A To Our Investors 5 Letter to the Investors 12 Supervisory Board Report 19 Supervisory Board 20 Board of Management 23 Allianz Share
B Corporate Governance 27 Corporate Governance Report 32 Statement on Corporate Management pursuant to § 289a of the HGB 34 Takeover-related Statements and Explanations 37 Remuneration Report
Your AlliAnz 53 Business Operations and Markets 58 Strategy and Steering 61 Progress in Sustainable Development
MAnAgeMent Discussion AnD AnAlYsis 67 Business Environment 69 Executive Summary of 2015 Results 74 Property-Casualty Insurance Operations 80 Life/Health Insurance Operations 86 Asset Management 90 Corporate and Other
98 Balance Sheet Review 105 Liquidity and Funding Resources 110 Reconciliations risk AnD opportunitY report AnD FinAnciAl control 112 Risk and Opportunity Report 131 Controls over Financial Reporting and Risk Capital
D Consolidated Financial Statements 134 Content 135 Consolidated Balance Sheets 136 Consolidated Income Statements 137 Consolidated Statements of Comprehensive Income 138 Consolidated Statements of Changes in Equity 139 Consolidated Statements of Cash Flows 141 Notes to the Consolidated Financial Statements
Net income from continuing operations3 € mn 6,987 5.8 % 6,603 6,343 5,558 2,853 5,209 4,650 – Net income (loss) from discontinued operations, net of income taxes3 € mn – – – – – – – (395) –
thereof: Attributable to shareholders € mn 6,616 6.3 % 6,221 5,996 5,231 2,591 5,053 4,207 71
Share price as of 31 December € 163.55 19.1 % 137.35 130.35 104.80 73.91 88.93 87.15 24 Market capitalization as of 31 December € mn 74,742 19.1 % 62,769 59,505 47,784 33,651 40,419 39,557 24
Return on equity (excluding unrealized gains/losses on bonds net of shadow DAC)6,7 % 12.5 (0.4) %-p 13.0 13.5 12.5 6.2 12.4 12.6 92
Standard & Poor’s rating9 AA – AA AA AA AA AA AA 114 Total assets under management as of 31 December € mn 1,762,896 (2.1) % 1,801,178 1,769,551 1,852,332 1,656,993 1,517,538 1,202,122 87 thereof: Third-party assets under management as of 31 December € mn 1,275,886 (2.8) % 1,312,910 1,360,759 1,438,425 1,281,256 1,163,982 925,699 87 1 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking).
2 The Allianz Group uses operating profit as a key financial indicator to assess the performance of its business segments and the Group as a whole.
9 For further information about insurer financial strength ratings of Allianz SE, please refer to page 114.
Disclaimer regarding roundings The consolidated financial statements are presented in millions of Euros (€ MN), unless otherwise stated. Due to rounding, numbers presented may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures. Figures prior to 2013 have not been adjusted accordingly.
Allianz is one of the strongest financial communities worldwide. More than 85 million private and corporate customers insured by Allianz rely on its knowledge, globAl reAch and cApitAl strength to protect them and help them realize their goals in life. Allianz stands for trust based on integrity, resilience and the dedicAtion of its 142,459 employees.
Group profile shareholders’ equity page 98 AA standard & poor’s rating since 2007 total revenues page 70 dividend per share (proposal) page 24 operating profit page 70 conglomerate solvency ratio page 98 net income attributable to shareholders page 71
5 Letter to the Investors 12 Supervisory Board Report 19 Supervisory Board 20 Board of Management 23 Allianz Share a _ To our InvesTors annual report 2015 allianz Group4
Your Allianz looks back on another successful year – a year in which we celebrated our 125th anniversary and generated record revenues of € 125.2 BN. Operating profit grew 3.2 % to € 10.7 BN and net income attributable to shareholders was € 6.6 BN. These figures show that your company is very well positioned and can deliver impressive results even in difficult times.
At the same time, I am delighted that the share price performed so strongly in 2015 with the value of your shares increasing by 19.1 %. Including the dividend payment, we are pleased to report a return of 24.6 %. As we want you to further participate in our robust per­ formance in 2015, we will propose to the Annual General Meeting to increase the dividend by € 0.45 to € 7.30.
In the case of PIMCO, although the new management team successfully stabilized the business and outflows were reduced, net outflows have not yet ceased. Overall, flows were significantly influenced by the macroeconomic environment and in particular by the expectation of rising interest rates in the United States, which prompted many investors to reduce their investments in fixed­income securities. As a consequence, PIMCO will again be an area of focus for Allianz in 2016, with the clear goal of regaining its former momentum.
Encouraged by the very good overall results, it is now time for us to look to the future. Rather than take our healthy position in the insurance market and asset management business for granted, we must adapt to the radical economic, political and global upheaval that is taking place. We are currently affected by geopolitical instability, demographic
5 Letter to the Investors 12 Supervisory Board Report 19 Supervisory Board 20 Board of Management 23 Allianz Share and social change, a slowdown in growth in many markets, and persistently low interest rates. In addition, digitalization is revolutionizing everything we do. It is fundamentally changing the way in which people interact with companies and with each other.
We are working throughout the Group on simplifying products and processes and on common technologies and platforms that will fully digitalize the business step by step. The resulting productivity gains will be invested in future business model improvements. Our ambition is that these initiatives will bring about a sustained increase in productivity of at least € 1 BN per year by 2018. In order to reach this goal, we will have to consistently align business models, products, and processes across country and company borders and minimize paper at each element of the value chain.
Growth Engines: We will consolidate our leading positions in mature markets and expand our presence in growth regions with the aim of generating stronger growth and improving margins. Our new joint venture with the Chinese web portal Baidu, which reaches 90 % of Chinese internet users, is one good example. It puts us in a prominent position in one of the most dynamic digital insurance markets with annual growth rates of 40 % and expected annual revenues of € 100 BN by 2020.
Allianz stands for trust based on competence, integrity, and resilience. That is why our customers and shareholders place their trust in us. We have a strong brand and it is getting even stronger – Allianz is the only insurer among the top 50 companies in the
Brand Finance brand value ranking. We must now use our existing strengths to become even stronger, so we can consistently make the most of the opportunities presented by change. But we can only continue to be resilient if we constantly adapt to our environ­ ment. We believe we have set ourselves the right priorities to achieve this with our Renewal Agenda program.
I feel particularly encouraged by the exciting and innovative initiatives that are being developed and launched in our strategic project groups covering these five fields of action. We have brought together a large number of enthusiastic colleagues from all continents who know what needs to be done and how important their mission is. They are already working hard to implement our plans in the operating businesses.
As the Board of Management of Allianz, it is particularly important to us that the orga­ nization develops a clearer market orientation. If we want to grow in the digital era, we will have to pay closer attention to our customers and our competition in the future. This includes compe titors that have not been the primary focus of our benchmarking in the past.
It is also essential that we exercise discipline when allocating capital. Business segments that do not have market leadership are at a competitive disadvantage. We cannot afford to tie up valuable capital and personnel that offer greater earnings potential when re­ deployed to businesses with higher margins and stronger growth. With this in mind, we will carefully reshape our portfolio with sound judgement to create even more leading and superior business units. Smaller, highly profitable companies will benefit from the advantages of using common regional platforms.
Allianz will become even more flexible and focused on its customers. At the same time, our intrinsic values will remain the same as in the past 125 years: integrity, competence, and resilience. We will not follow every trend that comes along. But if and when funda­ mental opportunities emerge we will take the lead in our industry and carry out any changes required. This includes our decision to gradually adapt our investment policy to sustainable investment criteria and stop financing the coal industry.
Although the operating environment poses growing risks and macroeconomic forces are unlikely to lead to an additional surge in growth, we will do everything we can to make 2016 another successful year for Allianz. 2016 will test our ability to implement the
Further key areas the Board of Management reported on were the Renewal Agenda on business strategy of the Board of Management, capital adequacy, the ongoing challenges facing the life insurance business due to low interest rates, exceptional developments at certain subsidiaries, and implementation of the German Act on Equal Participation of Women and Men in Executive Positions. In addition, we were extensively involved in the Board of Management ’s planning for both the 2016 fiscal year and the three-year period from 2016 to 2018.
In the 2015 fiscal year, the Supervisory Board held six meetings. The meetings took place in February, March, May, August, October and December. 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 Supervisory and Management Boards also had regular discussions about major developments and decisions.
Details on each member’s participation at meetings of the Supervisory Board and its committees can be found in the Corporate Governance Report, starting on page 27. Members of the Supervisory Board who were unable to attend meetings of the Supervisory Board or its committees were excused and, as a rule, cast their votes in writing.
In the meeting of 25 February 2015, the Supervisory Board dealt comprehensively with the pro visional financial figures for the 2014 fiscal year and the Board of Management’s recommended dividend. The appointed audit firm, KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG), Munich, reported in detail on the provisional results of their audit. Underwriting reserves and IT systems were among the focal points of the audit. The Chief Compliance Officer then provided the annual report on the compliance organization and key compliance-related matters. During the further course of the meeting, the Supervisory Board also reviewed the extent to which individual members of the Board of Management had achieved their targets and set their variable remuneration for the 2014 fiscal year. We also verified the fitness and propriety of the members of the Board of Management and the Supervisory Board.
In the meeting of 12 March 2015, the Supervisory Board discussed the audited annual Allianz SE and consolidated financial statements as well as the recommendation for the appropriation of earnings by the Board of Management for the 2014 fiscal year. KPMG confirmed, that there were no discrepancies to their February report and issued an unqualified auditor’s report for the individual and consolidated financial statements. In addition, the Board of Management submitted its report on risk developments in 2014. The Supervisory Board also dealt with the agenda for the 2015 Annual General Meeting (AGM) of Allianz SE and the respective proposals for resolution. The Supervisory Board also resolved to appoint KPMG as auditor for the individual and consolidated financial statements for the 2015 fiscal year and for the auditor’s review of the 2015 half-yearly interim report. In addition, the Super visory Board was informed about the developments in digitalization and the strategic importance of this topic.
declaratiOn Of cOnfOrmity with the German cOrpOrate GOvernance cOde On 10 December 2015, 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 made in the Code’s version of 5 May 2015.
The Personnel Committee held four regular meetings and two extraordinary meetings by telephone conference in the 2015 financial year. Areas of focus were the re-alignment of the schedule of responsibilities of the Board of Management following the departure of Mr. Bauer, and further succession planning. The committee also dealt with other mandate matters for active and former members of the Board of Management and with the proportion of women on Allianz SE’s Board of Management. In addition to preparing the target achievement of Board of Management members for the 2014 fiscal year, the committee prepared the review of the remuneration system, and the setting of targets for variable remuneration.
The Audit Committee held five meetings in 2015. In the presence of the auditor, it discussed the annual financial statements of Allianz SE and the consolidated financial statements of the Allianz Group, the management reports and auditor’s reports, as well as the half-yearly and quarterly financial reports. After carrying out these reviews, the Audit Committee saw no objections. The committee also dealt with the auditor’s engagement, established priorities for the annual audit in the fiscal year 2015, and discussed assignments to the auditors for services not connected to the audit itself. In addition, the committee dealt extensively with the compliance system, the internal auditing system as well as the accounting process and internal financial reporting control mechanisms. The committee received regular reports on the audit department’s work and on legal and compliance issues. Furthermore, in a presentation on cyber-security, the committee was informed about the measures to protect Allianz’s IT systems, and it also familiarized itself with the implementation status of the governance requirements according to Solvency II.
memBers Of the supervisOry BOard and BOard Of manaGement Mr. Franz Heiß retired on 31 July 2015 and thus stepped down from his position as employee representative on the Supervisory Board of Allianz SE. The Supervisory Board thanked Mr. Heiß and expressed its appreciation of his efforts during his period of office. Mr. Jürgen Lawrenz replaced Mr. Heiß as elected employee representative on the Supervisory Board of Allianz SE with effect from 1 August 2015. The current term of the Supervisory Board will expire following the 2017 AGM.
