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20 Takeover-related Statements and Explanations (part of the Group Management Report)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 86 General Information 103 Notes to the Consolidated Balance Sheets 120 Notes to the Consolidated Income Statements 125 Other Information 152 Responsibility Statement 153 Independent Auditor’s Report
These are all clear signs that the Renewal Agenda, our global strategy program, is producing results. One of its objectives is technical excellence – and the figures show how good a grip our people have on the business. We are also making good progress on the other objectives laid down in our Renewal Agenda. Above all, we are placing a stronger focus on customer satisfaction, in addition to financial figures – and customer satisfaction has reached above-average levels in 60 % of our businesses. We are growing again, too: Our total revenues increased by 3 % this past year, reaching € 126 bn by year-end.
We are making progress in steering our company culture towards a culture of “Inclusive Meritocracy”; I am particularly proud of these developments, which have been confirmed by the annual improvements in our employee engagement survey. I have great respect for how both our in-house employees and our sales partners are coping with the double challenge of implementing the Renewal Agenda while continuing their daily work to provide our customers with the most comprehensive and uncomplicated service possible. My sincere thanks go to them all.
− In life insurance, we have managed to set ourselves even further apart from the competition by successfully shifting the portfolio to less capital-intensive products, thus adding more value for customers. We were rewarded with a newbusiness margin of 3.4 % and a 30 % increase in the value of new business.
Hermes, a global leader. In the United Kingdom we have entered into a joint venture with the insurer LV=, thus creating the third-largest retail insurer in the country with substantial long-term growth potential. In North Africa, we officially launched operations under the new name Allianz Maroc at the beginning of the year, thus expanding our presence in the region. Acquisitions in Nigeria and Saudi Arabia will further strengthen our position. Last but not least, we have invested in Lemonade, a digital insurer whose market presence and technology-driven business model will serve as an example for customer-oriented and end-to-end digitalization.
− At the same time, we have divested businesses that did not offer satisfactory profitability prospects and will probably be better off in someone else’s hands. This includes the decision to sell our shares in Oldenburgische Landesbank AG, as well as to transfer a large life portfolio in Taiwan. Furthermore, our 2017 balance sheet was no longer negatively impacted by our South Korean life insurer, the sale of which was concluded in the previous year.
What does all of this mean for you, our investors? The market capitalization of Allianz grew by € 12.6 bn in 2017. As a result, the value of your shares increased 22.0 %. We have proposed to the Supervisory Board that the dividend for the 2017 financial year shall be increased to € 8.00, a 5 % plus and the fifth dividend increase in succession.
Our aim is to utilize the valuable time and energy of our fantastic staff, both in the back office and in the sales force, to provide even better, even more personal support for our customers. We want to hold on to the things that customers would miss – and let go of things that generate costs without adding value. High productivity is directly reflected in customer value, brand value, and growth, which is why we invest in new digital learning platforms, for example, so our employees can get fit for the future. We systematically look into what skills our staff might need as we go forward, and how the significance of different fields of work might shift – because we want to be able to shape change rather than merely react to it.
OVERVIEW In the financial year 2017, the Supervisory Board held seven meetings and a conference call. The regular meetings took place in February, March, May, August, October, and December. In addition, a constituent meeting took place after the election of the new Supervisory Board by the Annual General Meeting (AGM) 2017.
In all of the Supervisory Board’s 2017 meetings, the Board of Management reported on Group revenues and results as well as developments in individual business segments. The Board of Management informed us on the course of business as well as on the development of the Allianz SE and Allianz Group, including deviations in actual business developments from the planning. The Board of Management reported to the Supervisory Board on a regular basis and in a timely and comprehensive manner, both verbally and in writing.
Board of Management’s planning for both the financial year 2018 and the three-year period from 2018 to 2020.
The Board of Management’s verbal reports at the meetings were accompanied by written documents, which were sent to each member of the Supervisory Board in time for the relevant meeting. The Board of Management also informed us in writing of important events that occurred between meetings. The chairmen of the
The Chairman of the Supervisory Board also had individual discussions with each member of the Board of Management about their respective half-year as well as full-year performance.
to audit the individual and consolidated financial statements of Allianz SE as from financial year 2018. In addition, the Supervisory Board was also informed about the implementation status of the Renewal Agenda as well as the strategy pursued in the Asset Management business segment. The Supervisory Board dealt extensively with personnel matters related to the Board of Management, specifically regarding Dr. Mascher, Dr. Wemmer, and Dr. Zedelius, whose appointments expired at the end of 2017. Dr. Mascher’s appointment was renewed for three years. As successors to Dr. Wemmer and Dr. Zedelius, who had both reached retirement age, the Supervisory Board appointed Niran Peiris and Giulio Terzariol to the Board of Management with effect from 1 January
Diekmann under corporate law. Mr. Snabe and Mr. Zimmermann were elected as Deputy Chairmen. In addition, the Supervisory Board elected the members of the committees and approved Dr. Eichiner to be the financial expert as defined in § 100 (5) of the German Stock Corporation Act (AktG). The Supervisory Board also adopted a resolution to establish an additional Board committee: the Technology Committee. In June 2017, the new members of the Supervisory Board attended a separate information session in order to familiarize themselves with the Allianz business model and the structures of the Allianz Group.
Board amended the Rules of Information for Reports by the Board of Management to the Supervisory Board in order to comply with new regulatory requirements. Finally, the Board of Management reported on the percentage of women in management positions. Thereafter, the Supervisory Board set a new target for the percentage of women in Allianz SE’s Board of Management. This target is also a component of the diversity concept for the
Board of Management, which was to be established in accordance with the new CSR regulations. A corresponding diversity concept for the Supervisory Board was included into the objectives for the composition of the Supervisory Board, as well as a profile of skills and expertise for the Supervisory Board which is required under a new Code recommendation (see page 15).
The meeting on 13 October 2017 mainly focused on the strategy of the Allianz Group, in particular the respective external conditions including potentially disruptive developments and the implementation status of the Renewal
6 Annual Report 2017 − Allianz Group planning for financial year 2018 and the three-year plan 2018 to 2020, as well as the new requirements for non-financial reporting that follow from the implementation of the European CSR Directive. In this regard, we approved the recommendation of the Audit Committee to engage PwC to perform a limited assurance engagement of the combined separate non-financial report for the financial year 2017. The Board of Management also provided a status report on the issue of cyber risk security and the efficiency of distribution channels.
DECLARATION OF CONFORMITY WITH THE GERMAN CORPORATE GOVERNANCE CODE On 14 December 2017, 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 in its version
Further explanations on corporate governance in the Allianz Group can be found in the Corporate Governance
COMMITTEE ACTIVITIES The Supervisory Board has formed various committees in order to perform its duties efficiently. The committees prepare the consulting and adoption of resolutions in the plenary sessions; they can also adopt resolutions themselves.
Information for Reports by the Board of Management to the Supervisory Board, the preparations for the Annual
General Meeting, the employee stock purchase program, and the Supervisory Board’s self-assessment as well as the resulting development plan. In addition, the Standing Committee dealt with the appropriateness of the remuneration of the Supervisory Board. The committee also passed resolutions to approve loans to senior executives.
The Personnel Committee held four meetings in 2017. It dealt extensively with the issue of succession to Dr.
Repor t ny, as well as the 2017 audit plan of the Internal Audit function. The committee’s work focused on several issues regarding Solvency II, including Solvency II governance and Solvency II reporting. In this respect, it also initiated a follow-up review of the group-wide implementation of governance requirements. The committee also addressed the findings of a BaFin review as well as the new legal requirements for non-financial reporting (CSR)
and the Supervisory Board’s role in this regard. In addition, the head of the Group Actuarial function presented its annual report. The committee adopted two written resolutions approving the engagement of the current and future auditors to perform non-audit services at foreign Group companies.
Group and Allianz SE with the Board of Management. The risk report and other risk-related statements contained in the annual financial statements – both of Allianz SE and consolidated – were reviewed with the auditor, as were the respective management reports, and the Audit Committee was informed of the result. The appropriateness of the early risk recognition system at Allianz and the result of further, voluntary risk assessments by the auditor were also discussed. The committee took a detailed look at the risk strategy and capital management, as well as the effectiveness of the risk management system, in particular the limit system for the Allianz Group and
The Technology Committee held two meetings in 2017. In the first meeting it dealt with the major focus and organization of the committee’s work as well as the current IT-Systems and the IT-Architecture within the
Allianz Group. In both meetings the committee dealt with the status of the project to assess the future readiness of the Allianz Group's IT. In addition, the committee discussed IT Governance and IT Security.
February 2018) were reviewed on 8 March 2018, both by the Audit Committee and in the Supervisory Board plenary session. The auditors participated in these discussions and presented the key results from their audit.
Board on 8 March 2018. The auditors from PwC participated in these discussions and presented the results of their assurance engagement. Based on its own review of the combined separate non-financial report, the Supervisory Board did not raise any objections and approved by acknowledgement the results of the PwC limited assurance engagement.
MEMBERS OF THE SUPERVISORY BOARD AND BOARD OF MANAGEMENT The term of the Supervisory Board expired with the conclusion of the AGM on 3 May 2017. The new employee representatives had been appointed by the SE Works Council pursuant to the Agreement concerning the Participation of Employees in Allianz SE, effective from the conclusion of the Annual General Meeting on 3 May 2017.
As mentioned earlier, the 2017 financial year also saw personnel changes within Allianz SE’s Board of Management. Dr. Dieter Wemmer and Dr. Werner Zedelius stepped down from the Board of Management with effect from 31 December 2017. Mr. Niran Peiris and Giulio Terzariol were appointed as successors, effective
Groupe Société des Autoroutes du Nord et de l‘Est de la France (Sanef)
JEAN-JACQUES CETTE Chairman of the Group Works Council of Allianz France S.A.
Ausführungsgesetz”) in addition to the German SE Employee Involvement Act (“SE-Beteiligungsgesetz”). However, the main features of a German stock corporation – in particular the two-tier board system (Board of Management and Supervisory Board) and the principle of equal employee representation on the Supervisory Board
Rules of procedure specify in more detail the structure and departmental responsibilities of the Board of Management.
Board of Management meetings are led by the Chairman. Each member of the Board may request a meeting, providing notification of the proposed subject. The Board takes decisions by a simple majority of participating members. In the event of a tie, the Chairman casts the deciding vote. The Chairman can also veto decisions, but he cannot impose any decisions against the majority vote.
BOARD OF MANAGEMENT AND GROUP COMMITTEES In the financial year 2017, the following Board of Management committees were in place: Board Committees
Preparation of the capital and liquidity planning for the Group and Allianz SE, implementing and overseeing the principles of group-wide capital and liquidity planning, as well as investment strategy and preparing risk strategy. This includes, in particular, significant individual investments and guidelines for currency management, Group financing and internal Group capital management, as well as establishing and overseeing a group-wide risk management and monitoring system including dynamic stress tests.
GROUP IT COMMITTEE Dr. Christof Mascher (Chairman), Jacqueline Hunt, Dr. Axel Theis, Dr. Dieter Wemmer, Dr. Werner Zedelius.
Developing, proposing, implementing and monitoring a group-wide IT strategy, approving relevant IT investments.
In the financial year 2017, the following Group committees were in place: Group committees
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
The Board of Management reports regularly and comprehensively to the Supervisory Board on business development, the company ’s financial position and earnings, planning and achievement of objectives, business strategy, and risk exposure. Details on the Board of Management’s reporting to the Supervisory Board are laid down in the information rules issued by the Supervisory Board.
Important decisions of the Board of Management require approval by the Supervisory Board. These requirements are stipulated by law, by the Statutes, or in individual cases by decisions of the Annual General Meeting (AGM). Supervisory Board approval is required, for example, for certain capital transactions, intercompany agreements, and the launch of new business segments or the closure of existing ones. Approval is also required for acquisitions of companies and holdings in companies, as well as for divestments of Group companies that exceed certain threshold levels. The Agreement concerning the Participation of Employees in Allianz SE, in the version dated 3 July 2014 (hereinafter “SE Agreement”), requires the approval of the
Allianz employees in the different countries. The Supervisory Board currently in office comprises four employee representatives from
Germany and one each from France and the United Kingdom. According to § 17 (2) of the German SE Implementation Act (“SE-
Management on managing the business. It is also responsible for appointing the members of the Board of Management, determining their overall remuneration, and reviewing Allianz SE’s and the
Allianz Group’s annual financial statements. The Supervisory Board’s activities in the 2017 financial year are described in the Supervisory
A second vice chairperson is elected on the proposal of the employee representatives.
The Supervisory Board receives regular reports on the activities of its committees. The composition of committees and the tasks assigned to them are regulated by the Supervisory Board’s Rules of Procedure.
– Support of the Supervisory Board in monitoring the implementation of the Board of Management’s technology and innovation strategy.
Dr. Wulf H. Bernotat (Vice Chairman and member until 3 May 2017) 3/3 100
Prof. Dr. Renate Köcher (Member until 3 May 2017) 2/3 67
Michael Diekmann (Chairman and member from 7 May 2017) 2/2 100
Dr. Helmut Perlet (Chairman and member until 6 May 2017) 1/1 100
Dr. Wulf H. Bernotat (Member until 3 May 2017) 1/1 100
Prof. Dr. Renate Köcher (Member until 3 May 2017) 0/1 0
Dr. Friedrich Eichiner (Chairman and member from 3 May 2017) 3/3 100
Dr. Wulf H. Bernotat (Chairman and member until 3 May 2017) 2/2 100
OBJECTIVES OF THE SUPERVISORY BOARD REGARDING ITS COMPOSITION The objectives for the composition of the Supervisory Board in the version of August 2017, as specified to implement a recommendation by the Code, are as follows. In addition to the skills profile for the overall Supervisory Board, also to be established due to a new recommendation of the Code, the diversity concept in accordance with the legislation regarding the implementation of the E.U. guideline as regards the disclosure of non-financial and diversity information (CSR Directive) is also included: Objectives of Allianz SE’s Supervisory Board regarding its composition
The members of the Supervisory Board must be proper as defined by the regulatory provisions. A person is assumed to be proper as long as no facts are to be known which may cause impropriety. Therefore, no personal circumstances shall exist which – according to general experience – lead to the assumption that the diligent and orderly exercise of the mandate may be affected (in particular administrative offenses or violation of criminal law, esp. in connection with commercial activity).
The members of the Supervisory Board must have the expertise and experience necessary for a diligent and autonomous exercise of the Allianz SE Supervisory Board mandate, in particular for exercising control of and giving advice to the Board of Management as well as for the active support of the development of the company. This comprises in particular: – adequate expertise in all business areas; – adequate expertise in the insurance and finance sector or comparable relevant experience and expertise in other sectors; – adequate expertise in the regulatory provisions material for Allianz SE (supervisory law, including
Solvency II regulation, corporate and capital markets law, corporate governance); – ability to assess the business risks; – knowledge of accounting and risk management basics.
The GCGC defines a person as independent, who, in particular, does not have any business or personal relations with Allianz SE or its executive bodies, a controlling shareholder, or an enterprise associated with the latter, which may cause a substantial and not merely temporary conflict of interest.
– In order to provide the Board with the most diverse sources of experience and specialist knowledge possible, the members of the Supervisory Board shall complement each other with respect to their background, professional experience, and specialist knowledge.”
Supervisory Board members, the current legislation for equal participation of women and men in leadership positions (statutory gender quota of 30 %) is being met. In addition, the Supervisory Board has five members with international backgrounds. The skills profile is also met by all current members of the Supervisory Board. The current composition of the Supervisory Board and its committees is described on page 7.
Members of the Board of Management and the Supervisory Board are obliged by the E.U. Market Abuse Directive to disclose to both Allianz SE
Euros or more within a calendar year. These disclosures are published on our website at www.allianz.com/directorsdealings.
The AGM elects the shareholder representatives 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, the approval of intercompany agreements, 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
The Allianz Group prepares its accounts according to § 315e of the
German Commercial Code (“Handelsgesetzbuch – HGB”) on the basis of International Financial Reporting Standards (IFRS) as adopted within the European Union. The annual financial statements of Allianz SE are prepared in accordance with German law, in particular the HGB.
To ensure maximum transparency, we inform our shareholders, financial analysts, the media, and the general public about the company ’s situation on a regular basis and in a timely manner. The annual financial statements of Allianz SE, the Allianz Group’s consolidated financial statements, and the respective management reports are published within 90 days of the end of each financial year. Additional information is provided in the Allianz Group’s half-yearly financial reports and quarterly statements. Information is also made available at the AGM, at press and analysts’ conferences, as well as on the
The regulatory requirements for corporate governance applicable for insurance companies, insurance groups, and financial conglomerates are additionally important. Specifically, they include the establishment and further design of significant control functions (risk management, actuarial function, compliance, and internal audit) as well as general principles for a sound business organization. The regulatory requirements are applicable throughout the Group in principle and have been implemented using written guidelines issued by the Board of Management of Allianz SE. Since the 2016 financial year, a market value balance sheet has to be prepared at solo and group level, which has to be examined and reported on separately by the auditors. Details on the implementation of the regulatory requirements for corporate governance by Allianz SE and by the Allianz Group can be found in the Solvency and Financial Condition Report of Allianz SE
Allianz SE with the German Corporate Governance Code (hereinafter the “Code”): Declaration of Conformity in accordance with § 161 of the German
For the Board of Management: Signed Oliver Bäte Signed Dr. Helga Jung
The listed company Oldenburgische Landesbank AG, which belonged to the Allianz Group in the 2017 financial year, issued its own
INTERNAL CONTROL SYSTEMS The Allianz Group has an effective internal risk and control system for verifying and monitoring its operating activities and business processes, in particular financial reporting, as well as compliance with regulatory requirements. The requirements placed on the internal control systems are essential not only for the resilience and franchise value of the company, but also to maintain the confidence of the capital market, our customers, and the public. A comprehensive risk and control management system regularly also assesses the effectiveness and appropriateness of the internal control system as part of the System of Governance. For further information on our risk organization and risk principles, please refer to page 62. For further information on our Controls over Financial Reporting, please refer to
In addition, the quality of our internal control system is assessed by the Allianz Group’s Internal Audit Function. This function conducts independent, objective assurance and consulting activities, analyzing the structure and efficiency of the internal control systems as a whole.
In addition, it also examines the potential for additional value and improvement of our organization’s operations. Fully compliant with all international auditing principles and standards, Internal Audit contributes to the evaluation and improvement of the effectiveness of the risk management, control, and governance processes. Therefore, internal audit activities are geared towards helping the company to mitigate risks, and further assist in strengthening its governance processes and structures.
