May 2013 with one exception. Deviating from Item 5.3.2 of the Code, the Supervisory Board’s Risk Committee – rather than the Audit Committee – will be responsible for monitoring the risk management system.
Further explanations of corporate governance in the Allianz Group can be found in the Corporate Governance Report starting on page 27 and the Statement on Corporate Management pursuant to § 289a HGB starting on page 32. More information on corporate governance can also be found on the Allianz website at www.allianz.com/corporate-governance.
COMMiTTee ACTiviTieS The Supervisory Board has formed various committees in order to perform its duties efficiently: the Standing Committee, the Personnel Committee, the Audit Committee, the Risk Committee and the Nomination Committee. The committees prepare the discussion and adoption of resolutions in the plenary sessions. Furthermore, in appropriate cases, the authority to adopt resolutions has been delegated to the committees. There is no Conciliation Committee because the German Co-Determination Act (“Mitbestimmungsgesetz”) which provides for such a committee does not apply to Allianz SE as a European Company (SE). Please find the composition of the committees at the end of the reporting period on page 15.
The Risk Committee held two meetings in 2013. In both meetings, the committee discussed the current risk situation of the Allianz Group with the Board of Management. The risk report as well as other risk-related statements in the annual Allianz SE and consolidated financial statements and management and group management reports, were reviewed with the auditor and
Annual Report 2013 Allianz Group 15 the Audit Committee was informed of the result. The appropriateness of the early risk recognition system in Allianz was also discussed. In the August meeting, the committee looked in detail at the effectiveness of the risk management system, including an examination of its compliance with minimum supervisory requirements. Other matters considered were the risk strategy and market and credit risk.
There was no business requiring a meeting of the Nomination Committee during fiscal year 2013.
Chair and committees of the Supervisory Board – as of 31 December 2013 Chairman of the Supervisory Board: Dr. Helmut Perlet Deputy Chairmen: Dr. Wulf H. Bernotat, Rolf Zimmermann Standing Committee: Dr. Helmut Perlet (Chairman), Dr. Wulf H. Bernotat, Prof. Dr. Renate Köcher, Gabriele Burkhardt-Berg, Rolf Zimmermann Personnel Committee: Dr. Helmut Perlet (Chairman), Christine Bosse, Rolf Zimmermann Audit Committee: Dr. Wulf H. Bernotat (Chairman), Igor Landau, Dr. Helmut Perlet, Jean-Jacques Cette, Ira Gloe-Semler Risk Committee: Dr. Helmut Perlet (Chairman), Christine Bosse, Peter Denis Sutherland, Dante Barban, Franz Heiß Nomination Committee: Dr. Helmut Perlet (Chairman), Prof. Dr. Renate Köcher, Peter Denis Sutherland
on 25 February 2014 and in the plenary session of the Supervisory Board on 26 February 2014. The final financial statements and KPMG’s audit reports were reviewed on 13 March 2014 by the Audit Committee and in the Supervisory Board plenary session. The auditors participated in these discussions and presented the main results from the audit. No material weaknesses in the internal financial reporting control process were discovered. There were no circumstances that might give cause for concern about the auditor’s independence.
On 1 January 2013, Board of Management members Mr. Oliver Bäte and Dr. Dieter Wemmer exchanged their responsibilities. Mr. Bäte took over responsibility for Insurance Western & Southern Europe. Dr. Wemmer took over responsibility for Finance, Controlling, Risk.
GaBriele BurkHarDt-BerG Chairwoman of the Group Works Council of Allianz SE
ira Gloe-semler Chairwoman of the federal insurance group of ver.di Germany franZ Heiss Employee of Allianz Beratungs- und Vertriebs-AG
Board of Management miCHael Diekmann Chairman of the Board of Management
Dr. HelGa JunG Insurance Iberia & Latin America, Legal & Compliance, M & A
International Executive Committee miCHael Diekmann Chairman, Allianz SE Germany amer aHmeD Allianz Re Germany solmaZ altin Allianz Sigorta A.S. Turkey oliver Bäte Allianz SE Germany manuel Bauer Allianz SE Germany
CHristof masCHer Allianz SE Germany severin moser Allianz Suisse Switzerland niran Peiris Allianz Australia Australia
GeorGe sartorel Allianz SE – Asia-Pacific Singapore viCente tarDío Barutel Allianz Companía de Seguros y Reaseguros Spain axel tHeis Allianz Global Corporate & Specialty Germany anDreW torranCe Fireman’s Fund Insurance Company USA
After a lackluster start to the year 2013, European share prices started to fall in the spring, prompted by the financial crisis in Cyprus and the difficult political situation in Italy. As these economies started to heal, and with markets expecting central banks to stick to their expansionary monetary policies, share prices started to pick up considerably – before coming to an abrupt stop in June. This was triggered by hints made by the Federal Reserve Bank that it might start scaling down its bond purchase program before the end of 2013. Investors reacted by pulling considerable amounts of money out of the stock and bond markets – particularly from emerging markets. After further comments by the Federal Reserve Bank then suggested that an end to – or a restriction of – bond purchases was not looming on the horizon after all, share prices rallied during the second half of the year.
The gains made by Allianz shares in the previous year continued in a dynamic fashion in 2013, climbing by 24.4 % to € 130.35. Assuming that the dividend was reinvested in Allianz shares, total shareholder return amounted to 29.1 %. This rising share price reflects the company ’s encouraging business development. The increase of our share price, however, was somewhat less than the STOXX Europe 600 Insurance (+ 28.9 %) as market fears intensified during the course of the year that rising interest rates in the United States would slow down growth of our asset manager PIMCO. Allianz shares did, however, clearly outperform cross-industry indices like the EURO STOXX 50 (+17.9 %).
Rising share prices in 2013 also confirmed Allianz shares as an attractive investment for the longer term. For example, investors who have held our shares in their portfolios for five years and opted to reinvest their dividends in Allianz shares will have earned an average annual total shareholder return of 17.1 %.
Development of the AlliAnz shAre price versus stoXX europe 600 insurAnce AnD euro stoXX 50 indexed on the Allianz share price in €
Allianz (excl. dividends) 24.4 11.7 2.7 Allianz (incl. dividends) 29.1 17.1 6.4
Allianz is one of the most highly valued financial services providers in the world, with our strength reflected in the weighting of Allianz shares in major German, European and global indices. In the STOXX Europe 600 Insurance, which includes 37 insurance companies, our shares carry the greatest weight. In the MSCI World Financials index we are among the top firms.
With our Environmental, Social and Governance Board we demonstrate our commitment to sustainability. We believe the Allianz Group’s focus on and clear commitment to environmental, social and governance issues in all our business activities enhances the attractiveness of Allianz shares for investors.
With around 430,000 shareholders, Allianz is one of the most widely held publicly-owned corporations in Europe. Apart from approximately 0.6 % of Allianz shares held in treasury, all of our shares continue to be held in free float. At the end of the year, 86 % were held by institutional investors and 14 % by private investors. The breakdown by region shows that 69 % of Allianz shares were owned by Europeans and 31 % by non-Europeans.
For up-to-date information on our shareholder structure, please refer to www.allianz.com/shareholders.
Share price performance in the year % 24.4 41.8 (16.9) 2.0 16.2
Market capitalization as of 31 December € bn 59.5 47.8 33.7 40.4 39.6 Average number of shares traded per day (Xetra) mn 1.7 2.4 3.1 2.5 3.0
Service and Contact Allianz Investor Line Mon – Fri: 8 am – 8 pm CET Phone: +49.89.3800-7555 Email: investor.relations@allianz.com
– have been maintained by Allianz SE. For further details on the differences between a German stock corporation and a European Company with a registered office in Germany, please refer to www.allianz.com/
Developing, implementing and monitoring a Group-wide it strategy, approval of relevant it investments.
Besides Board committees, there are also Group committees whose job it is to prepare decisions for the Board of Management of Allianz SE, submit proposals for resolutions and ensure the smooth flow of information within the Group.
Monitoring of the underwriting business and related risk management, developing an underwriting policy and strategy.
The Allianz Group runs its operating entities and business segments via an integrated management and control process. The Holding and the operating entities first define the business strategies and goals. On this basis, joint plans are then prepared for the Supervisory Board’s consideration when setting targets for performance-based remuneration of the members of the Board of Management (for details, please see the Remuneration Report starting on page 37). When filling managerial positions, the Board of Management takes diversity into consideration. For example, 30 % of managerial positions in the Allianz Group in Germany are targeted to be filled by women by 2015.
Principles and function of the Supervisory Board The German Co-Determination Act (Mitbestimmungsgesetz) does not apply to Allianz SE because it has the legal form of a European Company (SE). The size and composition of the Supervisory Board are instead determined by general European SE regulations. These regulations are implemented in the Statutes and by the Agreement concerning the Participation of Employees in Allianz SE dated 20 September 2006. The agreement can be found on our website at www.
In accordance with the Agreement concerning the Participation of Employees in Allianz SE, the seats for the six employee representatives are allocated in proportion to the number of Allianz employees in the different countries. The Supervisory Board currently in office comprises four employee representatives from Germany and one each from France and Italy. The last regular election of the Supervisory Board took place in May 2012 for a term lasting until the end of the ordinary AGM in 2017.
The Supervisory Board held six regular meetings in financial year 2013 and is scheduled to meet three times each half calendar year in the future. Extraordinary meetings may be convened as needed. The committees also hold regular meetings. The Supervisory Board takes all decisions based on a simple majority. The special requirements for appointing members to the Board of Management contained in the German Co-Determination Act and the requirement for a Conciliation Committee do not apply to an SE. In the event of a tie, the casting vote lies with the Chairman of the Supervisory Board, who at Allianz SE must be a shareholder representative. If the Chairman is not present in the event of a tie, the casting vote lies with the deputy chairperson from the shareholder side. A second deputy chairperson is elected on the proposal of the employee representatives.
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.
− Preparation of the self-evaluation of the Supervisory Board audit CoMMittee 5 members − Chairman: appointed by the Supervisory Board (Dr. Wulf H. Bernotat)
− Three shareholder represen - tatives (Dr. Wulf H. Bernotat, Igor Landau, Dr. Helmut Perlet)
− Monitoring of the financial reporting process, the effectiveness of the internal control and audit system and legal and compliance issues
− Monitoring of the audit procedures, including the independence of the auditor and the services additionally rendered, awarding of the audit contract and discussion of key issues related to the external audit risk CoMMittee 5 members − Chairman: appointed by the Supervisory Board (Dr. Helmut Perlet)
− Three shareholder representatives (Christine Bosse, Dr. Helmut Perlet, Peter Denis Sutherland)
− Initial review of the Risk Report and other risk-related statements in the annual financial statements and management reports of Allianz se and the Allianz Group, informing the Audit Committee on the results of such reviews personneL CoMMittee 3 members − Chairman: Chairman of the Supervisory Board (Dr. Helmut Perlet)
− Preparation of plenary session resolutions on the compensation system and the overall compensation of Board of Management members
− Conclusion, amendment and termination of service contracts of Board of Management members unless reserved for the plenary session
− Long-term succession planning for the Board of Management, taking diversity into account and, in particular, aiming for adequate representation of women
puBLiCation of detaiLs of MeMBers’ partiCipation in MeetinGs presenCe in perCent pLenary sessions of tHe supervisory Board Dr. Helmut Perlet (Chairman) 6/6 100 Dr. Wulf H. Bernotat (Vice Chairman) 6/6 100 Rolf Zimmermann (Vice Chairman) 6/6 100 Dante Barban 6/6 100 Christine Bosse 6/6 100 Gabriele Burkhardt-Berg 6/6 100 Jean-Jacques Cette 6/6 100 Ira Gloe-Semler 4/61 66.67 Franz Heiß 6/6 100 Prof. Dr. Renate Köcher 4/61 66.67 Igor Landau 6/6 100 Peter Denis Sutherland 5/61 83.33 standinG CoMMittee Dr. Helmut Perlet (Chairman) 5/5 100 Dr. Wulf H. Bernotat 5/5 100 Gabriele Burkhardt-Berg 5/5 100 Prof. Dr. Renate Köcher 3/51 60 Rolf Zimmermann 5/5 100 personneL CoMMittee Dr. Helmut Perlet (Chairman) 4/4 100 Christine Bosse 4/4 100 Rolf Zimmermann 4/4 100 audit CoMMittee Dr. Wulf H. Bernotat (Chairman) 5/5 100 Jean-Jacques Cette 5/5 100 Ira Gloe-Semler 4/51 80 Igor Landau 5/5 100 Dr. Helmut Perlet 5/5 100 risk CoMMittee Dr. Helmut Perlet (Chairman) 2/2 100 Dante Barban 2/2 100 Christine Bosse 2/2 100 Franz Heiß 2/2 100 Peter Denis Sutherland 2/2 100 1 Excused.
II. Requirements relating to the composition of the Board as a whole 1. General selection criteria – Managerial or operational experience – General knowledge of the insurance and financial services business – Willingness and ability to make sufficient commitments in time and substance – Fulfillment of the regulatory requirements: – Reliability – Knowledge of the field of corporate governance and supervisory law1 – Knowledge of the main features of accounting and risk management1
– Compliance with the limitation on the number of mandates as recommended by the German Corporate Governance Code and required by § 7a (4) of the German Insurance Supervision Act (“Versicherungsaufsichtsgesetz – vaG”).
The aim is for at least 25 % of the Supervisory Board members to be women. The representation of women is generally considered to be the joint responsibility of the shareholder and employee representatives.”
Members of the Board of Management and the Supervisory Board are obliged by the German Securities Trading Act (Wertpapierhandelsgesetz ) to disclose any transactions involving shares of Allianz SE or financial instruments based on them to both Allianz SE and the German Federal Financial Supervisory Authority should the value of the shares acquired or divested by the member or a person closely associated to the member, amount to five thousand Euros or more within a calendar year. Such disclosures are published on our website at www.allianz.com/management-board and www.allianz.com/supervisoryboard.
Shareholders exercise their rights at the AGM. When adopting resolutions, each share carries one vote. In order to facilitate the exercise of shareholders’ rights, Allianz SE allows shareholders to follow the AGM’s proceedings on the internet and be represented by proxies appointed by Allianz SE. These proxies exercise voting rights exclusively on the basis of instructions given by the shareholder. Shareholders are also able to cast their votes by postal voting. This option is also available via the internet in the form of online voting. Allianz SE regularly promotes the use of email and internet services.
The AGM elects the members of the Supervisory Board and approves the actions taken by the Board of Management and the Supervisory Board. It decides on the use of profits, capital transactions and the approval of intercompany agreements, as well as the remuneration of the Supervisory Board and changes to the company’s Statutes. In accordance with European regulations and the Statutes, changes to the Statutes require a two-thirds majority of votes cast in case less than half of the share capital is represented in the AGM. Each year, an ordinary AGM takes place at which the Board of Management and Supervisory Board give an account of the preceding financial year. For special decisions, the German Stock Corporation Act provides for the convening of an extraordinary AGM.
Accounting policies and audit of financial statements The Allianz Group prepares its accounts according to § 315a of the German Commercial Code (“Handelsgesetzbuch – HGB”), on the basis of IFRS international accounting standards as adopted within the European Union. The annual financial statements of Allianz SE are prepared in accordance with German law, in particular the HGB.
The financial calendar for 2014 can be found on our website at www.allianz.com/financialcalendar.
1. Allianz SE fully complies and will continue to fully comply with the recommendations of the German Corporate Governance Code Commission (Code Commission) in the version of 13 May 2013, published by the Federal Ministry of Justice in the official section of the Federal Gazette (Bundesanzeiger), with the following exception: According to Item 5.3.2. of the German Corporate Governance Code, the Audit Committee of the Supervisory Board shall be responsible for the monitoring of the risk management system. The Supervisory Board of Allianz SE has additionally established a specific Risk Committee, which is, inter alia, responsible for the monitoring of the risk management system instead of the Audit Committee.
2. Since the last Declaration of Conformity as of 12 December 2012, Allianz SE
has fully complied with the recommendations of the Code Commission in the version of 15 May 2012.
The Declaration of Conformity and further information on corporate governance at Allianz can be found on our website at www. AlliAnz.com/corporAte-governAnce. The listed Group company Oldenburgische Landesbank AG
issued its own Declaration of Conformity in December 2013, which states that Oldenburgische Landesbank AG complies with all of the recommendations of the German Corporate Governance Code in its version of 13 May 2013.
INTERNAL CONTROL SYSTEMS Effective internal control systems for our internal and external financial reporting are essential in order to gain the confidence of the capital market, our customers and the public. Consequently, the Allianz Group has implemented a comprehensive risk management system that involves regular assessments of the effectiveness of internal controls as well as a quantitative limit system that helps the company avoid unwanted risks. The internal requirements regarding the control of financial reporting refer to accounting, the reporting of Market Consistent Embedded Value (MCEV), and risk capital. For further information on the risk organization and risk principles, please refer to pAge 119. (For further information on the internal controls over financial reporting and risk capital, please refer to pAge 123.)
There are legal provisions against corruption and bribery in almost all countries in which Allianz has a presence. The global AntiCorruption Program of the Allianz Group ensures the continuous monitoring and improvement of the internal anti-corruption controls. (For further information on the Anti-Corruption Program, please refer to Progress in Sustainable Development starting on pAge 59.) A major component of the Allianz Group’s compliance program is a whistleblower system that allows employees to alert the relevant compliance department confidentially about irregularities. Employees who voice concerns about irregularities in good faith should not fear retribution in any form, even if the concerns turn out to be unfounded at a later date.
DESCRIPTION OF THE FUNCTIONS OF THE BOARD OF MANAGEMENT AND THE SUPERVISORY BOARD AND OF THE COMPOSITION AND FUNCTIONS OF THEIR COMMITTEES A description of the composition of the Supervisory Board and its committees can be found on pAges 15 And 17 of the Annual Report. On pAges 18 And 19, reference is made to the composition of the Board of Management and a description of the composition of the Board of Management’s committees can be found on pAge 27 of the Corporate Governance Report. The information can also be found on our website at www. AlliAnz.com/corporAte-governAnce.
A general description of the functions of the Board of Management, the Supervisory Board and their committees can be found in the Corporate Governance Report starting on pAge 27 and on our website at www. AlliAnz.com/corporAte-governAnce.
Composition of share Capital As of 31 December 2013, the share capital of Allianz SE was € 1,168,640,000. It was divided into 456,500,000 registered and fully paid-up shares with no-par value and a corresponding share capital amount of € 2.56 per share. All shares carry the same rights and obligations. Each nopar -value share carries one vote.