Prof. Dr. renate köCHer Head of “Institut für Demoskopie Allensbach” (Allensbach Institute)
Peter Denis sutHerlanD Former Chairman of the Board of Directors of Goldman Sachs International
oliver Bäte Dr. HelGa JunG serGio BalBinot (from left to right)
Dr. axel tHeis Global Insurance Lines & Anglo Markets Global Property-Casualty since 7 May 2015
Dr. maximilian Zimmerer Investments, Global Life/Health Insurance Asia Pacific since 1 September 2015
Double-digit returns on investment four years in a row Following a year of turbulent developments in share prices, European stock markets reported a slight increase as the year drew to a close. Back in spring, stock markets set new records, driven mainly by the expansionary monetary policy of the European Central Bank, as well as a weaker Euro. It was then, however, that a change occurred in the fundamental data, as the Euro embarked on a recovery course and the Greek crisis flared up again. Moreover, there were growing concerns about a possible slowdown in the Chinese economy. In circumstances like these, a 19.1 % increase in the value of Allianz shares to € 163.55 is substantial, outperforming the STOXX Europe 600 Insurance sector index (+14.0 %) and the EURO STOXX 50 cross-sector index (+3.8 %). Provided the dividend was reinvested in Allianz shares, investments in the company would have seen an increase of 24.6 %. This year’s gain constitutes a double-digit rise in value for the fourth time in a row. Not only is this a reflection of favorable business developments, it is also testament to the positive reaction to an investor event, in which our Renewal Agenda was introduced in detail. You can find more detailed information in the Strategy and Steering starting on page 58. Following the publication of the 2015 results on 19 February 2016, 63 % of analysts issued a “buy” recommendation for Allianz shares – with an average price target of € 174. You can find the current analyst recommendations and profit forecasts online at www. allianz.com/analystrecommendations.
A rising share price in 2015 lends further credibility to the appeal of a long-term investment in Allianz shares. Investors who have had our shares in their portfolios for five years and opted to reinvest their dividends achieved an average annual performance of 18.1 % over this period of time. Over the last ten years the corresponding gain came to 6.7 %.
Dividend yield as of 31 December % 4.52 5.0 4.1 4.3 6.1 1 In comparison with EURO STOXX 50, source: Bloomberg. 2 Proposal. 3 Total dividend reflects the treasury shares held at the time of the publication of the convocation of the
Annual General Meeting in the Federal Gazette. Such treasury shares are not entitled to the dividend pursuant to § 71b of the German Stock Corporation Act (AktG). Should there be any change in the number of treasury shares by the date of the Annual General Meeting, the total dividend will be amended accordingly.
Higher dividend In line with our dividend policy, we will be proposing to the Annual General Meeting a dividend increase of € 0.45 to € 7.30. This corresponds to a dividend yield of 4.5 % on the year-end share price. The payout ratio will remain unchanged at 50 %. You can find more detailed information in the Outlook 2016 starting on page 92 and at www.allianz.com/dividend.
Weighting in major indices The Allianz share is strongly represented in major German and European indices, as well as included in important global indices.
Shareholder structure With around 470,000 shareholders, Allianz is one of the most widely held listed public corporations in Europe. Apart from approximately 0.5 % of Allianz shares held in treasury, all our shares are held in free float. At the end of the year, 85 % were held by institutional investors and 15 % by private investors. The breakdown by region shows that 74 % of Allianz shares were owned by European investors and 26 % by nonEuropean investors. For more detailed information on our shareholder structure, please refer to www.allianz.com/shareholders.
Service and contact Allianz Investor Line Monday to Friday, 8 am to 8 pm CET Phone: +49.89.3800-7555 E-mail: investor.relations@allianz.com www.allianz.com/investor-relations Allianz Investor Relations app for iOS and Android
The members of the Board of Management are jointly responsible for management and for complying with legal requirements. Notwithstanding this overall responsibility, the individual members head the departments they have been assigned independently. There are divisional responsibilities for business segments as well as functional responsibilities. The latter include the Finance-, Risk Management - and Controlling-Function, Investments, Operations – including IT –, Human Resources, Legal and Compliance, Internal Audit and Mergers & Acquisitions. Business division responsibilities focus on geographical regions or Global Lines, such as Asset Management. Rules of procedure specify in more detail the structure and departmental responsibilities of the Board of Management.
Group finanCe and risk CoMMittee Dr. Dieter Wemmer (Chairman), Sergio Balbinot, Dr. Helga Jung, Jay Ralph, Dr. Axel Theis, Dr. Maximilian Zimmerer
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), Jay Ralph, Dr. Axel Theis from 21 May 2015, Dr. Dieter Wemmer, Dr. Werner Zedelius
Developing, proposing, implementing and monitoring a Group-wide it strategy, approval of relevant it investments.
Group MerGers and aCquisitions CoMMittee Dr. Helga Jung (Chairwoman), Dr. Dieter Wemmer, Dr. Maximilian Zimmerer
In the financial year 2015, there were the following Group committees: Group CoMMittees
Group CoMpensation CoMMittee Board members of Allianz se and executives below Allianz se Board level
The Allianz Group runs its operating entities and business segments via an integrated management and control process. The Holding and the operating entities first define the business strategies and goals. On this basis, joint plans are then prepared for the Supervisory Board’s consideration when setting targets for performance-based remuneration of the members of the Board of Management. For details, see the Remuneration Report starting on page 37.
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 divestments of Group companies which 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 Supervisory Board for the appointment of the member of the Board of Management responsible for employment and social welfare.
The Supervisory Board oversees and advises the Board of 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 2015 financial year are described in the Supervisory Board Report starting on page 12.
The Supervisory Board held six regular meetings in the 2015 financial year and is scheduled to meet three times each half calendar year in the future. Extraordinary meetings may be convened as needed. The committees also hold regular meetings. The Supervisory Board takes all decisions based on a simple majority. The special requirements for appointing members to the Board of Management contained in the German Co-Determination Act and the requirement for a Conciliation Committee do not apply to an SE. In the event of a tie, the casting vote lies with the Chairman of the Supervisory Board, who at Allianz SE must be a shareholder representative. If the Chairman is not present in the event of a tie, the casting vote lies with the deputy chairperson from the shareholder side. A second deputy chairperson is elected on the proposal of the employee representatives.
The Supervisory Board regularly reviews the efficiency of its activities. The Supervisory Board discusses recommendations for improvements and adopts appropriate measures on the basis of recommendations from the Standing Committee.
34 Takeover-related Statements and Explanations 37 Remuneration Report supervisory Board CoMMittees Part of the Supervisory Board’s work is carried out by its committees. 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.
− Preparation of the Declaration of Conformity pursuant to § 161 “Aktiengesetz” (German Stock Corporation Act) and checks on corporate governance
− Two employee represen tatives (Dante Barban, Franz Heiß until 31 July 2015, Jürgen Lawrenz from 6 August 2015)
− Initial review of the Risk Report and other risk-related statements in the annual financial statements and management reports of Allianz se and the Allianz Group, informing the Audit Committee of the results of such reviews personneL CoMMittee 3 members − Chairman: Chairman of the Supervisory Board (Dr. Helmut Perlet)
− Establishment of selection criteria for shareholder representatives on the Supervisory Board in compliance with the Code’s recommendations on the composition of the Supervisory Board
1 For further details, please see BaFin Guidance Notice on Vetting Members of Administrative and Supervisory Bodies in accordance with the German Banking Act and the German Insurance Supervision Act in its respective effective version.
oBjeCtives of tHe supervisory Board reGardinG its CoMposition In order to implement a recommendation by the Code, the Supervisory Board specified the following objectives for its composition at its meeting on 10 December 2015: oBjeCtives of aLLianz se’s supervisory Board reGardinG its CoMposition
1. General selection criteria – Managerial or operational experience – General knowledge of the insurance and financial services business – Willingness and ability to make sufficient commitments on substance – Fulfillment of the regulatory requirements, in particular1: – Reliability – Knowledge of the field of corporate governance and supervisory law – Knowledge of the main features of accounting and risk management
– Compliance with the limitation on the number of mandates as recommended by the German Corporate Governance Code and required by § 24 (4) of the German Insurance Supervision Act 2016 (“Versicherungsaufsichtsgesetz – vaG 2016”).
3. Time of availability Each member of the Supervisory Board must ensure that it has sufficient time to dedicate to the proper fulfilment of the Supervisory Board mandate. It has to be taken into account that – there are six ordinary Supervisory Board meetings per year, each of which requires adequate preparation; – sufficient time has to be dedicated for the audit of the annual and consolidated financial statements; – attendance of the General Meeting is required; II. Requirements relating to the composition of the Board as a whole 1. Specialist knowledge – At least one member must have considerable experience in the insurance and financial-services fields – At least one member must have expert knowledge of accounting and auditing as defined by § 100 (5) of the German Stock Corporation Act (AktG). – Specialist knowledge of, or experience in, other economic sectors.
The Supervisory Board shall be composed of at least 30 % women and at least 30 % men. The representation of women is generally considered to be the joint responsibility of the shareholder and employee representatives. “
The composition of the Supervisory Board of Allianz SE reflects these objectives. It has an appropriate number of independent members with international backgrounds. With four female Supervisory Board members, the current legislation for equal participation of women and men in leadership positions (statutory gender quota of 30 %) is being met. The current composition of the Supervisory Board and its committees is described on page 17.
Directors’ dealings Members of the Board of Management and the Supervisory Board are obliged by the German Securities Trading Act (“Wertpapierhandelsgesetz ”) to disclose any transactions involving shares of Allianz SE or financial instruments based on them to both Allianz SE and the German Federal Financial Supervisory Authority should the value of the shares acquired or divested by the member or a person closely associated to the member amount to five thousand Euros or more within a calendar year. Such disclosures are published on our website at www.allianz.com/management-board and www.allianz.com/ supervisory-board.
To ensure maximum transparency, we inform our shareholders, financial analysts, the media and the general public of 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 quarterly and halfyearly financial reports. As of the fiscal year 2016, the quarterly financial reports will be replaced by quarterly statements; the half-yearly financial reports will still be reviewed by the auditor. Information is also made available at the AGM, at press and analysts’ conferences, as well as on the Allianz Group’s website. Our website also provides a financial calendar listing the dates of major publications and events, such as annual reports, quarterly statements and half-yearly financial reports, AGMS as well as analyst conference calls and Financial press conferences.
You can find the 2016 financial calendar on our website at www.allianz.com/financialcalendar.
Outlook The regulatory environment still remains in a state of flux. The proposed recast of the Directive on shareholder rights, which could prompt some changes to the corporate governance structure, is at an advanced stage. The reform of the legislation regarding external auditors will primarily impact the work of the Supervisory Board. The Allianz Group’s classification as a Global Systemically Important Insurer will also have a tangible effect on corporate governance.
The Statement on Corporate Management pursuant to § 289a of the German Commercial Code (“Handelsgesetzbuch – HGB”) forms part of the Group Management Report. According to § 317 (2), sentence 4 of the HGB, this Statement does not have to be included within the scope of the audit.
Declaration of Conformity with the German Corporate Governance Code On 10 December 2015, the Board of Management and the Supervisory Board issued the following Declaration of Conformity of Allianz SE with the German Corporate Governance Code (hereinafter the “Code”): Declaration of conformity in accorDance witH § 161 of tHe German Stock corporation act (aktG)
2. Since the last Declaration of Conformity as of December 11, 2014, all recommen­
However, such deviation ceases to exist due to the amendment of Item 5.3.2 GcGc in the version of May 5, 2015.
In addition, Allianz SE follows all the suggestions of the Code in its 5 May 2015 version and also followed all suggestions in the previous version of 24 June 2014.
issued its own Declaration of Conformity in December 2015, which states that Oldenburgische Landesbank AG complies with all of the recommendations of the Code in the version of 5 May 2015 (as well as in the previous year’s version of 24 June 2014).