(OECD guidelines) for Multinational Enterprises, and European and international standards on data and consumer protection, economic and financial sanctions, and combating corruption, bribery, money laundering as well as the financing of terrorism. Through its support for and acceptance of these standards, Allianz aims to avoid the risks that might arise from non-compliance. The central compliance function is responsible – in close cooperation with local compliance departments – for ensuring the effective implementation and monitoring of the compliance program within the Allianz Group, as well as for investigating potential compliance infringements.
Code of Conduct for Business Ethics and Compliance are binding for all employees worldwide. The Code of Conduct is available on our website at www.allianz.com/corporate-governance.
There are legal regulations against corruption and bribery in almost all countries in which Allianz has a presence. The global
A major component of the Allianz Group’s compliance program is a whistleblower system that allows employees and third parties to alert the relevant compliance department confidentially about irregularities. No employee voicing concerns about irregularities in good faith needs to fear retribution, even if the concerns turn out to be unfounded at a later date. Third parties can contact the compliance department via an electronic mailbox on our website at: www.allianz.com/complaint-system.
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 page 7 and 9 of the Annual Report.
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 12, and on our website at www.allianz.com/corporate-governance.
For the Supervisory Boards of the subsidiaries concerned, target quotas were set at 29 % on average up until 30 June 2017. Seven of the nine subsidiaries concerned reached this target. The listed company Oldenburgische Landesbank AG met the applicable statutory minimum share requirement. The target quotas for the Board of
Allianz aims to place women in at least 30 % of the positions at these two management levels throughout the Group.
(e.g. based on origin or extensive professional experience abroad), ideally with connection to the regions in which Allianz
Group is operating; − adequate diversity with regard to educational and professional background, taking into account the limitations for the Supervisory Board by regulatory requirements (fitness).”
Board of Management is in accordance with the diversity concept: Its share of women is currently 22 %. Six members of the Management
Supervisory Board in August 2017 and included in the objectives for the composition of the Supervisory Board (see No. II.2 of the objectives for the composition of the Supervisory Board on page 15).
The Supervisory Board pursues these objectives, and thus also the diversity concept, nominating the candidates for the shareholder representatives. As the employee representatives are appointed according to different national provisions, there is only limited potential influence to the selection of employee representatives. The Supervisory Board is currently composed in accordance with the diversity concept. For details please see the Corporate Governance Report on page 12.
COMPOSITION OF SHARE CAPITAL As of 31 December 2017, the share capital of Allianz SE was € 1,169,920,000. It was divided into 440,249,646 registered and fully paid-up shares with no-par value. All shares carry the same rights and obligations. Each no-par value share carries one vote.
Stock Purchase Plan’s aims of tying employees to the company and letting them benefit from the performance of the share price.
However, the supervisory authority may permit more than two such mandates if they are held within the same group (§ 24 (3) of the
VAG”)). The Federal Financial Services Supervisory Authority (“Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin”) must be notified about the intention of appointing a Board of Management member pursuant to § 47 No. 1 VAG.
Management may exclude the shareholders’ subscription rights for these shares 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, including mandatory convertible bonds, and (iii) in the event of a capital increase of up to 10 %, if the issue price of the new shares is not significantly below the stock market price. The Board of Management may furthermore exclude the shareholders’ subscription rights with the consent of the Supervisory Board, in the event of a capital increase against contributions in kind.
− Up to a total of € 13,720,000 (Authorized Capital 2014/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 Board of Management may buy back and use Allianz shares for other purposes until 6 May 2019 as per authorization of the General Meeting of 7 May 2014 (§ 71 (1) No. 8 AktG). Together with other treasury shares that are held by Allianz SE, or which are attributable to it under §§ 71a et seq. AktG, 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’
may buy and sell Allianz shares for trading purposes (§ 71 (1) No. 7 and (2) AktG) under an authorization of the General Meeting valid until 6 May 2019. The total number of shares acquired thereunder, together with treasury shares held by Allianz SE or attributable to it under §§ 71a et seq. AktG, shall at no time exceed 10 % of the share capital of Allianz SE.
− Allianz SE is also party to various bancassurance distribution agreements for insurance products in various regions. These distribution agreements normally include a clause under which the parties have an extraordinary termination right in the event of a change of control of the other party’s ultimate holding company.
− Bilateral credit agreements in some cases provide for termination rights if there is a change of control, mostly defined as the acquisition of at least 30 % of the voting rights within the meaning of
The one-off payment is based on the fixed remuneration plus 50 % of the variable remuneration, with this basis being limited, however, 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 comes 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 following the change of control. For further details, please refer to the Remuneration Report starting on page 23.
Under the Allianz Sustained Performance Plan (ASPP), Restricted Stock Units (RSU) – i.e. virtual Allianz shares – are granted as a stock-based remuneration component to senior management of the
Allianz Group worldwide. The conditions for these RSU contain change-of-control clauses, which apply when a majority of the voting share capital in Allianz SE is acquired, directly or indirectly, by one or more third parties who do not belong to the Allianz Group and which provide for an exception from the usual vesting and exercise periods.
In line with the relevant general conditions, the company will release the RSU to plan participants on the day of the change of control, without observing any vesting period that would otherwise apply. The cash amount payable per RSU must equal the average market value of the Allianz share and be equal to or above the price offered per
This remuneration report covers the remuneration arrangements for the Board of Management and the Supervisory Board of Allianz SE.
Personnel Committee. If required, outside advice is sought from independent external consultants. The Personnel Committee and the
Supervisory Board consult with the Chairman of the Board of Management, as appropriate, in assessing the performance and remuneration of Board of Management members. However, the Chairman of the Board of Management is not present when his own remuneration is discussed.
Committee and the Supervisory Board, please refer to the Supervisory Board Report starting on page 4.
− Support of the Group’s strategy: The design of the performance targets must reflect the Allianz Group’s business strategy.
Board’s remuneration in relation to other remuneration levels within the Allianz Group.
the annual bonus, the annualized mid-term bonus, and the equityrelated remuneration. The target level of each of the variable component does not exceed the base salary, so the total target variable compensation is three times the base salary at maximum.
shortfall of targets may result in the variable compensation dropping to zero. Two thirds of the variable compensation are a deferred payout after three or four years. Claw-back clauses for compensation components already paid do not exist because according to the governing German labor law, the enforceability of claw-back clauses is subject to major legal restrictions.
As part of the assessment of the individual qualitative target achievement, the personal contribution to the Renewal Agenda is reviewed alongside behavioral aspects. The latter is framed in a common standard ("People Letter") designed to drive necessary change across the Allianz Group, and comprises of customer orientation, collaborative leadership, entrepreneurship, and trust (e.g. with regard to sustainability, corporate social responsibility, and diversity as well as integrity).
Based on the 2017 target achievement for the Group as a whole and for the respective business division(s) and/or corporate function (s) as well as the qualitative performance achieved, total annual bonus awards range from 111 % to 124 % of the target bonus, while the average bonus award amounts to 117 % of the target.
Allianz Pension” are invested in a fund with a guarantee for the contributions paid, but no further interest guarantee. Upon retirement, the accumulated capital is paid out as a lump sum or, alternatively, can be converted into a lifetime annuity. Each year the Supervisory
From 1 January 2005 until 31 December 2014, most Board of Management members participated in a contribution-based system which was frozen as of 31 December 2014, now only covering disability and death. Before 2005, a defined benefit plan provided fixed benefits not linked to base salary increases. Benefits generated under this plan were frozen at the end of 2004. Additionally, most Board members participated in Allianz Versorgungskasse VVaG (AVK), a contribution-based pension plan, and in Allianz Pensionsverein e.V. (APV); both these plans were closed for new entries on 1 January 2015.
PERQUISITES Perquisites mainly consist of contributions to accident and liability insurances and the provision of a company car. Perquisites are not linked to performance. Each member of the Board of Management is responsible for paying the income tax due on these perquisites. The
REMUNERATION FOR 2017 The following remuneration disclosure, which is based on and compliant with the German Corporate Governance Code, shows the individual Board members’ remuneration for 2016 and 2017 including fixed and variable remuneration and pension service cost. The
payouts result from grants related to the performance years 2010, 2012 and 2013. To enhance transparency of the remuneration related to the performance year 2017, the additional column “Actual grant” includes the 2017 fixed compensation, the annual bonus paid for 2017, the MTB 2016 – 2018 tranche accrued for the performance year 2017, and the fair value of the RSU grant value for the performance year 2017.
(excluding perquisites and pension contributions) is € 4,125 thou: a € 750 thou base salary plus € 3,375 thou (i.e., 150 % of the sum of all three variable compensation components at target level). The CEO’s maximum total direct compensation (excluding perquisites and pension contributions) is € 6,188 thou: a € 1,125 thou base salary plus € 5,063 thou (150 % of the sum of all three variable compensation components at target level).
Deferred compensation 1_In accordance with the German Corporate Governance Code, the annual bonus disclosed for performance year 2017 is paid in 2018 and for performance year 2016 in 2017. The payments for equity-related deferred compensation (GEI and AEI), however, are disclosed for the year in which the actual payment was made.
Target Target Min Max Target Target Min Max 6_Dr. Werner Zedelius left the Allianz SE Board of Management upon his retirement effective 31 December 2017. According to his contract he receives a transition payment of € 937.5 thou. The payment is calculated based on the latest base salary, which is paid for a further six months starting 1 July 2018, and a final lump-sum payment of 25 % of the target variable remuneration. The payable pension takes into account the monthly payments over the six -month period. The lump-sum payment will be paid in spring 2019.
GERMAN ACCOUNTING STANDARD 17 DISCLOSURE Under the German Accounting Standard 17, the total remuneration to be disclosed for 2017 (2016 in parenthesis) is defined differently as compared to the German Corporate Governance Code: It is composed of the base salary, perquisites, the annual bonus, and the fair value of the RSU grant, but excludes both the notional annual accruals of the MTB 2016 – 2018 and the pension service cost: Dr. Helga Jung € 2,497 (2,542) thou,
PENSIONS Company contributions for the current pension plan are set at 50 % of the base salary, reduced by an amount covering the disability and death risk. They are invested in a fund and include a guarantee for the contributions paid, but no further interest guarantee (for members of the Board of Management who were born before 1 January 1958, the guaranteed minimum interest rate remains at 2.75 % p.a.).
Ex- pected annual pension payment 4 SC 5 DBO 6 SC 5 DBO 6 SC 5 DBO 6 SC 5 DBO 6 SC 5 DBO 6 SC 5 DBO 6 1_The service cost of the frozen contribution-based pension plan reflects the continued death and disability cover.
4_Expected annual pension payment at assumed retirement age (age 60), excluding current pension plan.
In 2017, former members of the Board of Management and their dependents received remuneration and other benefits totaling € 8 mn (2016: € 7 mn), while reserves for current pension obligations and accrued pension rights totaled € 137 mn (2016: € 126 mn).
LOANS TO MEMBERS OF THE BOARD OF MANAGEMENT As of 31 December 2017, there were no outstanding loans granted by
2. Severance payments made to Board members in case of early termination comply with the German Corporate Governance Code.
Corporate Governance Code – apply if a Board member’s service ended as a result of a “change of control” (i.e., if a situation arises in which a shareholder of Allianz SE, acting alone or together with other shareholders, holds more than 50 % of voting rights in
The transition payment comprises an amount corresponding to the most recent base salary, covering a period of six months, plus 25 % of the target variable remuneration at the notice date. A Board member with a base salary of € 750 thou would receive a maximum
annual reports; its level is determined by the governing body of the relevant organization.
Meeting in 2011 and is laid down in the Statutes of Allianz SE.
ATTENDANCE FEES AND EXPENSES In addition to the fixed and committee-related remuneration, members of the Supervisory Board receive an attendance fee of € 750 for each Supervisory Board or committee meeting they attend. Should several meetings be held on the same or consecutive days, the attendance fee will only be paid once. In addition, Allianz SE reimburses the Supervisory Board members for their out-of-pocket expenses and the VAT payable on their Supervisory Board service. The Company provides insurance coverage and technical support to the Supervisory Board members to an extent reasonable for carrying out the Supervisory Board duties.
REMUNERATION FOR 2017 The total remuneration for all Supervisory Board members, including attendance fees, amounted to € 2,179 thou (2016: € 2,025 thou). The following table shows the individual remuneration for 2017 and 2016:
Members of the Supervisory Board A N P R S T
Legend: C = Chairperson of the respective committee, M = Member of the respective committee 10_Since 3 May 2017 1_Abbreviations: A - Audit, N - Nomination, P - Personnel, R - Risk, S - Standing, T - Technology 11_Until 3 May 2017 9_Since 3 May 2017 19_The total reflects the remuneration of the full Supervisory Board in the respective year.
REMUNERATION FOR MANDATES IN OTHER ALLIANZ COMPANIES AND FOR OTHER FUNCTIONS As remuneration for her membership in the Supervisory Board of
Allianz Group companies and receive a market-based remuneration for their services.
LOANS TO MEMBERS OF THE SUPERVISORY BOARD As of 31 December 2017, there was one outstanding loan granted to a member of the Allianz SE Supervisory Board by an Allianz Group company: It is an € 80 thou mortgage loan from Allianz Bank, granted at the normal market interest rate in 2010, with an overall duration of ten years.
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 our operations located in Europe. The Allianz Group insures 88.0 million customers. Allianz SE, the parent company of the Allianz Group, has its headquarters in Munich, Germany.
The Allianz Group’s structure reflects both our business segments and geographical regions. Business activities are organized by product and type of service, based on how these are strategically managed: insurance activities, asset management activities, and corporate and other activities. Due to differences in the nature of products, risks, and capital allocation, insurance activities are further divided into property-casualty and life/health categories. In accordance with the responsibilities of the Board of Management, each of the insurance categories is grouped into regional reportable segments. Corporate and other activities are divided into three different reportable segments in order to differentiate between the respective products, risks, and capital allocation. In 2017, the Allianz Group had 14 reportable segments.
– Iberia & Latin America – Global Insurance Lines & Anglo Markets – Allianz Partners
– Iberia & Latin America – USA – Global Insurance Lines & Anglo Markets
We offer a wide range of property-casualty and life/health insurance products to both retail and corporate customers. For the Property-
Casualty business segment, these include motor, accident, property, general liability, travel insurance and assistance services; the
1_For further information on organizational changes, please refer to the Executive Summary of 2017 Results.
AllianzGI, operate under Allianz Asset Management (AAM). We are one of the largest asset managers in the world that actively manage assets. Our offerings cover a wide range of equity, fixed income, and alternative investment products and solutions. Our core markets here are the United States, Germany, France, Italy, the United Kingdom, and the Asia-Pacific region.
Insurance Western & Southern Europe, Insurance Middle East, Africa, Asia Pacific
Non-financial key performance indicators (KPIs) are mainly used for the sustainability assessment that we conduct when determining mid-term bonus levels. In line with our Renewal Agenda, KPIs mainly represent three key levers: True Customer Centricity, Digital by Default, and Inclusive Meritocracy. Examples include the Allianz Engagement Survey and Net Promoter Score (NPS1) results, diversity development, and the share of digital retail products/digital client communication.
Allianz seeks to position itself as the world’s most trusted financial services provider and a global sustainability leader. As such, we strive to create sustainable economic value through a long-term approach to corporate governance, social responsibility, and environmental stewardship.
In 2017, we took the leading position among all rated insurance companies in the Dow Jones Sustainability Index (DJSI) ranking, scoring 87 out of 100 points. The DJSI ranks companies according to environmental, social, and governance (ESG) criteria, assessing their strategy and performance.
Board members and several department heads. They meet quarterly and are responsible for ensuring ESG integration across all business lines as well as all core processes dealing with insurance and investment decisions. Key topics of focus in 2017 included implementation of the recommendations of the Taskforce of Climate-related Financial
Disclosures and development of a more systematic approach to investor engagement.
Low-carbon economy: supporting renewable energy and decarbonization through our investments; providing sustainable insurance solutions; reducing our environmental footprint.
economy expanded by about 2.3 %. With an increase of 2.5 %, growth in the Eurozone was slightly stronger than in the United States. The recovery gained more breadth both in terms of countries and demand components. The German economy expanded by 2.5 % (in calendar-adjusted terms), increasingly supported by rising investment activity. In the emerging markets, growth finally reaccelerated in 2017, not least owing to continued stabilization in former recession countries such as Brazil and Russia. Overall, the global economy grew by an estimated 3.2 %, considerably stronger than in 2016, when global output rose by 2.6 %.
World economy and financial markets appeared to overlook the elevated global political uncertainties, at least in part. Stock market volatility was low. On the monetary policy front, in October the European Central Bank announced that it would extend its monthly bond purchasing program at least until the end of September 2018. In the
United States, the Federal Reserve continued to normalize its monetary policy stance. It increased the federal funds rate range three times by 25 basis points, bringing it to 1.25 % – 1.5 %. Moreover, in
October the Federal Reserve started a balance sheet normalization program. Yields on 10-year German government bonds reached 0.4 % at year-end 2017, 20 basis points higher than at the end of 2016. Spreads on Eurozone government bonds ended the year more or less unchanged – with two major exceptions, Greece and Portugal, where bond spreads tightened substantially. The performance of major stock markets was clearly positive around the globe, with a number of indices reaching new all-time highs. Supported by improving economic conditions in the Eurozone, the Euro appreciated considerably against the U.S. Dollar in the course of 2017. The U.S. Dollarto -Euro exchange rate was 1.20 at year-end (end of 2016: 1.05).
heavily concentrated in North America, however, where we experienced hurricanes (both in the United States and the Caribbean), wildfires in the United States, and earthquakes in Mexico, while in other regions, notably Asia and Europe, losses from natural catastrophes were less severe.
Europe lagged, Emerging Asia powered ahead, with the two biggest markets, China and India, registering double-digit growth. Overall and at a global scale, premiums rose by an estimated 5 % in 2017, after a 4 % gain in 2016 (in nominal terms and adjusted for foreign currency translation effects). Global industry profitability declined in 2017, mainly due to the large losses from natural catastrophes experienced in the United States; but soft underwriting conditions in many business lines and low investment yields did not help either.
Against this backdrop, insurers aligned their business model in several ways: by reallocating assets (towards riskier and/or less liquid asset classes), restructuring insurance portfolios (towards less capital intensive business lines) and through in-force management actions (such as life book disposals).
German government bonds increased slightly in the course of the year, while the European Central Bank maintained its accommodative monetary policy.