Shares acquired by employees of the Allianz Group as part of the Employee Stock Purchase Plan are in principle subject to a one-year lock-up period. Outside Germany, the lock-up period may in some cases be up to five years. In some countries, in order to ensure that the lock-up period is observed, the employee shares are held throughout that period by a bank, another natural person or a legal entity acting as a trustee. Nevertheless, employees may instruct the trustee to exercise voting rights or have power-of-attorney granted to them to exercise such voting rights. Lock-up periods contribute to the Employee Stock Purchase Plan’s aims of committing employees to the Company and letting them benefit from the performance of the stock price.
German insurance supervisory law requires that members of the Board of Management have the reliability and professional competence needed to manage an insurance company. A person cannot become a member of the Board of Management if he or she is already a manager of two other insurance undertakings, pension funds, insurance holding companies or insurance special purpose vehicles. However, the supervisory authority may permit more than two such mandates if they are held within the same group (§§ 121a, 7a of the German Insurance Supervision Act (“Versicherungsaufsichts gesetz”, VAG)). The Federal Financial Services Supervisory Authority (“Bundesanstalt für Finanzdienstleistungsaufsicht”) must be notified about the intention of appointing a Board of Management member pursuant to §§ 121a, 13d No. 1 of the German Insurance Supervision Act.
27 Corporate Governance Report 32 Statement on Corporate Management pursuant to § 289a of the HGB
AutHorizAtion of tHe BoArd of MAnAGeMent to issue And repurcHAse sHAres The Board of Management is authorized to issue shares as well as to acquire and use treasury shares as follows: It may increase the Company’s share capital, on or before 4 May 2015, with the approval of the Supervisory Board, by issuing new registered no-par-value shares against contributions in cash and/or in kind, on one or more occasions: − Up to a total of € 550,000,000 (Authorized Capital 2010/I). The shareholders’ subscription rights for these shares can be excluded, with the consent of the Supervisory Board, (i) for fractional amounts, (ii) in order to safeguard the rights pertaining to holders of convertible bonds or bonds with warrants, (iii) in the event of a capital increase against cash contribution of up to 10 % if the issue price of the new shares is not significantly less than the stock market price, (iv) within certain limitations, if the shares are issued in connection with a listing of Allianz shares on a stock exchange in the People’s Republic of China, and (v) in the event of a capital increase against contributions in kind.
− Up to a total of € 8,344,000 (Authorized Capital 2010/II). The shareholders ’ subscription rights can be excluded in order to issue the new shares to employees of Allianz SE and its Group companies as well as for fractional amounts.
The Company’s share capital is conditionally increased by up to € 250,000,000 (Conditional Capital 2010). This conditional capital increase will only be carried out to the extent that conversion or option rights resulting from bonds issued by Allianz SE or its subsidiaries on the basis of the authorization of the General Meeting of 5 May 2010 are exercised, or that conversion obligations tied to such bonds are fulfilled.
The Board of Management may buy back and use Allianz shares for other purposes until 4 May 2015 on the basis of the authorization of the General Meeting of 5 May 2010 (§ 71 (1) No. 8 of the German Stock Corporation Act). Together with other treasury shares that are held by Allianz SE or which are attributable to it under §§ 71a et seq. of the German Stock Corporation Act, such shares may not exceed 10 % of the share capital at any time. The shares acquired pursuant to this authorization may be used, under exclusion of the shareholders’ subscription rights, for any legally admissible purposes, and in particular those specified in the authorization. Furthermore, the acquisition of treasury shares under this authorization may also be carried out using derivatives such as put options, call options, forward purchases or a combination thereof, provided such derivatives do not relate to more than 5 % of the share capital.
− The exclusive bancassurance distribution agreement between Allianz and HSBC for life insurance products in Asia (China, Indonesia, Malaysia, Australia, Sri Lanka, Taiwan, Brunei, Philippines ), includes a provision under which both parties have an extraordinary termination right in case there is a change of control of the other party’s ultimate holding company.
− The exclusive bancassurance distribution agreement between Allianz SE and HSBC for life insurance products in Turkey includes a provision under which both parties have an extraordinary termination right in case there is a change of control of the other party’s ultimate holding company.
− The framework agreements between Allianz SE and the subsidiaries of various car manufacturers (FCE Bank plc, Volkswagen Financial Services AG, respectively) relating to the distribution of car insurance by the respective car manufacturers each include a provision under which each party has an extraordinary termination right in case there is a change of control of the other party.
The Company has entered into the following compensation agreements with members of the Board of Management and employees providing for the event of a takeover bid: A change of control clause in the service contracts of the members of Allianz SE’s Board of Management provides that, if within 12 months after the acquisition of more than 50 % of the Company’s share capital by one shareholder or several shareholders acting in concert (change of control), the appointment as a member of the Board of Management is revoked unilaterally by the Supervisory Board, or if the mandate is ended by mutual agreement, or if the Management Board member resigns his or her office because the responsibilities as a Board member are significantly reduced through no fault of the Board member, he or she shall receive his or her contractual remuneration for the remaining term of the service contract, but limited, for the purpose hereof, to three years, in the form of a one-off payment. The one-off payment is based on the fixed remuneration plus 50 % of the variable remuneration, however, this basis being limited to the amount paid for the last fiscal year. To the extent that the remaining term of the service contract is less than three years, the one-off payment is generally increased in line with a term of three years. This applies accordingly if, within two years of a change of control, a mandate in the Board of Management is coming to an end and is not extended; the one-off payment will then be granted for the period between the end of the mandate and the end of the three-year period after the change of control. For further details, please refer to the Remuneration Report starting on page 37.
Remuneration Report This report covers the remuneration arrangements for the Board of Management and the Supervisory Board of Allianz SE.
Allianz SE Board of Management remuneration GOVERNANCE SYSTEM The remuneration of the Board of Management is decided upon by the entire Supervisory Board. Such decisions are prepared by the Per­ sonnel Committee. If required, outside advice is sought from inde­ pendent external consultants. The Personnel Committee and the Super visory Board consult with the Chairman of the Board of Manage­ ment as appropriate in assessing the performance and remunera­ tion of members of the Board of Management. The Chairman of the Board of Management is not present when his own remuneration is discussed. Regarding the activities and decisions taken by the Person­ nel Committee and the Supervisory Board, please refer to the Super­ visory Board Report section. The remuneration system for the Board of Management was presented and approved at the 2010 Annual General Meeting.
− Alignment with shareholder interests: 25 % of total target direct remuneration is dependent upon share price performance.
The structure, weighting and level of remuneration is decided by the Supervisory Board. Remuneration survey data is provided by external consultants. The peer group consists primarily of other DAX 30 com­ panies. Compensation levels usually vary between the median and around the third quartile of this group. The structure of Allianz Group’s total remuneration is more strongly weighted to variable, longer­term components than in other DAX 30 companies. Remu­ neration and benefit arrangements are also periodically compared with best practices. The Supervisory Board takes remuneration levels within the Group into account when assessing the appropriateness of the remuneration of the Board of Management.
REMUNERATION STRUCTURE, COMPONENTS AND TARGET SETTING PROCESS There are four main remuneration components. Each has approxi­ mately the same weighting within annual target remuneration: base salary, annual bonus, annualized mid­term bonus (MTB) and equity­ related remuneration. The target compensation of each variable component does not exceed the base salary, with the total target vari­ able compensation not exceeding three times the base salary. In addition Allianz offers pensions/similar benefits and perquisites.
All variable awards are made under the rules and conditions of the “Allianz Sustained Performance Plan” (ASPP) which consists of the equally weighted components below. The grant of variable remu­ neration components is related to performance and can vary between 0 % and 165 % of the respective target values. For a regular member of the Board of Management with a base salary and target variable com­ pensation of € 700 THou for each variable remuneration component the minimum payout is € 700 THou if the performance was rated with 0 % and no variable component was granted. The maximum total direct compensation (excluding perquisites) is € 4,165 THou if the
Year 1 Year 2 Year 3 1 Example based on target values of a regular member of the Board of Management with an annual target of € 700 THOU for the MTB. Accrual is only a notional indication.
3 Final payout is subject to the sustainability assessment of the Supervisory Board and may vary within the full range between 0 % – 165 % of the cumulative target values independent of the notional accruals.
− MTB (mid­term): A deferred award which reflects the achieve­ ment of the annual targets by accruing an amount identical to the annual bonus. The actual award is subject to a three­year sustainability assess ment and is paid at the end of a three­year performance cycle. The following criteria are considered: − adjusted capital growth vs. planned development in light of risk capital employed (adjusted capital essentially represents the fair value of the shareholders’ equity)
− balance sheet strength, i.e. development of solvency capital − comparison with peers − “partner of choice” for stakeholders − extraordinary events.
− Equity­related remuneration (long­term): A virtual share award, known as “Restricted Stock Units” (RSus). RSus are granted after the end of the financial year with the annual bonus performance determining the value of the equity grant. The 165 % cap of the annual bonus also applies to the RSu grant value, which must not exceed € 1,155 THou for a regular member of the Board of Management with a € 700 THou target. The number of RSus granted results from dividing the grant value by the value of an RSu at the time of grant. Following the end of the four­year vest­ ing period, the company makes a cash payment based on the number of RSus granted and the market price of the Allianz share at that time. To avoid extreme payouts, the RSu payout is capped at 200 % above grant price.1
In accordance with the RSu rules, outstanding holdings are for­ feited should a Board member leave at their own request or be terminated for cause.
Variable remuneration components may not be paid, or payment may be restricted in the case of a breach of the Allianz Code of Conduct, risk limits or compliance requirements. Additionally, a reduction or abandonment of variable remuneration may occur if the supervisory authority (BaFin) requires this in accordance with its statutory powers.
USD/€ exchange rate of 1.347910 (2011 fourth quarter average) was applied. 4 Gary Bhojwani does not receive pension contributions into the Allianz SE pension plans but only under his
5 Dr. Werner Zedelius received an anniversary payment of € 156 THOU. 6 Dr. Maximilian Zimmerer received an anniversary payment of € 146 THOU. 7 Dr. Maximilian Zimmerer joined Allianz SE Board of Management on 1 June 2012 and received a pro-rated remuneration for 2012. 8 The total remuneration reflects the remuneration of the full Board of Management in the respective year,
Dr. Paul Achleitner left the Board of Management of Allianz SE on 31 May 2012.
− Annual bonus: The 2013 target achievement for the Group, the business division/corporate functions and the qualitative per­ formance was on average assessed at 134 % and ranged between 128 % and 143 %. Consequently, total annual bonus awards ranged between 128 % and 143 % of the target with an average bonus award of 134 % of the target. This represents 83 % of the maximum payout.
− Pensions: Company contributions in the current plan are 27.98 % (2012: 28.35 %) of base salary, increasing to 34.98 % (2012: 35.44 %) after five years and to 41.98 % (2012: 42.53 %) after ten years service on the Board of Management. These are invested in a fund and have a minimum guaranteed interest rate of 2.75 % each year. If the net annual return of the AVK exceeds 2.75 % the full increase in value is credited in the same year. For members with pension rights in the frozen defined benefit plan, the above contribution rates are reduced by an amount equivalent to 19 % of the expected annual pension from that plan.
The Allianz Group paid € 4 Mn (2012: € 4 Mn) to increase reserves for pensions and similar benefits for active members of the Board of Management. As of 31 December 2013, reserves for pen­ sions and similar benefits for active members of the Board of Management amounted to € 41 Mn (2012: € 36 Mn).
Defined benefit pension plan (frozen) 1 Current pension plan AVK/APV 2
4 Expected annual pension payment at assumed retirement age (age 60), excluding current pension plan. 5 SC = service cost. Service costs are calculatory costs for the DBO related to the reported business year. 6 DBO = defined benefit obligation; end of year. The figures show the obligation for Allianz resulting from defined benefit plans taking into account realistic assumptions with regard to interest rate, dynamics and biometric probabilities.
8 In the ARP he can choose between a lump sum payment or an annuity. The lump sum benefit amount projected with actual interest rates is USD 120 THOU (2012: USD 120 THOU) and likely to change when he retires at age 65. In the SRP he will get three annual installments of USD 69.4 THOU (2012: USD 69.4 THOU) at the age of 65, which – as we have shown in the table – total USD 208 THOU (2012: USD 208 THOU).
− Total remuneration: The total remuneration for 2013 excludes the notional annual accruals of the MTB 2013 – 15. The figures for 2012 (in parentheses) include the actual payout of the MTB 2010 – 12. Both figures exclude the pension service cost: Michael Diekmann € 4,734(8,404) THou Oliver Bäte € 2,808(5,282) THou Manuel Bauer € 2,570(3,923) THou Gary Bhojwani 1 € 2,655(3,146) THou Clement Booth € 2,725(5,155) THou Dr. Helga Jung € 2,522(3,281) THou Dr. Christof Mascher € 2,524(4,724) THou Jay Ralph € 2,623(4,936) THou Dr. Dieter Wemmer € 2,671(3,592) THou Dr. Werner Zedelius € 2,587(5,007) THou Dr. Maximilian Zimmerer € 2,698(2,044) THou.
The sum of the total remuneration of the Board of Management for 2013, excluding the notional accruals of the MTB 2013 – 15, amounts to € 31 Mn (2012 including the payment of the MTB 2010 – 12: € 53 Mn 1). The corresponding amount, including pension service cost, equals € 35 Mn (2012 including the payment of the MTB 2010 – 12: € 57 Mn 1).
Contracts do not contain provisions for any other cases of early ter­ mination from the Board of Management.
Board members who were appointed before 1 January 2011 are eligible to use a company car for a period of twelve months after their retirement.
The payment is calculated based on the last base salary (paid for a period of six months) and 25 % of the target variable remuneration at the date when notice is given. A Board member with a base salary of € 700 THou would receive a maximum of € 875 THou.
In case the remaining term of contract is less than two years the pay­ ment is pro­rated according to the remaining term of the contract.
they accept a limited number of non­executive supervisory roles in appropriate external organizations. In these cases, 50 % of the remu­ neration 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 orga­ nizations 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.
− For all Board members, the respective target amounts for each of the variable components (annual bonus, MTB and equity­ related) were aligned with the applicable base salary to ensure a pay split at target of 25 % fixed and 75 % variable compensation. From 2014, a regular Board member has a target amount of € 750 THou per variable component resulting in a total direct compensation at target of € 3,000 THou, the Chief Executive Officer a target amount of € 1,280 THou per variable component resulting in a total direct compensation at target of € 5,120 THou.
The pension contributions as a percentage of base salary paid by the company to the contribution­based pension plan remain unchanged.
Fixed annual remuneration The remuneration of a Supervisory Board member consists of a fixed cash amount paid after the end of each business year for services rendered over that period. A regular Supervisory Board member receives a fixed remuneration of € 100 THou per year. Each deputy Chairperson receives € 150 THou and the Chairperson € 200 THou.
Annual Report 2013 Allianz Group 45 furthermore entitled to an office with secretarial support and use of the Allianz carpool service. In the financial year 2013, Allianz SE reim­ bursed expenses totaling € 67,433.
REMUNERATION fOR 2013 The total remuneration for all Supervisory Board members, including attendance fees, amounted to € 2,018 THou in 2013 (€ 2,089 THou in 2012). The following table shows the individual remuneration for 2013 and 2012: INDIVIDUAL REMUNERATION: 2013 AND 2012
Committees 1 Fixed remu ne ration Commit tee remu ne ration Atten dance fees Total remu neration A N P R S
Loans to members of the Supervisory Board On 31 December 2013, there was one outstanding loan granted by Allianz Group companies to members of the Supervisory Board of Allianz SE. One member received a mortgage loan of € 80 THou from Allianz Bank in 2010. The loan has a duration of 10 years and was granted at a normal market interest rate.
78 Statutory premiums 79 Operating profit 80 Net income 81 Life/Health insurance operations by reportable segments
– Endowment – Annuity – Term – Disability – Investment-oriented products – Private health insurance
Allianz SE and its subsidiaries (the Allianz Group) offer PropertyCasualty insurance, Life/Health insurance and Asset Management products and services in over 70 countries, with the largest of its operations in Europe. Allianz SE, as the parent company of the Allianz Group, has its headquarters in Munich, Germany.
Solutions – Life-cycle concepts – Multi-asset solution – Variable annuity solutions
HoldinG & treAsury operAtions Holding & Treasury includes the management and support of the Group’s businesses through its strategy, risk, corporate finance, treasury, financial reporting, controlling, communication, legal, human resources and technology functions.
Worldwide presence and business segments mArket positions of our business operAtions
4 Source: Own local estimations as of 2012 (the Netherlands as of 2011).
For our life insurance business, we are active in private and commercial markets and provide a comprehensive range of products. The main classes of coverage offered include annuity, endowment, term, disability and nursing care insurance. A lot of customers are currently rethinking risk and return factors in their old-age provision. For years we have been successfully enlarging our product range and in summer 2013 we launched our new Perspektive offering. This has separate guarantees in the savings and payout phases, from which our customers can expect higher returns as a result of much less stringent capital adequacy requirements. This life insurance product meets customer needs very well. In the fourth quarter of 2013, new business for Perspektive through our tied agents channel accounted for 24 % of our old-age provision retail business.
In our property-casualty business, Allianz Italy significantly outperformed its market in terms of premium growth and profitability. In a market that experienced a contraction of 3.7 % 1, Allianz premium volume declined by only 0.3 %, which allowed us to increase our market share for the second consecutive year. In terms of profitability, the combined ratio reached a historical low, which reflects the strong 1 Based on the first nine months of 2013.
Market position by gross premiums written: I. Position 1 II. Position 2 to 5 III. Position 6 to 10 IV. Not in the top 10
Germany We provide our customers in Germany with a full range of insurance and financial services through Allianz Deutschland AG. Our products are mainly provided by Allianz Versicherungs-AG ( Allianz Sach), Allianz Lebensversicherungs-AG ( Allianz Leben) and Allianz Private Krankenversicherungs-AG ( Allianz Private Kranken). They are mostly distributed through a network of full-time tied agents. Allianz Beratungs - und Vertriebs-AG serves as our distribution company.