A major component of the Allianz Group’s compliance program is a whistleblower system that allows employees to alert the relevant compliance department confidentially about irregularities. 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.
A general description of the functions of the Board of Management, the Supervisory Board and their committees can be found in the Corporate Governance Report starting on page 27, and on our website at www.allianz.com/corporate-governance.
German Act on Equal Participation of Women and Men in Executive Positions in the Private and the Public Sector To implement the German Act on Equal Participation of Women and Men in Executive Positions in the Private and the Public Sector, Allianz SE has set the following objectives for the proportion of women on the Board of Management and the two management levels below the Board of Management, which are to be achieved by 30 June 2017.
§ 17 (2) of the SE Implementation Act (“SE-Ausführungsgesetz”) states that the Supervisory Board of Allianz SE must be composed of at least 30 % of both women and men as of 1 January 2016. This requirement was already met in the 2015 financial year, as the Supervisory Board consisted of four female and eight male members throughout the year.
legal and statutory provisions appliCable to the appointment and removal of members of the board of management and to amendments of the statutes The Supervisory Board appoints the members of Allianz SE’s Board of Management for a maximum term of five years (Article 9 (1), Article 39 (2) and Article 46 of the SE Regulation, §§ 84, 85 of the German Stock Corporation Act and § 5 (3) of the Statutes). Reappointments, in each case for a maximum of five years, are permitted. A simple majority of the votes cast in the Supervisory Board is required to appoint members of the Board of Management. In the case of a tie vote, the Chairperson of the Supervisory Board, who pursuant to Article 42, sentence 2 of the SE Regulation must be a shareholder representative, shall have the casting vote (§ 8 (3) of the Statutes). If the Chairperson does not participate in the vote the Deputy Chairperson shall have the casting vote, provided he or she is a shareholder representative. A Deputy Chairperson who is an employee representative has no casting vote (§ 8 (3) of the Statutes). If a required member of the Board of Management is missing, in urgent cases the courts must appoint such member upon the application of an interested party (§ 85 of the German Stock Corporation Act). The Supervisory Board may dismiss members of the Board of Management if there is an important reason (§ 84 (3) of the German Stock Corporation Act).
According to § 5 (1) of the Statutes, the Board of Management shall consist of at least two persons. Otherwise, the Supervisory Board determines the number of members. The Supervisory Board has appointed a Chairman of the Board of Management pursuant to § 84 (2) of the German Stock Corporation Act.
German insurance supervisory law requires that members of the Board of Management have the reliability and professional competence needed to manage an insurance company. A person cannot become a member of the Board of Management if he or she is already a manager of two other insurance undertakings, pension funds, insurance holding companies or insurance special purpose vehicles. However, the supervisory authority may permit more than two such mandates if they are held within the same group (§ 24 (3) of the German Insurance Supervision Act (“Versicherungsaufsichts gesetz” in the version applicable as from 1 January 2016, VAG). The Federal Financial Services Supervisory Authority (“Bundes anstalt für Finanz dienstleistungsaufsicht ”) must be notified about the intention of appointing a Board of Management member pursuant to § 47 No. 1 VAG.
Domestic or foreign banks that are majority-owned by Allianz SE may buy and sell Allianz shares for trading purposes (§ 71 (1) No. 7 and (2) of the German Stock Corporation Act) 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. of the German Stock Corporation Act, shall at no time exceed 10 % of the share capital of Allianz SE.
The company has entered into the following compensation agreements with members of the Board of Management and employees providing for the event of a takeover bid: A change of control clause in the service contracts of the members of Allianz SE’s Board of Management provides that, if within twelve months after the acquisition of more than 50 % of the company ’s share capital by one shareholder or several shareholders acting in concert (change of control) the appointment as a member of the Board of Management is revoked unilaterally by the Supervisory Board, or if the mandate is ended by mutual agreement, or if the Management Board member resigns his or her office because the responsibilities as a Board member are significantly reduced through no fault of the Board member, he or she shall receive his or her contractual remuneration for the remaining term of the service contract, but limited, for the purpose hereof, to three years, in the form of a one-off payment. The one-off payment is based on the fixed remuneration plus 50 % of the variable remuneration, however, this basis being limited to the amount paid for the last fiscal year. To the extent that the remaining term of the service contract is less than three years, the one-off payment is generally increased in line with a term of three years. This applies accordingly if, within two years of a change of control, a mandate in the Board of Management is coming to an end and is not extended; the one-off payment will then be granted for the period between the end of the mandate and the end of the threeyear period after the change of control. For further details, please refer to the Remuneration Report starting on page 37.
The report has been prepared in accordance with the requirements of the German Commercial Code (HGB) and the International Financial Reporting Standards (IFRS). It also takes into account the relevant regulatory provisions and the recommendations of the German Corporate Governance Code.
REMUNERATION PRINCIPLES AND MARKET POSITIONING The key principles of Board of Management remuneration are as follows: − Support of the Group’s strategy: Performance targets reflect the Allianz Group’s business strategy.
− Alignment with shareholder interests: One third of the variable remuneration is dependent upon share price performance.
The structure, weighting and level of remuneration is decided by the Supervisory Board. Remuneration survey data of DAX 30 companies and international insurance peers is provided by external consultants. Compensation levels are around the third quartile of this group. The structure of the Allianz Group’s total remuneration is more strongly weighted to variable, longer-term components than in most DAX 30 companies. Remuneration and benefit arrangements are also periodically compared with best practices. In addition, the Supervisory Board takes remuneration levels within the Group into account when reviewing the adequateness and the appropriateness of the remuneration of the Board of Management.
Variable remuneration Variable remuneration is designed to balance short-term performance, longer-term success and sustained value creation.
Each year, the Supervisory Board agrees on performance targets for the variable remuneration component with members of the Board of Management. These are documented for the upcoming financial year. Every three years, the MTB sustainability criteria are set for the following mid-term period.
All variable awards are made under the rules and conditions of the “Allianz Sustained Performance Plan” (ASPP). The grant of variable remuneration components is related to performance and can vary between 0 % and 150 % of the respective target values. If performance was rated at 0 % no variable component would be granted. Consequently, the minimum total direct compensation for a regular member of the Board of Management equals the base salary of € 750 THOU (excluding perquisites and pension contributions). The maximum total direct compensation (excluding perquisites and pension contributions ) is € 4,125 THOU: base salary € 750 THOU plus € 3,375 THOU (150 % of the sum of all three variable compensation components at target).
2 Actual accrual for the MTB (mid-term) usually equals the annual bonus payout of the respective financial year. Since the performance assessment and the final payout occur after completion of the performance cycle, this value is only a notional indication.
3 Final payout is subject to the sustainability assessment of the Supervisory Board and may vary between 0 % and 150 % of the cumulative target values, independent of the notional accruals.
− balance sheet strength, − comparison with peers, − “partner of choice” for stakeholders, and − extraordinary events.
− Equity-related remuneration (long-term): A virtual share award, known as “Restricted Stock Units” (RSUs). The grant value of the RSUs allocated equals the annual bonus of the performance year. The number of RSUs allocated is derived from dividing the grant value by the fair market value of an RSU at the time of grant.
Following the end of the four-year vesting period, the company makes a cash payment based on the number of RSUs granted and the ten-day average Xetra closing price of the Allianz stock following the annual financial press conference in the year of expiry of the respective RSU plan. The RSU payout is capped at 200 % above grant price to avoid extreme payouts2. Outstanding RSU holdings are forfeited should a Board member leave at his/ her own request or be terminated for cause.
Pensions and similar benefits To provide competitive and cost-effective retirement and disability benefits, Board of Management members have participated in a contribution -based system since 1 January 2005 which was modified to My Allianz Pension in 2015 for all Board members born after 31 December 1957. Before 2005, Board members participated in a defined benefit plan that 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 participate in the Allianz Versorgungskasse VVaG (AVK), a contribution-based pension plan, and the Allianz Pensionsverein e.V. (APV) – which provide pension benefits for salaries up to the German social security ceiling.
Company contributions to the current pension plan depend on the years of service on the Board of Management. For most members of the Allianz SE Board of Management, the contributions are invested in a fund with a guarantee for the contributions paid, but no further interest guarantee. On retirement, the accumulated capital is paid out as lump sum or can be converted into a lifetime annuity. Each year the Supervisory Board decides whether and to what extent a budget is provided, also taking into account the targeted pension level. This budget includes a risk premium paid to cover death and disability. The earliest age a pension can be drawn is 62, except for cases of occupational or general disability for medical reasons. In these cases, it may become payable earlier and an increase by projection may apply. In the case of death, a pension may be paid to dependents. Surviving dependents normally receive 60 % (surviving partner) and 20 % (per child) of the original Board member’s pension, with the aggregate not to exceed 100 %. Should Board membership cease before retirement age for other reasons, the accrued pension rights are maintained if vesting requirements are met.
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 the income tax on these perquisites. The Supervisory Board regularly reviews the level of perquisites.
REMUNERATION fOR 2015 The following remuneration disclosure is based on and compliant with the German Corporate Governance Code and illustrates individual remuneration for 2014 and 2015, including fixed and variable remuneration and pension service cost. The “grant” column below shows the remuneration at target and minimum and maximum levels. The “payout” column discloses the 2014 and 2015 payments. The base salary, annual bonus and perquisites are linked to the reported performance years 2014 and 2015, whereas the Group Equity Incentive (GEI) and Allianz Equity Incentive (AEI) payouts result from grants related to the performance years 2008 – 2010.
The 2015 payout is significantly higher than in 2014 due to the fact that the payout of the MTB 2013 – 2015 is disclosed. This comprises payment for three performance years in total.
1 In accordance with the German Corporate Governance Code, the annual bonus disclosed for performance year 2015 is paid in 2016 and for performance year 2014 in 2015. The payments for equity related deferred compensation (GEI and AEI), however, are disclosed for the year in which the actual payment was made.
2 The MTB figure included in the Actual Grant column shows the annual accrual. The payout 2015 figure includes the 2015 allocation and the accruals from the performance years 2013 and 2014, as adjusted by the sustainability assessment. The MTB 2013 – 2015 is paid out in spring 2016.
INDIVIDUAL REMUNERATION: 2015 AND 2014 € THOU Oliver Bäte6 (Appointed: 01/2008; CEO since 05/2015) Michael Diekmann7 (Appointed: 10/1998; CEO 04/2003 – 05/2015) Sergio Balbinot8 (Appointed: 01/2015)
5 Pension Service Cost in accordance with IAS 19: represents the company cost not the actual entitlement nor a payment, however, according to the German Corporate Governance Code the Pension Service Cost is to be included in all columns.
INDIVIDUAL REMUNERATION: 2015 AND 2014 € THOU Manuel Bauer 6 (Appointed: 01/2011; End of Service: 09/2015) Dr. Helga Jung (Appointed: 01/2012) Dr. Christof Mascher (Appointed: 09/2009)
5 Pension Service Cost in accordance with IAS 19: represents the company cost, not the actual entitlement nor a payment; however, according to the German Corporate Governance Code, the Pension Service Cost is to be included in all columns.
7 Manuel Bauer received a payment of € 156 THOU in 2015 for 25 years of service to Allianz. 8 Dr. Christof Mascher received a payment of € 156 THOU in 2014 for 25 years of service for Allianz. 9 Since Dr. Christof Mascher joined the Board of Management in September 2009, his pay-out from the
AEI 2015/RSU3 750 – – – – – – – – – – – – – 750 – – – – – – AEI 2011/RSU3 – – – – – – 1,520 – – – – – – – – – – – – – – GEI 2010/RSU3 – – – – – – 876 – – – – – – – – – – – – – – GEI 2009/RSU3 – – – – – – – – – – – – – – – – – – – – – GEI 2010/SAR4 – – – – – – 719 – – – – – – – – – – – – – – GEI 2008/SAR4 – – – – – – – – – – – – – – – – – – – – –
3 Payout is capped at 200 % above grant price. The relevant share price used to determine the fair market value, and hence the final number of RSUs granted, and the 200 % cap are only available after sign-off by the external auditors.