Strong net inflows were also recorded for international equities in the
United States (both active and passive). Finally, U.S. equities also saw net inflows – largely due to passively managed funds, while actively managed equities experienced net outflows for the year. Overall, investor preference continued to show a trend towards passive products in 2017; active managers, however, did well in several market segments. In Europe, long-term net flows for 2017 reached a record high. In Germany, net inflows to mutual funds mainly went into multiasset funds, followed by fixed-income products and equities.
MANAGEMENT’S ASSESSMENT OF 2017 RESULTS Our total revenues increased by 5.0 % on an internal basis9, compared to 2016. A large part of the increase came from our Life/Health business segment; it was due to both stronger sales of capitalefficient products in Germany and higher unit-linked premiums in Italy and Taiwan. Internal premium growth in our Property-Casualty business segment was largely driven by Allianz Partners, Germany, and
Our operating investment result decreased by € 1,352 mn to € 23,923 mn, mainly due to lower realized gains on debt securities.
5_In light of the new operating profit definition, restructuring charges are reported outside of operating profit unless shared with policyholders. Prior year figures have been adjusted accordingly.
9_Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals.
upon classification as held for sale. The 2017 impairment result includes the recognition of a liability in connection with the expected loss from the sale of Oldenburgische Landesbank AG10.
Income taxes decreased by € 144 mn to € 2,941 mn, mostly due to tax benefits related to previous years and a lower valuation allowance of deferred tax assets. These effects were partly offset by a one-time expense that resulted from the revaluation of deferred taxes following U.S. tax reform. The effective tax rate fell to 29.0 %
− Takeover-related Statements and Explanations starting on page 20, and the
On a nominal basis, we recorded an increase in gross premiums written compared to the previous year.
This includes unfavorable foreign currency translation effects of € 693 mn7 and positive (de)consolidation effects of € 225 mn. On an internal basis, our premiums went up 2.3 %, driven by a positive price effect of 1.2 % and a positive volume effect of 1.1 %.
The following operations contributed positively to internal growth: Allianz Partners: Gross premiums grew to € 4,608 mn – an increase of 10.8 % on an internal basis. It was driven by our U.S. travel business and our health insurance business in Dubai.
Germany: Gross premiums amounted to € 10,074 mn. This internal growth of 1.7 % was mainly due to positive price effects in our motor and commercial property insurance business.
Brazil: Gross premiums went up 16.8 % on an internal basis and reached € 1,029 mn. This was mainly driven by our motor insurance business.
– 11.2 % on an internal basis – largely resulted from our strategic reduction in market share in the motor third-party liability insurance business following a regulatory change.
1_For further information on Allianz Property-Casualty figures, please refer to note 4 to the consolidated financial statements.
6_We comment on the development of our gross premium written on an internal basis, which means figures have been adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information.
AGCS: Gross premiums fell to € 7,406 mn – a decrease of 0.6 %
The decrease in operating profit was mainly driven by the fact that our underwriting result suffered from higher losses from natural catastrophes. Furthermore, our investment result declined mainly due to negative foreign currency translation effects net of hedging.
Our accident year loss ratio8 was 70.6 % – a 0.5 percentage point deterioration compared to the previous year. This was driven by an increase in losses from natural catastrophes from € 689 mn to € 1,111 mn, representing an adverse impact on our combined ratio, which increased from 1.5 percentage points in 2016 to 2.4 percentage points in 2017.
8_Represents claims and insurance benefits incurred (net) less previous year claims (run-off), divided by premiums earned
The following operation contributed positively to the development of our accident year loss ratio: Benelux: 0.2 percentage points. The improvement was due to the absence of natural catastrophes in 2017 whereas 2016 had been impacted by storms, floods, and hail. Underwriting performance measures improved our accident year loss ratio further.
The following operations weighed on the development of our accident year loss ratio: Reinsurance: 0.6 percentage points. The accident year loss ratio suffered from natural catastrophes such as the California wildfires in
Germany: 0.2 percentage points. The deterioration was driven by a heavy storm year. Storms Xavier, Paul, Herwart, and several smaller events burdened the result throughout the year.
Credit Insurance: 0.1 percentage points. This was driven by several medium sized large losses.
Our run-off result amounted to € 1,927 mn – after € 2,084 mn in 2016
– leading to a decreased run-off ratio of 4.1 %, which was mainly driven by our operations Reinsurance, Germany, and United Kingdom. Furthermore, we saw a negative impact in the beginning of 2017, a result of the Ogden rate change which affected our operating entities Reinsurance, United Kingdom, and Ireland.
1_Refers to policyholder participation, mainly from APR business (accident insurance with premium refunds), and consists of the investment-related part of "change in reserves for insurance and investment contracts (net)". For further information, please refer to note 26 to the consolidated financial statements.
2_The operating investment income (net) of our Property-Casualty business segment consists of the operating investment result - as shown in note 4 to the consolidated financial statements - and expenses for premium refunds (net)
The negative development of the net interest and similar income resulted from lower income on debt securities, largely offset by a higher income from equities.
On a nominal basis, statutory premiums increased by 4.1 %. This includes unfavorable foreign currency translation effects of € 494 mn and negative (de-)consolidation effects of € 1,293 mn. On an internal basis, statutory premiums went up by € 4,429 mn – or 7.0 % – to
Statutory premiums in the German health business climbed to € 3,360 mn – a 2.2 % increase on an internal basis –, much of which resulted from the acquisition of new customers in the supplementary health care coverage.
1_For further information on Allianz Life/Health figures, please refer to note 4 to the consolidated financial statements.
6_Represents the ratio of net income to the average total equity, excluding unrealized gains/losses on bonds, net of shadow accounting, at the beginning of the year and at the end of the year.
7_Our comments in the following section on the development of our statutory gross premiums written refer to figures determined “on an internal basis”, i.e. adjusted for foreign currency translation and (de-) consolidation effects, in order to provide more comparable information.
In Italy, statutory premiums grew to € 11,160 mn. This increase –
In France, statutory premiums went up to € 8,457 mn, an increase of 6.3 % on an internal basis. This was predominantly due to higher sales of capital-efficient products and a growth in our protection and health business.
10_Prior year figures are presented excluding effects from the South Korean business.
Loadings from premiums as % of statutory premiums 5.8 6.0 (0.2)
Loadings from reserves as % of average reserves2,3 0.3 0.3 -
5_Loadings and fees include premium and reserve based fees, unit-linked management fees, and policyholder participation in expenses.
3_Investment margin divided by the average of current end-of-period and previous end-of-period aggregate policy reserves.
Our investment margin declined, mainly due to much lower realizations in the German life business after the sale of Italian government bonds has resulted in an elevated level in 2016. A lower investment result in the United States driven by our business with fixed-indexed annuities due to a swing in the hedging result and unlocking has also contributed to this development. It was, however, partly compensated by decreased impairments in Germany, following a better performance of the equity market.
Administrative and other expenses as % of average reserves3, 4 (0.4) (0.3) 1_Prior year figures are presented excluding the effects from the South Korean business.
Administrative and other expenses increased, mainly due to legal accruals for non-recurring items in the United States and Asia-
TECHNICAL MARGIN1 Our technical margin increased, driven by one-off reserve adjustments both in 2017 and 2016 in the United States as well as improved loss ratios due to repricing and positive run-off in our protection and health business in France.
1_Prior year figures are presented excluding the effects from the South Korean business.
The higher negative impact of change in DAC was due to lower capitalization of DAC, mainly resulting from decreased sales in fixedindexed annuities in the United States. This was partly compensated by favorable unlocking effects in our business with fixed-indexed annuities in the United States.
The operating profit in our guaranteed savings & annuities line of business went up. Much of this increase was contributed by our traditional variable-annuity business in the United States, which benefited from favorable market movements. The higher operating profit in our protection & health line of business was largely driven by an improved technical margin in France and the United States. Our operat1_Technical margin comprises risk result (risk premiums less benefits in excess of reserves less policyholder participation), lapse result (surrender charges and commission clawbacks) and reinsurance result.
2_Impact of change in DAC includes effects of change in DAC, unearned revenue reserves (URR) and value of business acquired (VOBA). It represents the net impact of deferral and amortization of acquisition costs and front-end loadings on operating profit and therefore deviates from the IFRS financial statements.
ing profit in the unit-linked without guarantee line of business increased, primarily due to higher unit-linked management fees in Italy.
A decrease in operating profit in the capital-efficient products line was largely attributable to a lower investment margin in the United
We registered an increase in our net income, which was largely due to our operating performance and the fact that the prior year’s net income had been negatively affected by our business in South Korea.
Type of asset class as of 31 December as of 31 December 1_Multi-assets is a combination of several asset classes (e.g. bonds, stocks, cash and real property) used as an investment. Multi-assets class investments increase the diversification of an overall portfolio by distributing investments throughout several asset classes.
Net inflows4 of total assets under management (AuM) amounted to € 147 bn in 2017. € 150 bn were attributable to third-party AuM net inflows (2016: € 20 bn net outflows), marking the highest yearly thirdparty AuM net inflows ever. The majority of this year’s inflows were
PIMCO’s third-party AuM net inflows (€ 144 bn) – mainly in the United
Effects from consolidation, deconsolidation, and other adjustments added € 4 bn to total AuM.
Negative foreign currency translation effects amounted to € 135 bn and were primarily driven by the depreciation of the
AuM net inflows and – to a lesser extent – to positive effects from
Hereby, positive effects from equity markets could not offset thirdparty AuM net outflows in combination with negative foreign currency translation effects as well as deconsolidation effects. The shares of multi-assets and other were roughly stable at 10.2 % and 4.0 %
The regional allocation7 of third-party AuM shifted as follows: America 53.4 %, Europe 35.1 % and the Asia-Pacific region 11.5 %
The share of the Asia-Pacific region declined as positive effects, mostly from third-party AuM net inflows, were dampened by negative foreign currency translation effects as well as the deconsolidation of
Asset Management business improved significantly, with 91 % of thirdparty assets outperforming their respective benchmarks
1_For further information about our Asset Management business segment, please refer to note 4 to the consolidated financial statements.
4_Net flows represent the sum of new client assets, additional contributions from existing clients – including dividend reinvestment –, withdrawals of assets from and termination of client accounts, and distributions to investors.
Separate accounts are investment vehicles where the money of a single investor is directly managed by the asset manager in a separate dedicated account (e.g. public or private institutions, high net worth individuals, and corporates).
8_Three-year rolling investment performance reflects the mandate-based and volume-weighted three-year investment success of all third-party assets that are managed by Allianz Asset Management’s portfolio-management units. For separate accounts and mutual funds, the investment success (valued on the basis of the closing prices) is compared with the investment success prior to cost deduction of the respective benchmark, based on various metrics. For some mutual funds, the investment success, reduced by fees, is compared with the investment success of the median of the respective
PIMCO’s fees, where carried interest declined due to the phasing out of one large private fund. AllianzGI’s performance fees went up significantly, driven by positive developments in all business regions, especially in the United States.
Other operating revenues increased largely due to positive foreign currency translation effects on financial assets and liabilities carried at fair value through profit and loss.
The increase in administrative expenses was mainly driven by higher personnel expenses at both PIMCO and AllianzGI. This development was mainly due to a rise in variable compensation going along with the overall positive business performance. To a lesser extent, an increase in non-personnel expenses contributed to the rise in administrative expenses.
The increase in our net income corresponds to the positive development of our operating profit.
2_In light of the new operating profit definition, restructuring charges are reported outside of operating profit. Prior year figures have been adjusted accordingly.
Our operating result improved in 2017, due to the positive developments in all our reportable segments.
Banking’s operating result increased, driven by both a higher net fee and commission result and lower loan loss provisions. The positive development was partly offset by a lower net interest result.
3_As of 31 December 2017, all requirements were still fulfilled to present Oldenburgische Landesbank AG, Oldenburg, allocated to the reportable segment Banking (Corporate and Other), as a disposal group classified as held for sale. The closing of the transaction was nearly completed as of 31 December 2017. Therefore, an impairment and a liability of € 233 mn were recognized in connection with the expected loss from the sale of Oldenburgische Landesbank AG. The
Allianz shares in Oldenburgische Landesbank AG were transferred to the buyer on 7 February 2018. For further information, please refer to note 3 to the consolidated financial statements.
Allianz Group Operating profit of € 10.8 bn, plus or minus € 0.5 bn. Operating profit of € 11.1 bn.
Property-Casualty Growth in gross premiums written: approximately 2 % on a nominal basis.
Operating investment income (net) decreased slightly, mainly due to an unfavorable foreign currency translation result net of hedging.
Revenues of € 67.3 bn above our outlook range of € 60.0 bn to € 66.0 bn. Strong growth from capitalefficient products in Germany and from unit-linked sales in Italy and Taiwan.
Operating profit between € 3.7 bn and € 4.3 bn. Operating profit of € 4.4 bn is above target range, driven by investments with a net harvesting result above normalized level and a higher technical margin.
Cost-income ratio well below 65 %. With a cost-income ratio of 61.9 % our Asset Management business segment came in well below 65 %.
1_Represents the ratio of net income against the average total equity, excluding unrealized gains/losses on bonds, net of shadow accounting, at the beginning of the year and at the end of the year. Prior year figures have been adjusted in order to reflect the impact resulting from an accounting policy change to measure the Guaranteed Minimum Income Benefit (GMIB) liability at fair value for our life business.
the world economy it is the strongest expansion period since 2011.
The uncertain global political environment bears the potential for higher financial market volatility. Monetary policy also contributes to this. As the U.S. economy is expected to expand solidly and inflation rates continue to move up, the Federal Reserve will carry on normalizing its monetary policy stance. Three further rate hikes in the course of 2018 look realistic. In addition, the Federal Reserve will rein in its balance sheet moderately. In the Eurozone, the European Central Bank is expected to terminate its monthly bond purchasing program in October, having halved the monthly volume to € 30 bn as of
January 2018. No key interest rate hikes are expected before 2019.
The insurance industry can look towards 2018 with some optimism, mainly for three reasons: Firstly, premium growth is set to increase as the stronger economic momentum bolsters demand for insurance.
Secondly, the expected gradual rise in interest rates and yields can be seen as the harbinger of the end of the long and cold “yield winter”, although it will still take some time until higher yields are reflected in higher investment incomes. Finally, after the increase in financial regulation in recent years, the insurance industry might enjoy a sort of respite in 2018, a breathing space for better coping with the new rules.
However, even if the macroeconomic and regulatory environment looks more favorable in 2018, it is by no means plain sailing for the insurance industry. New technologies, from digitalization to Artificial Intelligence, continue to change the industry profoundly: Business models need to be transformed, new skills to be learned, new partnerships to be built and new competition to be fended off. Furthermore, the ongoing digitalization of our lives will usher in a new era of regulation, governing the use of data – the oil of the 21st century. On the other hand, the upsides of the new technologies, in particular in terms of simplicity and accessibility, should become more visible in
In the life sector, the overall picture is quite similar – with one exception: The growth lead of Emerging Asia over the rest of the world is even more pronounced. While the advanced markets’ recovery proceeds at a snail’s pace and other emerging markets show robust but more or less stable growth, many of Asia’s emerging markets are expected to clock growth rates of 15 % or more. A rising middle class, urbanization, aging societies, and last but not least a favorable policy environment underpin the continued growth story. Overall, we expect global premium growth to increase by about 6 % in 2018 (in nominal terms and adjusted for foreign currency translation effects) compared to 2017. Global industry profitability could also improve in 2018, albeit only modestly. This change for the better has not so much to do with the slight rise in interest rates; it is mainly a result of recent management actions which steered insurance portfolios towards less capital intensive business lines (such as protection) and investment portfolios towards riskier but higher-yielding asset classes (such as infrastructure).
For the asset management industry, 2018 might bring higher financial market volatility due to the geopolitical uncertainty. While the positive economic outlook generally supports stock markets, we believe that current valuation levels are very high already. In addition, central banks are increasingly likely to move further away from accommodative monetary policies. We therefore expect a more modest capital market contribution to AuM growth. This may weigh down on net inflows in certain asset classes, while it might create opportunities in other areas. Investors may look to further de-risk into bonds as yields become more attractive. Furthermore, bonds continue to be particularly interesting for the growing number of retirees in developed countries as well as for liability-driven investors looking for a stable stream of income.
Operating profit in the range of € 5.1 bn to € 5.7 bn.
Achievement of our combined ratio target of 94 % or better.
− A 100 basis point increase or decrease in interest rates would, respectively, either raise or lower expected operating profit by approximately € 0.1 bn in the first year following the rate change.
− Level of claims from natural catastrophes at expected average levels.
Management’s assessment of expected revenues and earnings for 2018 In 2017, our total revenues amounted to € 126.1 bn, a 3.0 % increase on a nominal and a 5.0 % increase on an internal basis1 compared to 2016. For 2018, we envisage relatively stable total revenues, with
Property-Casualty and Asset Management revenues showing an upward trend, while Life/Health revenues remaining rather stable due to our selective focus on profitable growth.
PROPERTY-CASUALTY INSURANCE We expect our revenues to increase by approximately 2 % in 2018
As pointed out in 2015, RoE is one of the key performance indicators for the steering of our Life/Health business. In 2018, we expect the RoE of the Life/Health business segment to be between 10.0 %
We will remain focused on shifting our new business mix towards capital-efficient, unit-linked, and protection products – which, in view of the prolonged low-yield environment, also match customer needs
– while maintaining strong shareholder returns and building on our strong track record of product innovation. In addition, we will continue to actively manage both our new and in-force business through continuous repricing, expense management, asset/liability management, and crediting strategies, which should allow us to further mitigate the impacts of difficult market conditions – particularly the low interest rates – and maintain our profitability targets.
and AllianzGI, a moderation of the exceptionally high inflows of 2017 is likely to occur. Another growth opportunity should result from the integration of Allianz Capital Partners into AllianzGI on 1 January 2018, with the opportunity to leverage this platform for external growth in the future. While we expect performance fees to decrease slightly, growth in AuM should drive an increase in management and loading fees, and thus a slight increase in operating revenues, which should more than offset the moderate increase of operating expenses we envisage. Pressure on profit growth is likely to come from a weaker U.S. Dollar compared to 2017. All in all, we envisage our operating profit to range between € 2.1 bn and € 2.7 bn
in 2018, as the positive impact in 2017, related to the cost allocation scheme for pension provisions, will not recur in 2018.
As a result, we have full access to financial markets and are in a position to raise financing at low cost. We are committed to maintaining our strong financial flexibility, which is supported by both a prudent steering of our liquidity resources and a well-balanced debt maturity profile.