Although high natural catastrophes and large losses impacted the operating profit heavily, our combined ratio remained below 100 %. Since the second half of 2013, PrivatSchutz product components have grown considerably. PrivatSchutz is a new modular tariff combining householder, houseowner, legal protection and personal general liability insurance and takes into account customer demands for flexibility and individual insurance cover. It has reduced the erosion of our portfolio in the non-motor personal business significantly. Although the property-casualty market continues to be competitive, our ongoing strategic focus on strengthening sales, improving our claims management and reducing the expense ratio has already led
The growth of Genialloyd in terms of pure direct premiums reached 19 % and contributed to our strong performance in PropertyCasualty.
France Allianz France S.A. is a major provider of insurance and financial services in the French retail and commercial markets, offering a broad range of property-casualty and life/health products for individuals and corporate customers. These include liability insurance, disability cover as well as investment and savings products. We distribute these offerings mostly via agents, life and health consultants, brokers and independent financial advisors, as well as selected external partners. In addition, our customers can research and buy products on line, either through e Allianz or via our direct sales channel AllSecur.
Concerning the life market in France, we anticipate a continued period of low interest rates, reinforcing the need to focus on technical margins and cost optimization to maintain the attractiveness of our offer. We have responded to the needs of our clients with a range of traditional and unit-linked products in both group and individual business, combining financial strength with the opportunity for more attractive yields. As an example, our new offer of a discretionary mandate is a successful illustration of this approach.
We also hold a strong position in the health market, often combining elements of life, health and casualty insurance as comprehensive solutions for individual and commercial customers. Recent regulatory changes have created new opportunities for the development of our group business. Our historic know-how will allow us to adapt our offer and positioning rapidly.
United States Our property-casualty insurance business in the United States is conducted through Fireman’s Fund Insurance Company (FFIC). Our life and annuity business is managed through Allianz Life Insurance Company of North America ( Allianz Life).
During 2013, catastrophe activity was relatively light and we saw a stabilization of the U.S. property-casualty insurance market, leading to modest market growth. At FFIC, a restructuring of the reinsurance program for crop insurance business reduced our premiums for this business line in 2013. While ongoing portfolio action to address profitability concerns and change the business mix unfavorably impacted our premiums, we saw improving results in 2013. The low interest rate environment, however, continues to put pressure on profits. In 2014, we remain focused on niche markets, enhancing customer service and improving FFIC’s core underwriting strengths. This should
Our operational success is based on a large and growing agent distribution network, sophisticated pricing, robust underwriting and high efficiency. Allianz is the market leader in terms of propertycasualty profits. Supported by a continuous focus on customer experience management and quality assurance, Allianz in Turkey succeeded in increasing its customer base by over 50 % in 2013.
Allianz Worldwide Partners In 2013, our global entities active in the b2b2C space – Allianz Global Assistance, Allianz Worldwide Care and Allianz Global Automotive – started to collaborate closely as Allianz Worldwide Partners (AWP). The set-up of this division will be further enhanced during 2014 with the reclassification of our International Health business in France from Life/Health to the Property-Casualty business segment. Allianz Global Assistance is the world leader in travel insurance, assistance and personal services and has the operational platforms to offer support services on a 24/7 basis around the globe, handled by strong local units providing on-site care. The combined activities of Allianz Worldwide Care and Allianz France International Health will form one of the biggest players in international health insurance, selling and servicing health products to expatriates and high-net-worth individuals around the globe. Allianz Global Automotive, as the leading strategic insurance partner in the automotive industry, combines sales expertise around the car dealer point-of-sale with product know-how embedded into the value chain of the automotive industry. Based on premiums, we are the worldwide market leader in this segment, serving over 40 car brands across more than 25 countries.
AWP has seen strong growth in 2013, building on the continued growth of its components and adding growth synergies from increased collaboration on sales and products.
Market flows into equity and fixed income strategies were particularly strong in the first half of 2013. During the second half of the year, flows into traditional fixed income strategies were to a certain extent impacted by the rise in interest rates. Flows into both shorterterm and floating-rate strategies continued to be strong, while certain investors found the higher yields presented new opportunities in longer-term strategies. Flows into equity assets, however, mostly continued throughout the year, reaching levels not observed in the recent past.
Our unique strengths Our three business segments Property-Casualty, Life/Health and Asset Management all contribute significantly to our operating profit. As a result, we provide our shareholders with a high level of diversification, while offering our customers truly global reach in practically all business lines of insurance and asset management. We hold leading market positions in the mature economies as well as in several of the world’s preeminent growth markets. We are one of the leading insurers of multinational corporations and large infrastructure projects. At the same time we are the biggest provider of microinsurance solutions to low-income households in developing economies. Our capital base is one of the strongest in the industry, while Allianz is one of the world’s most valuable brands in financial services.
Our Operating envirOnment The 2013 insurance and asset management environment was characterized by the ongoing depression of interest rates, suppressed economic growth in mature economies, excess capital and risk capacity and a resulting margin pressure across our lines of business. In addition, we witnessed a further evolution of the regulatory framework we operate in: − In July 2013, Allianz was designated by the Financial Stability Board as a Global Systemically Important Insurer and has, as a consequence, become subject to additional regulatory requirements. Allianz continues its active engagement with supervisory bodies and is preparing for the additional requirements announced – for example, the implementation of a recovery plan.
BOard Of management and OrganiZatiOnaL structure Allianz SE has a divisional Board structure that is further split into functional and business responsibilities. The business-related divisions reflect our business segments Property-Casualty, Life/Health,
Asset Management and Corporate and Other. These are overseen by seven board members, with six members concentrating on the insurance business segments and one on Asset Management as a standalone segment. The remaining four divisions (i.e. Chairman of the Board of Management, Finance, Investments and Operations) focus on Group functions, along with business-related responsibilities.
memBers Of the BOard Of management and their respOnsiBiLities in 20131
Besides performance steering, we also have a risk steering process in place, which is described in the Risk and Opportunity Report starting on page 105.
Non-financial key performance indicators (KPIs) are mainly used for the sustainability assessment of the mid-term bonus – under the category “partner of choice” mainly the following KPIs are considered: Allianz Engagement Survey and Net Promoter Score results, brand performance (measured by the Funnel Performance Index), diversity development, organizational transparency (as measured by the Transparency International Corporate Reporting ranking) and sustainability development (as measured by widely recognized indices and rankings).
Progress in Sustainable Development We take our responsibility for the environment and societal issues seriously and focus on activities relevant to our business and stakeholders. Over the course of 2013 we made good progress in further embedding environmental, social and governance aspects into our business. Our positive performance was also recognized by the Dow Jones Sustainability Index, which named us the leading sustainable insurer.
At the same time, Allianz is receiving more attention from nongovernmental organizations (NGOs). As a major insurer and asset manager, we have business relationships with companies worldwide. Critics of some of these companies are increasingly turning to us. We take their concerns seriously. Engagement is a key tool in understanding the expectations of our stakeholders, and also as a means of starting a discussion. Our strong commitment to integrating environmental, social and governance aspects into our core processes supports our business strategy, ensures we live up to our values and demonstrates responsibility in our decision-making. As signatories to the United Nations Environment Programme Finance Initiative’s (UNEP-FI) Principles for Sustainable Insurance (PSI) and the Principles for Responsible Investment (PRI), we want to drive sustainability across the board.
1 A full presentation of our sustainability strategy, approach and progress can be found online at www. allianz.com/sustainability.
2 More information can be found online at www.allianz.com/sustainability/business. 3 Our Allianz trademark is registered and protected worldwide, as are our domain names. Furthermore, we have registered our corporate design and brand claim “Allianz. With you from A – Z.” in all relevant countries worldwide. With our rebranding activities we are extending the scope of our business under the Allianz brand beyond the core area of insurance and asset management. In order to maintain the distinctiveness and strength of our Allianz brand, we continuously monitor possible infringements of our trademark applications and registrations by third parties.
Authentic brand experience for trusted relationships In 2013, we continued our global brand communication framework ONE. Rolled out in over 30 countries, ONE supports our global positioning as a Trusted Partner and establishes a consistent and authentic brand message. We further evolved our global sponsoring platforms. With a stronger focus on digital and social media, and in close alignment with our distribution strategy, our premium sponsorships now offer a new quality of customer experience and engagement with our brand and our business. Furthermore, we anchor corporate responsibility as a vital component in our strategic sponsorship approach. More than 25 Allianz entities, for example, are engaged in our Road Safety Program.
Overall, we continue to invest in our strong global brand, with increased focus on strategic growth markets and a clear emphasis on digital media. In 2013, for example, the overall share of digital spending in our local markets reached almost 25 % of our media expenditures worldwide.
Customers By region/Country 1 as of 31 December 2013 [31 December 2012] in %
Top-down NPS is measured annually according to global crossindustry standards and allows benchmarking against competitors in the respective markets. Despite shortfalls in some markets versus local peers, we increased our global NPS performance by two percentage points overall in 2013. Compared to our competitors, 50 % of Allianz businesses significantly outperformed their local peer average and 27 % have achieved loyalty leadership in their market. In 2014, we expect the positive global trend to continue and more markets to outperform their local peers.
To steadily improve our customer service, we apply bottom-up NPS: asking our customers for direct feedback after key interactions with Allianz – such as claims handling or sales – helps us to identify areas for improvement and continuously monitor the impact of our measures taken.
Microinsurance Many low-income families in developing countries lack access to financial services which could help them manage the risks associated with natural disasters, accidents and illness. Allianz offers microinsurance products in eleven countries in Asia, Africa and Latin America. Our products range from life insurance and savings plans to crop index insurance. 2013 saw strong growth again; we now insure 24.9 million people (2012: 17.1 million) with revenues of € 86.1 MN (2012: € 78.6 MN) 1. For more information please refer to the chapter Risk and Opportunity Report from page 105 onwards.
In 2013, we continued to reduce our carbon footprint , cutting CO2 emissions from our business. Our overall CO2 reduction since 2006 now stands at 37.2 % 3 per employee and, whilst we have also exceeded our energy reduction target (status minus 18.1 % per employee), as the economy continues to improve the challenge for us will be controlling our consumption and emissions over business cycles.
1 Figures include non-consolidated entities (i.e. India). 2 More information can be found online at www.allianz.com/sustainability/environment. 3 The Allianz Group’s total reported carbon footprint already considers the compensation activities of some of our subsidiaries.
5 Total number of employees with an employment contract of all consolidated companies (core and noncore business).
Talent management We take a common and systematic approach to developing talent across all Allianz companies. To ensure the quality and performance of our employees, we focus on managing and developing talent and careers by assessing performance and potential, providing appropriate development actions and ensuring robust succession plans. We develop both leadership and functional skills to ensure our employees can achieve current and future business goals. In order to meet future staff needs, we promote the necessity of lifelong learning. Also, our Strategic Workforce Planning proactively supports strategic human resources decision-making by supplying forecasts on economic, demographic and socio-cultural trends.
Remuneration The Allianz Group paid a total of € 9.1 bN (2012: € 8.9 bN) to its employees worldwide in 2013. Of this, approximately 32 % was for performancerelated (variable) remuneration elements. € 2.4 bN (2012: € 2.3 bN) was spent on social security contributions, pensions and other social benefits.
Employee engagement Allianz annually collects feedback from employees, managers and board members to measure the overall level of engagement and identify its drivers through the Allianz Engagement Survey. 119,230 employees from 72 Allianz companies were invited to participate in 2013. The global response rate of 84 % was 3 percentage points up compared to 2012. The Employee Engagement Index is a key measure of employee satisfaction, loyalty, advocacy and pride. Scores on this index have improved continuously every year since the launch of the Group-wide survey in 2010. The survey results are factors in the remuneration of the Group’s Board of Management.
Further employee figures further emPloyee figures 1 tenure 2 Tenure Allianz Group 10.8 10.7
2 Tenure represents the period of employment in Allianz companies starting from the date of the first entry into an Allianz company.
The implementation and maintenance of the Allianz Anti- Corruption Program, which is compulsory for all employees, continued in 2013. It aims to inform employees about Allianz’s main anticorruption and anti-fraud rules, the essentials of our anti-corruption and gifts and entertainment policies, and our anti-fraud principles. Training about anti-discrimination and anti-harassment procedures is also offered, in alignment with local legal requirements.
Headquartered in Germany, Allianz SE is committed to the country ’s long lasting democracy. Thus, we contribute to democratic political parties in the German Parliament (Bundestag) representing a variety of views within the political spectrum and supporting the social market economy. Our policy governing corporate donations to political parties in Germany rules that all contributions are made annually on 1 July to ensure that they are in no manner connected, or perceived to be connected, to any legislative initiative or elections. In 2013, we contributed a total of € 150,000.
Business environment 2013: insurance and asset management industry 2013 was another challenging year for the insurance industry. With economic growth remaining subdued, overall premium growth was more or less stagnant. But this stability conceals considerable differences between markets. For example, German premiums strengthened, along with moderate improvements in economic activity, whereas parts of southern Europe were still in the doldrums. Emerging markets, too, witnessed a rather turbulent year, with highly volatile capital flows and exchange rates. But despite the economic slowdown in many of these markets, overall premium growth proved remarkably resilient, mainly driven by an increase in life growth.
Although 2013 had its fair share of natural disasters, from typhoons and earthquakes in Asia to flooding in Europe, catastrophe losses remained rather low for a second consecutive year – at least in a global context – due to the weak penetration in many of the markets that were hit by natural catastrophes. This bolstered underwriting profitability. The big exception was the German market, which had to contend not only with floods in June but with big storms thereafter, triggering large insurance losses.
Underwriting profitability improved slightly in 2013, reflecting the general positive pricing momentum and the low level of natural catastrophes. But overall profitability was restrained by the challenging investment environment. Despite small increases in the wake of the assumed change in U.S. monetary policy (“tapering”), interest rates remained at low levels and investment returns were therefore subdued.
In the life sector, global premium income growth recovered slightly in 2013. This improvement was mainly led by emerging markets, which benefited from relatively strong increases in China and SouthEast Asia. Latin America continued to post double-digit growth as well. The performance of advanced markets was more mixed, with some – notably the U.S. market – under pressure and others recovering rather strongly, for example Germany, France and Italy. In total, according to our own market estimates and based on preliminary figures, global premiums grew by around 3 % in 2013 (adjusted for foreign currency translation effects).
The persistent low-yield environment coupled with modest economic growth depressed new business profitability for traditional life business. Insurance savings products continued to suffer from weak demand against a backdrop of reduced guarantees. However, risk protection products fared better. These included not only traditional mortality, but also health insurance products such as disability and long-term care insurance – which benefited from rising consumer awareness of a “protection gap” in these fields.
Market flows into equity and fixed income were strong in the first half of 2013. During the second half of the year, fixed income flows were to a certain extent impacted by the rise in interest rates. Flows into equity assets mostly continued throughout the year, reaching levels not observed in the recent past. These equity flows were not only driven by passive products. Active equity managers were also able to capture a portion of the organic growth. The flow development, as well as rising asset valuations, drove revenues and profits higher. Industry efficiency generally improved, despite the continuing growth trend in expenses – due to higher compensation or marketing costs, for example.
In the property-casualty insurance industry, overall market conditions were basically unchanged from the previous year. Underpinned by a positive pricing momentum, the industry saw stable premium growth in advanced markets globally, while southern European countries in particular saw continued declines. On the other hand, premium growth in emerging markets generally proved robust. Claims from natural catastrophes remained rather low for a second consecutive year, at least in a global context, as weak penetration in many of the markets hit by natural catastrophes limited insurers’ losses – except for Germany with higher losses from floods and big storms thereafter.
In the life insurance industry, global premium income growth recovered slightly in 2013. This was mainly driven by premium increases in emerging markets, while there was a mixed picture in advanced markets with Germany, France and Italy recovering and the U.S. market remaining under pressure. Insurance savings products continued to suffer from weak demand against a backdrop of reduced 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 as of 31 December 2013 would be 173 % (2012 (as published): 188 %). The conglomerate solvency ratio decreased by approximately 16 percentage points as of 1 January 2013 due to amendments to IAS 19.
For the asset management industry as a whole, 2013 was a favorable year, although there was continued uncertainty on capital markets with volatility remaining high. Following the tapering announcement of the Federal Reserve, interest rates increased and thus valuations for fixed income assets declined, while equities recorded a strong performance. These developments adversely impacted fixed income flows but continued to support favorable flows into equity assets.
mAnAgement’s Assessment of 2013 results We recorded growth in total revenues of 4.1 % – to € 110.8 bn – reaching an all-time high, despite the challenges of operating in a persistently low interest rate environment. On an internal basis 1, revenues increased by 4.7 %. Our Life/Health and Asset Management business segments generated strong revenue growth, while premiums in the Property-Casualty business remained rather stable.
Our operating profit increased 7.8 % to € 10,066 mn. This was mainly due to the remarkable underwriting performance in our PropertyCasualty business segment despite a higher burden from natural catastrophes. Our Asset Management business segment contributed positively due to higher average assets under management and higher related margins. The operating result from the Corporate and Other business segment improved, mainly due to a higher net fee and commission result. However, our Life/Health business was impacted by a lower investment result. Overall, our group performance developed favorably and we significantly exceeded our original operating profit target of € 9.2 bn plus or minus € 0.5 bn.
Our net income increased 14.1 % to € 6,344 mn, driven by the strong operating performance as well as a slightly improved non-operating result. Net income attributable to shareholders and non-controlling interests was € 5,996 mn (2012: € 5,231 mn) and € 348 mn (2012: € 327 mn), respectively.
Our capitalization remained strong and shareholders’ equity decreased slightly by € 0.3 bn to € 50.1 bn compared to 31 December 2012. Our conglomerate solvency ratio strengthened by one percentage point, after reflecting the negative impact of a change in accounting for pensions 2.
1 Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. Please refer to page 104 for a reconciliation of nominal total revenue growth to internal total revenue growth for each of our segments and the Allianz Group as a whole.
Property-Casualty gross premiums written amounted to € 46.6 bn, down 0.7 %. On an internal basis, gross premiums written decreased by 0.3 %, reflecting the expected reduction in our U.S. crop business. Excluding this reduction, our internal growth was positive at 2.5 %. We experienced solid growth mainly in Latin America, Turkey, at Allianz Global Assistance and in Germany.
Asset Management operating revenues grew by 8.5 % on an internal basis. This was mainly driven by higher average assets under management and higher related margins. Our performance fees reached an impressive level of € 510 mn but remained € 256 mn below the record level of € 766 mn in 2012. Once again our overall investment performance was excellent. However, higher interest rates and volatile capital markets led to third-party net outflows of € 12 bn.