6 According to his cancellation agreement and in addition to the amounts disclosed in the table, Manuel Bauer receives a payment of € 281.3 THOU in spring 2016 and according to his severance agreement, a payment of € 187.5 THOU in 2015. The different pro-rated amounts for base salary and target amounts result from different pro-rating methodologies, which are generally applied.
IndIvIdual remuneratIon: 2015 and 2014 € thou Dr. Werner Zedelius (Appointed: 01/2002)
Deferred Compensation aeI 2015/rSu3 750 – – – – – – aeI 2011/rSu3 – – – – – – – GeI 2010/rSu3 – – – – – – – GeI 2009/rSu3 – – – – – – – GeI 2010/Sar4 – – – – – – – GeI 2008/Sar4 – – – – – – –
2 The MTB figure included in the Actual Grant column shows the annual accrual. The payout 2015 figure includes the 2015 accrual and the accruals from the performance years 2013 and 2014, as adjusted by the sustainability assessment. The MTB 2013 – 2015 is paid out in spring 2016.
4 The equity-related remuneration that applied before 2010 consisted of two vehicles, virtual stock awards known as RSUs and virtual stock options known as “Stock Appreciation Rights” (SAR). Only RSUs have been awarded as of 1 January 2010. The remuneration system valid until December 2009 is disclosed in the Annual Report 2009 (starting on page 17). Whereas the GEI/RSU grants are automatically exercised at the vesting date, the GEI/SAR grants are exercised by the Board member within the exercise period following the vesting date. Hence the total payout from SARs depends on the individual decision by the Board member. SARs are released to plan participants upon expiry of the vesting period, assuming all other exercise hurdles are met. For SARs granted until and including 2008, the vesting period was two years and the exercise period five years. For SARs granted 2009, the vesting period is four years and the exercise period three years. SARs can be exercised on the condition that the price of the Allianz SE stock is at least 20 % above the strike price at the time of grant. During the term of the plan, at least once on five consecutive trading days the Allianz SE stock must relatively appreciate at least 0.01 percentage points ahead of the appreciation of the Dow Jones EURO STOXX Price Index (600).
GRANTS, OUTSTANDING HOLDINGS, AND EqUITY COMPENSATION ExPENSE UNDER THE ALLIANz EqUITY PROGRAM
2 Grants of equity-related remuneration are accounted for as cash settled awards. The fair market value of the granted RSUs and SARs is remeasured at each reporting date and accrued, as a compensation expense, proportionately over the vesting and service period. Upon vesting, any subsequent changes in the fair value of the unexercised SARs are also recognized as a compensation expense.
1 Plan participants contribute 3 % of their relevant salary to the AVK. For the AVK the minimum guaranteed interest rate is 2.75 % – 3.50 % depending on the date of joining Allianz. In general, the company funds the balance required via the APV. Before Allianz’s founding of the APV in 1998, both Allianz and the plan participants were contributing to the AVK.
2 For details on the transition payment, see section Termination of service. In any event a death benefit is included.
5 DBO = defined benefit obligation, end of year. The figures show the obligation for Allianz resulting from defined benefit plans taking into account realistic assumptions with regard to interest rate, dynamics and biometric probabilities.
7 As Manuel Bauer left Allianz on 30 September 2015, his employer-financed DBO of € 3,924 THOU (thereof € 1,699 THOU for the frozen DB-Pension-Plan, € 2,030 THOU for the Current Pension Plan and € 195 THOU AVK/APV) is covered with former Board members.
PENSIONS Company contributions for the current plan remain unchanged from 2014 and are set at 27.98 % of the base salary, increasing to 34.98 % after five years and to 41.98 % after ten years of service on the Board of Management. These are invested in a fund and have 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.). For members with pension rights in the frozen defined benefit plan, the above contribution rates are reduced by 19 % of the expected annual pension from that frozen plan.
The Allianz Group paid € 4 MN (2014: € 4 MN) to increase reserves for pensions and similar benefits for active members of the Board of Management. As of 31 December 2015, reserves for pensions and similar benefits for active members of the Board of Management amounted to € 38 MN (2014: € 56 MN).
In 2015, remuneration and other benefits totaling € 7 MN (2014: € 6 MN) were paid to former members of the Board of Management and dependents, while reserves for current pension obligations and accrued pension rights totaled € 122 MN (2014: € 102 MN).
2. Severance payments made to Board members in case of an early termination comply with the German Corporate Governance Code.
Board members who were appointed before 1 January 2011 are eligible to use a company car for a period of one year after their retirement.
Transition payment (appointment before 1 January 2010) Board members receiving a transition payment are subject to a sixmonths non-compete clause.
The payment is calculated based on the last base salary (paid for a period of six months) and 25 % of the target variable remuneration at the date when notice is given. A Board member with a base salary of € 750 THOU would receive a maximum of € 937.5 THOU.
Internal and external Board appointments When a member of the Board of Management holds an appointment in another company within the Allianz Group, the full remuneration amount is transferred to Allianz SE. In recognition of the benefits to the organization, Board of Management members are allowed to accept a limited number of non-executive supervisory roles in appropriate external organizations. In these cases, 50 % of the remuneration received is paid to Allianz SE. A Board member retains the full remuneration only when the Supervisory Board qualifies the appointment as a personal one. Remuneration paid by external organizations is shown in the annual reports of the companies concerned. The remuneration relating to the external appointment is set by the governing body of the relevant organization.
OUTLOOK fOR 2016 The Supervisory Board approved the following changes to the remuneration of the Board of Management on 10 December 2015, and the Board of Management for all executives of Allianz Group from 2016 and 2017 in a phased approach: The Performance Management system has been adjusted to support Allianz’s strategic Renewal Agenda. Under the new Inclusive Meritocracy approach, Group or company related financial KPIs make up half the performance equation. The other half is linked to individual performance, which consists of quantitative and predominantly qualitative criteria. The new approach places greater emphasis on behavioral aspects of performance through a common standard designed to drive cultural change across the Group. These are: − Customer and Market Excellence, − Collaborative Leadership, − Entrepreneurship, − Trust.
The pension contributions as a percentage of base salary paid by the company to the contribution-based pension plan will have a unified level of 50 % of base salary in 2016.
Fixed annual remuneration The remuneration of a Supervisory Board member consists of a fixed cash amount paid after the end of each business year for services rendered over that period. As in 2014, a regular Supervisory Board member receives a fixed remuneration of € 100 THOU per year. Each deputy Chairperson receives € 150 THOU and the Chairperson € 200 THOU.
Committee-related remuneration The Chairperson and members of the Supervisory Board committees receive additional committee-related remuneration. The committeerelated remuneration is as follows: COMMITTEE-RELATED REMUNERATION
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 be paid only once. Allianz SE reimburses the members of the Supervisory Board for their out-of-pocket expenses and the VAT payable on their Supervisory Board activity. For the performance of his duties, the Chairman of the Supervisory Board is furthermore
Committees1 Fixed remu ne ration Commit tee remu ne ration Atten dance fees Total remu neration A N P R S
entitled to an office with secretarial support and use of the Allianz carpool service. In the financial year 2015, Allianz SE reimbursed expenses totaling € 54,424.
C _ GRoup mAnAGement RepoRt Your AlliAnz 53 Business Operations and Markets 53 Allianz Group structure 53 Insurance operations 54 Asset Management 54 Corporate and Other 55 Worldwide presence and business segments 56 Our markets
61 Progress in Sustainable Development 61 Sustainability management and governance 61 Sustainable insurer 62 Responsible investor 63 Trusted company 65 Committed corporate citizen 65 Attractive employer
67 Business environment 2015 for the insurance industry 68 Business environment 2015 for the asset management industry
80 Life/Health Insurance Operations 80 Statutory premiums 81 Premiums earned (net) 81 Present value of new business premiums (PVNBP) 81 Operating profit 83 Net income 85 Life/Health insurance operations by reportable segments
86 Asset Management 86 Assets under management 88 Operating revenues 89 Operating profit 89 Net income
92 Overview: 2015 results versus previous year outlook 93 Economic outlook 93 Insurance industry outlook 94 Asset management industry outlook 94 Outlook for the Allianz Group 94 Overview: outlook and assumptions 2016 95 Management’s assessment of expected revenues and earnings for 2016 96 Financing and liquidity development and capitalization 96 Expected dividend development 97 Management’s overall assessment of the current economic situation of the Allianz Group
Business Operations and Markets Allianz offers a comprehensive range of insurance and asset management products and services and has 85.4 million insured customers.
– Iberia & Latin America – Global Insurance Lines & Anglo Markets – Asia Pacific – Allianz Worldwide Partners
– Property – Liability – Motor fleets – Directors’ and Officers’ liability – Credit – Marine, aviation and transport life/HeAltH
The Allianz Group structure reflects both business segments and geographical regions. The business activities are first organized by product and type of service, based on how these are strategically
Asset Management Our two major investment management businesses, PIMCO and AllianzGI, operate under Allianz Asset Management (AAM). With € 1,763 BN total assets under management (AuM) (including those of the Allianz Group), we are one of the largest asset managers in the world actively managing assets. Our core markets are the United States, Germany, France, Italy, the United Kingdom and the AsiaPacific region.
HoldinG & treAsury Holding & Treasury includes the management and support of the Group’s businesses through its strategy, risk, corporate finance, treasury, financial reporting, controlling, communication, legal, human resources, technology, and other functions.
◼ Property-Casualty ◼ Life/Health ◼ Banking ◼ Retail Asset Management ◼ Institutional Asset Management Insurance market position by gross premiums written: 4 I. Position 1 II. Position 2 to 5 III. Position 6 to 10 IV. Not among the top 10 1 This overview is based on our organizational structure in place as of 31 December 2015. For further information, please refer to the Executive Summary of 2015 Results starting on page 69.
3 Based on foreign competitor market ranking (excluding domestic competitors). 4 Source: Own local estimations as of 2014.
◼ ◼ Australia insurance Western & southern europe, insurance Middle east, africa, india
than 9,000 products have been sold by year-end 2015. Overall, less than one third of total new business in life came from traditional products.
Our agent network was key to this performance. In 2015, we completed the integration of the insurance business of UnipolSai Assicurazioni S.p.A., which we acquired in 2014, including its 725 agencies. We also completed the introduction in the network of the common Digital Agency platform, which benefits from simple, mobile and paperless processes that drastically reduce administrative tasks for both the agents and our back offices. Another innovation for our agent network was the introduction of the Allianz1 Business modular offer for small enterprises, complementing the Allianz1 retail offer that we introduced in 2014 and which has since reached 240,000 contracts.
Allianz Italy has also received strong market recognition with awards from primary institutions such as “MilanoFinanza” (Allianz1 Business, Digital Agency, and Genialloyd) and “Istituto Tedesco di Qualità e Finanza” (Best Motor insurer in terms of quality for Agents and the Direct channel).
France II. III. 12,383 1,015 5.6 Italy II. II. 16,691 1,343 7.4 United States II. 10,475 841 1.2
Market position by gross premiums written: I. Position 1 II. Position 2 to 5 III. Position 6 to 10 IV. Not among the top 10
Germany We offer our customers in Germany a full range of insurance and financial services through Allianz Deutschland AG. Our products are mainly provided by Allianz Versicherungs-AG (Allianz Sach), Allianz Lebensversicherungs-AG (Allianz Leben) and Allianz Private Krankenversicherungs -AG (Allianz Private Kranken). They are distributed through a broad network of distribution channels, such as agencies, brokers and direct, with a strong focus on our tied-agents network. Here, Allianz Beratungs- und Vertriebs-AG serves as our distribution company.