We also monitor the capital position of the Group, as well as at each of our operating entities, very closely. In addition, we will continue to optimize the sensitivity of our solvency ratio to changes of interest rates and spreads through asset/liability management and life product design.
Allianz Group’s net income (attributable to shareholders) to shareholders in the form of a regular dividend.
Allianz also aims to keep the regular dividend per share at least at the level paid in the previous year. Allianz will also continue to return capital to its shareholders on a flexible basis.
(ix) changes in laws and regulations, including tax regulations, (x) the impact of acquisitions, including related integration issues and reorganization measures, and (xi) general competitive factors, in each case on a local, regional, national, and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences.
The decrease in shareholders’ equity was largely due to the dividend pay-out in May 2017 (€ 3,410 mn) and the share buy-back program2 which started in February 2017 (€ 2,998 mn). Negative impacts from foreign currency translation further contributed to the decline. Net income attributable to shareholders of € 6,803 mn had a partly offsetting effect.
As of 31 December 2017, total assets amounted to € 901.3 bn and total liabilities were € 832.7 bn. Compared to year-end 2016, total assets and total liabilities increased by € 17.5 bn and by € 19.0 bn, respectively.
Our well-diversified exposure to debt instruments slightly decreased, primarily due to negative currency impacts mainly related to
1_This does not include non-controlling interests of € 3,049 mn and € 3,052 mn as of 31 December 2017 and 31 December 2016, respectively. For further information, please refer to note 19 to the consolidated financial statements.
PROPERTY-CASUALTY LIABILITIES As of 31 December 2017, the business segment’s gross reserves for loss and loss adjustment expenses as well as discounted loss reserves amounted to € 66.2 bn, compared to € 65.7 bn at year-end 2016. On a net basis, our reserves, including discounted loss reserves, decreased slightly from € 57.3 bn to € 56.3 bn.1
In the normal course of business, the Allianz Group may enter into arrangements that do not lead to the recognition of assets and liabilities in the consolidated financial statements under IFRS. Since the
The Allianz Group has also entered into contractual relationships with various types of structured entities. They have been designed in such a way that their relevant activities are directed by means of contractual arrangements rather than voting or similar rights. Typically, structured entities have been set up in connection with assetbacked financings and certain investment fund products. For more details on our involvement with structured entities, please refer to note 35 to the consolidated financial statements.
For details on the regulatory capitalization of the Allianz Group, please refer to the Risk and Opportunity Report from page 62 onwards.
The overall liquidity of our insurance operations depends on capital market developments, interest rate levels, and our ability to realize the market value of our investment portfolio to meet insurance claims and policyholder benefits. Other factors affecting the liquidity of our Property-Casualty insurance operations include the timing, frequency, and severity of losses underlying our policies and policy renewal rates. In our Life operations, liquidity needs are generally influenced by trends in actual mortality rates compared to the assumptions underlying our life insurance reserves. Market returns, crediting rates, and the behavior of our life insurance clients – for example, regarding the level of surrenders and withdrawals – can also have significant impacts.
BANKING OPERATIONS Major sources of liquidity in our Banking operations include customer deposits, interbank loans, and interest and similar income from our lending transactions. The most important 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. Our ability to retain our customers’ deposits is equally important to us.
Liquidity management and funding of Allianz SE The responsibility for managing the funding needs within the Group, maximizing access to liquidity sources, and minimizing borrowing costs lies with Allianz SE. We therefore comment on the liquidity and funding resources of Allianz SE in the following sections. Restrictions on the transferability of capital within the Group mainly result from the capital maintenance rules under applicable company laws, as well as from the regulatory solvency capital requirements for regulated Group companies.
Allianz SE are dividends received from subsidiaries and funding provided by capital markets. Liquidity resources are defined as readily available assets – specifically cash, money market investments, and highly liquid government bonds. Our funds are primarily used for interest payments on our debt funding, operating costs, internal and external growth investments, and dividends to our shareholders.
EQUITY FUNDING As of 31 December 2017, the issued capital registered at the Commercial Register was € 1,169,920,000. This was divided into 440,249,646 registered shares with restricted transferability. As of 31 December 2017, the Allianz Group held 1,369,717 (2016: 1,932,263)
Allianz SE has the option to increase its equity capital base according to authorizations provided by our shareholders. The following table outlines Allianz SE’s capital authorizations as of
Conditional Capital 2010/2014 € 250,000,000 No expiry date for Conditional Capital 2010/2014 (issuance in case option or conversion rights are exercised)
LONG-TERM DEBT FUNDING As of 31 December 2017, Allianz SE had senior and subordinated bonds with a variety of maturities outstanding, reflecting our focus on long-term financing. As the cost and availability of external funding may be negatively affected by general market conditions or by matters specific to the financial services industry or the Allianz Group, we seek to reduce refinancing risk by actively steering the maturity profile of our funding structure.
As of 31 December Up to 1 year 1 - 5 years Over 5 years 1_Based on carrying value.
2_€ 1.4 bn subordinated bond called for redemption effective 17 February 2017.
Funding in non-Euro currencies enables us to diversify our investor base or to take advantage of favorable funding costs in those markets. Funds raised in non-Euro currencies are incorporated in our general hedging strategy. As of 31 December 2017, approximately 17.6 % (2016: 18.4 %) of long-term debt was issued or guaranteed by
Commercial Paper Program at an average rate for each tranche below Euribor, and under the U.S. Dollar Commercial Paper Program at an average rate for each tranche below U.S. Libor.
Life/Health business segment in Germany, resulted in a net cash inflow. In addition, higher reserves for loss and loss adjustment expenses were recorded, driven by the property-casualty insurance business mainly in Germany and France.
Net cash outflow used in financing activities was higher in 2017 by € 3.3 bn and amounted to € 5.0 bn. The main reasons for this were transactions between equity holders, in particular the Allianz SE share buy-back program as well as the share purchase agreement with minority-shareholders of Euler Hermes. Those effects were partly compensated by higher net cash inflows from our refinancing activities, especially due to an increase in certificated liabilities.
Cash and cash equivalents amounted to € 17.1 bn, reflecting a € 2.7 bn increase compared to 2016. This resulted from higher cash on current accounts balances, mainly in investment funds, and higher balances with central banks in the reportable segment Banking
For further information on the consolidated statements of cash flows, please refer to page 84.
Casualty and Life/Health, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking).
Asset Management consisting of: Net fee and commission income 6,374 6,019
Income from financial assets and liabilities carried at fair value through income (net) 25 6
OPERATING PROFIT1 The reconciling item scope comprises the effects from out-of-scope entities in the profit sources reporting compilation. Operating profit from operating entities that are not in-scope entities is included in the investment margin. Currently, 21 entities comprising 99.1 % of
The delta shown as definitions in acquisition expenses and commissions represents commission clawbacks, which are allocated to the technical margin. The delta shown as definitions in administrative and other expenses mainly represents restructuring charges, which are stated in a separate line item in the group income statement. 2
2_In light of the new operating profit definition, restructuring charges are reported outside operating profit unless shared with policyholders. Prior year figures have been adjusted accordingly.
Both capitalization and amortization are included in the line item premiums earned (net) in the group income statement.
RISK MANAGEMENT FRAMEWORK As a provider of financial services, we consider risk management to be a core competency and an integral part of our business. Our risk management framework covers all operations and subsidiaries within the Group in proportion to the inherent risks of the activities, ensuring that risks across the Group are consistently identified, analyzed, assessed, and managed. The primary goals of our risk management framework are: − Promotion of a strong risk management culture, supported by a robust risk governance structure.
Our risk management system is based on the following four pillars: − Risk identification and underwriting: Risk identification and underwriting form the foundation for adequate risk management decisions. Supporting activities include standards for underwriting, valuation methods, individual transaction and new product approvals, emerging-/operational-/top-risk assessments, and scenario analysis, amongst others.
− Risk reporting and monitoring: Our comprehensive qualitative and quantitative risk monitoring and reporting framework provides management with the transparency needed to assess whether our risk profile falls within delegated limits and to identify emerging issues quickly. For example, risk dashboards and limit consumption reports as well as scenario analysis and stress tests are regularly prepared and communicated.
− Communication and transparency: Transparent risk disclosure provides the basis for communicating our strategy and performance to internal and external stakeholders, ensuring a sustainable positive impact on valuation and financing. It also strengthens the risk awareness and risk culture throughout the entire
OUR BUSINESS ASPIRATIONS Allianz Group seeks to position itself as the world’s most trusted financial institution focusing on the following: − Portfolio strength: establishing a strong and high-quality portfolio in large and attractive markets.
Allianz SE has defined a clear business strategy which is based on the following five pillars: − True Customer Centricity: making superior customer experience the top priority for all our actions.
− Digital by Default: moving from selected leading assets to become “Digital by Default” everywhere.
− Inclusive Meritocracy: reinforcing a culture where both people and performance matter, including gender diversity and women in leadership.
The Risk Committee of the Supervisory Board monitors the effectiveness of the Allianz risk management framework. Furthermore, it focuses on risk-related developments as well as general risks and specific risk exposures.
The Group Finance and Risk Committee (GFRC) provides oversight of the Group’s and Allianz SE’s risk management framework, acting as a primary early-warning function by monitoring the Allianz Group’s and
A risk function headed by a Chief Risk Officer, which is independent from business line management, is established by each related undertaking. A local Risk Committee supports both the Board of Management and the Chief Risk Officer by acting as the primary risk controlling body.
The Allianz Group is exposed to a variety of risks through its core insurance and asset management activities including market, credit, underwriting, business, operational, strategic, liquidity, and reputational risks.
Our aim is to maintain a balanced risk profile without any disproportionately large risk concentrations and accumulations.
profitable lines of business and products on a sustainable basis, reflecting the capital commitment over the life time of the products and is a key criterion for capital allocation decisions.
MARKET RISK As an inherent part of our insurance operations, we collect premiums from our policyholders and invest them in a wide variety of assets; the resulting investment portfolios back the future claims and benefits to our customers. In addition, we also invest shareholders’ capital, which is required to support the business. Finally, we use derivatives, mostly to hedge our portfolio against adverse market movements (for example, protective puts) or to reduce our reinvestment risk (for example, by using forwards, swaps, or swaptions). Asset/liability management (ALM) decisions are taken based on the internal model, considering both the risks and the returns on the financial market.
As the fair values of our investment portfolios and liabilities depend on changes on the financial markets, we are exposed to the risk of adverse financial market developments. The long-dated liabilities in our Life/Health business segment contribute to interest rate risk, in particular if they cannot be matched by available investments due to long maturities; in addition, we are also exposed to adverse changes in equity and real estate prices, credit spread levels, inflation, implied volatilities, and currencies, which might impact the value of our portfolios.
Western Europe, mainly from traditional life insurance products with guarantees. By contrast, opportunities may arise when interest rates increase. This may result in returns from reinvestments being higher
CREDIT SPREAD RISK Fixed-income assets such as bonds may lose value if credit spreads widen. However, our risk appetite for credit spread risk takes into account the underlying economics of our business model: As a liability -driven investor, we typically hold fixed-income assets until maturity.
CURRENCY RISK Our operating entities typically invest in assets which are dominated in the same currency as their liabilities; however, some foreign currency exposures are allowed to support portfolio diversification and tactical investment decisions. Our largest exposure to foreign currency risk comes from our ownership of non-Euro entities: if the Euro strengthens, the Euro equivalent net asset value of our foreign subsidiaries will decline from a Group perspective; however, at the same time the capital requirements in Euro will decrease, partially mitigating the total impact on the Group capitalization. Based on our foreign -exchange management limit framework, currency risk is monitored and managed at both the local and Group level.
The Group Investment Committee of Allianz has defined a framework for standard transactions for real estate equity and commercial real estate loan investments. These standards outline diversification targets, minimum return hurdles, and other qualitative and quantitative requirements. All transactions that do not meet these standards or have a total investment volume (including costs) exceeding a defined threshold must be reviewed individually by Group
Risk and other group center functions. In addition, all applicable limits must be met, in particular the limits set for the portfolio of an investing entities by the strategic asset allocation and its respective leeway as well as risk limits.
CREDIT RISK Credit risk is measured as the potential economic loss in the value of our portfolio that would result from either changes in the credit quality of our counterparties (“migration risk”) or the inability or unwillingness of a counterparty to fulfill contractual obligations (“default risk”).
Our group-wide country and obligor group limit management framework (CRisP1) allows us to manage counterparty concentration risk, covering both credit and equity exposures at the Group and operating entity levels. This limit framework forms the basis for discussions on credit actions and provides notification services with a quick and broad communication of credit-related decisions across the
Life/Health3 business segment. Underwriting risks are not relevant for the Asset Management business segment and our banking operations.
As part of our Property-Casualty business operations, we receive premiums from our customers and provide insurance protection in return. Premium risk is the risk that actual claims for the current year business develop adversely relative to expected claims ratios. Premium risk can be mitigated by reinsurance as well as by technical excellence in underwriting. Assessing risks as part of the underwriting process is a key element of our risk management framework. There are clear underwriting limits and restrictions which are defined centrally and are applied across the Group.
Premium risk is subdivided into three categories: natural catastrophe risk, man-made risk, and non-catastrophe risk.
Reserve risk represents the risk of adverse developments in bestestimate reserves over a one-year time horizon, resulting from fluctuations in the timing and/or amount of claims settlement. We estimate and hold reserves for claims resulting from past events that have not yet been settled. In case of unexpected developments, we will experience a reserve gain or loss dependent on the assumptions applied for the estimate.
Life/Health underwriting risk arises from profitability being lower than expected. As profitability calculations are based on several parameters – such as historical loss information, assumptions on inflation, on mortality, or on morbidity – realized parameters may differ from the ones used for underwriting. For example, higher- thanexpected inflation may lead to higher medical claims in the future.
Repor t the Property-Casualty business. Cost risks are associated with the risk that expenses incurred in administering policies are higher than expected or that new business volume decreases to a level that does not allow Allianz to absorb its fixed costs. Business risk is measured relative to baseline plans.
For the Life/Health business, policyholder behavior risks are risks related to the unpredictable, adverse behavior of policyholders in exercising their contractual options, including for example the early termination of contracts, surrenders, partial withdrawals, renewals, and annuity take-up options.
Assumptions on policyholder behavior are set in line with accepted actuarial methods and are based on own historical data where available. If there is no historical data, assumptions are based on industry data or expert judgment. This is then used as a basis to determine the economic impact of policyholder behavior under different scenarios within our internal model.
− “Execution, Delivery and Process Management” potential losses arising from transaction or process management failures. Examples include interest and penalties from non-payment or underpayment of taxes or losses associated with broker and agent distribution processes. These losses tend to be of a relatively higher frequency but with a low financial impact (although single large loss events can occur).
The operational risk capital of the Group is dominated by the risk of potential losses within the areas of “Clients, Products & Business
Operational risk capital is calculated using a scenario-based approach based on expert judgement as well as internal and external operational loss data. Estimates of frequency and severity of potential loss events for each material operational risk category are calculated and used as a basis for our internal model calibration.
We also monitor market and competitive conditions, capital market requirements, regulatory conditions, etc., to decide if strategic adjustments are necessary.
Digital by Default, Technical Excellence, Growth Engines, and Inclusive Meritocracy. Progress on mitigating strategic risks and towards meeting the Renewal Agenda objectives is monitored and evaluated as part of the strategic and planning dialog between Allianz Group and the related undertakings.
under best-estimate plan, as well as under idiosyncratic and systemic adverse liquidity scenarios, to allow for a group-wide consistent view
In addition, the accumulated liquidity position of Allianz SE’s cash pool is monitored and forecast on a daily basis. It is subject to an absolute minimum strategic cushion amount and an absolute minimum target liquidity amount, while the strategic liquidity planning for
Allianz SE over time horizons of 12 months and three years is reported to the Board of Management regularly and is subject to an absolute minimum target level.
Risk defines sensitive business areas and applicable risk guidelines that are mandatory for all related undertakings in the Allianz Group.
The identification and assessment of reputational risks are part of a yearly Top Risk Assessment, during which senior management also decides on a risk management strategy and related actions. This is supplemented by quarterly updates. In addition, reputational risk is managed on a case-by-case basis. Single cases with a potential impact on other related undertakings or the Group have to be reported to the Allianz Group for pre-approval.
GENERAL APPROACH We utilize an approach for the management of our risk profile and solvency position that reflects the Solvency II rules, in that it comprises our approved internal model and covers all major insurance operations2. Other entities are reflected based on standard formula results as well as on sectoral or local requirements for non-insurance operations, in accordance with the Solvency II framework.
(“confidence level”, set at 95.5 %). We simulate risk events from all risk categories (“sources of risk”) modeled and calculate the portfolio value based on the net fair value of assets minus liabilities, including risk mitigating measures like reinsurance contracts or derivatives, under each scenario.
COVERAGE OF THE RISK CAPITAL CALCULATIONS Allianz’s group internal model to calculate the solvency capital requirement covers all major insurance operations3. This includes the relevant assets (including fixed income, equities, real estate, and derivatives) and liabilities (including the run-off of all current and planned technical provisions as well as deposits, issued debt and other liabilities). For with-profit products in the Life/Health business segment, options and guarantees embedded in insurance contracts –
Risk capital related to our European banking operations is allocated to the Corporate and Other business segment, based on the approach applied by banks in accordance with the local requirements resulting from the Basel regulation (Basel standards). Capital requirements for banks represent an insignificant amount of approx2_Since 30 September 2015, Allianz Life US has been accounted for at 150% of RBC CAL, based on third-country equivalence, within our Group capitalization.
3_As mentioned under section “General approach”, Allianz Life US is based on third-country equivalence.
Therefore Allianz’s risk capital framework covers all material and quantifiable risks. Risks specifically not covered by our group internal model include reputational, liquidity, and strategic risks.
RISK-FREE RATE AND VOLATILITY ADJUSTMENT When calculating the fair values of assets and liabilities, the assumptions regarding the underlying risk-free yield curve are crucial in determining and discounting future cash flows. We apply the methodology provided by the European Insurance and Occupational
OPA-BoS-15/035) for the extrapolation of the risk-free interest rate curves beyond the last liquid tenor.1
We therefore take account of this by applying volatility adjustment to mitigate the credit spread risk, which we consider to be less substantial than the default risk.