3 Total revenues comprise statutory gross premiums written in Property-Casualty and in Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking).
Non-operating income from financial assets and liabilities carried at fair value through income (net) fell by € 186 mn to € 24 mn, as the previous year’s figure benefited from the positive valuation effects of The Hartford warrants, which were sold in April 2012.
Non-operating amortization of intangible assets was down by € 123 mn to € 136 mn, largely due to higher impairments in the previous year. For further information, please refer to note 15 to the consolidated financial statements.
Income taxes rose by € 139 mn to € 3,300 mn, driven by a € 925 mn higher income before income taxes in 2013 compared to 2012. The effective tax rate improved by 2.1 percentage points to 34.2 % (2012: 36.3 %), mainly due to lower tax charges from prior year taxes in 2013 compared to 2012.
Property-Casualty Life/Health Asset Management Corporate and Other 1 Total operating profit includes € (68) mn (2012: € (59) mn) from consolidation.
Our operating result in Corporate and Other improved by € 110 mn to a loss of € 1,004 mn. An improvement in Holding & Treasury was partly offset by a deterioration in Banking due to restructuring charges, while the operating result in Alternative Investments remained almost stable.
Basic earnings per share rose from € 11.56 to € 13.23 in 2013 and diluted earnings per share increased from € 11.48 to € 13.05. For further information on earnings per share, please refer to note 50 to the consolidated financial statements.
The proposal for appropriation of net earnings reflects the 2,746,424 treasury shares held directly and indirectly by the Company at the time of the publication of the convocation of the Annual General Meeting in the Federal Gazette. Such treasury shares are not entitled to the dividend pursuant to § 71b of the German Stock Corporation Act (AktG) . Should there be any change in the number of shares entitled to the dividend by the date of the Annual General Meeting, the above proposal will be amended accordingly and presented for resolution on the appropriation of net earnings at the Annual General Meeting, with an unchanged dividend of € 5.30 per each share entitled to dividend.
totAl revenues And reconciliAtion of operAting profit (loss) to net income (loss)
Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) 24 210 Non-operating realized gains/losses (net) 952 1,112 Non-operating impairments of investments (net) (313) (513)
Income from fully consolidated private equity investments (net) (15) (59) Interest expenses from external debt (901) (991) Acquisition-related expenses (33) (101) Amortization of intangible assets (136) (259) Reclassification of tax benefits – (17) Non-operating items (422) (618)
2 Includes expenses for premium refunds (net) in Property-Casualty of € (162) mn (2012: € (292) mn).
Changes in segment structure, presentation and accounting policies In 2013, we experienced material changes in our presentation and accounting policies due to the amendments to IAS 19 and the application of IFRS 13, which came into effect on 1 January 2013. For further information, please refer to note 4 to the consolidated financial statements. In addition, all restructuring charges have been presented within the operating profit effective 1 January 2013. For further information, please refer to note 6 to the consolidated financial statements.
Property-Casualty Insurance Operations − Gross premiums written at € 46.6 BN. − Operating profit up 14.2 % to € 5,268 MN, driven by a strong underwriting result. − Combined ratio at 94.3 %.
Loss ratio in % 65.9 68.3 Expense ratio in % 28.4 27.9
On a nominal basis, we recorded gross premiums written of € 46,579 MN, down € 310 MN or 0.7 %. Unfavorable foreign currency translation effects were € 1,100 MN, largely due to the depreciation of the Australian Dollar, the Brazilian Real, the U.S. Dollar, and the British Pound against the Euro.4 Consolidation/deconsolidation effects were positive and amounted to € 949 MN. These mainly stemmed from our acquisitions of the activities of Gan Eurocourtage in France, Yapı Kredi Sigorta in Turkey and Mensura in Belgium.
1 Prior year figures have been restated to reflect the retrospective application of the amended standard IAS 19 – Employee Benefits, effective as of 1 January 2013. For further information, please refer to note 4 to the consolidated financial statements.
3 We comment on the development of our gross premiums written on an internal basis; meaning adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information.
4 Based on the average exchange rates in 2013 compared to 2012.
In Australia gross premiums grew to € 2,847 MN. The increase of 4.6 % on an internal basis benefited from new customers and higher tariffs in our motor and property business.
cluster 2 In Asia-Pacific we recorded gross premiums of € 667 MN. The 17.8 % increase on an internal basis was mainly driven by the strong growth in our Malaysian motor business. The overall price effect was slightly negative.
In Italy gross premiums amounted to € 4,032 MN. The decrease of 0.3 % on an internal basis was largely attributable to falling prices, mainly in our motor business. Although regulatory changes weighed on volumes, they were supported by increases in our motor business
cluster 4 At AGCS gross premiums dropped to € 4,999 MN, down 4.7 % on an internal basis. This was mainly due to lower volumes in our property, marine and Allianz Risk Transfer (ART) business. The overall price effect was also slightly negative.
Operating profit 5,268 4,614 1 Consists of fee and commission income/expenses, other income/expenses and restructuring charges.
Our underwriting result grew by € 728 MN to € 2,170 MN. This increase was largely due to an improvement in our accident year loss ratio of 1.3 percentage points, supported by the continued positive price momentum, and a more favorable run-off, despite higher claims from natural catastrophes.
Claims and insurance benefits incurred (net) (27,713) (28,491) Acquisition and administrative expenses (net) (11,942) (11,634) Change in reserves for insurance and investment contracts (net) (without expenses for premium refunds) 1 (222) (138) Underwriting result 2,170 1,442 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 34 to the consolidated financial statements.
Excluding natural catastrophes, our accident year loss ratio was 67.0 %, a 2.5 percentage point improvement on 2012. This was mainly because of the continued positive price momentum and a favorable development in claims frequency and severity.
Italy: 0.5 percentage points. This was mainly driven by the recovered profitability in our non-motor business, particularly in our general third-party liability line, and supported by lower claims frequency and severity in our motor business. Additionally, the burden from natural catastrophes in 2012, such as the earthquake in Emilia Romagna, was above the 2013 level.
Credit Insurance: 0.2 percentage points. This was driven by sound risk management that resulted in lower claims activity despite increasing business volumes and still-high insolvency levels in European markets.
France: 0.1 percentage points. This was supported by a favorable pricing environment, particularly in retail lines, as well as by a slightly lower impact from large claims.
Our run-off result grew by € 482 MN to € 1,689 MN, resulting in an increase of 1.1 percentage points in the run-off ratio. This was partly due to a more favorable previous year claims development, but primarily attributable to the absence of some negative effects reported in 2012. These included the additional reserve strengthening in the United States and the increase in the estimated ultimate loss for the 2011 Thailand floods.
In 2013, total expenses stood at € 11,942 MN, compared to € 11,634 MN in the previous year. Our expense ratio increased slightly by 0.5 percentage points to 28.4 %. This increase mainly reflects the effects of structural changes in our portfolio in the United States (reduced crop business), the negative impact from regulatory changes on our business in Brazil (policy collection fee) and the acquisition of the activities of Gan Eurocourtage in France.
Interest and similar income (net of interest expenses) 3,543 3,723 Operating income from financial assets and liabilities carried at fair value through income (net) (76) (46) Operating realized gains/losses (net) 69 168 Operating impairments of investments (net) (11) (17) Investment expenses (315) (307) Expenses for premium refunds (net) 2 (162) (292) Operating investment income (net) 3,048 3,229 1 The operating investment income (net) for our Property-Casualty business segment consists of the operating investment result – as shown in note 6 to the consolidated financial statements – and expenses for premium refunds (net) (policyholder participation) as shown in note 34 to the consolidated financial statements.
Operating investment income (net) amounted to € 3,048 MN, down by € 181 MN. This was mainly due to decreased interest and similar income (net of interest expenses).
Operating income from financial assets and liabilities carried at fair value through income (net) fell by € 30 MN to a further loss of € 76 MN. The decline was mainly because of an unfavorable foreign currency result.
1 Including the French health business, excluding fair value option and trading.
Net income increased by € 313 MN to € 3,818 MN, reflecting our better operating performance and the effect of the slightly lower non-operating realized gains and losses (net).
2 Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 3 Represents acquisition and administrative expenses (net) divided by premiums earned (net). 4 Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net).
4 Effective as of 1 October 2012, Allianz France acquired the property-casualty brokerage portfolio-related activities (excluding transport) of Gan Eurocourtage.
6 Effective as of 1 August 2012, Allianz Belgium acquired the assets and assumed the liabilities related to the insurance activities of Mensura.
Middle East and North Africa 95.6 105.1 61.5 70.1 34.1 35.0
9 Contains € 7 mn and € 5 mn operating loss for 2013 and 2012, respectively, from AGF UK. 10 Contains income and expense items from a management holding and consolidations between countries in this region.
12 Represents elimination of transactions between Allianz Group companies in different geographic regions.
Life/Health Insurance Operations − Statutory premiums rebounded 8.5 % to € 56.8 bn. − Operating profit solid at € 2,709 mn, but impacted by a lower investment result.
In 2013, statutory premiums amounted to € 56,784 mn, an increase of € 4,437 mn. Excluding unfavorable foreign currency translation effects of € 562 mn and consolidation/deconsolidation effects largely from our acquisition of the activities of Yapı Kredi in Turkey, premiums increased by 9.1 % – or € 4,741 mn – on an internal basis 5.
3 Represents operating profit divided by the average of the current and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets.
4 Statutory premiums are gross premiums written from sales of life and health insurance policies as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction.
Premiums in Italy increased 32.5 % to € 8,430 mn. Sustained by a favorable market environment, this remarkable growth was driven by our financial advisors and bancassurance channel, with a continued focus on unit-linked products in order to reduce our risk capital consumption. The continued strong growth of unit-linked premiums was largely due to a successful product launch via our financial advisors channel in late 2012 as well as a recovery of the bancassurance sales channel from the low level in 2012.
In Belgium/Luxembourg, we recorded premiums of € 2,049 mn, an improvement of 1.5 %, after very strong growth in the previous year. This improvement was supported by our bancassurance partnership in Belgium.
Interest and similar income (net of interest expenses) decreased by € 63 mn to € 16,685 mn. We recorded lower interest income from debt securities, mainly due to the low interest rate environment, derisking activities and as a result of foreign currency translation effects of our business in the United States. This decrease was largely compensated for by higher income from dividends and real estate.
and guaranteed benefit reserves in the United States. This was partly offset by a higher increase in aggregate policy reserves in Germany due to higher premiums, premium refunds due to the favorable development of financial income in France and the set-up of a premium deficiency reserve in South Korea.
Investment expenses went up by € 80 mn to € 839 mn, mainly following slightly higher management fees for direct and equity investments.
Acquisition and administrative expenses (net) amounted to € 5,603 mn, an increase of € 287 mn. This was mainly driven by higher amortization of deferred acquisition costs.
Margin on reserves decreased from 67 to 58 basis points, driven by the direct and indirect effects of continued market volatility.
Overall, reserve-driven fees were moderately higher, while the decrease in our operating profit was largely driven by the investment margin drop (i.e. investment income net of hedged item movements and policyholder participation) in several locations. This margin was lower in Germany as a result of hedging and foreign currency related losses as well as higher reserve allocations. The establishment of a premium deficiency reserve in South Korea as well as lower fair value results related to annuity and guaranteed benefit features and lower realized gains in the United States increased this negative impact. However, in part due to these investment margin effects, the United States recorded lower amortization of deferred acquisition costs, which partly compensated for the adverse investment margin impact; partly offsetting this effect was a deferred acquisition cost write-down in South Korea.
2 Represents operating profit divided by the average of the current and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets.
Global Insurance Lines & Anglo Markets 515 484 515 484 430 425 23 47 111 208
Middle East and North Africa 163 170 185 170 131 139 17 15 304 300 1 Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction.
3 Statutory premiums adjusted for foreign currency translation and (de-)consolidation effects.
5 Contains income and expense items from a management holding and consolidations between countries in this region.
6 Presentation not meaningful. 7 Represents elimination of transactions between Allianz Group companies in different geographic regions.
As of 31 December 2013, total assets under management amounted to € 1,770 bn. Of this, € 1,361 bn related to our third-party assets under management and € 409 bn to Allianz group assets. We show the development of total assets under management based on asset classes as they are relevant for the business segment’s devel opment.
In the following section, we focus on the development of third-party assets under management.
thirD-party assets unDer management by business unit as of 31 December 2013 [31 December 2012] in %
thirD-party assets unDer management by region/country 1,2,3 as of 31 December 2013 [31 December 2012] in %
Mainly due to the impact of market return, the share of equities in our third-party assets under management increased by two percentage points in favor of equities, compared to 31 December 2012 with 87 % attributable to fixed income and 13 % to equities.
Despite unfavorable foreign currency translation effects in 2013, our operating revenues rose by € 376 Mn, or 5.5 %, to € 7,162 Mn. On an internal basis 1, operating revenues grew by 8.5 %.This was mainly driven by an increase in management and loading fees due to higher average assets under management and higher related margins.
Net fee and commission income increased by € 396 Mn, or 5.9 % to € 7,127 Mn, benefiting from the increase in management and loading fees. Our performance fees reached an impressive level in 2013. However, compared to the record year 2012, with its exceptionally high performance fees, these decreased by € 256 Mn to € 510 Mn, mainly as a result of lower performance fees from private funds and traditional products.
1 Operating revenues adjusted for foreign currency translation and (de-) consolidation effects. 2 Based on average exchange rates in 2013 compared to 2012.
Driven by higher operating revenues, our operating profit went up to € 3,161 Mn, an increase of € 208 Mn or 7.0 %. Excluding the unfavorable impact of foreign currency translation effects 2 our operating profit rose by approximately 10.0 %. This result was mainly due to higher operating revenues and to a lesser extent the comparative benefit of lower restructuring charges (€ 57 Mn) versus those incurred in 2012.
Administrative expenses rose by € 225 Mn to € 3,995 Mn, which was generally in line with our business growth.
Our cost-income ratio improved by 0.6 percentage points to 55.9 %, reflecting our continued expense discipline. Furthermore our costincome ratio benefited from lower restructuring charges in 2013 compared to 2012 but was burdened by lower performance fees in 2013 in contrast to the record high in 2012. Excluding these two effects the cost-income ratio improved by 1.0 percentage point – from 58.8 % in 2012 to 57.8 % in 2013.
Administrative expenses (net), excluding acquisition-related expenses (3,995) (3,770) Restructuring charges (6) (63) Operating expenses (4,001) (3,833)
Cost-income ratio 2 in % 55.9 56.5 1 Represents interest and similar income less interest expenses. 2 Represents operating expenses divided by operating revenue.
Corporate and Other Operating loss decreased by € 110 mn to € 1,004 mn, driven by Holding & Treasury.
Key figures reportable segments € mn holding & treasury Operating revenues 362 286 banKing Operating revenues 1,096 1,189 alternative investments Operating revenues 175 169 1 Consolidation included. For further information about our Corporate and Other business segment, please refer to note 6 to the consolidated financial statements.
2 Prior year figures have been restated to reflect the retrospective application of the amended standard IAS 19 – Employee Benefits, effective as of 1 January 2013. For further information, please refer to note 4 to the consolidated financial statements.
Our operating result in Corporate and Other improved by € 110 mn to a loss of € 1,004 mn. The € 162 mn improvement in Holding & Treasury was partly offset by a € 57 mn deterioration in Banking. The operating result in Alternative Investments remained almost stable at € 24 mn.
Earnings summaries by reportable segments holding & treasury Our operating loss improved by € 162 mn to € 939 mn. This was driven by a recovery of our net interest result and a better net fee and commission result.
Our net fee and commission result advanced by € 54 mn to a loss of € 178 mn. This reduction was mainly due to the higher revenues of our internal IT service provider.
Investment expenses were down by € 22 mn to € 79 mn due to increased cost recovery from other group companies.
banKing Our operating loss worsened by € 57 mn to € 91 mn due to higher restructuring charges and a decrease in the net interest result.
Administration expenses were reduced by € 43 mn to € 468 mn, mainly as a result of the closure of the Allianz Bank’s business operations.
Our loan loss provisions decreased by € 25 mn to € 86 mn. The previous year was burdened by increased loan loss provisions due to financial guarantees within certain unit-linked products related to peripheral sovereign bonds (which matured or were sold by the end of 2012). However, we recorded higher loan loss provisions related to our ship financing business in 2013.
Protection of shareholders’ investments, while continuing to provide attractive returns and dividends (dividend payout ratio of 40 %).
property-Casualty Growth in gross premiums written between 2.5 % and 3.5 %. Gross premiums written decreased by 0.7 % due to negative inter nal growth of 0.3 % and unfavorable foreign currency translation effects.
Operating profit in the range of € 4.3 bn and € 5.1 bn. Operating profit of € 5.3 bn above the higher end of our range, driven by a strong underwriting result.
Combined ratio of 96 % over the cycle. Combined ratio improved by 1.9 percentage points to 94.3 %. Pressure on investment income due to reinvestments in a low interest rate environment.
Overcompensation of the underlying claims inflation by the aggregate effect of improvements in pricing, claims management and productivity gains.
Operating profit in the range of € 2.5 bn and € 3.1 bn. Operating profit of € 2.7 bn. Margin on reserves between 50 and 70 basis points. Margin on reserves at 58 basis points. Pressure on investment income due to low interest rates and normalization of net harvesting result.
Although net harvesting result was up, operating investment result declined by 5.0 % to € 17.0 bn, driven by lower income from assets and liabilities carried at fair value.
New business profitability improved from the previous year as a result of continued product and pricing actions and a more favorable economic environment.
asset ManaGeMent Moderate growth in total assets under management and continued net inflows, especially into fixed income products.
Net outflows from total assets under management of € 14.0 bn, entirely out of fixed income products as a result of the sharp increase in interest rates during the second half of 2013.
Operating profit in the € 2.7 bn to € 3.1 bn range. Operating profit of € 3.2 bn due to higher average assets under management and higher related margins.