As the market leader in the German property-casualty market, we provide our products and services to retail and commercial customers. For retail customers the product world of Allianz became more digital with the launch of an online configuration tool for the modular product “Privatschutz” on Allianz.de. For purely direct customers the product range of AllSecur was broadened to liability and household. In July 2015, a new modular commercial product called “Firmenkonzept” – which is sold via tied agents – was successfully launched. The product combines property, liability and legal protection insurance and targets small and medium-sized companies.
In our life business, we had another year of strong premium volumes, particularly supported by bancassurance and our personal financial advisor network. Sales of low-capital-consuming unitlinked products accounted for 81 % of new business, compared to an estimated market average of around 41 %.
We also hold a strong position in the health market, often combining elements of life, health and disability insurance as comprehensive solutions for individual and commercial customers.
Despite a competitive market environment in 2015, we maintained our position as the market leader in the fixed-index annuity market as a result of an innovative index strategy introduced in 2014 and higher penetration into the Securities and Exchange Commission (SEC) licensed broker-dealer channel. Despite the modest interest rate increase in December 2015, we believe the Federal Reserve is likely to continue to raise interest rates very cautiously – leading to only modest increases in interest yields in 2016. Although this low interest rate environment remains challenging, we actively manage our product pricing strategy to maintain profitability.
Building on our strong foundations, we will reinforce our leading position by focusing our efforts in five fields of action: putting our customers at the heart of everything we do; becoming Digital by Default, everywhere; employing Technical Excellence even more consistently; creating new Growth Engines; and fostering a renewed corporate culture of Inclusive Meritocracy.
Operating environment Geopolitical instability, demographic and societal shifts, persistently low interest rates – particularly in Europe – and uncertain economic outlooks are putting severe strains on society and the global economy. Meanwhile, digitalization is transforming economies and economics at increasing speed, enabling new, easy-to-use, customized offerings and fundamentally altering customer expectations.
The Renewal Agenda Reinforcing our leadership position means building on our existing strengths while acting decisively where the new environment requires step change. Since spring 2015, we have been mobilizing management and employees globally to jointly develop our program for the years to come in a highly inclusive and agile process. We intend to leverage the best of Allianz to produce true scale advantages and apply our strongest skills and assets even more systematically, consistently, and ubiquitously. Five mutually reinforcing levers will help us to further expand our competitive advantage: True Customer Centricity: Achieving True Customer Centricity is at the core of our agenda. Everything we do will only translate into success if our clients trust us fully and experience superior value whenever dealing with us. By making superior customer experience the top priority for all our actions, we strive to significantly increase customer loyalty in all our entities. For instance, systematic customer experience management will help us identify and enhance drivers of satisfaction along the customer journeys. “Fast” product and service solutions – such as Fast Quote/Fast Offer – will provide an immediate response experience to customers in all our local entities. We will measure progress against clear targets on Net Promoter Score (NPS), which are firmly embedded into our planning process and incentives.
Technical Excellence: In Property-Casualty, we create superior margins, innovation, and growth by having the best technical talent and consistently applying state-of-the-art skills. We will invest further in advanced analytics, enabling superior risk selection, pricing, and claims management practices. Within Life/Health, we will enhance margins and reduce capital intensity through further shifting our new business towards unit-linked and capital-efficient products, increasing the share of protection & health business and actively managing our in-force business. Our investment management will
We will continuously advance our business model and set-up to sustainably ensure these five levers have the greatest impact. For example, we will further strengthen our regional platforms to capture true scale benefits, not only in terms of mere efficiency gains but also customer service, best practice capabilities, and digital transformation.
In addition, we will move further towards greater capital allocation discipline to free up significant resources for stronger value creation. This means we will optimize our businesses for capital productivity (return on equity) and reduced capital intensity (Solvency II sensitivity) and capitalize our local entities towards a more efficient capital base. On this base, we will ensure that capital is available and fungible within the Group and allocated appropriately to finance growth initiatives.
− We will enhance governance to even better facilitate capturing skill and scale benefits. We will also promote convergence of business models and their execution globally. Aligned incentives will now give more weight to local management’s contribution to Group value, beyond local business requirements.
We have defined clear ambitions for 2018. With regard to financial performance, we strive for a return on equity (excluding unrealized gains/losses on bonds net of shadow DAC) of 13 %, while growing our earnings per share at a compound annual growth rate of 5 %. To ensure sustainability of performance, we have set ourselves health targets for customer loyalty and employee engagement. We expect at least 75 % of our businesses to be or become rated by their customers as Loyalty Leader or above market in terms of NPS. At the same time, we aim to increase our IMIX from 68 % to 72 %.
Our steering BOARD OF MANAGEMENT AND ORGANIZATIONAL STRUCTURE Allianz SE has a divisional Board structure that is split into functional and business responsibilities. The business-related divisions reflect
We continuously monitor our business performance against these targets through monthly reviews to ensure that appropriate measures can be taken in the event of negative developments. During these reviews, we monitor key operational and financial metrics. Operating profit and net income are the main financial performance our business segments Property-Casualty, Life/Health, Asset Management, and Corporate and Other and were overseen by six Board members (five since 1 September 2015). The remaining four divisions (i.e. Chairman of the Board of Management, Finance, Investments and Operations) focus on Group functions, along with business-related responsibilities.
indicators across all business segments for the Allianz Group. In addition, we also use segment-specific figures such as the combined ratio for Property-Casualty, in-force and new business margins as well as margin on reserves for Life/Health, and the cost-income ratio for Asset Management. Furthermore, we use Return on Risk Capital (RoRC) for new business steering purposes in the Property-Casualty and Life/Health business segments. For a comprehensive view of our business segment performance, please refer to the Management Discussion and Analysis starting on page 67.
Non-financial key performance indicators (KPIs) are mainly used for the sustainability assessment of the mid-term bonus. Under the category “partner of choice” the following KPIs are considered: Allianz Engagement Survey and NPS results, brand performance (measured by the Funnel Performance Index), diversity development, organizational transparency (as measured by the Transparency International Corporate Reporting ranking) and sustainable development (as measured by widely-recognized indices and rankings).
MEMBERS OF ThE BOARD OF MANAGEMENT AND ThEIR RESpONSIBILITIES IN 2015
Oliver Bäte Chairman of the Board of Management (since 7 May 2015), Global Property-Casualty (until 6 May 2015) Michael Diekmann (until 6 May 2015) Chairman of the Board of Management (until 6 May 2015) Sergio Balbinot Insurance Western & Southern Europe, Insurance Middle East, Africa, India (since 1 September 2015) Manuel Bauer (until 31 August 2015) Insurance Growth Markets (until 31 August 2015) Dr. Helga Jung Insurance Iberia & Latin America, Legal & Compliance, Mergers & Acquisitions Dr. Christof Mascher Operations, Allianz Worldwide Partners Jay Ralph Asset Management, US Life Insurance Dr. Axel Theis Global Insurance Lines & Anglo Markets, Global Property-Casualty (since 7 May 2015) Dr. Dieter Wemmer Finance, Controlling, Risk Dr. Werner Zedelius Insurance German Speaking Countries, Insurance Central & Eastern Europe (since 1 September 2015) Dr. Maximilian Zimmerer Investments, Global Life/Health, Insurance Asia Pacific (since 1 September 2015)
We work with different stakeholder groups to identify what is materially important for sustainable development. Our material issues are those deemed to be crucial for business success while also important to our stakeholders.
The following pages highlight some of our key sustainability approaches and major developments in 2015. The Allianz Group Sustainability Report, with the full details of our sustainability strategy, approach and progress, is available on our sustainability website.1
During 2015, we focused on further embedding sustainability into our core business. We did this through internal debate, stakeholder engagement, and being an incubator for new business opportunities and pilot projects.
ESG in inSurancE and invEStmEntS The approach we take to ESG issues is not a sustainability “add-on”; it is part of everyday decision-making. As an insurer, we carefully manage ESG risks in underwriting. As an investor of our proprietary assets, we incorporate ESG factors into our investment process. And as an asset manager of third-party assets, we systematically integrate the evaluation of ESG risk and opportunities into our investment decisions.
At the core, ESG integration into our insurance business and our direct investments of proprietary assets is carried out by a global ESG screening process. We have identified 13 sensitive business sectors2 where we see significant risks across regions and lines of business. We identify these sectors through dialogue with non-governmental organizations (NGOs) and ongoing internal stakeholder engagement. For each sector, guidelines highlight the key ESG issues to be considered.
In 2015, we reviewed our Weapons and Hydropower guidelines according to new best-practice information including international standards, frameworks and guidelines. Our intention is that no business is excluded by default, with a few exceptions such as our coal divestments of proprietary assets (for more information please refer to the section Responsible Investor). Instead, each transaction is assessed on a case-by-case basis. Through this process we aim to better understand the risks associated with an insurance or investment transaction, and to take all necessary measures to address and mitigate these risks.
During 2015, 405 transactions (2014: 150 transactions)3 for our insurance and investment business were assessed for ESG considerations against our sensitive business guidelines. Of these, 47 % were approved, 50 % were conditionally approved and 3 % rejected.
The continued growth of the sustainable products market is proof that sustainable innovation is becoming an increasingly important business opportunity. Our offerings include insurance for large-scale renewable-energy projects for business customers and solutions promoting energy-efficiency at home and on the move for retail customers.
Our own revenues generated by products such as our mileagebased tariffs, green life insurance, renewable energy, infrastructure, and crop protection products amounted to more than € 1.1 BN in 2015.
micrOinSurancE Besides our green solutions, we also provide products that improve people’s lives. As a leader in the microinsurance sector, we already provide 58.6 million low-income people in Asia, Africa and Latin America with affordable insurance solutions.
In 2015, we broke through the 50-million mark for customers with microinsurance policies, with 2015 revenues standing at € 135 MN. That is around € 2.30 premium per person per year. Over 99 % of these customers still only hold one insurance policy, mostly life insurance.
The microinsurance market has a potential of 2.7 billion customers. We see this business expanding exponentially along with the global middle class, which is estimated to grow to around 5 billion by 2030, with growth mostly in our primary microinsurance markets of Asia, South America, and Africa.
Responsible investor For Allianz, responsible investment means systematically integrating ESG factors into our investment decisions. Our role as an investor is two-fold: Firstly, we invest our proprietary assets, which include premiums collected from our insurance customers. Secondly, in our third-party asset management business, we invest on behalf of customers by tailoring products and solutions to best meet their needs.
For our direct investments, such as real estate, infrastructure, and private equity, ESG is integrated through our overarching ESG screening process.
As part of our ESG strategy, we also consider it our responsibility to address systematic hurdles to ESG integration with peers, regulators, and other market participants, as well as to promote sustainable business practices within the companies we invest in.
Despite different regional focuses and investment strategies, embedding ESG criteria into asset management is common practice at AllianzGI and PIMCO and they are both signatories to the PRI.
As we move towards a culture of Digital by Default, we remain committed to protecting customer privacy and data security. We know that consumers are increasingly basing their loyalty around whether a business offers sustainable solutions that deliver both financial and societal value. To this end, our range of responsible products continues to grow, including insurance products that aim to reward low-carbon lifestyles and affordable microinsurance for individuals and small businesses around the world.
To continuously measure and benchmark our performance on customer centricity, we use key feedback tools such as the Net Promoter Score (NPS). NPS measures our customers’ willingness to re - commend Allianz and is broadly established as our key global metric for customer loyalty. Top-down NPS is conducted regularly according to global cross-industry standards and allows benchmarking against competitors in the respective markets. In 2015, 50 % of all businesses measured significantly outperformed their local peer average or even achieved loyalty leadership in their market.
cuStOmErS By rEGiOn/cOuntry1 as of 31 December 2015 [31 December 2014] in %
1 Customer figures exclude clients in microinsurance, pension funds, and all Global Lines. For more information on our customer base, please refer to page 55.