ACTUARIAL ASSUMPTIONS Our internal model also includes assumptions on claims trends, liability inflation, mortality, longevity, morbidity, policyholder behavior, expense, etc. We use our own internal historical data for actuarial assumptions wherever possible, and also consider recommendations from the insurance industry, supervisory authorities, and actuarial associations. The derivation of our actuarial assumptions is based on generally accepted actuarial methods. Within our internal risk capital and financial reporting framework, comprehensive processes and controls exist for ensuring the reliability of these assumptions.
Since the internal model takes into account the change in the economic fair value of our assets and liabilities, it is crucial to estimate the market value of each item accurately. For some assets and liabilities it may be difficult, if not impossible – notably in distressed financial markets – to either obtain a current market price or apply a meaningful mark-to-market approach. For such assets we apply a mark-to-model approach. For some of our liabilities, the accuracy of their values also depends on the quality of the actuarial cash flow estimates. Despite these limitations, we believe the estimated fair values are appropriately assessed.
In all subsequent sections, the figures including model changes will form the basis for the movement analysis of our risk profile in
CREDIT RISK In 2017, the central credit risk model was changed to allow for a more granular and accurate valuation of exposures in a negative interest rate environment. Consistent with market expectations, counterparties from segments with very low or even negative credit spread levels now carry less credit risk. The credit-risk-reducing effect of this major model change was partially offset by indirect effects from cash flow model changes which reduced the policyholder participation in the Life/Health business segment.
The increase in underwriting risk in the Property-Casualty business segment was mainly based on the central changes on natural catastrophe modelling for windstorms in Europe and earthquakes in Germany.
BUSINESS RISK As for Life/Health underwriting risk, there was no central model change performed in 2017 for the business risk and all local changes for this module were either minor or immaterial.
OPERATIONAL RISK No material operational risk model change has been applied in
IMPACT OF MODEL CHANGES ON ELIGIBLE GROUP OWN FUNDS Model changes in 2017 resulted in a € 3.0 bn increase of Own Funds, mainly driven by regulatory and model changes including negative interest rate model.
RISK PROFILE AND MARKET ENVIRONMENT As mentioned earlier, the Allianz Group is exposed to a variety of risks.
The largest risks in terms of their contribution to Allianz’s risk profile are: − Market risk, especially interest rate risk, due to the duration mismatch between assets and liabilities for long-term savings products, equity risk, credit, and credit spread risks driven by assets backing long-term liabilities, which we take to benefit from the expected risk premium; − Property-casualty premium and reserve risks resulting from natural and man-made catastrophes as well as from claims uncertainty.
Systemically Important Insurers (so-called G-SII) are yet to be finalized. Due to the review of the Solvency II framework by EIOPA, future
Solvency II capital requirements might change depending on the outcome. Finally, the potential for a multiplicity of different regulatory regimes, capital standards, and reporting requirements will increase operational complexity and costs.
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 both, the challenges of a rapidly changing environment and the day-to-day business needs. This confidence is based on several factors, which are summarized below: − Due to its effective capital management, the Allianz Group is well capitalized and met its internal, rating agency, and regulatory solvency targets as of 31 December 2017. Allianz is also confident that it will be able to meet the capital requirements under new regulatory regimes. Allianz remains one of the highest rated insurance groups in the world, as reflected by our external ratings.
SOLVENCY II REGULATORY CAPITALISATION The Allianz Group’s Own Funds and capital requirements are based on the market value balance sheet approach as the major economic principle of Solvency II rules1. Our regulatory capitalization is shown in the following table.
capital requirement. The increase in the Solvency II capitalization ratio was mainly due to strong Solvency II earnings and favorable markets that were characterized by higher interest rates, lower credit spreads, and rising equities. Model changes also contributed to the increase of the capitalization ratio. These positive impacts were partly offset by capital management activities like the share buy-backs as well as the dividend accrual throughout the year. Management actions such as the acquisition of Liverpool Victoria (LV=) and part of the non-controlling interests of Euler Hermes, the decrease in exposures to some government bonds, and the improvement of our interest rate risk profile had further compensating effects. Other effects such as taxes, changes in transferability restrictions, and diversification effects contributed to a further reduction of the Solvency II capitalization ratio.
Combined scenario: Equity prices down by 30 % Interest rate down by 0.5 %1 212 203 1_Non-parallel interest rate shifts due to extrapolation of the yield curve beyond the last liquid point in line with
At the Allianz Group, we measure and steer risk based on an approved internal model, under which we derive our risk capital from potential adverse developments of Own Funds. The resulting risk profile provides an overview of how risks are distributed over different risk categories, and determines the regulatory capital requirements in accordance with Solvency II.
With the exception of the Asset Management business segment, all business segments are exposed to the full range of risk categories stated. As mentioned earlier, the Asset Management business segment is predominantly exposed to operational and market risks and to a lesser extent to credit risk.
The pre-diversified risk figures reflect the diversification effect within each modeled risk category (i.e. market, credit, underwriting, business, and operational risk) but do not include the diversification effects across risk categories. Group-diversified risk figures also capture the diversification effect across all risk categories.
As of 31 December 2017, the group-diversified risk capital, reflecting our risk profile before non-controlling interests, amounting to € 33.3 bn (2016: € 34.6 bn) represented a stable diversification benefit1 of approximately 25 % compared to 2016. The drop in Solvency II
1_2016 risk profile figures recalculated based on model changes in 2017 and the impact of minor and immaterial model changes were allocated proportionally.
Our total pre-diversified market risk showed a decrease of € 3.3 bn, which was mainly driven by interest rate and credit spread risk in the
Life/Health business segment. The decrease in interest rate risk was driven by the significant increase in the rates as well as by management actions to improve our interest rate risk profile by asset/liability management measures. For credit spread risk, the decrease was driven by narrowing credit spreads observed in financial markets and the increase in policyholder participation in the Life/Health business segment. These were also supported by exposure changes due to
€ 427.3 bn (2016: € 428.5 bn)2 – would have gained € 41.6 bn (2016: € 31.4 bn) or lost € 36.1 bn (2016: € 36.1 bn)3 in value in the event of interest rates changing by -100 and +100 basis points, respectively.
EQUITY RISK As of 31 December 2017, our investments excluding unit-linked business that are sensitive to changing equity markets – amounting to a market value of € 57.1 bn 4 (2016: € 47.0 bn) – would have lost € 14.9 bn5 (2016: € 12.4 bn) in value assuming equity markets de2_The stated market value includes all assets whose market value is sensitive to interest rate movements (excluding unitlinked business) reflecting the Solvency II framework, and therefore is not based on classifications given by accounting principles.
Throughout 2017, the credit environment remained stable. Overall credit risk for the Group decreased compared to last year, primarily driven by an increase of policyholder participation in the Life/Health business segment as a result of better market conditions. Annual updates based on extended time series were performed for credit risk parameters like the transition matrix and asset correlations, which only had a slightly positive effect on credit risk.
The counterparty credit risk arising from derivatives is low, since derivatives usage is governed by the group-wide internal guidelines for collateralization of derivatives, which stipulates master netting and collateral agreements with each counterparty and requires highquality and liquid collateral. In addition, Allianz closely monitors the credit ratings of counterparties and exposure movements.
As of 31 December 2017, the rating distribution based on issue
agency Covered bond Corporate Banks ABS/MBS Short-term loan Other Total 1_In accordance with the Group Management Report, figures stated include investments of Banking and Asset Management. Table excludes private loans. Stated market values include investments not in scope of the
CREDIT RISK – CREDIT INSURANCE As of 31 December 2017, 9.6 % (2016: 7.4 %) of our total Group prediversified internal credit risk was allocated to Euler Hermes credit insurance exposures, for which the relative increase is primarily driven by the lower credit risk of the investment portfolio.
– of which 51.8 % (2016: 46.8 %) was related to reinsurance counterparties in the United States and Germany.1
Repor t for 2017. For substantial exposures to non-rated captives, risk mitigating techniques like collateral agreements or funds-withheld concepts are in place.
2_2016 risk profile figures recalculated based on model changes in 2017 and the impact of minor and immaterial model changes were allocated proportionally.
PROPERTY-CASUALTY During 2017, the total of the stand-alone underwriting risk capital on a Group-diversified basis increased by € 0.2 bn. This slight increase is mainly driven by exposure and model updates as well as discounting effects. The remaining difference is due to diversification effects with other underwriting risk categories.
Overall, the underwriting risk profile for the Allianz Group is not expected to change materially as we do not plan to significantly change our underwriting standards (Allianz Standard for P&C Underwriting ), or our Group natural catastrophe man-made or terror risk appetite (i.e. retrocession reinsurance strategy).
Loss ratio excluding natural catastrophes 64.2 64.2 64.6 65.1 63.0 66.6 65.5 65.9 68.4 66.3 1_Represents claims and insurance benefits incurred (net), divided by premiums earned (net).
The top three perils contributing to the natural catastrophe risk as of 31 December 2017 were: windstorms in Europe, floods in Germany, and earthquakes in Australia.
LIFE/HEALTH The risk capital contribution from biometric risk increased by € 0.1 bn compared to the previous year (after considering model changes).
This is mainly due to the annual calibration update of the stochastic longevity risk model. The impact of this model update for the Property -Casualty and the Corporate business segments is mainly generated by the longevity risk of the corresponding pension schemes.
OPERATIONAL RISK The marginal decrease shown in the operational risk was driven by the annual regular update of local parameters. Foreign currency exchange effects played a secondary role.
framework contains controls to monitor the system of governance effectiveness. In the ITGC framework we have implemented, for example, controls for access right management and for project and change management. Going forward, the current ICOFR framework will be part of an Integrated Risk and Control System (IRCS). The
INTERNAL CONTROL SYSTEM APPROACH Our approach can be summarized as follows: − We use a top-down, risk-based approach to determine the accounts and operating entities that should fall under the scope of our system of internal control over financial reporting (as well as
− Then, our local entities identify risks that could lead to material financial misstatements, including all relevant root causes (i.e.
Subsidiaries within the scope of our control system are individually responsible for adhering to the Group’s internal governance and 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 systems of internal control as well as the completeness, accuracy, and reliability of financial data reported to the Holding.
Non-current assets and assets of disposal groups classified as held for sale 3 14,329 14,196
Liabilities of disposal groups classified as held for sale 3 13,662 13,290
4_For further information regarding the share buy-back program 2017, please refer to note 19.
Effect of exchange rate changes on cash and cash equivalents (749) 52
Cash and cash equivalents reclassified to assets of disposal groups classified as held for sale - (395)
Share of earnings from investments in associates and joint ventures (506) (288)
Realized gains/losses (net) and impairments of investments (net) of: Available-for-sale and held-to-maturity investments, investments in associates and joint ventures, real estate held for investment, loans and advances to banks and customers, non-current assets and disposal groups classified as held for sale (5,452) (6,540)
Proceeds from the sale, maturity or repayment of: Financial assets designated at fair value through income 2,079 2,224
Non-current assets and disposal groups classified as held for sale 420 156
Loans and advances to banks and customers (purchased loans) 6,333 8,409
Payments for the purchase or origination of: Financial assets designated at fair value through income (1,931) (2,193)
Loans and advances to banks and customers (purchased loans) (2,214) (3,007)
Net cash from sale or purchase of treasury shares 42 44
In accordance with the provisions of IFRS 4, insurance contracts are recognized and measured on the basis of accounting principles generally accepted in the United States of America (US GAAP) as at first-time adoption of IFRS 4 on 1 January 2005.
The consolidated financial statements have been prepared as of and for the year ended 31 December 2017. The Allianz Group’s presentation currency is the Euro (€). Amounts are rounded to the nearest million (€ mn) unless otherwise stated.
The consolidated financial statements were authorized for issue by the Board of Management on 13 February 2018.
There are some companies where the Allianz Group holds a majority stake but where management has assessed that the
Allianz Group does not control these entities because it has no majority representation in the governing bodies and/or it requires at least the confirmative vote of another investor to pass any decisions over relevant activities.
For certain entities, voting or similar rights are not the dominant factor of control, such as when voting rights relate to administrative tasks only and returns are directed by means of contractual arrangements, as is the case mainly for investment funds managed by
Where newly acquired subsidiaries are subject to business combination accounting, the provisions of IFRS 3 are applied. Any noncontrolling interests in the acquiree can be measured either at its fair value at the acquisition date or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. This option is exercised on a case-by-case basis.
Associates are entities over which the Allianz Group can exercise significant influence. In general, if the Allianz Group holds 20 % or more of the voting power in an investee but does not control the investee, it is assumed to have significant influence. Investments in associates are generally accounted for using the equity method.
Pursuant to IFRS 11, investments in joint arrangements have to be classified as either joint operations or joint ventures, depending on the contractual rights and obligations of each investor. The
The Allianz Group accounts for all material investments in associates and joint arrangements with a time lag of no more than three months. Income from investments in associates and joint arrangements – excluding distributions – is included in interest and similar income. Accounting policies of associates and joint arrangements are adjusted where necessary to ensure consistency with the accounting policies adopted by the Allianz Group.
For the purposes of the consolidated financial statements, the results and financial position of each of the Allianz Group’s subsidiaries are expressed in Euro, the presentation currency of the Allianz Group.
Financial assets are generally recognized and derecognized on the trade date, i.e. when the Allianz Group commits to purchase or sell securities or incur a liability.
Level 2 applies if the market for a financial instrument is not active or when the fair value is determined by using valuation techniques based on observable input parameters. Such market inputs are observable substantially over the full term of the asset or liability and include references to formerly quoted prices for identical instruments from an active market, quoted prices for identical instruments from an inactive market, quoted prices for similar instruments from
88 Annual Report 2017 − Allianz Group active markets, and quoted prices for similar instruments from inactive markets. Market observable inputs also include interest rate yield curves, volatilities, and foreign currency exchange rates.
Level 3 applies where not all input parameters are observable in the market. Accordingly, the fair value is based on valuation techniques using non-market observable inputs. Valuation techniques include the discounted cash flow method, comparison to similar instruments for which observable market prices exist and other valuation models. Appropriate adjustments are made, for example, for credit risks. In particular when observable market inputs are not available, the use of estimates and assumptions may have a strong impact on the valuation outcome.
− Cost approach: Amount that would currently be required to replace the service capacity of an asset (replacement cost).
− Income approach: Conversion of future amounts such as cash flows or income to a single current amount (present value technique ).
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.
Derivative financial instruments designated in hedge accounting relationships are included in the line items Other assets and Other 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 33.
Available-for-sale investments comprise debt and equity instruments that are designated as available for sale or do not fall into the other measurement categories. These investments are measured at fair value through other comprehensive income. When an investment is derecognized or determined to be impaired, the cumulative gain or loss previously recorded in other comprehensive income is transferred and recognized in the consolidated income statement. Realized gains and losses on those instruments are generally determined by applying the average cost method at the subsidiary level.
Held-to-maturity investments are debt securities with fixed or determinable payments and fixed maturities, for which the Allianz Group has the positive intent and ability to hold to maturity. These assets are initially measured at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective interest rate method.
For details on the accounting for investments in associates and joint ventures please see the section principles of consolidation.
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
For insurance contracts and investment contracts with discretionary participation features, shadow accounting is applied to DAC, PVFP
and deferred sales inducements in order to include the effect of unrealized gains or losses in the measurement of these assets in the same way as it is done for realized gains or losses. When the gains or losses are realized they are recognized in the income statement through recycling and prior adjustments due to shadow accounting are reversed.
Customer relationship 6 – 13 straight-line or in relation to customer churn rates
For business combinations goodwill is recognized in the amount of the consideration transferred in excess of the fair values assigned to the identifiable assets acquired and liabilities assumed. Goodwill is accounted for at the acquiree in the acquiree’s functional currency.
There is an at least annual evaluation whether it is deemed recoverable.
The Allianz Group’s consolidated financial statements reflect the effects of ceded and assumed reinsurance contracts. Assumed reinsurance premiums, commissions, and claim settlements, as well as the reinsurance element of technical provisions, are accounted for in accordance with the conditions of the reinsurance contracts, and in consideration of the original contracts for which the reinsurance was concluded. When the reinsurance contracts do not transfer significant insurance risk, deposit accounting is applied as required under the related reinsurance accounting provisions of US GAAP or under
Amounts charged as consideration for origination of certain long-duration insurance contracts (i.e. initiation or front-end fees) are reported as unearned revenues and, as such, included in unearned premiums. These fees are recognized using the same amortization methodology as DAC, including shadow accounting.
Case reserves for reported claims are based on estimates of future payments that will be made with respect to claims, including LAE
relating to such claims. The estimates reflect the informed judgment of claims personnel based on general insurance reserving practices and knowledge of the nature and value of a specific type of claim.
IBNR reserves are established to recognize the estimated cost of losses that have occurred but where the Allianz Group has not yet been notified. IBNR reserves, similar to case reserves for reported claims, are established to recognize the estimated costs, including expenses, necessary to bring claims to final settlement. The
Allianz Group relies on its past experience, adjusted for current trends and any other relevant factors to estimate IBNR reserves.
IBNR reserves are estimates based on actuarial and statistical projections of the expected cost of the ultimate settlement and administration of claims. The analyses are based on facts and circumstances known at the time, predictions of future events, estimates of future inflation and other societal and economic factors. Trends in claim frequency, severity, and time lag in reporting are examples of factors used in projecting the IBNR reserves. IBNR reserves are reviewed and revised periodically, as additional information becomes available and actual claims are reported.
The aggregate policy reserves for universal life-type insurance contracts are equal to the account balance, which represents premiums received and investment return credited to the policy, less deductions for mortality costs and expense charges. The aggregate policy reserve also includes reserves for investment contracts with discretionary participation features as well as for liabilities for guaranteed minimum mortality and morbidity benefits related to non-traditional contracts with annuitization options and unit-linked insurance contracts.
The assumptions used for aggregate policy reserves are determined using current and historical client data, industry data, and in the case of assumptions for interest reflect expected earnings on assets which back the future policyholder benefits. The information used by the Allianz Group’s actuaries in setting such assumptions includes, but is not limited to, pricing assumptions, available experience studies, and profitability analyses.
The interest rate assumptions used in the calculation of deferred acquisition costs and aggregate policy reserves are as follows: Interest rate assumptions
92 Annual Report 2017 − Allianz Group ards and guidelines, regular site visits, as well as regular quantitative and qualitative reserve monitoring.
Life/Health reserves are subject to estimates and assumptions, especially on the life expectancy and health of an insured individual
The judgment of Property-Casualty actuaries is based on past experience of the characteristics of each line of business, the current stage of the underwriting cycle, and the external environment in which the subsidiary operates. The reserves are proposed to a local reserve committee, whereat the rationale of the selections are discussed and subsequently documented. A final decision on the reserve selection is made in the reserve committee. Local actuaries are responsible for their compliance with the Group Actuarial Standards and Guidelines.