The improvement in the global purchasing managers’ index for the manufacturing sector during the second half of 2013 has raised hopes that the pickup in economic activity will continue or even intensify well into 2014. It is particularly encouraging that the more upbeat mood is now broadly spread across all regions. Given the expected acceleration in growth in the industrialized world, global output is likely to expand by slightly more than 3 % in 2014, following an increase of 2.3 % in 2013. Fears that economic development in emerging markets would deteriorate substantially now look unfounded. Nevertheless, they have lost steam since 2012 and will not return to their pre-crisis growth rates. However, with an expected real GDP increase of 4.6 % in 2014, growth in these countries will still be considerably higher than in the industrialized world. In the Eurozone, the economy is also starting to get back on its feet in crisis-ridden member states, narrowing the “north-south divide”. Both sentiment indices and hard economic indicators such as industrial production data suggest the economic recovery is set to continue, albeit at a moderate pace. For 2014 as a whole, we expect real GDP growth of 1.5 %. Supported by brighter economic conditions in the Eurozone, the German economy could expand by about 2 % in 2014. Inflation is likely to remain subdued on a global level, not least due to the dire unemployment situation in many industrialized countries, which keeps the lid on wages.
Although the sovereign debt crisis in the Eurozone is not yet over, we expect it to continue to gradually abate.
With short-term rates close to zero, there are limited prospects of markedly higher yields on longer-term bonds. We expect yields on 10-year German and U.S. government bonds to climb only modestly to 2.4 % and 3.3 %, respectively, by the end of 2014.
With growth in the United States set to outpace that in the Eurozone, the U.S. Dollar is likely to appreciate against the Euro.
Global economic expansion is set to accelerate over 2014. Therefore, the macroeconomic environment will be supportive of world premium growth. As in previous years, premium growth in emerging markets will outpace that of advanced markets, although the latter’s recovery will be more pronounced. On the other hand, the outlook for profitability remains challenging, as investment returns are expected to stay low and the regulatory environment continues to become more demanding in terms of capital and reserve requirements.
In the property-casualty sector, we anticipate higher premium growth in 2014 as the increase in economic activity bolsters demand for insurance coverage. In particular, the expected recovery in Europe should pave the way for a return to positive premium growth in all parts of the region. Emerging markets should display stable growth rates – although against the backdrop of a tougher economic environment in some of these markets, the expansion might be moderate by their historical standards. The increase in premium rates on the other hand may rather slow down in 2014. Overall, we expect global premium revenue to rise in the 4.5 % – 5.0 % range in 2014 (adjusted for foreign currency translation effects).
With interest rates remaining at low levels, companies will continue to adapt their business models to the challenging environment. Besides a stronger focus on the protection business – including health – new and more flexible guarantee concepts are set to come to the forefront in the savings business. At the same time, insurers will continue to look for new, long-term investment opportunities, paying special attention to infrastructure investments. But despite progress on these fronts, profitability will remain under pressure, not least because of more stringent capital and reserve requirements.
Increasing asset valuations for equities, as well as growing optimism about growth in certain developed markets, provide a potential tailwind for the asset management industry in 2014. Nevertheless, considerable downside risks remain and could materialize if global growth fails to meet expectations. A reduction of the currently highly supportive monetary policy may also put the positive trends in financial markets at risk. The further development of regulatory activities
– particularly in the consumer protection and transparency fields – is an additional source of uncertainty for the asset management industry.
As discussed earlier, the world economy is poised to pick up in 2014 and we look set to enter a period of moderate growth. Despite signs of a global recovery, however, there are clear risks for 2014. Geopolitical tensions, a renewed flare-up of the European sovereign debt crisis in large industrialized countries and currency or trade wars all have the potential to send the world economy into a tailspin. However, the outlook provided here assumes the absence of such shocks.
life/HealtH Revenues in the range of € 52.0 bn to € 56.0 bn. Operating profit between € 2.7 bn and € 3.3 bn. Margin on reserves between 50 and 70 basis points. Pressure on investment income due to low interest rates and continued capital market uncertainty. Prioritizing profitability over growth, taking further product and pricing actions as necessary.
asset ManaGeMent Slight growth in total assets under management due to positive equity but subdued fixed income product inflows. Operating profit in the € 2.5 bn to € 2.9 bn range. Cost-income ratio at or below 60.0 %.
assuMptions Our outlook assumes no significant deviations from the following underlying assumptions: − Accelerated global economic growth. − Continued low interest rate environment. − No dramatic interest rate movements.
− No disruptive fiscal or regulatory interference. − Level of claims from natural catastrophes at expected average levels. − Average U.S. Dollar to Euro exchange rate of 1.35.
We expect our business mix and profitability contributions to remain largely unchanged compared to 2013. Our Property- Casualty business will carry on making up the majority of our operating profit. We anticipate that the Asset Management business segment will continue to be a significant source of operating profit, even though at a
Although the global economy is showing signs of a recovery, investment results are likely to remain under pressure due to low interest rates and the continued uncertainty surrounding the European sovereign debt crisis. These results will be partly offset by a better operational performance in the business segments and a growthdriven increase in our operating asset base.
Management’s assessment of expected revenues and earnings for 2014 In 2013, our total revenues amounted to € 110.8 BN, representing a 4.1 % and a 4.7 % increase on a nominal and internal basis, respectively, compared to last year. We expect a rather flat development in 2014, with Property-Casualty experiencing positive internal growth, while Life/Health volumes and Asset Management revenues are likely to be under pressure due to our selective focus on profitable growth and the uncertain financial market outlook, respectively.
Our net income increased substantially, reaching € 6.3 BN in 2013. Consistent with our disclosure practice in the past and given the susceptibility of our non-operating 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 markets, we anticipate a rather stable net income for 2014.
property-Casualty insuranCe We expect our revenues to increase by more than 3.0 % in 2014 (2013: (0.7) %) on a nominal basis. We believe this moderate growth will be supported by favorable price and volume effects, the impact of our recent acquisition of Yapı Kredi Sigorta in Turkey and the reclassification of our International Health business in France from the Life/ Health to the Property-Casualty business segment, which combined will add approximately € 0.8 BN to our top line.
Overall, we expect our 2014 operating profit to be in the range of € 5.1 BN to € 5.7 BN (2013: € 5.3 BN).
life/HealtH insuranCe We will continue to prioritize profitability over growth in 2014. We ex- pect revenues to be in the range of € 52.0 BN and € 56.0 BN, slightly below the 2013 level of € 56.8 BN, which represented significant growth compared to the prior year and included revenues of € 0.5 BN from our International Health business in France, which will be moved to the Property -Casualty business segment in 2014. Ultimately, volumes will be dictated by our ability to write profitable business, but are also dependent upon interest rate developments and the competitive landscape.
Our outlook equates to a margin on reserves ranging between 50 and 70 basis points.
Annual Report 2013 Allianz Group 91 asset ManaGeMent Economic conditions improved in the course of 2013 and growth expectations have been revised upwards. Nevertheless, uncertainty in the financial markets is likely to persist in 2014. Although we do not anticipate market movements and flows to have a major impact on the overall level of our assets under management, we expect them to increase only slightly in 2014. (As of 31 December 2013, our total assets under management decreased by 4.4 % compared to 31 December 2012.) While equity flows are envisaged to make a positive contribution, fixed income flows are likely to remain subdued.
We expect to have steady access to financial markets at reasonable costs in order to maintain our strong financial flexibility. This is supported by prudent steering of our liquidity resources and a maturity profile focusing on a long-dated average remaining term. Based on current interest rate expectations, our average capital market financing costs in 2014 should be broadly in line with 2013.
Balance Sheet Review − Shareholders’ equity remained stable at € 50.1 bn.1 − Solvency ratio strong at 182 %.2
As of 31 December 2013, shareholders’ equity amounted to € 50,084 mn, a decrease of € 304 mn compared to 31 December 2012 (as restated).1 The net income attributable to shareholders of € 5,996 mn substantially offset € 3,381 mn lower unrealized gains, our € 2,039 mn dividend payout in May 2013 and an additional € 1,239 mn drop in equity from negative foreign currency translation adjustments. The significant decline in unrealized gains, predominantly on sovereign and corporate debt securities, was driven by a rise in interest rates and – to a much lesser extent – realizations. The unfavorable development of foreign currency translation adjustments was mainly due to the strengthening of the Euro against the U.S. Dollar, the Turkish Lira and the Australian Dollar.
2 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 as of 31 December 2013 would be 173 % (2012 (pro forma restated): 171 %; 2012 (as published): 188 %).
3 This does not include non-controlling interests of € 2,765 mn and € 2,575 mn as of 31 December 2013 and 31 December 2012, respectively. For further information, please refer to note 25 to the consolidated financial statements. Retained earnings include foreign currency translation adjustments of € (3,312) mn and € (2,073) mn as of 31 December 2013 and 31 December 2012, respectively.
intereSt rate development in 2012 and 2013 10-year German government bond %
Total fixed income portfolio as of 31 December 2013: € 480.6 bn [as of 31 December 2012: € 480.4 bn] in %
The allocation of our fixed income portfolio remained stable, with a slight increase in corporate bonds and a minor reduction in bank and covered bonds. About 95 % of this portfolio of debt instruments was invested in investment-grade bonds and loans. 1
Our covered bonds portfolio decreased from € 107.1 bn to € 102.5 bn as the proceeds from matured covered bonds – mainly in Germany – were only partially reinvested in this fixed income class. 47 % of this portfolio was German Pfandbriefe, backed by either public sector loans or mortgage loans. Another 16 % and 9 % of the covered bonds were allocated to France and Spain, respectively. Covered bonds provide a cushion against real estate price deterioration and payment defaults through minimum required security buffers and over-collateralization.
We reduced our exposure to subordinated securities in banks by € 1.9 bn to € 4.8 bn in both Tier 1 and Tier 2 shares.
Interest and similar income (net) 1 20,497 20,598 (101) Income from financial assets and liabilities carried at fair value through income (net) (1,842) (511) (1,331) Realized gains/losses (net) 4,285 4,327 (42) Impairments of investments (net) (611) (934) 323
Our interest and similar income (net)2 decreased only 0.5 % to € 20,497 mn. Lower income from debt investments, which was impacted by the low interest rate environment, was partly offset by higher income from equity-related investments and real estate. Overall, our interest and similar income (net) held up very well in this low-yield environment. The net interest result also benefited from reduced interest expenses.
2 Net of interest expenses (excluding interest expenses from external debt).
Impairments (net) decreased by more than one third to € 611 mn as the previous year had a high burden of impairments on our equity investments in the financial sector.
2 This comprises assets of € 0.1 bn and € 0.1 bn and liabilities of € (0.1) bn and € (0.1) bn as of 31 December 2013 and 31 December 2012, respectively.
4 Including cash and cash equivalents, as stated in our business segment balance sheet of € 2.8 bn and € 2.7 bn and receivables from cash pooling amounting to € 3.4 bn and € 2.8 bn, net of liabilities from securities lending and derivatives of € (0.3) bn and € (0.2) bn, as well as liabilities from cash pooling of € (1.0) bn and € (0.2) bn as of 31 December 2013 and 31 December 2012, respectively.
The business segment’s asset base comprised AbS of € 3.7 bn, repre-
Compared to year-end 2012, the gross reserves for loss and loss adjustment expenses for our Property-Casualty business decreased by € 6.1 bn to € 56.6 bn. On a net basis, our reserves were down from € 55.8 bn to € 50.5 bn over the same period. Effective from 1 January 2013, the Allianz Group changed its presentation of discounted loss reserves in the consolidated balance sheet from the line item
Annual Report 2013 Allianz Group 97 aSSetS and liabilitieS of the life/health buSineSS Segment
Life/Health assets Our Life/Health asset base increased by € 14.7 bn, or 3.1 %, to € 487.0 bn. This was primarily driven by higher financial assets for unit-linked contracts and equities as a result of positive market developments and new investments, but also by higher debt securities and cash investments.
Debt securities 269.3 266.4 Cash and cash pool assets 3 7.6 5.7
As of 31 December 2013, AbS of € 13.8 bn represented 2.8 % of the business segment’s asset base. Compared to year-end 2012, this exposure decreased by € 1.5 bn as a result of the previously mentioned reduction of mbS issued by U.S. agencies.
+ 4.9 a Change in unit-linked insurance contracts b Change in unit-linked investment contracts c Foreign currency translation adjustments
Financial assets for unit-linked contracts increased by € 9.9 bn, or 13.9 %, to € 81.1 bn. Unit-linked insurance contracts increased by € 7.2 bn to € 55.4 bn due to good fund performance (€ 5.5 bn) and premium inflows exceeding outflows by € 3.6 bn. Unit-linked investment contracts were up by € 4.9 bn to € 25.7 bn, with premium inflows significantly exceeding outflows (net € 3.0 bn). The main drivers of currency effects were the weaker U.S. Dollar (€ (1.0) bn) and Asian currencies (€ (0.9) bn).1
Asset Management liabilities Liabilities in our Asset Management segment decreased by € 0.4 bn to € 4.0 bn.
Corporate and Other assets Our Corporate and Other asset base slightly decreased from € 42.0 bn to € 41.3 bn. An increase in debt securities and loans and advances to banks and customers was more than offset by a drop in cash and cash pool assets.
Debt securities 26.3 23.8 Cash and cash pool assets 3 (5.0) (0.4)
Loans and advances to banks and customers 18.2 16.9 Corporate and Other asset base 41.3 42.0 1 This comprises assets of € 0.3 bn and € 0.2 bn and liabilities of € (0.5) bn and € (0.4) bn as of 31 December 2013 and 31 December 2012, respectively.
2 These do not include affiliates of € 75.4 bn and € 74.3 bn as of 31 December 2013 and 31 December 2012, respectively.
Within our Corporate and Other asset base AbS increased from € 0.4 bn to € 0.9 bn due to new investments. Accordingly, the AbS share of the business segment’s asset base increased from 0.9 % to 2.2 %.
Corporate and Other liabilities As of 31 December 2013, subordinated liabilities remained almost unchanged at € 11.5 bn (31 December 2012: € 11.6 bn) as the repayment of a subordinated bond with a nominal amount of U.S. Dollar 2.0 bn and a coupon of 8.375 % was approximately offset by the issuance of a perpetual subordinated bond with a nominal amount of € 1.5 bn and a coupon of 4.75 %. Other liabilities went up from € 21.8 bn to € 23.6 bn, whereas certificated liabilities decreased by € 1.5 bn to € 13.2 bn.2
The Allianz Group has also entered into contractual relationships with various types of special purpose vehicles. They have been designed in such a way that their relevant activities are directed by means of contractual arrangements instead of voting or similar rights. Typically, special purpose vehicles have been set up in connection with asset backed financings, certain investment fund products, commercial mortgage loans and collateralized debt obligations. For more details on our collateralized debt obligations, please refer to note 44 to the consolidated financial statements.
Please refer to the Risk and Opportunity Report from page 105 onwards for a description of the main concentrations of risk and other relevant risk positions.
Liquidity and Funding Resources Asset mAnAgement operAtions Within our Asset Management operations, our primary sources of liquidity include fees generated from asset management activities. These funds are primarily used to cover operating expenses.
BAnking operAtions The primary sources of liquidity in our Banking operations include customer deposits, interbank loans and interest and similar income from our lending transactions. The major uses of funds are the issuance of new loans and investments in fixed income securities. The liquidity of our Banking operations is largely dependent on the ability of our private and corporate customers to meet their payment obligations arising from loans and other outstanding commitments. Equally important is our ability to retain our customers’ deposits.
FUnDing soUrCes Allianz SE’s access to external funds depends on various factors such as capital market conditions, access to credit facilities as well as credit ratings and credit capacity. The financial resources available to Allianz SE in the capital markets for short-, mid- and long-term funding needs are described below. In general, mid- to long-term financing is covered by issuing senior or subordinated bonds or ordinary shares.
The Allianz Group bases its liquidity management on policies and guidelines approved by the Board of Management of Allianz SE. It is the primary responsibility of Allianz SE and each of the operating subsidiaries to manage their respective liquidity positions while Allianz SE provides central liquidity pooling for the Group. Furthermore, capital allocation is steered by Allianz SE for the entire Group. This organization enables the efficient use of liquidity and capital resources and allows Allianz SE to ensure that the Group and its operating entities achieve the desired liquidity and capitalization levels.
Liquidity management of our operating entities insUrAnCe operAtions The principal sources of liquidity for our operational activ ities include primary and reinsurance premiums received, reinsurance receivables collected, as well as investment income and proceeds generated from the maturity or sale of investments. Those funds are mainly used to pay property- casualty claims and related expenses, life policy benefits, surrenders and cancellations, acquisition costs as well as operating costs.
Authorization to issue bonds carrying conversion and/or option rights € 9,500,000,000 (nominal bond value)
Interest expenses on senior bonds decreased to € 261.1 MN (2012: € 306.8 MN). This was primarily driven by lower funding costs on new issuances compared to the bonds that matured in 2013. For subordinated bonds, interest expenses declined to € 610.0 MN (2012: € 614.1 MN). This was mainly due to the redemption of a U.S. Dollar bond with a high coupon and the issuance of a new Euro bond with a lower coupon in 2013.
Weighted average interest rate2 as of 31 December € mn € mn € mn %
The table below details the long-term debt issuances and redemptions of Allianz SE during 2013 and 2012: issUAnCes AnD reDemptions oF ALLiAnz se’s senior AnD sUBorDinAteD BonDs € mn as of 31 December Issuances 1 Redemptions1 Issuances net of redemptions 1 Based on nominal value.
Interest expenses € 62.1 mn 1.375 % bond issued by Allianz Finance ii b.V., Amsterdam Volume € 0.5 bn Year of issue 2013 Maturity date 3/13/2018 iSin dE 000 A1H g1J 8 Interest expenses € 5.7 mn 4.75 % bond issued by Allianz Finance ii b.V., Amsterdam Volume € 1.5 bn Year of issue 2009 Maturity date 7/22/2019 iSin dE 000 A1A KHb 8 Interest expenses € 73.6 mn 3.5 % bond issued by Allianz Finance ii b.V., Amsterdam Volume € 1.5 bn Year of issue 2012 Maturity date 2/14/2022 iSin dE 000 A1g 0ru 9 Interest expenses € 54.0 mn 3.0 % bond issued by Allianz Finance ii b.V., Amsterdam Volume € 0.75 bn Year of issue 2013 Maturity date 3/13/2028 iSin dE 000 A1H g1K 6 Interest expenses € 19.1 mn 4.5 % bond issued by Allianz Finance ii b.V., Amsterdam Volume gbp 0.75 bn Year of issue 2013 Maturity date 3/13/2043 iSin dE 000 A1H g1l 4 Interest expenses € 33.1 mn Total interest expenses for senior bonds € 247.6 mn 2. SubordinAtEd bondS3 6.5 % bond issued by Allianz Finance ii b.V., Amsterdam Volume € 1.0 bn Year of issue 2002 Maturity date 1/13/2025
4 € 1.5 bn subordinated bond called for redemption effective January 15, 2014.