In 2015, Allianz-branded revenues stood at 84 % (2014: 83 %) of total revenues. Our “one-brand” strategy leaves room for renowned specialty brands such as PIMCO and Euler Hermes, which use Allianz as their reference. Our strong brand performance was again acknowledged in the annual 100 Best Global Brands Ranking from Interbrand: In 2015, our brand value increased by 10 % to USD 8.5 BN (2014: USD 7.7 BN) and has more than doubled compared to 2007 when we first entered the ranking. According to Interbrand, Allianz now ranks 54th among the world’s top 100 brands.
Corporate responsibility is a vital component in our established sports and culture partnerships strategy – be it our commitment to the Paralympic Movement around the topics of diversity and inclusion or our Road Safety program, with 41 local entities participating in 2015. Our annual youth programs inspire and unite young generations around one common passion – for example, the Allianz Junior Football Camp where teens from all over the world apply to train with FC Bayern München youth coaches and meet their idols, or the Allianz Junior Music Camp where star pianist Lang Lang and his Lang Lang International Music Foundation encourage the next generation of classical musicians.
EnvirOnmEntal manaGEmEnt As a business dealing with risks, managing our environmental impact has always been very important to us. Our ESG materiality assessment continues to show that climate change is a key environmental risk and opportunity. For this reason, we prioritize carbon reduction also in our own activities to reduce the environmental footprint of our operations.
Our strategic approach to reducing our carbon footprint is threefold: avoid and reduce our emissions, substitute with lower-carbon alternatives, and offset our remaining emissions through direct investments in high-quality carbon reduction projects.
1 Our Allianz trademark is registered and protected worldwide, as are our domains. Furthermore, we have registered our corporate design and brand claim “Allianz. With you from A – Z.” in the relevant countries worldwide.
Energy 55.1 Travel 39.3 Paper 3.7 Water 0.2 Waste 1.7 1 KPMG Wirtschaftsprüfungsgesellschaft AG has provided limited assurance on the 2015 environmental performance information. For further information, please refer to www.allianz.com/sustainability.
Total travel – plane, train, car in tkm 908,442 901,101 906,430 Total paper consumption in metric 1 KPMG Wirtschaftsprüfungsgesellschaft AG has provided limited assurance on the 2015 environmental performance information. For further information, please refer to www.allianz.com/sustainability.
To ensure continuous improvement, all compliance risks are monitored and reported within the Group. Our compliance quality assurance program comprises self-assessments, on-site reviews and local spot checks, and our intranet-based compliance case reporting tool provides Group-wide oversight by passing information to the audit and integrity committees.
Committed corporate citizen As a global company with a presence in more than 70 countries, we believe that acting as a responsible corporate citizen is good for society and good for business. By helping to build stronger and more inclusive communities, we are supporting the development of a more stable economic landscape. This, in turn, ensures resilient markets for our products and services.
In 2015, corporate giving totaled € 23 MN (compared to € 21 MN in 2014).1 pOlitical EnGaGEmEnt In 2015, Allianz SE merged its regulatory and political departments to form a Group center for Regulatory and Public Policy Affairs. It acts as a global center of competence for all our subsidiaries and its remit is to develop regulatory and political strategy, coordinate our engagements, and analyze current and emerging issues and our positions on them. Two key lobbying issues in 2015 were: 1 KPMG Wirtschaftsprüfungsgesellschaft AG has provided limited assurance on the 2015 corporate giving information. For further information, please refer to www.allianz.com/sustainability.
− Consumer protection: As part of our commitment to customer privacy and security, we support promoting transparency, simplicity, and fairness in the market for consumer financial products and services. We contributed to the E.U. green paper on Retail Financial Services and Insurance. This paper addresses some of the obstacles consumers face when offering or purchasing financial services.
talEnt manaGEmEnt To ensure the quality and performance of our employees, we focus on managing talent and careers, developing technical and leadership skills, and meeting future workforce needs. We work to create a sustainable performance culture which empowers individuals to realize their full potential through a wide range of learning and development opportunities. In this way, we enhance the skills base of our Group and build employee loyalty. We place a strong emphasis on the development of both technical expertise and leadership skills across all business functions as key drivers for sustainable and profitable growth.
Total expenses in training € mn 85 91 86 Training expenses per employee € 621 668 629 Average training days per employee, staff 2.9 3.0 3.0 1 Figures based on the number of employees in Allianz’s core business. Excluded are fully consolidated companies which are considered pure financial investments, non-profit organizations, e.g. foundations, and companies classified as held for sale.
divErSity At Allianz, we recognize the importance of having a diverse, inclusive workforce that is made up of employees from different backgrounds. To accomplish this, we have implemented a number of initiatives, in cluding those focused on gender, ethnicity, age, religion, sexual orientation, disability, education, and nationality.
Share of women in overall workforce 52.4 52.9 52.8 1 Figures based on the number of employees in Allianz’s core business. Excluded are fully consolidated companies which are considered pure financial investments, non-profit organizations, e.g. foundations, and companies classified as held for sale.
2 Including women in all executive positions below the Board of Management. 3 Including women functionally responsible for other staff, regardless of level, e.g. division, department, and team managers.
To support employee rights, we were one of the first companies to create pan-European worker participation standards and establish a European SE works council under the legislation for Societas Europaea (SE) companies. We are also a signatory to the International Labour Organization’s (ILO) Declaration on Fundamental Rights and Principles at Work, including the ILO declaration on the freedom of association and the right to collective bargaining.
SuStainaBlE valuE apprOach tO rEmunEratiOn Our remuneration and incentive structures are designed to encourage sustainable value creation and offer both monetary and non-monetary rewards. Our remuneration system is based on the following principles: − Provide a transparent, fair and integrated offering to attract, motivate, and retain highly qualified employees.
− Deliver total rewards that are competitive in the relevant markets.
We also believe that committed and motivated employees bring competitive benefits to our business. By actively engaging with our workforce, we have developed a culture of high performance, greater integrity, and better customer focus. Each year, we conduct the Group-wide Allianz Engagement Survey (AES) to gather employee feedback on a range of issues, including those identified as promoting a high-performance culture. In 2015, 120,204 employees from 67 Allianz companies were invited to participate. The global response rate of 84 % was in line with 2014.
A key measurement of the AES is the Employee Engagement Index (EEI), which reflects employee satisfaction, loyalty, advocacy, and pride within their organizations. In 2015, the EEI score at Group level was 75 %. This reflects a high level of engagement among our workforce, as well as the highest ever EEI result since the survey began.
Business Environment Economic environment 2015 Diverging growth Dynamics in inDustrializeD countries anD emerging markets In 2015 the global economy offered both light and shade. Geopolitical tensions and crises and acts of terrorism created a difficult backdrop. The slide in the oil price and other commodity prices had a marked impact on global income flows. Many advanced economies benefited from purchasing power gains, whereas a host of emerging markets saw revenues plummet. However, alongside developments in commodity prices, structural factors also lay behind the relative economic weakness in emerging markets. The slowdown in China continued, while other major emerging market economies like Brazil and Russia experienced severe recessions. Nevertheless, there were also some bright spots in emerging markets like India and most eastern European E.U. member states, which registered robust growth. Overall, emerging markets expanded by a rather disappointing 3.3 % in 2015, the lowest growth rate in 15 years, if one ignores the Great Recession in 2009.
Business environment 2015 for the insurance industry 2015 offered the now familiar cocktail of economic and political challenges that describes the business environment after the financial crisis: modest premium growth but persistently low interest rates, volatile financial markets and new regulatory burdens. The only “bright” spot was the low level of insured losses – compared with historical averages – resulting from natural catastrophes. This was mainly thanks to a calm hurricane season in the North Atlantic. Nonetheless, weather-related natural catastrophes were plentiful in 2015, from winter storms in North America to droughts and heatwaves around the world to floods in Great Britain.
However, neither natural catastrophes nor political woes posed the biggest challenges in 2015. It was, in addition to economic challenges, technological change, which now fully encompasses the insurance industry. Digital technology and Big Data are transforming the whole business model, the way the industry underwrites risks, distributes products and communicates with customers. Against this background, it is not surprising that industry consolidation gathered pace in 2015, resulting in deals such as the acquisition of the Chubb Group by ACE Limited.
In the property-casualty sector, premium growth in advanced markets was basically unchanged from the previous year. Whereas the ongoing – albeit slow – recovery supported demand for insurance, particularly in Europe, softening prices in some markets and business lines put a damper on premium growth. In contrast to this, emerging markets followed increasingly divergent trends. In particular, Latin America showed significantly slower growth than in preceding years, dragged down by the severe recession in its biggest economy, Brazil. The indisputable growth champion of 2015 was again emerging Asia, with a strong Chinese market as its driving force. Encouragingly, the other heavyweight in emerging Asia, India, returned to healthy growth, too. Overall, according to our own estimates and based on preliminary figures, global premiums rose by around 4.5 % in 2015 (in nominal terms and adjusted for foreign currency translation effects).
In the life sector, premium growth in advanced markets slowed slightly in 2015. While the U.S. market was more or less stable, growth in some European markets, for example in Italy, normalized after a very strong performance in the previous year. By contrast, premium growth in emerging markets was not only much stronger but actually picked up slightly. Even Latin America and Eastern Europe, despite their economic troubles, kept up rather well in 2015. However, the dominance of emerging Asia – and in particular China – is even more pronounced in life than in the property-casualty sector: In 2015, almost half of all premiums in emerging markets were written in China, and more than 60 % of all premium growth was generated there. In total, according to our own estimates and based on preliminary figures, global premiums grew by around 5.0 % in 2015 (in nominal terms and adjusted for foreign currency translation effects).
The stubbornly low yield environment posed the greatest challenge for profitability in the life sector. Life insurers reacted mainly by shifting the portfolio mix towards alternative and less liquid assets, for example infrastructure. They also started to develop new product concepts with reduced guarantees and fostered protection-type products. All in all, insurers managed to shift the product mix towards less capital-intensive products, safeguarding profitability and solvency positions.
Business environment 2015 f or the asset management industry As described earlier, markets were highly volatile for the asset management industry. On the one hand they were supported by continuously low interest rates and quantitative-easing measures. Equity and bond markets also developed positively. On the other hand, the third quarter of 2015, in particular, was tumultuous for global markets, which were impacted by the economic slowdown in China and concerns about other emerging markets.
European equity indices were especially subject to strong fluctuations in the second half of the year. In the fourth quarter of 2015, European equity markets developed favorably and rose above 2014 levels, driven by the announcement in December by the European Central Bank of further supportive monetary measures. U.S. equity prices recovered strongly at the beginning of the fourth quarter of 2015 and the NASDAQ finished the year in positive territory. However, the 25 basis points increase in the U.S. federal funds rate at the end of the fourth quarter hit equity investors. In addition, the continued sharp decline in the price of oil burdened corporates and countries exposed to oil production, as did ongoing concerns about the Chinese economy. The effects of slowing growth in China and weak commodity demand made 2015 a difficult year for emerging markets. As a result, many Asia Pacific and emerging market indices lost ground compared to the end of December 2014.
Management Discussion and Analysis 67 Business Environment 69 Executive Summary of 2015 Results 74 Property-Casualty Insurance Operations 80 Life/Health Insurance Operations 86 Asset Management 90 Corporate and Other 98 Balance Sheet Review 105 Liquidity and Funding Resources 110 Reconciliations
Allianz Group overview Allianz SE and its subsidiaries (the Allianz Group) have operations in over 70 countries. The Group’s results are reported by business segment: Property-Casualty insurance operations, Life/Health insurance operations, Asset Management, and Corporate and Other.
2 Figures as of 31 December. 3 Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. Please refer to page 110 for a reconciliation of nominal total revenue growth to internal total revenue growth for each of our business segments and the Allianz Group as a whole.