Stage two: The Allianz Group Actuarial Department forms an opinion on the adequacy of the reserves proposed by the local entities. The Allianz Group Actuarial Department challenges the operating entities’ selection through their continuous interaction with local teams and quarterly attendance in the local reserve committees. The ability to form a view on reserve adequacy is further enabled by regular reviews of the local reserving practices. Such reviews consist of an evaluation of the reserving process as well as of the appropriateness and consistency of assumptions, and an analysis of movement of reserves. Significant findings from these reviews are communicated in the Allianz Group Reserve Committee to initiate actions where necessary.
These valuations rely on extensive assumptions. Key assumptions such as discount rates, inflation rates, compensation increases, pension increases, and rates of medical cost trends are defined centrally at the Allianz Group level, considering the circumstances in the particular countries. In order to ensure their thorough and consistent determination, all input parameters are discussed and defined taking into consideration economic developments, peer reviews, and currently available market and industry data.
Allianz Group, which is primarily the case for mutual funds controlled but not wholly owned by the Allianz Group. These liabilities are generally required to be recorded at the redemption amount, with changes recognized in equity for put options over non-controlling interests and in the income statement for redeemable fund units.
EQUITY Issued capital represents the mathematical per-share value received at the issuance of shares. Additional paid-in capital represents the
Retained earnings comprise the net income of the current year, earnings not yet distributed from prior years, treasury shares, and any amounts directly recognized in equity according to IFRS. Treasury shares are deducted from shareholders’ equity. No gain or loss is recognized on the sale, issuance, acquisition, or cancellation of these shares. Any consideration paid or received is recorded directly in shareholders’ equity.
INTEREST AND SIMILAR INCOME AND INTEREST EXPENSES Interest income and interest expenses are recognized on an accrual basis. Interest income is recognized using the effective interest method. This line item also includes dividends from available-for-sale equity securities as well as income from investments in associates and joint ventures. Dividends are recognized in income when the right to receive the dividend is established. Share of earnings from investments in associates and joint ventures represents the share of net income from entities accounted for using the equity method.
FEE AND COMMISSION INCOME Fee and commission income primarily consists of asset management fees which are recognized when the service is provided. Performance fees may not be recognized as fee income before the respective benchmark period is completed, because, before its completion, the obligation to pay the fee is conditional, the fund performance is regularly not reliably estimable, and related service is not fully performed. In any case, performance-related fees from alternative investment products (carried interest) are not recognized as revenue prior to the date of the official declaration of distribution by the fund.
CLAIMS AND INSURANCE BENEFITS INCURRED These expenses consist of claims and insurance benefits incurred during the period, including benefit claims in excess of policy account balances and interest credited to policy account balances. Furthermore, it includes claim handling costs directly related to the processing and settlement of claims. Reinsurance recoveries are deducted from claims and insurance benefits.
Deferred tax assets or liabilities are calculated for temporary differences between the tax bases and the financial statement carrying amounts, including differences from consolidation, unused tax loss carry-forwards, and unused tax credits. Measurement is based on enacted or substantively enacted tax rates and tax rules. Assessments as to the recoverability of deferred tax assets require the use of judgment regarding assumptions related to estimated future taxable profits. This includes the character and amounts of taxable future profits, the periods in which those profits are expected to occur, and the availability of tax planning opportunities. The Allianz Group recognizes a valuation allowance for deferred tax assets when it is unlikely that a corresponding amount of future taxable profit will be available against which the deductible temporary differences, tax loss carry forwards and tax credits can be utilized.
The analysis and forecasting required in this process are performed for individual jurisdictions by qualified local tax and financial professionals. Given the potential significance surrounding the underlying estimates and assumptions, group-wide policies and procedures have been designed to ensure consistency and reliability around the recoverability assessment process. Forecast operating results are based upon approved business plans, which are themselves subject to a well-defined process of control. As a matter of policy, especially strong evidence supporting the recognition of deferred tax assets is required if an entity has suffered a loss in either the current or the preceding period. Recognition and recoverability of all significant deferred tax assets are reviewed by tax professionals at Group level and by the Allianz Group Tax Committee.
CHANGE IN ACCOUNTING POLICIES At the beginning of 2017, the Allianz Group entered into an economic hedging program for its Guaranteed Minimum Income Benefits
In the consolidated income statement for the year ended 31 December 2016, the GMIB-related change in accounting policies led to a € 149 mn increase in income from financial assets and liabilities carried at fair value through income (net) and a € 28 mn decrease in changes in reserves for insurance and investment contracts
− IAS 12, Recognition of Deferred Tax Assets for Unrealised Losses,
For long-duration life insurance contracts, IFRS 17 is expected to have a significant impact on actuarial modeling as more granular cash flow projections and regular updates of all assumptions will be required, either resulting in profit or loss or impacting the “contractual service margin”, a separate component of the insurance liability representing unearned profits from in-force contracts. Further, IFRS 17 introduces different measurement approaches for the insurance contract liabilities, reflecting a different extent of policyholder participation in investment or insurance entity performance.
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with
Allianz Group satisfies a performance obligation by transferring a service to a customer. Furthermore, revenue will be recognized for these contracts to the extent that it is probable that a significant reversal in the amount of cumulative revenue will not occur. The guidance also changes the accounting for certain contract costs and revises the criteria for determining if an entity is acting as a principal or agent in certain arrangements.
Based on Allianz Group’s assessment, the presentation and timing of revenue recognition are broadly similar. Therefore, the
Allianz Group concluded that the application of IFRS 15 does not result in a significant impact. The impacts Allianz Group identified primarily relate to principal versus agent considerations and the accounting treatment for certain asset management related upfront distribution costs which under IFRS 15 no longer can be capitalized.
The Group adopted IFRS 15 using the cumulative effect method on the required effective date (i.e. 1 January 2018). As a result, the
Allianz Group will not apply the requirements of IFRS 15 to the comparative period presented. The impact on retained earnings as of 1 January 2018 is not significant.
IAS 17. IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items.
Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance or operating leases.
IFRS 16 on the financial statements in the period of initial application will depend on future economic conditions, including the borrowing rate at 1 January 2019, the composition of the lease portfolio at that date, the latest assessment of whether the Allianz Group will exercise any lease renewal options, and the extent to which the Allianz Group chooses to use practical expedients and recognition exemptions.
IFRIC 23, Uncertainty over Income Tax Treatments Annual periods beginning on or after 1 January 2019
Annual Improvements to IFRSs 2015 – 2017 Cycle (Amendments to IFRS 3 and 11 and IAS 12 and 23)
96 Annual Report 2017 − Allianz Group 3 _ Consolidation and classification as held for sale
Allianz Group increased its ownership to approximately 78 % (excluding treasury shares held by Euler Hermes representing 1.45 % of its share capital) of Euler Hermes Group SA share capital as of
In January 2018, Allianz launched a simplified cash tender offer to acquire the remaining 8,769,824 outstanding Euler Hermes shares not already owned by Allianz at the price of € 122 per share. The tender offer was open from 15 January until 13 February 2018. During this period, the Allianz Group extended its ownership to 92.43 %
OLDENBURGISCHE LANDESBANK AG, OLDENBURG As of 31 December 2017, all requirements were still fulfilled to present Oldenburgische Landesbank AG, Oldenburg, allocated to the reportable segment Banking (Corporate and Other) as a disposal group classified as held for sale.
As of 31 December 2017, cumulative gains of € 48 mn were reported in other comprehensive income relating to the disposal group classified as held for sale. The closing of the transaction was nearly completed as of 31 December 2017. Therefore, an impairment and a liability of € 233 mn were recognized in connection with the expected loss from the sale of Oldenburgische Landesbank AG. The Allianz shares in Oldenburgische Landesbank AG were transferred to the buyer on 7 February 2018.
Investments. In total, the Allianz Group has identified 14 reportable segments in accordance with IFRS 8.
Bulgaria. The banks offer a wide range of products for corporate and retail clients, with a primary focus on the latter. The reportable segment Alternative Investments provides global alternative investment management services in the private equity, real estate, renewable energy, and infrastructure sectors, mainly on behalf of the
Allianz Group generally excludes the following non-operating effects: − income from financial assets and liabilities carried at fair value through income (net),
− For life/health insurance business and property-casualty insurance products with premium refunds, all items listed above are included in operating profit if the profit sources are shared with policyholders. There is one exception from this general rule with regard to policyholder participation in extraordinary tax benefits and expenses. As IFRS require that the consolidated income statements present all tax effects in the line item income taxes, even when they belong to policyholders, the corresponding expenses for premium refunds are shown as non-operating as well.
RECENT ORGANIZATIONAL CHANGES Effective 1 January 2017, the Allianz Group reorganized the structure of its insurance activities to reflect the changes in the responsibilities of the Board of Management. The former reportable segment Asia
Interest expenses, excluding interest expenses from external debt (94) (85) (102) (108)
Operating change in reserves for insurance and investment contracts (net)2 (485) (561) (13,937) (12,505)
3_From the classification of the South Korean life business as “held for sale” in the second quarter of 2016 until its disposal in the fourth quarter of 2016, the total result was considered as non-operating. Furthermore, tax reclassifications were included in these lines until 2016. From 2017 onwards, these reclassifications are shown in the lines operating / non-operating change in reserves for insurance and investment contracts (net).
Total revenues Premiums earned (net) Operating profit (loss) Net income (loss)
German Speaking Countries and Central & Eastern Europe 27,225 24,922 15,055 14,593 1,631 1,664 1,075 1,134
Amortized cost Unrealized gains Unrealized losses Fair value Amortized cost Unrealized gains Unrealized losses Fair value
2_As of December 2017, fair value and amortized cost of debt securities with a contractual maturity of less than 12 months amount to € 30,037 mn (2016: € 30,420 mn) and € 29,222 mn (2016: € 29,807 mn), respectively.
DEBT SECURITIES Total unrealized losses amounted to € 1,496 mn as of 31 December 2017. The Allianz Group holds a large variety of government bonds and corporate bonds, mostly of or domiciled in OECD
In general, the credit risk of government bonds is rather moderate since they are backed by fiscal capacity of the issuers who typically hold an investment-grade country- and/or issue-rating. During 2017, interest rates of government bonds decreased in some countries, while increasing in others. This development, supported by realizations, led to a decrease in unrealized losses on government bonds of € 818 mn.
For the vast majority of corporate bonds, the issuer/the issues have an investment grade rating. The decrease in unrealized losses of € 1,082 mn compared to 31 December 2016 is due to decreasing interest rates.
EQUITY SECURITIES As of 31 December 2017, unrealized losses amounted to € 278 mn which is an increase of € 86 mn compared to 31 December 2016.
They concern equity securities that did not meet the criteria of the
Disposals and reclassifications into non-current assets and assets of disposal groups classified as held for sale (188) (425)
Cost as of 31 December 3,086 2,868 1_Include fixed assets of wind parks and solar parks.
The risk coming from these cessions is also limited by external retrocessions.
Reinsurance involves credit risk and is subject to aggregate loss limits. Reinsurance does not legally discharge the respective Allianz company from primary liability under the reinsured policies. Although the reinsurer is liable to this company to the extent of the business ceded, the Allianz company remains primarily liable as the direct insurer on all the risks it underwrites, including the share that is reinsured. The Allianz Group monitors the financial condition of its reinsurers on a regular basis and reviews its reinsurance arrangements periodically in order to evaluate the reinsurer’s ability to fulfill its obligations to the Allianz Group companies under existing and planned reinsurance contracts. The Allianz Group’s evaluation criteria, which include the degree of creditworthiness, capital levels and marketplace reputation of its reinsurers, are such that the Allianz Group believes that its reinsurance credit risk is not significant, and historically has not experienced noteworthy difficulty in collecting claims from its reinsurers. Additionally, and as appropriate, the Allianz Group may also require letters of credit, deposits, or other financial guarantees to further minimize its exposure to credit risk. In certain cases, however, the Allianz Group does establish an allowance for doubtful amounts related to reinsurance as appropriate, although this amount was not significant as of 31 December 2017 and 2016. The Allianz Group primarily maintains business relations with highly rated reinsurers.
Real estate held for own use 2,941 3,024 1_Includes other assets due within one year of € 32,008 mn (2016: € 32,767 mn)
Real estate held for own use Software Equipment Real estate held for own use Software Equipment
Accumulated depreciation as of 1 January (971) (4,643) (2,904) (1,084) (4,310) (2,828)
Changes in the consolidated subsidiaries of the Allianz Group - (12) - (56) (31) 15
Accumulated depreciation as of 31 December 997 4,633 2,887 971 4,643 2,904 1_As of 31 December 2017, assets pledged as security and other restrictions on title were € 103 mn (2016: € 121 mn).
Additions are mainly related to goodwill arising from the acquisition of Allianz Maroc S.A. (formerly Zurich Assurance Maroc S.A.), Casablanca, effective 3 November 2016, Allianz C.P. General Insurance,
For the purpose of impairment testing, the Allianz Group has allocated goodwill to CGUs1.1These CGUs represent the lowest level at which goodwill is monitored for internal management purposes.
CGUs in the Life/Health business segment are: − Insurance German Speaking Countries,
− Insurance Western & Southern Europe, Middle East and Africa, including Belgium, France, Greece, Italy, Luxembourg, the Netherlands, Turkey, Middle East and Africa,
Allianz Group’s CGUs as of 31 December 2017 and 2016 as follows: Allocation of carrying amounts of goodwill to CGUs € mn
The terminal values are largely based on the expected profits of the final year of the detailed planning period. Where necessary, the planned profits are adjusted to reflect long-term sustainable earnings. The financing of the assumed eternal growth in the terminal values is accounted for by appropriate profit retention.
For all CGUs in the Life/Health business segment, the value in use is based on an Appraisal Value method which is derived from the
Embedded Value and new business value calculation. As a starting point for the impairment test for the CGUs in the Life/Health business segment, the Market Consistent Embedded Value (MCEV) and a multiple of the Market Consistent Value of New Business is used.
Solvency II guidance. In case where no adequate valuation reflecting a long-term view in line with management judgment and market experience could be derived from market consistent methodology, the Appraisal Value can be derived from a Traditional Embedded
In determining the business plans, certain key assumptions were made in order to project future earnings.
For entities included in the CGUs of the business segment Life/Health, the MCEV is the excess of assets over liabilities of the MVBS according to the Solvency II requirements. Assets and liabilities included in the MVBS are measured at their market value as of the reporting date. Technical provisions are an essential part of the liabilities included in the MVBS and generally consist of the best estimate plus a risk margin. The best estimate corresponds to the probabilityweighted average of future cash flows considering the time value of money, using the relevant risk-free interest rate term structure. The calculation of the best estimate is based on assumptions made for demographic factors (e.g. mortality, morbidity, lapse/surrender rates), expense allowances, taxation, assumptions on market conditions for market consistent projections (e.g. reference rates, volatilities) as well as investment strategy and asset allocation of the entity. The risk margin ensures that the value of the technical provisions is equivalent
Euro swap curve minus 10 bps credit risk adjustment plus 4 bps volatility adjustment
Insurance USA Local swap curve minus 10 bps credit risk adjustment plus 28 bps volatility adjustment
CGU Asset Management is 9.7 % and the eternal growth rate is 1.0 %.
Sensitivity analyses were performed with regard to discount rates and key value drivers of the business plans.
For the CGUs in the business segment Property-Casualty and for the CGU Asset Management, sensitivity analyses were performed in respect to the long-term sustainable combined ratios and costincome ratios. For all CGUs, excluding Property-Casualty Insurance
Asia, discounted earnings value sensitivities still exceeded their respective carrying amounts. The recoverable amount of the CGU
Insurance Asia in the business segment Property-Casualty slightly exceeds its carrying amount. An increase of less than 50 basis points in the discount rate or the combined ratio results in the recoverable amount of the CGU getting close to its carrying amount.
In the business segment Life/Health, sensitivity analyses were performed based on MCEV sensitivity testing on the reference rate.
Unearned premiums € mn 14 _ Reserves for loss and loss adjustment expenses As of 31 December 2017, the reserves for loss and loss adjustment expenses of the Allianz Group totaled € 73,292 mn (2016: € 72,373 mn).
Change in the reserves for loss and loss adjustment expenses in the Property-Casualty business segment € mn
Ending balance of discounted loss reserves (4,096) 287 (3,809) (4,055) 298 (3,757)
1_Include effects of foreign currency translation adjustments for prior year's claims of gross € (2,127) mn (2016: € 116 mn) and of net € (1,579) mn (2016: € (41) mn) and for current year claims of gross € (406) mn (2016: € (55) mn) and of net € (322) mn
Calendar year 2008 1_Includes effects from foreign currency translation adjustments and other changes.
2_The total development 2017 to 2016 of € 3,403 mn represents the cumulative surplus from reestimating the ultimate loss for prior year claims. Considering foreign currency translation adjustments of net € (1,579) mn as well as changes in the consolidated subsidiaries of the Allianz Group and other changes of in total € 102 mn, this leads to an effective run-off of net € 1,927 mn, which can be found in the table “Change in reserves for loss and loss adjustment expenses” within this note.
Changes in the consolidated subsidiaries of the Allianz Group - (36)
Changes in the consolidated subsidiaries of the Allianz Group - (10)
German Speaking Countries and Central & Eastern Europe 285,995 10,434 296,430 272,181 9,526 281,708
The majority of the Allianz Group’s Life/Health business segment operations are conducted in Western Europe. Insurance laws and regulations in Europe have historically been characterized by legal or contractual minimum participation of contract holders in the profits of the insurance company issuing the contract. In particular, life insurance business in Germany, Switzerland, and Austria, which comprises approximately 51 % (2016: 49 %) of the Allianz Group’s reserves for insurance and investment contracts as of 31 December 2017, includes a substantial level of policyholder participation in all sources of profit, including mortality/morbidity, investment, and expense. As a result of this policyholder participation, the Allianz Group’s exposure to insurance, investment and expense risk is mitigated.
In most of these markets, the effective interest rates earned on the investment portfolio exceed these guaranteed minimum interest rates. In addition, the operations in these markets may also have significant mortality and expense margins. However, the
Taiwan have high guaranteed minimum interest rates on older contracts in their portfolios and, as a result, may be sensitive to declines in investment rates or a prolonged low interest rate environment.