Net cash outflow used in financing activities amounted to € 1.4 bN in 2013, compared to € 2.0 bN in 2012. Contributing to this development were net cash inflows from liabilities to banks and customers (after net cash outflows in 2012), mainly attributable to our Banking operation in Italy. This increase was partially offset by lower net cash inflows from our refinancing activities 1.
Cash and cash equivalents decreased by € 1.2 bN to € 11.2 bN as of 31 December 2013, mainly stemming from our Banking operation in Italy and Allianz SE. The decrease was partially offset by higher cash inflows at Allianz Life Insurance Company of North America due to maturities of investments.
Balances with banks payable on demand 6,574 7,295 Balances with central banks 449 2,277 Cash on hand 202 223 Treasury bills, discounted treasury notes, similar treasury securities, bills of exchange and checks 3,982 2,642 Total cash and cash equivalents 11,207 12,437 1 Refers to cash flows from certificated liabilities and subordinated liabilities.
ChAnge in CAsh AnD CAsh eQUiVALents For the YeArs enDeD 31 DeCemBer
Change in cash and cash equivalents 2 1 The Allianz Group has changed the presentation of policyholders’ account deposits and withdrawals in its consolidated statements of cash flows from cash flow from financing activities to cash flow from operating activities. The change in presentation has been applied retrospectively. For further information please refer to note 4 to the consolidated financial statement.
2 Includes effect of exchange rate changes on cash and cash equivalents of € (232) Mn and € (47) Mn in 2013 and 2012, respectively.
For further information, please refer to note 6 to the consolidated financial statements.
Total revenues comprise statutory gross premiums written in PropertyCasualty and Life/Health, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking).
Asset Management Operating revenues 7,162 6,786 consisting of: Net fee and commission income 7,127 6,731 Net interest income 12 24 Income from financial assets and liabilities carried at fair value through income (net) 13 16 Other income 10 15
reConCiliation of nominal total revenue growth to internal total revenue growth
− The Allianz Group is well capitalized and its solvency ratios are resilient.
The European sovereign debt crisis The European sovereign debt crisis continues to have an impact on markets and has kept interest rates at low levels. Despite the stabilization of financial markets in 2013, many of the root causes of the crisis remain unresolved and markets could fluctuate widely again in the future, having adverse implications for Allianz’s balance sheet.
In addition to continuously monitoring these developments, our management has responded decisively to these external events. During 2013, we continued to execute a derisking program focused primarily on peripheral European sovereign exposures and our exposure to global financial institutions. This is supported by operational contingency planning for Allianz SE and its operating entities, with scenario analysis being conducted regularly for both the United States and Europe. In addition, we further adjusted our product design and pricing in the Life/Health business segment with respect to guarantees and surrender conditions. Looking forward, our robust action to deal with the various crisis scenarios 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 In July 2013, the Financial Stability Board designated Allianz as one of nine G-SII companies (Global Systemically Important Insurers). In November 2013, the European Trialogue process involving the Council of the E.U. and the European Parliament came to an agreement on the Solvency II “Omnibus II” directive, allowing the new risk-based solvency capital framework for Europe to proceed with a planned introduction date of January 2016.
ManageMent assessMent The Allianz Group’s management feels comfortable with the Group’s overall risk profile and has confidence in the effectiveness of its risk management framework to meet the challenges of a rapidly changing environment as well as day-to-day business needs. This confidence is based on several factors which are outlined in more detail in the sections that follow and are summarized here: − The Allianz Group is well capitalized and is comfortably meeting its internal and regulatory solvency targets as of 31 December 2013. In March 2013, Standard & Poor’s not only reconfirmed Allianz’s "AA" rating, but also improved the outlook back to
− The Group has a conservative investment profile and disciplined business practices in the Property-Casualty, Life/Health and Asset Management business segments, leading to sustainable operating earnings with a well-balanced risk/return profile.
RegulatoRy caPital adequacy The Allianz Group is a financial conglomerate within the scope of the E.U. Financial Conglomerates Directive and the related German law in force since 1 January 2005. The law requires that a financial conglomerate calculates the capital available to meet its solvency requirements on a consolidated basis, which we refer to as “eligible capital”. Currently, the requirements for our insurance business are based on Solvency I. These capital requirements, as well as the definition and calculation of eligible capital, will be replaced by the Solvency II rules once the new regulation becomes binding.
Eligible capital 46.5 48.4 1 Off-balance sheet reserves are included in the calculation but 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 as of 31 December 2013 would be 173 % (2012 (as published): 188 %).
The conglomerate solvency ratio decreased by 15 percentage points to 182 %, mainly due to the retrospective application of the amendments to IAS 19 .1 exteRnal Rating agency caPital adequacy Rating agencies apply their own models to evaluate the relationship between the required risk capital of a company and its available capital resources. An assessment of capital adequacy is usually an integral part of the rating process. Following a review in March 2013, the Allianz Group’s "AA" rating was affirmed by Standard & Poor’s. In addition Standard & Poor’s revised the outlook from “negative” to
“stable”, recognizing our capital strength, diverse business profile and very strong Enterprise Risk Management.
aa – Not rated Not rated 1 Includes ratings for securities issued by Allianz Finance II B.V. and Allianz Finance Corporation. 2 Rating reflects senior unsecured debt.
1 For further details on changes in eligible capital and solvency requirement, please refer to the chapter Balance Sheet Review from page 92 onwards.
As part of the long-term financial strength rating, Standard & Poor’s has a rating for Enterprise Risk Management (ERM). In 2013, Standard & Poor’s assigned Allianz its highest possible rating – “very strong” – for the ERM capabilities of our insurance operations. This indicates that Standard & Poor’s regards it as “unlikely that Allianz Group will experience major losses outside its risk tolerance”. Standard & Poor’s stated that the assessment is based on our strong risk management culture, strong controls for the majority of key risks and strong strategic risk management. In addition, Standard & Poor’s reviewed our internal capital model in 2012 and has given further credit to the capital position of the Allianz Group since 4Q 2012 by taking our internal model results into account when determining the capital requirements in order to meet specific rating classes.
Internal capItal adequacy The Allianz Group’s available capital is based on shareholders’ equity adjusted to reflect the full economic capital base available to absorb unexpected economic losses.1 Our objective is to maintain available capital at the Group level that is significantly above the minimum indicated requirements as determined by our internal risk capital model. We consistently steer the risk at the operating entity level based on the same internal model framework.
avaIlable capItal and Internal rIsk capItal € bn as of 31 December 2013 2012
This Risk and Opportunity Report provides the Group’s internal risk capital results based on pre-diversified risk capital and diversification effects. Pre-diversified internal risk capital reflects the diversification effect within each risk category (i.e. market, credit, underwriting, business and operational risk) but does not include the diversification effect across categories. Group-diversified internal risk capital also captures the diversification effect across all risk categories. Pre-diversified internal risk capital is used to measure concentration risks.
We define internal risk capital as the capital required to protect us against unexpected, extreme economic losses. On a quarterly basis, we calculate and aggregate internal risk capital across all business segments – providing a common standard for measuring and comparing risks across the wide range of different activities that we undertake as an integrated financial services provider.
geneRal aPPRoach We utilize an internal risk capital model for the management of our risk and solvency position and are working towards meeting the forthcoming Solvency II internal model requirements. Our model is based on a best practice technical platform with an up-to-date methodology covering all modeled sources of quantifiable risks. This forms an integral part of our internal risk capital framework. The model framework is regularly assessed by the European College of supervisors in the course of the internal model pre-application process of Solvency II.
The required internal risk capital is defined as the difference between the current portfolio value and the portfolio value under adverse conditions dependent on the 99.5 % confidence level. Because we consider the impact of a negative or positive event on all sources of risks and covered businesses at the same time, all diversification effects across products and regions are taken into account. The results of our Monte Carlo simulation allow us to analyze our exposure to each source of risk, both separately and in aggregate. In addition, for market risks we analyze several pre-defined stress scenarios based either on historically observed market movements or on hypothetical market movement assumptions. The modeling approach we apply therefore enables us to identify scenarios that have a positive impact on our solvency situation.
Yield curve and liquidity premium assumptions When calculating the fair values of assets and liabilities, the assumptions regarding the underlying risk-free yield curve are crucial in determining future cash flows and how to discount them. We apply the methodology as provided by the European Insurance and Occupational Pensions Authority (EIOPA) based on the latest guidance for the extension of the risk-free interest rate curves beyond the last liquid tenor. In addition, we adjust the risk-free yield curves for the Life/ Health business segment to make allowance for a liquidity premium.
Diversification and correlation assumptions Our internal risk capital model considers concentration, accumulation and correlation effects when aggregating results at 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.
We strive to diversify the risks to which we are exposed in order to limit the impact of any single source of risk and help increase the chances that the positive developments outweigh the negative. The degree to which diversification can be realized depends in part on the level of relative concentration of those risks as well as the joint movement of sources of risk.
Where possible, we derive correlation parameters for each pair of market risks through statistical analysis of historical market data, considering weekly observations over several years. In case historical market data or other portfolio-specific observations are insufficient or not available, correlations are set according to a well-defined, Group-wide process. Correlations are determined by the Correlation Settings Committee, which combines the expertise of risk and business experts. In general, we set the correlation parameters to represent the joint movement of risks under adverse conditions. Based on these correlations, we use an industry-standard approach, the Gaussian copula approach, to determine the dependency structure of quantifiable sources of risk within the applied Monte Carlo simulation.
− For the Life/Health insurance products, options and guarantees embedded in insurance contracts including policyholder participation rules.1
For our Asset Management business segment we assign internal risk capital requirements based on the sectoral regulatory capital requirements envisaged in Solvency II. The capital requirements of smaller insurance operating entities, that have an immaterial impact on the Group’s risk profile, are based on local regulatory requirements. We allocate these requirements to the risk categories of our internal risk capital model, thereby allowing a consistent aggregation of internal risk capital for all business segments at Group level.
liMitations Our internal risk capital model expresses the potential “worst-case” amount in economic value that we might lose at a certain confidence level. However, there is a statistically low probability of 0.5 % that actual losses could exceed this threshold at Group level in the course of one year.
We use model and scenario parameters derived from historical data, where available, to characterize future possible risk events. If 1 For further information about participating life business, please refer to note 20 to the consolidated financial statements.
future market conditions differ substantially from the past, for example in an unprecedented crisis, our VaR approach may be too conservative or too liberal in ways that are too difficult to predict. In order to mitigate reliance on historical data we complement our VaR analysis with stress testing. Our ability to back-test the model’s accuracy is limited because of the high confidence level of 99.5 %, the one-year holding period, as well as only limited data for some insurance risk events – such as natural catastrophes – being available. Furthermore, as historical data is used where possible to calibrate the model, it cannot be used for validation. Instead, we validate the model and parameters through sensitivity analyses, independent internal peer reviews and, where appropriate, external reviews by independent consulting firms focusing on methods for selecting parameters and control processes. Overall, we believe that our validation efforts are effective and that our model adequately assesses the risks to which we are exposed.
Since internal risk capital takes into account the change in the economic fair value of our assets and liabilities, it is crucial to accurately estimate the market value of each item. For some assets and liabilities, it may be difficult, if not impossible – notably in distressed financial markets – to obtain either a current market price or to apply a meaningful mark-to-market approach. For certain assets and liabilities, where a market price for that instrument or similar instruments is currently not available, we apply a mark-to-model approach. Nonstandardized derivative 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 Group level. For some of our liabilities, the accuracy of fair values depends on the quality of the actuarial cash flow estimates. Despite these limitations, we believe the estimated fair values are appropriately assessed.
At Group level, we identify and measure concentration risks consistently across business segments in terms of pre-diversified internal risk capital and in line with the risk categories covered by our internal risk capital model. In the following sections, all risks are presented on a pre-diversified basis and concentrations of single sources of risk are discussed accordingly.
With respect to investments, top-down indicators – such as strategic asset allocation benchmarks – are defined and closely monitored to ensure balanced investment portfolios. Limits on financial risk are in place for the Life/Health and Property-Casualty business segments at Group level. They are based on the internal risk capital model, complemented by stand-alone interest rate and equity sensitivity limits, in order to protect the economic capital position. In addition, the Group’s policy is to require each operating entity to match liabilities in congruent currencies with assets – as far as possible – and take local currency risks only within pre-defined limits.
Annual Report 2013 Allianz Group 111 decision on the amount of hedging.1 The hedging of risks stemming from investments is also an element applied to manage and limit risks efficiently. For example, protective puts are used to limit downward exposure of certain investments.2 In the following table, we present our Group-wide internal risk capital related to market risks: 1 For further information about the risk concentration in the Life/Health business, please refer to note 20 to the consolidated financial statements.
pre-diversified, € mn Interest rate Credit spread Equity Real estate Currency Total
The following chart presents the sensitivity of the internal model solvency ratio under certain standard financial scenarios. These are defined by reasonably possible individual movements in key market parameters while keeping all other parameters constant with the effects impacting both the available capital and internal risk capital.
As of 31 December 2013, our interest rate sensitive investments excluding unit-linked business – amounting to a market value of € 457.3 bn – would gain € 32.7 bn or lose € 29.7 bn in value in case of changing interest rates by - 100 basis points and + 100 basis points, respectively. 1
As described above, the risk related to interest rates lies in the fact that in the long run yields that can be achieved by reinvesting may not be sufficient enough to cover the guaranteed rates. In contrast, opportunities may materialize when interest rates increase. This may result in higher returns from reinvestments than the guaranteed rates. As the table above also demonstrates, our solvency ratio would increase by applying a 100 basis point upward parallel shift on the interest rate curve.
Equity risk The Allianz Group’s insurance operating entities usually hold equity investments to diversify their portfolios and take advantage of attractive long-term expected returns. Strategic asset allocation benchmarks and investment limits are used to manage and monitor these exposures. In addition, they fall within the scope of the CRisP to avoid a disproportionately large concentration of risk.
Besides diversification we mainly invest in equities since, as a long-term investor, we expect to be able to earn an excess return on our investments. Risks from changes in equity prices are normally associated with decreasing share prices and increasing equity price volatilities. As stock markets also might increase above expectations, opportunities may arise from equity investments. The potentially positive effect of an increase in equity prices on our capital ratio can be seen in the table above.
Currency risk Based on our foreign exchange management limit framework, currency risk is monitored and managed with the support of Group Treasury and Corporate Finance at the operating entity and Group level. The major part of foreign currency risk results from the economic value of our non-Euro operating entities. If non-Euro foreign exchange rates decline against the Euro from a Group perspective, the Euro equivalent net asset values also decrease.
Real estate risk Because of the relative size of our real estate portfolio compared to total investments, real estate risk is currently of lesser relevance for the Allianz Group. As of 31 December 2013, about 3.5 % (31 December 2012: 4.1 %) of the total pre-diversified internal risk capital was related to real estate exposures.
3 Exposures to the national governments of OECD and EEA states are modeled as risk free in the credit risk internal model, if the exposure is issued in the local currency of the govern ment. This is in line with EIOPA’s advice on Level 2 Implementation Measures on Solvency II. For further information on receivables to policyholders, agents and reinsurers, please refer to note 13 to the consolidated financial statements.
The loss profile of a given portfolio is obtained through a Monte Carlo simulation taking into account interdependencies and exposure concentrations per obligor or segment. To reflect portfolio specific diversification effects, the loss profiles are calculated at different levels of the Allianz Group structure (pre-diversified). They are then fed into the overall internal risk capital model for further aggregation across sources of risk to derive Group-diversified internal credit risk capital.
allocated inteRnal cRedit Risk caPital By Business segMent (total PoRtfolio BefoRe tax and non-contRolling inteRests)
Property-Casualty 1,881 2,144 Life/Health 3,591 4,127 Asset Management 169 119 Corporate and Other 277 671 Total Group internal credit risk capital 5,918 7,061 Share of total Group internal risk capital 14.0 % 15.7 %
The following table displays the sensitivities of credit risk capital to certain scenarios: deterioration of credit quality measured by issuer rating 1 downgrades and the decline of recovery rates in the event of a default (Loss-Given-Default, LGD). The sensitivities are calculated by applying each scenario to all exposures individually but keeping all other parameters constant.2 iMPact of selected cRedit scenaRios on inteRnal cRedit Risk caPital1
Most of the credit risk capital requirements and impact of the sensitivities in the above table can be attributed to senior unsecured and lower investment grade borrowers.
Different sources of Allianz credit risk exposure are described in the table below: 1 Credit risk capital calculations are based on issuer (borrower) ratings as opposed to issue (instrument) ratings. The difference between issue and issuer ratings is primarily due to collateralization and seniority and is reflected in loss-given-default (LGD).
ReinsuRance PoRtfolio Credit risk to external reinsurers appears when insurance risk exposures are transferred by us to external reinsurance companies to mitigate insurance risk. Potential losses can arise either due to non-recoverability of reinsurance receivables already present at the as-of date or default on benefits that are under reinsurance treaties in-force.
cRedit insuRance PoRtfolio Credit risk arises from potential claim payments on limits granted by Euler Hermes to its policyholders. Euler Hermes protects its policyholders (partially) from credit risk associated with short-term trade credits advanced to clients of the policyholder. If the client of the policyholder is unable to meet its payment obligations then Euler Hermes indemnifies the loss to the policyholder.
Credit risk – investment As of 31 December 2013, credit risk arising from the investment portfolio accounted for 81.8 % (2012: 83.4 %) of our total Group pre-diversified internal credit risk capital. Credit Risk in the Life/Health business segment is primarily driven by long-term assets covering long-term liabilities. Typical investments are government bonds, senior corporate bonds, covered bonds, self-originated mortgages and loans as well as a modest amount of derivatives. Due to the nature of the business, the fixed income securities in the Property-Casualty business segment tend to be short- to mid-term, which explains the lower credit risk consumption in this segment.1 1 Additionally 4.6 % (2012: 4.1 %) of our total Group pre-diversified internal credit risk capital is allocated to receivables and potential future exposure for derivatives and reinsurance.
Allianz has a well-diversified portfolio of Exchange- and OTC- traded derivatives, used as a part of efficient exposure management. The counterparty credit risk arising from derivatives is low, since the derivative's usage is governed by the Group-wide internal guidelines for collateralization of derivatives that stipulate master netting and collateral agreements with each counterpart and require high quality and liquid collateral. In addition, Allianz closely monitors the credit ratings of counterparts and the exposure movements. Central clearing of certain classes of OTC derivatives as required by EMIR (European Market Infrastructure Regulation) and additional reporting duties will contribute to further reducing counterparty credit risk and operational risk at Allianz.