Net income was up 5.8 % to € 6,987 MN, mainly due to an improvement in our non-operating result and our strong operating performance, partly offset by the higher effective tax rate. Net income attri­ butable to shareholders rose 6.3 % to € 6,616 MN (2014: € 6,221 MN). Net income attributable to non­controlling interests was € 371 MN (2014: € 381 MN).
Property-Casualty Life/Health Asset Management Corporate and Other Internal growth 1 Total revenues include € (365) mn (2014: € (344) mn) from consolidation.
Asset Management operating revenues rose by € 92 MN to € 6.5 BN. Excluding the strong effects from foreign currency translation, mainly resulting from the sharp depreciation of the Euro against the U.S. Dollar, operating revenues decreased by 11.4 % on an internal basis2. This was mainly driven by lower average third-party AuM and the corresponding AuM-related income. It was partly offset by higher performance fees.
Total revenues in our Banking operations (reported in our Cor­ porate and Other business segment) increased by € 21 MN to € 577 MN, primarily driven by a higher net fee and commission result.
Our Property­Casualty operating profit went up by € 221 MN – or 4.1 % – to € 5,603 MN. This was mainly driven by the € 0.2 BN net gain from the sale of the Fireman’s Fund personal insurance business to ACE Limited, which was partly offset by restructuring charges of € 0.1 BN for the Fireman’s Fund reorganization. Growth in operating investment income – which rose from € 3,066 MN to € 3,120 MN – and a higher underwriting result contributed positively.
Life/Health operating profit was up by € 468 MN to € 3,796 MN. A higher investment margin in Germany, positive foreign currency translation effects, a higher investment spread margin in the United States, and increased unit-linked management fees in Italy and France mainly drove this development. However, these increases were negatively affected by loss recognition in South Korea amounting to € 244 MN.
The proposal for appropriation of net earnings reflects the 2,154,186 treasury shares held directly and indirectly by the company at the time of the publication of the convocation of the Annual General Meeting (AGM) in the Federal Gazette. Such treasury shares are not entitled to the dividend pursuant to § 71b of the German Stock Corporation Act (AktG). Should there be any change in the number of shares entitled to the dividend by the date of the AGM, the above proposal will be amended accordingly and presented for resolution on the appropriation of net earnings at the AGM, with an unchanged dividend of € 7.30 per each share entitled to dividend.
Non-operating result Our non­operating result improved by € 1,015 MN to a loss of € 539 MN. This was mainly due to a lower negative impact from the reclassification of tax benefits, compared to 2014, and increased non-operating realized gains and losses (net). These improvements were partly offset by higher non-operating amortization of intangible assets.
Non­operating income from financial assets and liabilities carried at fair value through income (net) improved by € 84 MN to a loss of € 219 MN, mainly due to favorable impacts from hedging-related activities.
Non­operating realized gains and losses (net) increased by € 399 MN to € 1,211 MN as a result of higher realizations, mainly on equity investments.
Non­operating impairments of investments (net) rose by € 72 MN to € 268 MN, mainly due to higher impairments on equities in line with unfavorable market developments – predominantly in the third quarter of 2015.
The negative impact from the reclassification of tax benefits declined by € 839 MN to € 62 MN. The second half of 2014 included significant one-off tax benefits, reflected within income taxes, a portion of which were reclassified and shown within operating profit in order to adequately reflect policyholder participation.
Non­operating amortization of intangible assets increased from € 104 MN to € 304 MN. As a result of the impairment test in 2015, all of the goodwill of € 171 MN allocated to the cash generating unit Asia Pacific in the business segment Life/Health was completely impaired, mainly driven by steadily decreasing and persisting low interest rates in South Korea. For further information, please refer to note 15 to the consolidated financial statements.
totAl revenues And reconciliAtion of operAting profit to net income € mn
Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) (219) (303) Non-operating realized gains/losses (net) 1,211 812 Non-operating impairments of investments (net) (268) (197)
Income from fully consolidated private equity investments (net) (60) (23) Interest expenses from external debt (849) (846) Acquisition-related expenses 12 7 One-off effects from pension revaluation – – Non-operating amortization of intangible assets (304) (104) Reclassification of tax benefits (62) (901) Non-operating items (539) (1,554)
Basic earnings per share in € 14.56 13.71 Diluted earnings per share in € 14.55 13.64 1 Total revenues comprise statutory gross premiums written in Property-Casualty and in Life/Health, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking).
2 Includes expenses for premium refunds (net) in Property-Casualty of € (240) mn (2014: € (307) mn).
Other information chAnges in segment structure Effective 1 January 2015, the Allianz Group reorganized the structure of its insurance activities to reflect the changes in the responsibilities of the Board of Management. The property-casualty insurance operations of the former reportable segment USA were allocated to the reportable segment Global Insurance Lines & Anglo Markets.
Due to further changes in the Board of Management, effective 1 September 2015, the reportable segment Growth Markets ceased to exist. The reallocation of its former parts has led to changes in the structure, the renaming of other reportable segments, as well as the introduction of a new reportable segment Asia Pacific, which consists of the insurance business in that region. The insurance business in Central & Eastern Europe has been integrated in the previous reportable segment German Speaking Countries, which was renamed German Speaking Countries and Central & Eastern Europe. The insurance business in Russia and Ukraine has been allocated to the reportable segment Global Insurance Lines & Anglo Markets. The insurance business in India, Middle East, and North Africa has been integrated in the previous reportable segment Western & Southern Europe, which was renamed to Western & Southern Europe, Middle East, Africa, India.
Previously reported information has been adjusted to reflect this change in the composition of the Allianz Group’s reportable segments. Additionally, some minor reallocations between the reportable segments have been made. For information on Segment reporting, please refer to note 6 to the consolidated financial statements.
solvency ii: ApprovAl of pArtiAl internAl model1 In November 2015, our partial internal model was approved by the German supervisory authority. With this approval, the uncertainty about our future Solvency II capital requirements has been significantly reduced – even if some uncertainty about the future capitalization requirements of Allianz Group remains, since the future capital requirements applicable for Global Systemically Important Insurers (so-called G-SIIs) have not been finalized as yet. From 1 January 2016 onwards, capitalization based on our partial internal model under Solvency II will be utilized for regulatory purposes. We are confident that the Allianz Group will be able to meet the capital requirements under the new regulatory regimes. For further information please refer to the Risk and Opportunity Report starting on page 112.
− Takeover-related Statements and Explanations starting on page 34, and the
Property-Casualty Insurance Operations − Gross premiums written reached € 51.6 BN – up by 6.8 %. − Positively impacted by the net sales gain from Fireman’s Fund personal insurance business, our operating profit grew 4.1 % to € 5,603 MN. − Combined ratio slightly increased to 94.6 %.
Business segment overview Our Property-Casualty business offers a wide range of products and services for both private and corporate clients. Our offerings cover many insurance classes such as motor, accident/disability, property, and general liability. We conduct business worldwide in more than 70 countries. We are also a global leader in travel insurance, assistance services, and credit insurance. We distribute our products via a broad network of agents, brokers, banks, and other strategic partners, as well as through direct channels.
Gross premiums written1 On a nominal basis, we recorded gross premiums written of € 51,597 MN, an increase of € 3,274 MN or 6.8 % compared to 2014.
Consolidation/deconsolidation effects were at € 357 MN mainly due to positive effects from the acquisition of a part of the insurance business of UnipolSai and the takeover of the Property-Casualty insurance business of the Territory Insurance Office in Australia. This was partly offset by the sale of the Fireman’s Fund personal insurance business to ACE Limited and the downscaling of our retail business in Russia.
On an internal basis, our gross premiums went up 2.9 %. This was composed of a volume effect of 2.1 % and a price effect of 0.8 %. We recorded strong internal growth at Allianz Worldwide Partners, in Turkey, and at AGCS excl. Fireman’s Fund.
1 We comment on the development of our gross premiums written on an internal basis, meaning adjusted for foreign currency translation and (de-)consolidation effects, in order to provide more comparable information.
In Turkey, gross premiums amounted to € 1,312 MN. The internal growth of 26.3 % resulted from higher price and volume effects across our main lines of business, especially in our motor third party liability insurance business.
cluster 2 In Germany, we recorded gross premiums of € 9,629 MN, a rise of 1.0 % on an internal basis. This was due to positive price effects especially in our motor insurance business. It was partly offset by unfavorable volume impacts in our accident insurance with premium refunds (APR).
In Latin America, gross premiums rose 8.0 % to € 2,086 MN. The internal growth was largely driven by our motor insurance business.
In Russia, gross premiums were at € 196 MN – down by 26.4 % on an internal basis. This was the result of lower commercial volumes.
Premiums earned (net) 46,430 43,759 Accident year claims (32,646) (30,263) Previous year claims (run-off) 1,924 1,385
Claims and insurance benefits incurred (net) (30,721) (28,878) Acquisition and administrative expenses (net), excluding one-off effects from pension revaluation (13,208) (12,400) Change in reserves for insurance and investment contracts (net) (without expenses for premium refunds)1 (220) (231) Underwriting result 2,281 2,251 1 Consists of the underwriting-related part (aggregate policy reserves and other insurance reserves) of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 34 to the consolidated financial statements.
Our accident year loss ratio stood at 70.3 % – a 1.2 percentage point deterioration compared to the previous year. This was driven by an increase in losses from natural catastrophes from an extraordinarily low level of € 400 MN in 2014 to € 738 MN resulting in a higher impact on our combined ratio of 1.6 percentage points compared to 0.9 percentage points in 2014.
Germany: 0.3 percentage points. After the rather benign level of claims from natural catastrophes in 2014, this year’s accident year loss ratio was affected by claims caused by storms including Mike and Niklas in the first quarter as well as Siegfried and Thompson in the third quarter.
Our run-off result amounted to € 1,924 MN, compared to € 1,385 MN in the previous year – resulting in a higher run-off contribution of 4.1 %. The 1.0 percentage point increase compared to the 2014 run-off ratio was the result of the strongly negative impact from reserve strengthening in Russia and Brazil in the previous year, a lower than prior year reserve strengthening for the former Fireman’s Fund portfolio and positive run-off contributions from most operations in 2015.
Total expenses amounted to € 13,208 MN in 2015 compared to € 12,400 MN in 2014. Our expense ratio deteriorated 0.1 percentage points to 28.4 %. This was mainly driven by higher acquisition expenses.
Interest and similar income (net of interest expenses) 3,529 3,525 Operating income from financial assets and liabilities carried at fair value through income (net) (25) 6 Operating realized gains (net) 252 186 Operating impairments of investments (net) (59) (20) Investment expenses (337) (323) Expenses for premium refunds (net)2 (240) (307) Operating investment income (net) 3,120 3,066 1 The operating investment income (net) for our Property-Casualty business segment consists of the operating investment result – as shown in note 6 to the consolidated financial statements – and expenses for premium refunds (net) (policyholder participation) as shown in note 34 to the consolidated financial statements.
Operating income from financial assets and liabilities carried at fair value through income (net) fell by € 31 MN to a loss of € 25 MN. This was due to negative developments in the foreign currency result net of hedges with respect to emerging market bonds denominated in local currency.
Expenses for premium refunds (net) were at € 240 MN, a decrease of € 67 MN compared to last year. The change was mainly driven by our APR business in Germany.
1 Including French health business, excluding fair value option and trading.
Claims and insurance benefits incurred (net) (30,721) (28,878) Change in reserves for insurance and investment contracts (net) (460) (538) Interest expenses (72) (71) Operating impairments of investments (net) (59) (20) Investment expenses (337) (323) Acquisition and administrative expenses (net), excluding one-off effects from pension revaluation (13,208) (12,400) Fee and commission expenses (1,367) (1,180) Restructuring charges (149) (30) Other expenses (34) (45) Operating expenses (46,407) (43,485)
ProPerty-Casualty insuranCe oPerations by rePortable segments € mn Gross premiums written Premiums earned (net) Operating profit (loss)
Western & Southern Europe, Middle East, Africa and India4 11,855 10,939 11,266 10,939 10,915 10,006 1,798 1,588
Global Insurance Lines & Anglo Markets9 21,931 19,680 20,556 19,265 15,994 15,176 1,846 1,699 1 This reflects gross premiums written on an internal basis, adjusted for foreign currency translation and (de-)consolidation effects.