FUTURE POLICY BENEFITS As of 31 December 2017, benefits for insurance and investment contracts which are expected to be due in 2018 amounted to € 51 bn, while those expected to be due between 2019 and 2022 amounted to € 185 bn and those expected to be due after 2022 amounted to
The resulting total benefits for insurance and investment contracts in the amount of € 1,382 bn include contracts where the timing and amount of payments are considered fixed and determinable, and contracts which have no specified maturity dates and may result in a payment to the contract beneficiary, depending on mortality and morbidity experience and the incidence of surrenders, lapses, or maturities. Furthermore, the amounts are undiscounted and do not include any expected future premiums; therefore they exceed the reserves for insurance and investment contracts presented in the consolidated balance sheet.
Allianz Group has made assumptions in estimating the undiscounted cash flows of contractual policy benefits including mortality, morbidity, interest crediting rates, policyholder participation in profits, and future lapse rates. These assumptions represent current best estimates and may differ from the estimates used to establish the reserves for insurance and investment contracts in accordance with the
Allianz Group’s established accounting policy. Due to the uncertainty of the assumptions used, the amount presented could be materially different from the actual incurred payments in future periods.
Changes in the consolidated subsidiaries of the Allianz Group - (1,079)
2_Consists of € 74,878 mn (2016: € 71,706 mn) unit-linked insurance contracts and € 44,263 mn (2016: € 39,620 mn) unitlinked investment contracts.
Derivative financial instruments used for hedging that meet the criteria for hedge accounting, and firm commitments 147 159
Financial liabilities for puttable equity instruments 2,640 2,894 1_Includes other liabilities due within one year of € 25,987 mn (2016: € 26,981 mn).
116 Annual Report 2017 − Allianz Group 18 _ Certificated and subordinated liabilities
Up to 1 year 1 - 5 years Over 5 years
2_Change due to the issuance of a € 2.0 bn certificated bond in the fourth quarter of 2017.
Non-controlling interests 3,049 3,052 1_As of 31 December 2017, include € (115) mn (2016: € (157) mn) related to treasury shares.
2_As of 31 December 2017, include € 274 mn (2016: € 297 mn) related to cash flow hedges.
ISSUED CAPITAL Issued capital as of 31 December 2017 amounted to € 1,170 mn divided into 440,249,646 registered shares. The shares have no-par value but a mathematical per-share value as a proportion of the issued capital.
(Aktiengesetz) do not exceed 10 % of the share capital, and (iii) to the extent necessary to grant a subscription right for new shares to the holders of bonds that carry conversion or option rights or provide for mandatory conversion. The subscription rights for new shares from the Authorized Capital 2014/I and the Conditional Capital 2010/2014 may only be excluded for the proportionate amount of the share capital of up to € 234 mn (corresponding to 20 % of the share capital at year-end 2013).
CONDITIONAL CAPITAL As of 31 December 2017, Allianz SE had conditional capital totaling € 250 mn (Conditional Capital 2010/2014). This conditional capital increase will only be carried out if conversion or option rights attached to bonds which Allianz SE or its Group companies have issued against cash payments according to the resolutions of the Annual
The granting of new shares to persons entitled under such convertible notes is secured by the Conditional Capital 2010/2014. On or before 31 December 2017, there was no conversion of any such notes into new shares.
Number of issued shares outstanding as of 1 January 455,067,737 454,823,638
Total number of issued shares 440,249,646 457,000,000 1_Thereof 1,369,131 (2016: 1.931.677) own shares held by Allianz SE.
The proposal for appropriation of net earnings reflects the 1,369,717 treasury shares held directly and indirectly by the company as of 31 December 2017. 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 € 8.00 per each share entitled to dividend.
treasury shares. Of these, 343,102 (2016: 905,648) were held for covering future subscriptions by employees in Germany and abroad in the context of Employee Stock Purchase Plans, whereas 1,026,029 (2016: 1,026,029) were held as a hedge for obligations from the Allianz Equity Incentive Program (former Group Equity Incentive Program).
In the year ending 31 December 2017, the total number of treasury shares of Allianz SE decreased by 562,546 (2016: decrease of 0.13 % (2016: 0.05 %) of issued capital as of 31 December 2017.
Allianz Group’s investments. During the Allianz Group’s annual planning dialogues with its related undertakings, internal capital requirements are determined through business plans regarding the levels and timing of capital expenditures and investments. These plans also form the basis for the Allianz Group’s capital management. Internal capital requirements are determined by explicitly taking stress resilience into account. Regulators impose minimum capital requirements at the level of the Allianz Group’s operating entities and the
Allianz Group as a whole. For further details on how Allianz Group manages its capital, please refer to the section “Target and strategy of risk management” of the Risk and Opportunity Report.
1_From a formalistic perspective, the German Supervisory Authority deems the model of the Allianz Group to be “partial”
because not all entities are using the internal model. Some of the smaller entities report under the standard model and others under the deduction and aggregation approach. Without loss of generality, the term internal model might be used within the following chapters e.g. in case descriptions are also referring to entities that use the internal model or descriptions focusing on processes with respect to the internal model components.
Group Own Funds essentially consist of the MVBS excess of assets over liabilities plus qualifying subordinated liabilities, less foreseeable dividends and further deductions relating to tier limits or transferability restrictions.
Solvency II capital requirement. The increase in Solvency II capitalization ratio was mainly due to strong Solvency II earnings and favorable markets that were characterized by higher interest rates, lower credit spreads and rising equities. Model changes also contributed to the increase of the capitalization ratio. These positive impacts were partly offset by capital management activities like the share buybacks as well as the dividend accrual throughout the year. Management actions such as the acquisition of Liverpool Victoria (LV=) and part of the non-controlling interests of Euler Hermes, the decrease in exposures to some government bonds and the improvement of our interest rate risk profile had further compensating effects. Other effects such as taxes, changes in transferability restrictions as well as diversification effects contributed to a further reduction of the Solvency II capitalization ratio. For further information on the Solvency II
As of 31 December 2017, the Allianz Group believes that there are no outstanding regulatory capital or compliance matters that would have a material adverse effect on the financial position or the results of operations of the Allianz Group.
1_Own Funds and capital requirement are calculated under consideration of volatility adjustment and yield curve extension, as described in section Risk-free rate and volatility adjustment on page 69.
120 Annual Report 2017 − Allianz Group 20 _ Premiums earned (net)
Income from financial assets and liabilities held for trading (net) 2,436 (2,266)
Income from financial liabilities for puttable equity instruments (net) (117) 6
Non-current assets and assets of disposal groups classified as held for sale (233) (315)
During the year ended 31 December 2017, current income taxes included income of € 160 mn (2016: expenses of € 178 mn) related to prior years.
Of the deferred income taxes for the year ended 31 December 2017, expenses of € 581 mn (2016: € 365 mn) are attributable to the recognition of deferred taxes on temporary differences, and expenses of € 183 mn (2016: € 41 mn) are attributable to tax losses carried forward. Changes of applicable tax rates due to changes in tax law produced deferred tax expenses of € 48 mn
Share of other comprehensive income of associates and joint ventures (4) 10
The recognized income taxes for the year ended 31 December 2017 are € 63 mn (2016: € 31 mn) below the calculated income taxes, which are determined by multiplying the respective income before income taxes with the applicable country-specific tax rates. The following table shows the reconciliation from the calculated income taxes to the effectively recognized income taxes of the Allianz Group.
(2016: € 9 mn). Due to the use of tax losses carried forward, for which deferred tax assets had previously been written off, the current income tax expenses decreased by € 3 mn (2016: € 1 mn). Deferred tax income increased by € 10 mn (2016: € 32 mn) due to the use of tax losses carried forward, for which deferred tax assets had previously been written off. The above-mentioned effects are shown in the reconciliation statement as “effects of tax losses”.
The tax rates used in the calculation of the Allianz Group’s deferred taxes are the applicable national rates, which in 2017 ranged from 10.0 % to 45.0 %, with changes to tax rates that had already been adopted in Argentina, Belgium, France, Portugal, Turkey, and the United States by 31 December 2017 taken into account. The tax rate change from the US tax reform led to extraordinary tax expenses
In 2017, the posting of deferred taxes for latent reserves for premium refunds and the underlying revaluations of balance sheet items was changed from a net to a gross approach which led to an increase in deferred tax assets and liabilities before netting, particularly for investments and insurance reserves. The comparative amounts for 2016 were adjusted accordingly by € 30.2 bn. In addition, the US tax
Allianz Group companies for which no deferred tax liabilities are recognized, as the Allianz Group is able to control the timing of their reversal, and which will not reverse in the foreseeable future, amounted to € 1,673 mn (2016: € 1,150 mn). Deductible temporary differences arising from investments in Allianz Group companies for which no deferred tax assets are recognized, as it is not probable that they will reverse in the foreseeable future, amounted to € 65 mn
TAX LOSSES CARRIED FORWARD Tax losses carried forward at 31 December 2017 of € 8,395 mn (2016: € 9,697 mn) resulted in the recognition of deferred tax assets to the extent that there is sufficient certainty that the unused tax losses will be utilized. At the reporting date, this prerequisite was not fulfilled for a partial amount of € 2,684 mn (2016: € 3,010 mn). According to tax legislation as of 31 December 2017, an amount of € 2,353 mn (2016: € 2,801 mn) of these tax losses may be carried forward indefinitely and in unlimited amounts, whereas an amount of € 331 mn (2016: € 209 mn) of these tax losses carried forward will expire over the next 20 years if not utilized.
FREESTANDING DERIVATIVE FINANCIAL INSTRUMENTS As of 31 December 2017, freestanding derivatives, included in the line item financial assets and liabilities held for trading, had a notional principal amount of € 439.6 bn (2016: € 429.7 bn) as well as a positive fair value of € 2.5 bn (2016: € 2.4 bn) and a negative fair value of € 11.3 bn (2016: € 11.3 bn). Out of the total allocated to the freestanding derivatives, € 103.0 bn (2016: € 110.3 bn) of the notional principal relate to annuity products. Annuity products are equityindexed or contain certain embedded options or guarantees which are considered embedded derivatives under IAS 39. For these embedded derivatives, the notional principal amounts included in the table refer to the account value of the related insurance contracts.
DERIVATIVE FINANCIAL INSTRUMENTS USED IN ACCOUNTING HEDGES As of 31 December 2017, derivatives which form part of hedge accounting relationships, which are included in the line items other assets and other liabilities, had a notional amount of € 22.1 bn (2016: € 17.3 bn) as well as a positive fair value of € 538 mn (2016: € 677 mn) and a negative fair value of € 147 mn (2016: € 159 mn).
These hedging instruments mainly include interest rate forwards with a total positive fair value of € 216 mn (2016: € 422 mn).
Credit risk associated with netting arrangements is further mitigated by collateral. For further information on collateral, please refer to note 34.
34 _ Fair values and carrying amounts of financial instruments Certain risk disclosure requirements of IFRS 7 are reflected in the following sections of the Risk and Opportunity Report within the
Loans and advances to banks and customers 104,224 119,934 105,369 124,422
Derivative financial instruments and firm commitments included in other assets 538 538 677 677
Derivative financial instruments and firm commitments included in other liabilities 147 147 159 159
As of 31 December 2017, fair values could not be reliably measured for equity investments with carrying amounts totaling € 73 mn
(31 December 2016: € 100 mn). These investments are primarily investments in privately held corporations and partnerships. During the year ended 31 December 2017, such investments with carrying amounts of € 39 mn (2016: € 58 mn) were sold. The gains and losses from these disposals were immaterial.
− Financial assets and liabilities designated at fair value through income,
The following table presents the fair value hierarchy for financial instruments carried at fair value in the consolidated balance sheets as of 31 December 2017 and 2016: Fair value hierarchy (items carried at fair value) € mn
Financial assets designated at fair value through income 3,876 1,076 150 5,101 4,205 1,043 178 5,426
Financial assets for unit-linked contracts 95,224 23,324 592 119,141 91,071 19,877 377 111,325
Derivative financial instruments and firm commitments included in other assets 1 537 - 538 - 677 - 677
Financial liabilities held for trading 34 1,139 10,118 11,291 36 1,538 9,697 11,271
Merton model. Primary inputs for the valuation include volatilities, interest rates, yield curves, and foreign exchange rates observable at commonly quoted intervals. In some cases, it is determined based on the market approach.
Debt securities include corporate and government bonds, MBS/ABS, and other debt securities.
Level 3 mainly comprise private equity fund investments as well as alternative investments of the Allianz Group, and in most cases are delivered as net asset values by the fund managers. The net asset values are calculated using material, non-public information about the respective private equity companies. The Allianz Group has only limited insight into the specific inputs used by the fund managers and hence a narrative sensitivity analysis is not applicable. The fund’s asset manager generally prices the underlying single portfolio companies in line with the International Private Equity and Venture Capital Valuation (IPEV) guidelines using discounted cash flow (income approach) or multiple methods (market approach). For certain investments, the capital invested is considered to be a reasonable proxy for the fair value. In the cases, sensitivity analyses are also not applicable.
FINANCIAL ASSETS FOR UNIT-LINKED CONTRACTS For level 2, the fair value is determined using the market or the income approach. Valuation techniques applied for the income approach mainly include discounted cash flow models as well as the
DERIVATIVE FINANCIAL INSTRUMENTS AND FIRM COMMITMENTS INCLUDED IN OTHER ASSETS The fair value of the derivatives is determined using the income or the market approach. Valuation techniques applied for the income approach mainly include present value techniques. Primary inputs include yield curves observable at commonly quoted intervals. The derivatives are mainly used for hedging purposes. Certain derivatives are priced by Bloomberg functions, such as Black-Scholes Option
Net gains (losses) recognized in consolidated income statement (158) 21 30 5 (102)
Net gains (losses) recognized in other comprehensive income - 408 (46) - 362
Changes in the consolidated subsidiaries of the Allianz Group - 17 (5) - 13
Carrying value (fair value) as of 31 December 2017 162 20,539 10,122 592 31,416
Carrying value (fair value) as of 1 January 2017 9,697 377 145 10,220
Net transfers into (out of) level 3 (1) (24) - (25)
Net losses (gains) recognized in consolidated income statement 1,555 5 - 1,560
Changes in the consolidated subsidiaries of the Allianz Group - - 8 8
Carrying value (fair value) as of 31 December 2017 10,118 592 175 10,886
Net losses (gains) in profit or loss attributable to a change in unrealized gains or losses for financial liabilities held at the reporting date 1,464 5 - 1,469
Investments in associates and joint ventures 85 76 10,898 11,059 99 148 8,784 9,031
Loans and advances to banks and customers 5,668 72,371 41,895 119,934 5,913 80,130 38,378 124,422
Liabilities to banks and customers 5,330 4,850 2,579 12,759 7,113 4,053 1,896 13,062 1_Quoted prices in active markets.
CERTIFICATED LIABILITIES AND SUBORDINATED LIABILITIES For level 2, the fair value is mainly determined based on the market approach, using quoted market prices, and based on the income approach, using present value techniques. For level 3, fair values are mainly derived based on the income approach, using deterministic cash flows with credit spreads as primary non-market observable inputs. In some cases, the carrying amount (amortized cost) is considered to be a reasonable estimate for the fair value.
TRANSFERS OF FINANCIAL ASSETS As of 31 December 2017, the Allianz Group substantially retained all the risks and rewards out of the ownership of transferred assets.
There have not been any transfers of financial assets that were derecognized in full or partly, in which Allianz continues to control the transferred assets. Transfers of financial assets mainly relate to securities lending and repurchase agreement transactions. Financial assets
(2016: € - mn) and the carrying amount of the associated liabilities
In addition, as part of these transactions, the Allianz Group has received collateral that it is permitted to sell or repledge in the absence of default. As of 31 December 2017, the Allianz Group has received collateral, consisting of fixed income and equity securities, with a fair value of € 1,904 mn (2016: € 3,799 mn), which the
Allianz Group has the right to sell or repledge. For the years ended 31 December 2017 and 2016, no previously received collateral was sold or repledged by the Allianz Group.
As of 31 December 2017, the Allianz Group received cash collateral with a carrying amount of € 243 mn (2016: € 163 mn).
Income derived from the management of investment funds includes mainly asset management fees and performance based fees.
Investment funds launched by group-internal asset managers can be considered to be sponsored by the Allianz Group. As a sponsor, the Allianz Group through its asset management subsidiaries is involved in the legal set-up and marketing of internally managed investment funds. This may include providing seed capital to the funds and providing administrative services to ensure the investment funds’ operation. Investment funds managed by group-internal asset managers can be reasonably associated with the Allianz Group. The use of the Allianz name for investment funds is another indicator that the Allianz Group has acted as a sponsor for the respective funds.
Information on the management fees generated in the asset management business are disclosed in note 24 of this Annual Report.
Carrying amounts of ABS and MBS investments by type of category € mn 1_Comprises mainly investments.
2_Thereof rated AAA or AA € 19,849 mn (2016: € 19,779 mn).
(2016: € 10.2 bn) relate to listed investment funds, whereas investments of € 14.2 bn (2016: € 11.6 bn) relate to unlisted investment funds.
As of the reporting date, the Allianz Group has receivables from unconsolidated investment funds, which are mainly due in return for asset management services, amounting to € 837 mn (2016: € 803 mn). Furthermore, the Allianz Group has commitments to invest in private equity funds and similar financial instruments totaling € 15,718 mn as of 31 December 2017 (2016: € 9,640 mn).
Repor t 37 _ Litigation, guarantees, and other contingencies and commitments
In September 2015 and in January 2017, two separate putative class action complaints were filed against Allianz Life Insurance
The collateral held amounts to € 7 mn (2016: € 5 mn). Nearly all customers of the indemnification contracts have an external credit rating of BBB.
As of 31 December 2017, the performance guarantees amount to € 50 mn (2016: € 74 mn), € 19 mn of which are due within one year. The collateral held amounts to € 24 mn (2016: € 25 mn).
In accordance with § 5 (10) of the Statutes of the Joint Fund for Securing Customer Deposits (“Einlagensicherungsfonds”), Allianz SE has undertaken to indemnify the Federal Association of German Banks
Landesbank AG (OLB). In connection with the sale of OLB in February 2018, Allianz SE terminated the indemnification undertaking; however, it remains applicable with respect to supporting measures that are based on facts that were already existing at the time of termination.