As of 31 December 2013, the rating distribution of our fixed income portfolio was as follows: 2 2 In accordance with the change in representation within the Group Management report, stated figures include investments of Banking and Asset Management, which were excluded in the former representation. Due to this change our total investments increased by € 12.2 Bn as of 31 December 2012 to € 456.7 Bn (previously published: € 444.5 Bn). Table excludes private loans.
fixed incoMe investMents By Rating class – faiR values € Bn Type of issuer
BBB+ to BBB- 0.18 0.21 Non-investment grade – 0.02 Not assigned 2.08 2.72 1 Represents gross exposure broken down by reinsurer.
Credit risk – credit insurance Our credit insurance portfolio is modeled by Euler Hermes based on a proprietary model component, which is a local adaptation of the central internal credit risk module and is reviewed by Group Risk. The result is integrated in the Group’s internal credit risk capital to capture the concentration and diversification effects. As of 31 December 2013, 11.1 % (31 December 2012: 10.4 %) of our total Group pre-diversified internal credit risk capital is allocated to Euler Hermes credit insurance exposures.
yeaR-end, aveRage, high and low allocated inteRnal undeRwRiting Risk caPital By souRce of Risk (total PoRtfolio BefoRe non-contRolling inteRests and BefoRe gRouP diveRsification)1 € Mn Premium risk natural catastrophe Premium risk terror Premium risk non-catastrophe Reserve risk Biometric risk Total Group quaRteRly Results Year-end 427 353 24 21 3,809 3,790 5,834 6,040 525 913 10,619 11,117 Average 432 401 23 20 3,829 3,712 5,949 5,785 673 928 10,906 10,846 High 458 442 25 21 3,848 3,790 6,093 6,099 878 1,113 11,070 11,117 Low 420 353 19 20 3,809 3,648 5,835 5,186 502 731 10,619 10,254 1 As risks are measured by an integrated approach on an economic basis, internal risk capital takes reinsurance effects into account.
As of 31 December 2013, underwriting risk slightly decreased mainly driven by slightly lower loss reserves decreasing our reserve risk. For biometric risk the biggest single driver for the reduction was the above mentioned model update in our Life/Health business segment.
Premium risk As part of our Property-Casualty business operations, we receive premiums from our customers and provide insurance protection in return. Changes in profitability over time are measured based on loss ratios and their fluctuations.2 2 Please refer to the section Property-Casualty Insurance Operations – Property-Casualty operations by reportable segments on page 76 for a regional breakdown of loss ratios over the past two years.
− Mortality, disability, and morbidity risks are risks associated with the unexpected increase in the occurrence of death, disability or medical claims on our traditional products including on our traditional life and health insurance products.
− Longevity risk is the risk that due to changing biometric assumptions the reserves covering our portfolio of life annuities and group pension products might not be sufficient. Biometric assumptions, such as life expectancy, play a significant role.
We measure these risks within our internal risk capital model by distinguishing between the different sub-components, whenever relevant or material: absolute level, trend, volatility around the best estimate assumptions and pandemic risks. Depending on the nature and complexity of the risk involved, our Health business is represented in the internal model according to Property-Casualty 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. Thanks to effective product design, the diversity of our products and the substantial level of policyholder participation in Western European countries, there were no significant concentrations of underwriting risks within our Life/Health business as of 31 December 2013.4
Annual Report 2013 Allianz Group 117 also occur in the opposite direction, therefore being beneficial and leading to additional profit, e.g. a lower morbidity rate than expected will most likely result in lower expenses.
allocated inteRnal Business Risk caPital By Business segMent (total PoRtfolio BefoRe tax and non-contRolling inteRests)
Property-Casualty 992 1,020 Life/Health 3,743 3,424 Asset Management – – Corporate and Other – – Total Group internal credit risk capital 4,735 4,444 Share of total Group internal risk capital 11.2 % 9.9 %
Business risk remained mostly stable in 2013. Small changes specifically in the Life/Health business segment were mainly driven by changes in business volume and best estimate assumptions.
Operational risk Operational risks represent losses resulting from inadequate or failed internal processes, from personnel and systems, or from external events – including legal and compliance risk but excluding losses from strategic and reputational risk.
allocated inteRnal oPeRational Risk caPital By Business segMent (total PoRtfolio BefoRe tax and non-contRolling inteRests)
otheR Risks There are certain risks that cannot be fully quantified across the Group using our internal risk capital model. For these risks, we also pursue a systematic approach with respect to identification, analysis, 1 For additional information regarding our internal control over financial reporting, please refer to the chapter Controls over Financial Reporting and Risk Capital from page 123 onwards.
assessment and monitoring. In general, the risk assessment is based on qualitative criteria or scenario analyses. The most important of these other risks include strategic, liquidity and reputational risk.
Strategic risk Strategic risk is the risk of an unexpected negative change in the company ’s value arising from the adverse effect of management decisions regarding business strategies and their implementation.
Liquidity risk Liquidity risk is defined as the risk that short-term, current or future payment obligations cannot be met or can only be met on the basis of adversely altered conditions. Liquidity risk can arise primarily if there are mismatches in the timing of cash payments and funding obligations. Detailed information regarding Allianz Group’s liquidity risk exposure, liquidity and funding – including changes in cash and cash equivalents – is provided in the chapter Liquidity and Funding Resources from page 99 onwards and in notes 17, 23, 24 and 43 to the consolidated financial statements.
The accumulated short-term liquidity forecast is updated daily and is subject to an absolute minimum strategic cushion amount and an absolute minimum liquidity target. Both are defined for the Allianz SE cash pool in order to be protected against short-term liquidity crises. As part of our strategic planning, contingent liquidity requirements and sources of liquidity are taken into account to ensure that Allianz SE is able to meet any future payment obligations even under adverse conditions. Major contingent liquidity requirements include non-availability of external capital markets, combined market and catastrophe risk scenarios for subsidiaries as well as lower than expected profits and dividends from subsidiaries.
Our insurance operating entities manage liquidity risk locally, using asset-liability management systems designed to ensure that assets and liabilities are adequately matched. This decentralized approach guarantees sufficient flexibility in providing liquidity. The local investment strategies particularly focus on the quality of investments and ensure a significant portion of liquid assets (e. g. government bonds or covered bonds) in the portfolios. This helps us to meet high liquidity requirements in the case of unlikely events. We employ actuarial methods for estimating our liabilities arising from insurance contracts. In the course of standard liquidity planning we reconcile the cash flows from our investment portfolio with the estimated liability cash flows. These analyses are performed at the operating entity level and aggregated at Group level.
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.
Reputational risk Allianz’s reputation as a well-respected and socially aware provider of financial services is influenced by our behavior in a range of areas such as product quality, corporate governance, financial performance, customer service, employee relations, intellectual capital and corporate responsibility. Reputational risk is the risk of an unexpected drop in the value of the Allianz share price, the value of the in-force business or the value of future business caused by a decline in our reputation.
This comprehensive framework ensures that risks are identified, analyzed, assessed and managed in a consistent manner across the Group. Our risk appetite is defined by a clear risk strategy and limit structure. Close risk monitoring and reporting allows us to detect potential deviations from our risk tolerance at an early stage at both the Group and operating entity levels.
Risk strategy and risk appetite: Our risk strategy clearly defines our risk appetite. It ensures that rewards are appropriate for the risks taken and that the delegated authorities are in line with our overall risk-bearing capacity. The risk-return profile is improved through the integration of risk considerations and capital needs into decisionmaking processes. This also keeps risk strategy and business objectives consistent with each other and allows us to take opportunities within our risk tolerance.
Supervisory Board and Board of Management Within our risk governance system the Supervisory Board and Board of Management of Allianz SE have both Allianz SE and Group-wide responsibilities and have set up committees to provide them with support. Examples include: Supervisory Board The Risk Committee supervises the effectiveness of the Allianz risk management and monitoring framework. Furthermore, it focuses on risk-related developments as well as general risks and specific risk exposures.
As a general principle, the “first line of defense” rests with business managers in the local operating entities and Allianz Investment Management units. They are responsible, in the first instance, for both the risks and returns of their decisions. Our “second line of defense” is made up of our independent, global oversight functions such as Risk, Compliance and Legal. Audit forms the “third line of defense”. On a periodic basis, Group Audit independently reviews risk governance implementation, performs quality reviews of risk processes and tests adherence to business standards including the internal control framework.
In addition, Group Risk independently supports the adequacy of the operating entity risk management through the development of a common risk management framework and by monitoring adherence to Group minimum requirements for methods and processes.
Operating entities Operating entities are responsible for their own risk management, including adherence to both external requirements (for example, those imposed by local regulators) and internal Group-wide standards.
A risk function that is independent from the business line management is established by the operating entity. This function operates under the direction of the operating entity Chief Risk Officer who is responsible for overseeing the risk function. In addition, a local Risk Committee supports both the operating entity Board of Management and the Chief Risk Officer by acting as the primary risk controlling body. Group Risk is also represented on the local Risk Committees to enhance the risk dialogue between the Group and the operating entities.
Other functions and bodies In addition to Group Risk and the operating entity Risk function, Legal and Compliance functions have been established at both Group and operating entity level, constituting additional components of the second line of defense.
Group Legal and Compliance seeks to mitigate legal risks with support from other departments. Legal risks include legislative changes, major litigation and disputes, regulatory proceedings and contractual clauses that are unclear or construed differently by the courts. Compliance risk is the risk of legal or regulatory sanctions, material financial loss or loss to reputation that an undertaking may suffer as a result of not complying with applicable laws, regulations and administrative provisions. The objectives of Group Legal and Compliance are to ensure that laws and regulations are observed, to react appropriately to all impending legislative changes or new court rulings, to attend to legal disputes and litigation, and to provide legally appropriate solutions for transactions and business processes. Group Legal and Compliance is in addition responsible for integrity management – which aims to protect the Allianz Group, our operating entities and employees from regulatory risks.
In order to adapt to a continually changing environment, the Global Issues Forum (GIF) supports the Group in the assessment of long-term trend changes in the risk landscape on a timely basis. As an active participant in the Emerging Risk Initiative of the Chief Risk Officer Forum, we monitor with other chief risk officers of major European insurance companies and financial conglomerates the industrywide risk landscape and raise awareness of major risks for the insurance industry.
In addition to maintaining our high standards and practices in dayto -day risk management and control, we have set the following priorities for 2014.
In addition we will reorganize our committee structure to further strengthen our risk governance and to foster efficient risk management decisions. In particular, we will merge the Group Risk Committee and Group Finance Committee into a new Group Finance and Risk Committee (GFRC). Furthermore, the Group Capital Committee will be strengthened to speed up decision processes.
Demographic changes are creating both opportunities and challenges for financial services providers. While the urban populations of Asia and Africa are expanding and their middle classes growing, Western populations are aging and their workforces shrinking. With more people over 60 years old than ever before, and declining birth rates, social security systems are under pressure and demand is growing for additional pension provisions. We are responding to these trends through integrated asset management and insurance solutions. Our solid market position in continental Europe and the United States, as well as our strong brand and well-diversified product portfolio put us in an excellent position to further benefit from providing products and services for old-age, health care and assistance.
In emerging economies, the need for formal social security systems is growing due to the weakening of traditional family ties and support networks. From life to health and crop insurance, our growing microinsurance portfolio helps low-income families in developing countries to protect themselves against and better manage the risks in life to build a more secure future. Although financial returns from microinsurance are much lower than from traditional products, we believe that satisfied microinsurance policyholders will bring a mid- to long-term return on investment as many of them move up the economic ladder and graduate towards more regular Allianz products.
The evolution of the digital world has dramatically changed the way customers consume media, search for information or recommendations and buy products. Social networks and other online channels are gaining in importance. In parallel, expectations of service levels are increasing. We are continuously adapting to this new digital lifestyle to stay connected with our stakeholders and improve customer service. In the framework of the Allianz Digital Target Picture program we leverage the opportunities that changing customer preferences provide.
For more information, please refer to the chapter Progress in Sustainable Development from page 59 onwards.
Key challenges and opportunities, as we see them, are outlined below.
RegulatoRy and legal changes The insurance industry is faced with increased regulation in developed markets, for example Solvency II in the European Union and the systemic risk discussions (G-SII) led by the Financial Stability Board.
In addition to these joint efforts, Allianz has built four operational and strategic pillars to help the Group create opportunities on a wider basis: Digitalization, enabling us to take advantage of new products through channels to new markets at lower cost: Digitalization is one of our major ongoing Group initiatives and affects all areas of Allianz, including our customers and our employees. This initiative spans everything from the design of new modular products, to new forms of access, to servicing existing customers in a better way. For example we are developing web-based and multi-access customer interaction tools to address changing customer behaviors. On the operational side, we are harmonizing systems across the Group to reduce complexity and improve efficiency. We are making considerable progress in this Group-wide digital transformation program and will invest approximately € 300 Mn in 2014 to build reusable assets in the three areas of the Allianz Digital Target Picture: Customer Interaction, Analytics & Products and Productivity. These initiatives are based on multi-year strategic infrastructure programs. Allianz will invest approximately € 200 Mn in 2014 focused primarily on the consolidation of data center operations worldwide and on the implementation of a private global network. Digitalization is also the basis for enhanced management information systems to improve steering. When driving digitalization, security and data confidentiality remain a major priority.
Leverage Group synergies: We continue to leverage Group synergies via know-how and best practice sharing in underwriting, product development and operations through Global Property-Casualty and Global Life/Health units. At the same time, we are further developing shared services in various areas, especially in Operations and Finance. Numerous internal efforts are ongoing to identify improvement potentials and share best practices, e.g. in Operations and in Claims Management. In Human Resources, we are strengthening our efforts for international rotation of talents.
Strategic Investments: Strategic investments also open up new business opportunities. For example, Allianz is growing its Business to Business to Customer (b2b2C) area. By pairing up value propositions – Automotive with Roadside Assistance, and International Health with Corporate Assistance – under the roof of Allianz Worldwide Partners, we are taking a distinctive position in the b2b2C market. One major advantage for us is to extend agreements with distributors across global markets in a seamless manner. Allianz also operates an incubator to develop and pilot innovative ideas before they are implemented across the Group.
In line with both our prudent approach to risk governance and compliance with regulatory requirements, we have created a structure to identify and mitigate the risk of material errors in our consolidated financial statements. Our internal control system over financial reporting (ICOFR) is based on the framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the year 1992 and is regularly reviewed and updated. Our approach also includes the following five interrelated components: Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring. These five components are covered by an Entity Level Control Assessment Process (ELCA), IT General Controls (ITGC) and controls at process levels. The ELCA framework contains controls such as a compliance program or committee governance structure. In the ITGC framework we implemented, for example, controls regarding access right management or project and change management controls.
Similar to our ICOFR framework, we have also established a robust and comprehensive control concept in the risk capital calculation and aggregation process, since our internal risk capital calculations incorporate economic factors that are not fully reflected in the accounting results. We have put in place additional controls within our management reporting processes to ensure that these additional estimates are adequately controlled.
These controls include the validation of models and assumptions by independent reviews and continuous benchmarking to market and/or peer assumptions and practices. We benchmark and explain our non-market assumptions against practices in the industry, actuarial associations and guidance from supervisory authorities.
− Preventive and detective key controls over the financial reporting process are put in place to reduce the likelihood and the impact of financial misstatements. If a potential risk materializes, actions are taken to reduce the impact of the financial misstatement. Given the strong dependence of financial reporting processes upon information technology systems, we also include IT controls.
Subsidiaries within the scope of our control system are individually responsible for adhering to the Group’s internal control policy and for creating local Disclosure Committees that are similar to the Group-level committee. The entities’ CEOs and CFOs provide periodic sign-offs to the management of Allianz SE, certifying the effectiveness of their local system of internal controls as well as the completeness, accuracy and reliability of financial data reported to the Holding.
134 1 Nature of operations and basis of presentation 134 2 Summary of significant accounting policies 143 3 Use of estimates and assumptions 147 4 Recently adopted and issued accounting pronouncements and changes in the presentation of the consolidated financial statements 154 6 Segment reporting
Claims and insurance benefits incurred (gross) (50,178) (51,744) Claims and insurance benefits incurred (ceded) 2,376 2,871 Claims and insurance benefits incurred (net) 33 (47,802) (48,873) Change in reserves for insurance and investment contracts (net) 34 (13,990) (14,360)
Loan loss provisions 36 (86) (111) Impairments of investments (net) 37 (611) (934)
Acquisition and administrative expenses (net) 39 (22,865) (22,046) Fee and commission expenses 40 (3,038) (2,895) Amortization of intangible assets 15 (136) (259)
Expenses from fully consolidated private equity investments 32 (741) (847) Total expenses (91,772) (93,040)
Available-for-sale investments Reclassifications to net income (817) (689) Changes arising during the year (2,537) 6,270
Share of other comprehensive income of associates Reclassifications to net income – (1) Changes arising during the year (82) 10
Miscellaneous Reclassifications to net income – – Changes arising during the year 105 175
Consolidated statements of Changes in equity consolidated statements of changes in eQUitY
Balance as of 1 January 2012, as reported 28,763 12,065 (1,997) 4,626 43,457 2,290 45,747
Paid-in capital 55 – – – 55 – 55 1 Total comprehensive income in shareholders’ equity for the year ended 2013 comprises net income attributable to shareholders of € 5,996 mn (2012: € 5,231 mn).
cash flow from financing activities Net change in liabilities to banks and customers 873 (419) Proceeds from the issuance of certificated liabilities and subordinated liabilities 6,236 9,084 Repayments of certificated liabilities and subordinated liabilities (6,204) (8,315) Cash inflow from capital increases 47 44 Transactions between equity holders 13 (115) Dividends paid to shareholders (2,303) (2,214) Net cash from sale or purchase of treasury shares 7 6 Other (net) (104) (107) Net cash flow used in financing activities (1,435) (2,036)
Basis of preseNtatioN The consolidated financial statements of the Allianz Group have been prepared in conformity with International Financial Reporting Standards (IFRS), as adopted under European Union (E.U.) regulations in accordance with § 315a of the German Commercial Code (HGB). Within these consolidated financial statements, the Allianz Group has applied all standards and interpretations issued by the IASB and endorsed by the E.U. that are compulsory as of 31 December 2013. IFRS comprise International Financial Reporting Standards (IFRS), International Accounting Standards (IAS) and interpretations developed by the IFRS Interpretations Committee (formerly called the IFRIC) or the former Standing Interpretations Committee (SIC).
The accounting policies adopted are consistent with those of the previous financial year, except for recently adopted IFRS effective 1 January 2013.
The consolidated financial statements are prepared as of and for the year ended 31 December and presented in millions of Euro (€), unless otherwise stated.
“subsidiaries”, which are directly or indirectly controlled by the Allianz Group, are consolidated. Control exists when the Allianz Group has the power to govern the financial and operating policies of the subsidiary generally either when the Allianz Group owns directly or indirectly more than half of the voting rights of the subsidiary or when control can be legally evidenced otherwise because of an agreement with other investors or of a specific corporate charter. In order to determine whether control exists, potential voting rights that are currently exercisable or convertible are taken into consideration. If no control exists from a legal perspective, it is assessed whether control exists from an economic perspective, as in the case of SPEs.
Joint ventures are entities over which the Allianz Group and one or more other parties have joint control. Joint ventures are generally accounted for using the equity method.
Assets and liabilities of subsidiaries not reporting in Euro are translated at the closing rate on the balance sheet date and income and expenses are translated at the quarterly average exchange rate. Any foreign currency translation differences, including those arising from the equity method, are recorded in other comprehensive income.
Impairment of available-for-sale and held-to-maturity investments as well as loans and advances to banks and customers A held-to-maturity or available-for-sale debt security, as well as a loan, is impaired if there is objective evidence that a loss event has occurred after initial recognition of the security and up to the relevant date of the Allianz Group’s consolidated balance sheet, and that loss event has negatively affected the estimated future cash flows, i.e. amounts due according to the contractual terms of the security are not considered collectible. For available-for-sale debt securities, the cumulative loss recognized in the other comprehensive income is reclassified to profit or loss. The cumulative loss corresponds to the difference between amortized cost and the current fair value of the investment. Further declines in fair value are recognized in other comprehensive income unless there is further objective evidence that such declines are due to a credit-related loss event. If in subsequent periods objective evidence results in a fair value increase after the impairment loss was recognized, the impairment loss is reversed through the income statement. The reversal is measured as the lesser of the full original impairment loss previously recognized in the income statement and the subsequent increase in fair value. For held-to-maturity investments and loans, the impairment loss is measured as the difference between the amortized cost and the expected future cash flows using the original effective interest rate. If the amount of the impairment of a held-to-maturity debt security or a loan subsequently increases or decreases due to an event occurring after the initial measurement of impairment, the change is recorded in the income statement.
For banking entities, valuation allowances of their loan book are reported as loan loss allowances. For all non-banking entities, loans to banks and customers have investment character and valuation allowances are reported as ‘impairments of investments’. For the loan loss allowance reported by banking entities, please refer to notes 10 and 36. Allowances for loans to banks and customers by non-banking entities are reported in note 37.
An available-for-sale equity security is considered to be impaired if there is objective evidence that the cost may not be recovered. Objective evidence that the cost may not be recovered, in addition to qualitative impairment criteria, includes a significant or prolonged decline in the fair value below cost. The Allianz Group’s policy considers a decline to be significant if the fair value is below the weighted average cost by more than 20 %. A decline is considered to be prolonged if the fair value is below the weighted average cost for a period of more than nine months. If an available-for-sale equity security is impaired, any further declines in the fair value at subsequent reporting dates are recognized as impairments. Therefore, at each reporting period, for an equity security that was determined to be impaired, additional impairments are recognized for the difference between the fair value and the original cost basis, less any previously recognized impairment. Reversals of impairments of available-for-sale equity securities are not recorded through the income statement but recycled out of other comprehensive income when sold.
Hedge accounting For derivative financial instruments used in hedge transactions that meet the criteria for hedge accounting, the Allianz Group designates the derivative as a hedging instrument in a fair value hedge, cash flow hedge, or hedge of a net investment in a foreign entity. The Allianz Group documents the hedge relationship, as well as its risk management objective and strategy for entering into the hedge transaction. The Allianz Group assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative financial instruments that are used for hedging transactions are highly effective in offsetting changes in fair values or cash flows of the hedged items.
Derivative financial instruments that meet the criteria for hedge accounting are included in other assets or other liabilities.
Derivative financial instruments designated in hedge accounting relationships are included in the line item other assets and liabilities. Freestanding derivatives are included in the line item financial assets or liabilities held for trading. For further information on derivatives, please refer to note 43.
Measurement basis fiNaNCiaL assets Cash and cash equivalents Nominal value Financial assets carried at fair value through income
Certificated liabilities (Other liabilities) Amortized cost Subordinated liabilities (Other liabilities) Amortized cost off-BaLaNCe sheet Financial guarantees Nominal value Irrevocable loan commitments Nominal value
Please refer to note 44 for details on fair value measurement and further disclosures under IFRS 7. Please refer to note 3, where the processes and controls for ensuring an appropriate use of estimates and assumptions are explained.
Investments in associates and joint ventures Please see the section Principles of Consolidation for details on the accounting for investments in associates and joint ventures.
FINANCIAL ASSEtS FOr uNIt-LINkED CONtrACtS Financial assets for unit-linked contracts are recorded at fair value with changes in fair value recorded in net income together with the offsetting changes in fair value of the corresponding financial liabilities for unit-linked contracts.
Deferred acquisition costs (DAC) Costs that vary with and are directly related to the acquisition and renewal of insurance contracts and investment contracts with discretionary participation features are deferred by recognizing a DAC asset. DAC generally consists of commissions, underwriting expenses and policy issuance costs. At inception, DAC is tested to ensure that it is recoverable over the life of the contracts. Subsequently, loss recognition tests at the end of each reporting period ensure that only the amount of DAC that is covered by future profits is carried on the consolidated balance sheet. Please refer to the section reserves for insurance and investment contracts, where details on the corresponding liability adequacy test are explained.
Present value of future profits (PVFP) The value of an insurance business or an insurance portfolio acquired is measured by the PVFP, which is the present value of net cash flows
Deferred sales inducements Sales inducements on insurance contracts are deferred and amortized using the same methodology and assumptions as for deferred acquisition costs when they meet the following criteria: the sales inducements are recognized as part of the reserves, are explicitly identified in the contract at inception and incremental to amounts credited on similar contracts without sales inducements and higher than the contract’s expected ongoing crediting rates for periods after the inducement.
Receivables are generally recorded at face value less any payments received, net of valuation allowances.
Software, which includes software purchased from third parties or developed internally, is initially recorded at cost and amortized on a straight-line basis over the estimated useful service lives or contractual terms.
Insurance and investment contracts Insurance contracts under which the Allianz Group accepts significant insurance risk and investment contracts with discretionary participating features are accounted for under the insurance accounting provisions of US GAAP as at first-time adoption of IFRS 4 on 1 January 2005 when IFRS 4 does not provide specific guidance. Investment contracts without discretionary participation features are accounted for as financial instruments in accordance with IAS 39.
Insurance liability adequacy testing Liability adequacy tests are performed for each insurance portfolio on the basis of estimates of future claims, costs, premiums earned and proportionate investment income. For short-duration contracts, a premium deficiency is recognized if the sum of expected claim costs and claim adjustment expenses, expected dividends to policyholders, capitalized DAC, and maintenance expenses exceeds related unearned premiums while considering anticipated investment income.
reserVes for Loss aND Loss aDJustmeNt eXpeNses Reserves are established for the payment of losses and loss adjustment expenses (LAE) on claims which have occurred but are not yet settled. Reserves for loss and loss adjustment expenses fall into two categories: case reserves for reported claims and reserves for incurred but not reported losses (IBNR).
Universal life-type and investment-type insurance contracts features which are not closely related to the underlying insurance contracts are bifurcated from the insurance contracts and accounted for as derivatives in line with IFRS 4 and IAS 39.
Non-unit-linked investment contracts without discretionary participating features are accounted for under IAS 39. The aggregate policy reserve for those contracts is initially recognized at fair value, or the amount of the deposit by the contract holder, net of the transaction costs that are directly attributable to the issuance of the contract. Subsequently, those contracts are measured at amortized cost using the effective interest rate method.
fiNaNCiaL LiaBiLities for uNit-LiNkeD CoNtraCts The fair value of financial liabilities for unit-linked contracts is equal to the fair value of the financial assets for unit-linked contracts.
Pensions and similar obligations For defined benefit plans, the Allianz Group uses the projected unit credit method to determine the present value of its defined benefit obligations and the related service cost and, where applicable, past service cost. All actuarial gains and losses are recognized immedi-
ately in other comprehensive income (OCI). While all remeasurements and experience adjustments need to be recognized in OCI, service and interest costs are recognized in the profit or loss account. The long-term return on plan assets is calculated using the same interest rate used to discount the defined benefit obligation, i.e. highquality corporate bonds at the end of the reporting period.
Restructuring provisions Restructuring provisions are recognized when programs materially change the scope of business performed by an operating entity or business unit or the manner in which business is conducted and when a detailed formal plan has been announced.
eQuitY Issued capital represents the mathematical per share value received from the issuance of shares. Capital reserves represent the premium, or additional paid-in capital, received from the issuance of shares.
Unrealized gains and losses (net) include unrealized gains and losses from available-for-sale investments and derivative financial instruments that meet the criteria for cash hedge accounting or hedges of a net investment in a foreign entity. Please refer to the above sections for foreign currency, where foreign currency changes that are recognized in other comprehensive income are explained.
Non-controlling interests represent equity in subsidiaries, not attributable directly or indirectly, to Allianz as parent.
Revenues for universal life-type and investment contracts represent charges assessed against the policyholders’ account balances for the front-end loads, net of the change in unearned revenue liability, cost of insurance, surrenders and policy administration, and are included within premiums earned (net).
Both sides of the Allianz Group’s balance sheet have a high degree of estimation and numerous assumptions embedded in the valuation of assets and liabilities. The estimation process and selection of appropriate assumptions requires significant judgment to be applied and management decisions to be taken in order to establish appropriate values for these assets and liabilities. Any change in the assumptions and estimates could, in certain circumstances, significantly affect the reported results and values because the range of reasonable judgment in some cases may be very large. The Allianz
Group understands the degree of impact that these judgments may have and has established a strong system of governance as well as controls, procedures and guidelines to ensure consistency and soundness over these judgments.
Complex accounting areas that are especially sensitive to the estimates and assumptions are described in the following sections.
reserVes for Loss aND Loss aDJustmeNt eXpeNses, reserVes for iNsuraNCe aND iNVestmeNt CoNtraCts aND DeferreD aCQuisitioN Costs As of 31 December 2013, the Allianz Group reported:1
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.
Using the development patterns and expected loss ratios described above, local reserving actuaries produce estimates of ultimate loss and allocated loss adjustment expenses using several methods, such as Loss Development or Chain-Ladder Method, Bornhuetter-Ferguson Method, or Frequency-Severity Methods.
− the total loss and LAE reserves, and − the case reserves as established by claims adjusters on a caseby -case basis.
Estimates for the current accident year determine the loss ratios and profitability of the business of the most recent year. For all prior accident years the change in estimates is reported as a run-off – adverse or favorable – in the consolidated income statement.
Regular quantitative and qualitative reserve monitoring: On a quarterly basis, the Allianz Group Actuarial Department monitors re serve levels, movements and trends across the Allianz Group. This monitoring is conducted on the basis of quarterly data submitted by the subsidiaries as well as through frequent dialogue with local actuaries.
− € 10,267 MN of the financial assets and € 4,694 MN of the financial liabilities carried at fair value are classified within level 3 of the fair value hierarchy (valuation techniques with significant input being non-observable). Level 3 financial assets represent 2.1 % of the Allianz Group’s total financial assets carried at fair value. Financial liabilities classified as Level 3 represent 5.2 % of the Allianz Group’s total financial liabilities carried at fair value.
Estimates and assumptions are particularly significant when determining the fair value of financial instruments for which at least one significant input is not based on observable market data (classified within level 3 of the fair value hierarchy). The availability of market information is determined by the relative trading levels of identical or similar instruments in the market, with emphasis placed on information that represents actual market activity or binding quotations from brokers or dealers. When appropriate, values are adjusted on the basis of available market information including pricing, creditrelated factors, volatility levels, and liquidity considerations. If sufficient market information is unavailable, management’s best estimate of a particular input is used to determine the value.
of a loss event, but may represent objective evidence of a loss event when considered with other available information.
The Allianz Group’s processes and controls around the estimation of recoverable amounts are generally applied at the Allianz Group level and are designed to minimize subjectivity. For example, the assumptions used are required to be consistent with the parameters 2 Please refer to note 2 Summary of significant accounting policies and note 15 Intangible assets for further details.
of the well-defined planning and controlling processes. Important input factors for those calculations are the business plan, the estimate of the sustainable returns and eternal growth rates, as is further explained in note 15. The Allianz Group also performs sensitivity tests with regard to key value drivers, such as projected long-term combined ratios or discount rates. Furthermore, the Allianz Group reviews market-based business transaction multiples where available. This information is used to assess reasonableness since directly comparable market value information is not generally available. The Allianz Group believes that the controls over assessing the recoverability of goodwill ensure both consistent and reliable results.
DeferreD taX assets As of 31 December 2013, the Allianz Group reported deferred tax assets of € 1,508 MN. The deferred tax assets before netting with deferred tax liabilities amounted to € 15,555 MN. € 1,561 MN thereof resulted from tax losses which are carried forward to future periods.1
Recognition and recoverability of all significant deferred tax assets are reviewed by tax professionals at Group level and the Allianz Group Tax Committee. 2 1 Please refer to note 2 Summary of significant accounting policies and note 42 Income taxes for further details.
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.
Generally, the subsidiaries, which are undertaking the restructuring program, set up a formal plan and determine all underlying estimates and assumptions. Therefore, it is the Allianz Group’s policy that the subsidiaries are responsible for an adequate planning process, controlling the execution of the program, and for the fulfillment of all requirements of IFRS. The respective documentation has to be submitted to the Allianz Group Accounting and Reporting department, where qualified staff members review all restructuring programs. This includes a review of all estimates and assumptions, and an assessment of whether all requirements for setting up a restructuring provision are satisfied, including which cost components can be treated as restructuring charges.
3 Please refer to note 2 Summary of significant accounting policies and note 49 Restructuring plans for further details.
Amendments to ias 19, Employee Benefits The amendments eliminate the corridor approach and require all actuarial gains and losses to be recognized immediately in other comprehensive income (OCI). While all remeasurements need to be recognized in OCI, service and interest costs have to be recognized in the profit or loss account. The long-term return on plan assets has to be calculated using the same interest rate used to discount the defined benefit obligation (DBO).
cHange oF consolidated Balance sHeet relating to amendments to ias 19, employee BeneFits as oF 1 January 2012 € mn as of 1 January 2012 As previously reported Amendments to ias 19 As reported
Total liabilities and equity 641,472 (150) 641,322 cHange oF consolidated Balance sHeet relating to amendments to ias 19, employee BeneFits as oF 31 decemBer 2012 € mn as of 31 December 2012 As previously reported Amendments to ias 19 As reported
Reserves for insurance and investment contracts 390,987 (2) 390,985 Deferred tax liabilities 5,169 (1,134) 4,035
The impact on the total other comprehensive income was € (1,816) mn for the year ended 31 December 2012.
Further adopted accounting pronouncements In addition to the amendments to IAS 19, Employee Benefits, the following new standard, amendments and revisions to existing standards became effective for the Allianz Group’s consolidated financial statements as of 1 January 2013: − IAS 1, Presentation of Financial Statements – Amendment to Presentation of Items of Other Comprehensive Income,
− IFRS 7, Financial Instruments: Disclosures – Amendments to Offsetting Financial Assets and Financial Liabilities,
The Allianz Group adopted the new standard, the revisions and amendments as of 1 January 2013, with no material impact on its financial results or financial position.
FurtHer amendments and interpretations standard/interpretation eFFectiVe date ias 19, Defined Benefit Plans: Employee Contributions Annual periods beginning on or after 1 July 2014 ias 36, Impairment of assets: Recoverable Amount Disclosures for Non-Financial Assets Annual periods beginning on or after 1 January 2014 ias 39, Financial Instruments: Recognition and Measurement: Novation of Derivatives and Continuation of Hedge Accounting
Change in presentation of discounted loss reserves in the business segment Property-Casualty Effective 1 January 2013, the Allianz Group prospectively changed its presentation of discounted loss reserves in the consolidated balance sheet from the line item “Reserves for loss and loss adjustment expenses” to the line item “Reserves for insurance and investment contracts”. In the consolidated income statement, the unwinding of the discounted loss reserves is now presented in “Change in reserves for insurance and investment contracts (net)”.
The following tables present the impacts of the change in presentation of discounted loss reserves.
Reserves for loss and loss adjustment expenses 69,773 (3,207) 66,566 Reserves for insurance and investment contracts 400,865 3,207 404,072 Total liabilities 658,681 – 658,681 cHange oF consolidated income statement relating to cHange in presentation oF discounted loss reserVes € mn
Claims and insurance benefits incurred (net) (47,890) 88 (47,802) Change in reserves for insurance and investment contracts (net) (13,902) (88) (13,990) Net income 6,344 – 6,344
Change in presentation of consolidated statements of cash flows The Allianz Group has changed the presentation of policyholders’ account deposits and withdrawals in its consolidated statements of cash flows from cash flow from financing activities to cash flow from operating activities. The change in presentation has been applied retrospectively.
The Allianz Group believes this change in presentation results in information that is more relevant to the economic decision-making needs of users of financial statements as those cash flows relate to the insurance activities of the Allianz Group. The change in presentation results in a consistent presentation of all cash flows from insurance activities as cash flows from operating activities.
All subsidiaries, joint ventures and associates are individually listed in the list of participations of the Allianz Group from page 233 of this Annual Report onwards.
Consideration transferred Cash consideration transferred 14 Purchase price adjustment (14) Total consideration transferred – Identifiable assets acquired and liabilities assumed Cash and cash equivalents 6 Investments 69 Loans and advances to banks and customers 3 Financial assets for unit-linked contracts 35 Deferred acquisition costs 15 Reserves for insurance and investment contracts (90) Financial liabilities for unit-linked contracts (35) Deferred tax liabilities (2) Other liabilities (1) Total net identifiable assets –