Allianz and HT1 Funding GmbH have signed a Contingent Indemnity Agreement in July 2006, pursuant to which Allianz may, in certain circumstances, be obliged to make payments to HT1 Funding
As of 31 December 2017, the future liabilities of Allianz Lebensversicherungs -AG and its subsidiaries to the insurance guarantee scheme pursuant to the SichLVFinV amount to annual contributions of 12.9 mn (2016: € 11.2 mn) and potential special contributions of, in principle, € 170 mn (2016: € 194 mn) per year. In addition, Allianz
Protektor Lebensversicherungs-AG (“Protektor”), a life insurance company that has assumed the task of the mandatory insurance guarantee scheme for life insurers. Such obligation is, in principle, based on a maximum of 1 % of the sum of the net underwriting reserves with deduction of payments already provided to the insurance guarantee scheme. As of 31 December 2017, and under inclusion of the contributions to the mandatory insurance scheme mentioned above for a limited period of time, and assuming that no other life insurer is exempted from payments, the aggregate outstanding commitment of Allianz Lebensversicherungs-AG and its subsidiaries to the insurance guarantee scheme and to Protektor is € 1,545 mn
for health insurers levies only special contributions following the takeover of insurance contracts. Up until the reporting date, no contributions have been requested. As of 31 December 2017, the potential liabilities of Allianz Private Krankenversicherungs-AG for special contributions to the insurance guarantee scheme amount to € 57 mn 38 _ Pensions and similar obligations
Pension plans in Germany, the U.K. and Switzerland are described in more detail regarding key risks and regulatory environment, as each of them contributes more than 5 % to the
Employees who joined Allianz before 1 January 2015 participate in the Allianz Versorgungskasse VVaG (AVK), financed through employee contributions, and the Allianz Pensionsverein e.V. (APV), which is financed by the employer. Both pension funds provide pension benefits for the base salary up to the GSSC and are wholly funded along local regulatory requirements and were closed to new entrants, effective 31 December 2014. AVK and APV are legally separate administered pension funds with trustee boards being responsible for the investment of the assets and the risk management. AVK is subject to German insurance regulation. The assets of the contribution-based pension plans are allocated to a trust (Methusalem Trust e.V.) and managed by a board of trustees. For the AVK the annual minimum interest rate guaranteed is 1.75 % – 3.50 %, depending on the date of joining the Allianz Group, and for the closed part of the contributionbased pension plan it is 2.75 %.
and 20 % (per child) of the original employee’s pension, in total not to exceed 100 %. Under the “My Allianz Pension” plan, the surviving dependents gain the accrued capital.
UNITED KINGDOM The U.K. operates a funded pension scheme, the Allianz Retirement and Death Benefits Fund (“the Fund”). The trustee board is required by law to act in the best interests of members and is responsible for setting certain policies (e.g. investment and contribution policies) of the Fund.
The Fund is a defined benefit pension scheme. From 1 July 2015, the Fund closed to future accrual and no more defined benefit benefits are accrued beyond that date. A new Group Personal Pension
The Fund provides pension increases broadly linked to U.K. inflation. Since 1 July 2015, contributions to the Fund are made only by the employer in respect of the deficit of the Fund.
SWITZERLAND In Switzerland there are obligatory corporate pension plans, eligible for all employees. The plans are wholly funded through legally separate trustee-administered pension funds, with the trustee board being responsible for the investment of the assets and risk management.
The plans are contribution-based and cover the risks of longevity, disability, and death. Employees contribute only a small amount whereas the employer contributes for the complete risk coverage and a large part of the savings components. The interest rate is decided annually by the board of the pension funds. For the mandatory part, the minimum interest rate is regulated by law and reviewed annually
(1.0 % in 2017 and in 2018). At retirement, beneficiaries can choose between a lump sum payment, an annuity, or a combination of both, where the part which is not granted as a lump sum is converted to a fixed annuity according to the rules of the pension fund, taking into account legal requirements.
If employees contract out of the Allianz Suisse pension plan, they have to take their vested pension capital (“Freizügigkeitsleistung”) to the next employer, which implies a minor liquidity risk.
Allianz Group defined benefit plans: Reconciliation of defined benefit obligation, fair value of plan assets, effect of asset ceiling, and net defined benefit balance € mn
Expenses recognized in the consolidated income statements 877 857 262 313 - 1 616 545
Settlement payments/assets distributed on settlement4 (2) (50) (2) (50) - - - -
2_Includes for 2016 € 31 mn for the conversion rate decrease in Switzerland and for Ireland € 72 mn from the Enhanced Value Transfer program, excluding the additional contribution of € 35 mn for the new contribution based plan which was shown under defined contribution plans.
The calculations are based on current actuarially calculated mortality tables, projected turnover depending on age and length of service, and internal Allianz Group retirement projections. Although this represents the best estimate as of today, considering a further increase in life expectancy could be reasonable. The weighted average life expectancy of a currently 65-year-old plan participant is about 89.2 years for women and 86.8 years for men. An increase in life expectancy by one year would lead to an increase of the defined benefit obligation by € 705 mn.
The range for the sensitivity calculations was derived by analyzing the average volatility over a five-year period.
Due to a well-diversified portfolio of approximately 138,000 plan participants, there is no reasonable uncertainty of future cash flows to be expected that could have an impact on the liquidity of the
In addition to the plan assets of € 14.4 bn, the Allianz Group has dedicated assets at Group level amounting to € 8.4 bn as of 31 December 2017, which are likewise managed according to Allianz
GROUP EQUITY INCENTIVE PLANS11 During the year ended 31 December 2017, the Allianz Group exercised the last GEI Plan consisting of SARs (Stock Appreciation Rights).
ALLIANZ EQUITY INCENTIVE PLAN Since the 2011 grant year, the Allianz Equity Incentive plan (AEI plan)
has replaced the GEI plans. The AEI plan is granted in the form of restricted stock units (RSUs) and is part of a new variable compensation component for the plan beneficiaries.
Allianz Group to pay in cash the average closing price of an
The RSUs are virtual stocks without dividend payments and a capped payout. The fair value is calculated by subtracting the net present value of expected future dividend payments until maturity as well as the fair value of the cap from the prevailing share price as of the valuation date. The cap is valued as a European short call option, using prevailing market data as of the valuation date.
The following table provides the assumptions used in calculating the fair value of the RSUs at grant date: 1_For further information regarding the description and the conditions of the Group Equity Incentive Plans (SARs), please refer to the Annual Report 2016, note 41.
Allianz Group intends to settle in cash. Therefore, the Allianz Group accrues the fair value of the RSUs as compensation expenses over the service period of one year and afterwards over the vesting period. During the year ended 31 December 2017, the Allianz Group recognized compensation expenses related to the AEI plans of
As of 31 December 2017, the Allianz Group recorded provisions of € 472 mn (2016: € 405 mn) for these RSUs in Other liabilities.
PIMCO LLC CLASS M-UNIT PLAN In 2008, AllianzGI L.P. launched a new management share-based payment incentive plan for certain senior-level executives and affiliates of PIMCO LLC. Participants in the plan are granted options to acquire an own class of equity instruments (M-units), which vest in one-third increments on approximately the third, fourth and fifth anniversary of the option grant date. Upon vesting, options will automatically be exercised in a cashless transaction, but only if they are in the money. Participants may elect to defer the receipt of M-units through the M-unit Deferral Plan until termination of their service at the latest. With the M-unit Plan, participants can directly participate in PIMCO’s performance. Class M-units are non-voting common equity with limited information rights. They bear quarterly distributions equal to a pro-rata share of PIMCO’s net distributable income.
Deferred M-units have a right to receive a quarterly cash compensation equal to and in lieu of quarterly dividend payments.
As of 31 December 2017, the M-unit options outstanding have an exercise price of between € 9,426.22 and € 19,996.67 and a weighted-average remaining contractual life of 3.10 years.
During the year ended 31 December 2017, the Allianz Group recorded compensation expenses of € 16 mn (2016: € 21 mn) related to these share options.
Allianz Group and the discounted price of the shares purchased by employees, amounting to € 25 mn (2016: € 20 mn) as compensation expenses.
Earnings per share are calculated by dividing net income attributable to shareholders by the weighted average number of common shares outstanding. For the calculation of diluted earnings per share, nominator and denominator are adjusted for the effects of potentially dilutive common shares. These effects arise from various share-based compensation plans of the Allianz Group.
PRINCIPAL ACCOUNTANT FEES AND SERVICES KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG AG) is the external auditing firm for the Allianz Group.
and its subsidiaries, including the statutory audit scope extensions required by law (e.g. Solvency II). In addition, reviews of interim financial statements, project-related IT audits as well as contractual reviews on the effectiveness of controls of service companies were performed.
Tax services primarily include support in the preparation of tax returns and advice on individual matters. In respect to tax services, significant tax advice services in relation to the German Investment
REMUNERATION FOR THE BOARD OF MANAGEMENT AND THE SUPERVISORY BOARD As of 31 December 2017, the Board of Management is comprised of nine members. The following values reflect the full Board of Management active in the respective year.
2016 – 2018 and excluding the pension service cost, amounts to
In 2017, remuneration and other benefits totaling € 8 mn (2016: € 7 mn) were paid to former members of the Board of Management and dependents, while reserves for current pension obligations and accrued pension rights totaled € 137 mn (2016: € 126 mn).
Repor t 43 _ List of participations of the Allianz Group as of 31 December 2017 according to § 313 (2) HGB
BrahmsQ Objekt GmbH & Co. KG, Stuttgart 94.8 dbi-Fonds Ammerland, Frankfurt am Main 100.0 3 dbi-Fonds WE, Frankfurt am Main 100.0 3
Autobahn Tank & Rast Gruppe GmbH & Co. KG, Bonn 25.0
Allianz Global Corporate & Specialty of Africa (Proprietary) Ltd., Johannesburg 100.0
Allianz Renewable Energy Partners of America 2 LLC, Wilmington, DE 100.0
Allianz ZB d.o.o. Company for the Management of Voluntary Pension Funds, Zagreb 51.0
AllianzGI Best Styles Emerging Markets Equity Fund, Boston, MA 84.8 3
Mondial Protection Corretora de Seguros Ltda., São Bernardo do Campo 100.0
The Annuity Store Financial & Insurance Services LLC, Sacramento, CA 100.0
Assurance France Aviation S.A., Paris 100.0 business lounge GmbH, Vienna 100.0
Wildlife Works Carbon LLC, San Francisco, CA 10.0 8 1_Percentage includes equity participations held by dependent entities in full, even if the Allianz Group's share in the dependent entity is below 100 %.
4_Releasing impact according to § 264 (3) HGB through the Allianz Group's consolidated financial statements.
5_Group share through indirect holder Roland Holding GmbH, Munich: 75.6 %.
To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the group management report includes a fair review of the development and performance of the business and the position of the group, together with a description of the material opportunities and risks associated with the expected development of the group.
Code] and, in compliance with these requirements, give a true and fair view of the assets, liabilities, and financial position of the
− the accompanying group management report as a whole provides an appropriate view of the Group’s position. In all material respects, this group management report is consistent with the consolidated financial statements, complies with German legal requirements and appropriately presents the opportunities and risks of future development. Our opinion on the group management report does not cover of the Statement on corporate Management pursuant to § 315d and § 289f HGB mentioned above.
Pursuant to § 322 (3) sentence 1 HGB, we declare that our audit has not led to any reservations relating to the legal compliance of the consolidated financial statements and of the group management report.
IMPAIRMENT TEST FOR GOODWILL For the accounting policies, significant estimates and assumptions used please refer to the explanations in the notes to the consolidated financial statements in note 2, sub-section 'Intangible assets and goodwill'. In addition, further disclosures on financial statement items are made, including disclosures on impairment testing, under note 11.
The determination of the recoverable amount of a cash generating unit1 (CGU), necessary for impairment test for goodwill, is complex and involves a significant degree of considerable judgement. The individual CGUs are allocated accordingly to the segments of Allianz.
An increased risk of material misstatement results from the exercising of judgements for the purposes of annual impairment test for goodwill, in particular from the determination of the recoverable amount and the underlying significant assumptions about future income and growth rates for the terminal value. For the Property-
The assumptions and forecasts underlying the measurement of the future development and of any impairment required are based on judgements and numerous forward-looking estimates. In case the carrying amount (including goodwill) is getting close to the recoverable amount of a CGU, the exercising of judgement as regards the input factors could lead to a risk that the carrying amounts are not within an appropriate range and thus that required impairment is not recognized. There is also a risk that the related disclosures in the notes are not appropriate, particularly the required sensitivity analyses.
− We evaluated the appropriateness of the valuation method used for each segment and its implementation in the valuation models. For selected CGUs, including CGUs with a low headroom amount between the carrying value (including goodwill) and the recoverable amount, we then verified the computational accuracy of the valuation models.
− We verified the appropriateness of the central planning assumptions for the selected CGUs. We critically assessed the assumptions based on our understanding of the business, the sector and overall economic developments. In order to assess the quality of the internal planning process, we reconciled the forecasts for se1_Represent the lowest level at which goodwill is monitored for internal management purposes.
lected CGUs with internal business plans from the approved planning dialogues for these CGUs and compared the plans from prior years with the results obtained.
− We assessed the assumptions used for discounting (particularly interest rates and beta factors) for appropriateness through a comparison with market and sector-specific benchmarks determined by us. In addition, we verified the calculation procedure used for measurement. On the basis of our own sensitivity analyses for selected CGUs, we determined whether the tested carrying amounts were still sufficiently covered by their respective recoverable amounts in the event of potential changes to assumptions within a realistic range.
Repor t vestments and alternative investments in level 3 categorisation are measured mainly using a net asset value.
− For risk based selected subsidiaries of the Allianz Group, which essentially hold the financial assets, we, together with the local auditors of the subsidiaries, have considered the appropriateness of controls for the independent validation of input factors and the fair value determination of level 3 financial assets.
− Evaluation of the appropriateness of selected assumptions as well as subsequent measurement of selected level 3 financial assets and review of model development and validation.
The total reserves for loss and loss adjustment expenses as at 31 December 2017 amounted to EUR 73,292 million. The reserves for loss and loss adjustment expenses amounted to EUR 62,093 million in the Property-Casualty segment, EUR 11,256 million in the Life/Health segment, while negative consolidation effects amounted to
The reserves for loss and loss adjustment expenses are divided into case reserves for reported claims as at the reporting date and reserves for incurred but not reported losses (IBNR) as at the reporting date. The case reserves for reported claims are based on the estimates for future claims expenditures, including loss adjustment expenses relating to such claims and are recognised on the basis of an expected value. These are based on actuarial and statistical methods, using judgment of claims personnel.
For the audit of the reserves for loss and loss adjustment expenses, we performed the following substantial audit procedures with the support of our own actuaries: − We recorded the process for the determination of reserves both at the level of risk based selected subsidiaries as well as on group level, identified the key controls and tested them for their design and effectiveness. This included controls for claims measurement and controls of the completeness and accuracy of the data used.
− We assessed the plausibility of the significant assumptions used, including the loss ratios as well as the frequency and amount of claims (run-off behaviour of claims) both at subsidiary and group level.
− We assessed the level of reserving as at the reporting date with that of the prior year at the level of selected subsidiaries and at group level. We assessed whether the reserve adjustments of the expected value calculated using actuarial methods were justified and plausible. This involved surveying the actuaries and company management as well as assessing the supporting documents of the Group Reserve Committee.
− We assessed whether the disclosures in the notes, particularly the run-off triangles, were appropriately derived from the bookkeeping systems and evaluated them for their completeness.
The valuation of the reserves for loss and loss adjustment expenses are appropriate as a whole. The assumptions underlying the measurement are balanced as a whole. The explanatory notes and disclosures in the notes to the consolidated financial statements are sufficiently detailed and appropriate.
The measurement of the aggregate policy reserve is dependent on numerous assumptions and thus very complex. Furthermore, the determination of the assumptions is made partially on the basis of best estimates. This results in increased risks of material misstatements due to the complexity of calculations and the judgement required for assumptions, in particular interest rate development and discount factors, mortality and invalidity assumptions as well as settlement and administration costs and lapse rates for insurance contracts. These assumptions are generally defined at the inception of the contract and subsequently maintained, unless an impending loss (premium deficit) occurs. Using an test (Liability Adequacy Test)
Test. In case of a premium deficit, the deferred acquisition costs are initially written down.
− We assessed the appropriateness of the significant assumptions, in particular interest rate development and discount factors, mortality and invalidity assumptions as well as costs and lapse rates for insurance contracts.
OTHER INFORMATION Management is responsible for the other information. The other information comprises: − Statement on corporate Management pursuant to § 315d and
− the remaining parts of the annual report, with the exception of the audited consolidated financial statements and group management report and our auditor’s report.
Our opinions on the consolidated financial statements and on the group management report do not cover the other information, and consequently we do not express an opinion or any other form of assurance conclusion thereon.
RESPONSIBILITIES OF MANAGEMENT AND THE SUPERVISORY BOARD FOR THE CONSOLIDATED FINANCIAL STATEMENTS AND THE GROUP MANAGEMENT REPORT Management is responsible for the preparation of the consolidated financial statements that comply, in all material respects, with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to § 315e (1) HGB and that the consolidated financial statements, in compliance with these requirements, give
Repor t a true and fair view of the assets, liabilities, financial position, and financial performance of the Group. In addition, management is responsible for such internal control as they have determined necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
When preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern. They also have the responsibility for disclosing, as applicable, matters related to going concern. In addition, they are responsible for financial reporting based on the going concern basis of accounting unless there is an intention to liquidate the Group or to cease operations, or there is no realistic alternative but to do so.
German legal requirements, and appropriately presents the opportunities and risks of future development. In addition, management is responsible for such arrangements and measures (systems) as they have considered necessary to enable the preparation of a group management report that is in accordance with the applicable German legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the group management report.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS AND OF THE GROUP MANAGEMENT REPORT Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and whether the group management report as a whole provides an appropriate view of the
We exercise professional judgment and maintain professional scepticism throughout the audit. We also: − Identify and assess the risks of material misstatement of the consolidated financial statements and of the group management report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
− Obtain an understanding of internal control relevant to the audit of the consolidated financial statements and of arrangements and measures (systems) relevant to the audit of the group management report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of these systems.
− Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the
Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the related disclosures in the consolidated financial statements and in the group management report or, if such disclosures are inadequate, to modify our respective opinions. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to be able to continue as a going concern.
− Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements present the underlying transactions and events in a manner that the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and financial performance of the Group in compliance with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to § 315e (1)
158 Annual Report 2017 − Allianz Group significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
FURTHER INFORMATION PURSUANT TO ARTICLE 10 OF THE EU AUDIT REGULATION We were elected as group auditor by the Supervisory Board on 9 March 2017. We were engaged by the Chairman of the Audit