2 Includes income and expense items from a management holding and consolidations between countries in this region.
German Speaking Countries and Central & Eastern Europe 92.1 91.9 66.2 65.6 25.9 26.3
8 Effective 1 January 2015, the Allianz Group acquired the Property-Casualty insurance business of the Territory Insurance Office (TIO Business), Darwin.
12 The 2014 analysis of the Allianz Group’s asbestos risks resulted in a reduction of reserves and a positive run-off result of € 86 MN, as reflected in the operating profit for 2014.
Business segment overview Allianz offers a broad range of life, health, savings, and investment -oriented products, including individual and group life insurance contracts. Via our distribution channels – mainly tied agents, brokers, and bank partnerships – we offer life and health products to both retail and corporate clients. As one of the world- wide market leaders in life business, we serve customers in more than 45 countries.
In the German life business, we recorded statutory premiums of € 17,742 MN. The drop of 6.7 % on an internal basis was due to lower single premium business, which saw reduced sales of traditional life products – which include long-term interest rate guarantees. This was partly compensated for by growth in the regular premium business. Statutory premiums in the German health business went up to € 3,257 MN. The rise of 0.4 % on an internal basis resulted from premium rate increases in comprehensive insurance in January 2015.
In the United States, statutory premiums amounted to € 10,475 MN, down 26.1 % on an internal basis. We experienced lower fixed-indexed annuity sales due to both the impact of pricing changes made in the first half of 2015, in response to the low interest rate environment, as well as market developments. We also recorded exceptionally high premiums in the second and third quarters of 2014 resulting from the introduction of an innovative index strategy.
Statutory premiums in Italy went up to € 11,936 MN, representing internal growth of 5.3 %. Statutory premiums benefited from strong growth in the unit-linked business. Along with a decrease in traditional life business, the share of unit-linked premiums of total statutory premiums increased significantly to 75 % compared to 63 % in 2014.
Statutory premiums in Central & Eastern Europe amounted to € 818 MN, down 4.7 % on an internal basis. We recorded lower regular premiums in the Czech Republic and lower single premiums in Hungary. A stronger regular premium business in Bulgaria partly compensated for this.
Loadings and fees 5,667 5,285 Investment margin 3,915 2,973 Expenses (6,610) (6,522) Technical margin 1,156 1,203 Impact of change in Dac (332) 388 Operating profit 3,796 3,327
Loadings and fees Loadings and fees include premium and reserve based fees, unitlinked management fees, and policyholder participation in expenses.
premium business in Germany. Loadings from premiums as a percentage of statutory premiums rose by 31 basis points, largely because of a higher proportion of regular premiums in Germany.
Investment margin The investment margin is defined as IFRS investment income net of expenses, less interest credited to IFRS reserves and policyholder participation (including policyholder participation beyond contractual and regulatory requirements mainly for the German life business).
Investment margin2,3 in basis points 98 80 1 Other comprises the delta of out-of-scope entities, which are added here with their respective operating profit and different line item definitions compared to the financial statements, such as interest paid on deposits for reinsurance, fee and commission income and expenses excluding unit-linked management fees.
The policyholder participation ratio decreased slightly, driven by a drop in the policyholder participation in Italy and France.
Acquisition expenses and commissions as % of pvnbp1 (8.1) (8.1) Administrative and other expenses as % of average reserves2,3 (0.3) (0.4)
Administrative expenses increased predominantly because of adverse foreign currency translation effects from our businesses in the United States and in Asia Pacific.
Impact of change in Dac Impact of change in DAC (deferred acquisition costs) 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.
The impact of change in DAC turned from € 388 MN to minus € 332 MN. This was largely due to higher DAC amortization associated with our variable annuity business in the United States, loss recognition in South Korea in the second and third quarters of 2015, and a lower capitalization of DAC, due to a decline in the fixed-indexed annuity business in the United States.
Guaranteed savings & annuities 2,846 2,369 Protection & health 577 661 Unit-linked without guarantee 373 298 Operating profit 3,796 3,327
Statutory premiums2 66,903 67,331 Ceded premiums written (747) (630) Change in unearned premiums (309) (544) Statutory premiums (net) 65,847 66,157 Deposits from insurance and investment contracts (41,632) (41,643) Premiums earned (net) 24,215 24,514
Acquisition expenses and commissions (4,915) (4,912) Administrative and other expenses (1,695) (1,610)
Impact of change in DAC3 (332) 388 Capitalization of Dac 1,741 1,904 Amortization, unlocking and true-up of Dac (2,073) (1,516)
Margin on reserves4 in basis points 67 65 1 Profit sources are based on in-scope operating entities with coverage of 96.5 % of statutory premiums. Operating profit from operating entities that are not in scope is included in investment margin.
4 Represents operating profit divided by the average of the current and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts, and financial liabilities for unit-linked contracts less reinsurance assets.
life/health operating profit by profit sources anD lines of business1 € mn
Operating profit before change in DAC 4,128 2,939 3,216 2,073 636 585 276 281 Capitalization of Dac 1,741 1,904 1,144 1,414 372 374 224 116 Amortization, unlocking and true-up of Dac (2,073) (1,516) (1,515) (1,119) (431) (299) (128) (98) Impact of change in DAC2 (332) 388 (371) 296 (59) 75 97 18 Operating profit 3,796 3,327 2,846 2,369 577 661 373 298 1 Profit sources are based on in-scope operating entities with coverage of 96.5 % of statutory premiums. Operating profit from operating entities that are not in scope is included in investment margin.
2 Impact of change in DAC includes effects of change in DAC, URR, and 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 financial statements.
Life/Health insurance operations by reportable segments Life/HeaLtH insurance operations by reportabLe segments € mn Statutory premiums1 Premiums earned (net) Operating profit (loss) Margin on reserves2 (bps)
German Speaking Countries and Central & Eastern Europe 24,058 25,176 23,833 25,176 15,115 16,073 1,707 1,527 65 63
Global Insurance Lines & Anglo Markets 634 589 416 589 494 448 47 15 236 71 1 Statutory premiums are gross premiums written from sales of life and health insurance policies as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction.
2 Represents operating profit (loss) divided by the average of the current and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts, and financial liabilities for unit-linked contracts less reinsurance assets.
3 Statutory premiums adjusted for foreign currency translation and (de-)consolidation effects. 4 Includes income and expense items from management holdings, smaller operating entities and consolidations between countries in these regions. 5 Presentation not meaningful. 6 Includes € 34 MN operating profit for 2015 from an associated entity in Asia Pacific. 7 Represents elimination of transactions between Allianz Group companies in different geographic regions.
Business segment overview Allianz offers asset management products and services for thirdparty investors and the Allianz Group’s insurance operations. We serve a wide range of retail and institutional clients worldwide with investment and distribution capacities in all major markets. Based on total assets under management, we are one of the largest asset managers in the world that manage thirdparty assets with active investment strategies.
In 2015, we recorded total AuM net outflows of € 116 bn. Net outflows from third-party AuM amounted to € 107 bn. This was strongly driven by PImCO in the United States, primarily from traditional fixed income products. However, since the end of 2014, third-party AuM net outflows at PImCO have significantly receded with each quarter, amounting to only € 11 bn in the fourth quarter of 2015. Allianz Global Investors (AllianzGI) recorded strong third-party net inflows in 2015. These were primarily due to net inflows in Europe, continuing AllianzGI’s trend of third-party net inflows for the twelfth consecutive quarter.
The share of third-party assets between mutual funds and separate accounts changed in favor of separate accounts, compared to the end of 2014 – with mutual funds at 58.3 % and separate accounts at 41.7 %.
2 From the first quarter of 2015, 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. Reinvested dividends amounted to € 18 BN.
3 From the first quarter of 2015, Market and Other represents current income earned on, and changes in the fair value of, securities held in client accounts. It also includes dividends from net investment income and from net realized capital gains to investors of open ended mutual funds and of closed end funds.
At the beginning of 2015 we enhanced our asset class reporting from a legal entity view to a more granular asset class split composed of fixed income, equities, multi-assets, and other. Furthermore, we replaced the retail and institutional asset split by an investment vehicle view, comprised of mutual funds and separate accounts.1
Based on the asset class split on 31 December 2015, the thirdparty AuM share of fixed income amounted to 74.0 %, reflecting the high share of fixed income assets at PImCO. 11.8 % in equity assets was due to the notable equity share at AllianzGI. Multi-assets and other accounted for 10.5 % and 3.7 %, respectively.
1 Mutual funds are investment vehicles (in the United States, investment companies subject to the U.S. code; in Germany, vehicles subject to the “Standard-Anlagerichtlinien des Fonds” Investmentgesetz) where the money of several individual investors is pooled into one account to be managed by the asset manager, e.g. open-end funds, closed-end funds. 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).
The regional allocation of third-party AuM shifted in favor of Europe and – to a lesser extent – the Asia-Pacific region. This was mainly due to strong third-party net outflows in the United States and third-party net inflows at AllianzGI in Europe and was supported by market effects. It was only partially offset by positive foreign currency translation effects.
three-year rolling investment performance of pimco and allianzgi1 as of 31 December in %
Restructuring charges of € 41 mn were an additional burden for operating expenses. They were driven by a restructuring program at AllianzGI, which started in the third quarter of 2015 and aims to position AllianzGI as a global investment leader.
Administrative expenses (net), excluding acquisition-related expenses (4,141) (3,787) Restructuring charges (41) 3 Operating expenses (4,182) (3,784)
Operating revenues 1,899 1,750 Operating expenses (2,844) (2,571) Operating result (945) (820)
banKing Operating revenues 1,127 1,114 Operating expenses (1,032) (1,047) Operating result 94 66 alternative investments Operating revenues 213 176 Operating expenses (176) (146) Operating result 37 30 1 Consolidation included. For further information about our Corporate and Other business segment, please refer to note 6 to the consolidated financial statements.
Earnings summary Our operating result decreased by € 124 mn to a loss of € 945 mn. Improvements in Banking and Alternative Investments were more than offset by a decline in Holding & Treasury, which mainly resulted from higher centralized pension costs.
Our net loss deteriorated by € 346 mn to € 1,003 mn since the effect in our non-operating result from an adapted cost allocation scheme1 for the pension provisions was € 335 mn lower than the previous year’s one-off benefit from pension revaluation with our German subsidiaries2.
Other income increased from € 116 mn to € 148 mn. Other income in 2014 included € 116 mn resulting from the policyholder participation related to the pension revaluation with our German subsidiaries2. In 2015, we recorded € 148 mn of other income, resulting from policyholder participation related to the above-mentioned adapted cost allocation scheme for pension provisions.
Our net interest result improved by € 33 mn to a loss of € 19 mn. Interest and similar income decreased by € 43 mn to € 222 mn. This was mainly driven by the absence of income from associated companies, which is recognized within the insurance business segments from 2015 onwards. A drop in interest income triggered by lower interest yields was more than offset by higher dividend income. As a result of lower internal borrowing and interest rates, our interest expenses, excluding interest expenses from external debt, decreased by € 76 mn to € 241 mn.
Our net fee and commission result improved by € 21 mn to a loss of € 184 mn. This improvement was primarily driven by a disposal gain from certain IT infrastructure assets.
Operating income from financial assets and liabilities carried at fair value through income (net) dropped from income of € 27 mn to a loss of € 28 mn. This was due to both a negative net effect of foreign currency movements and related hedge positions as well as lower fair values of certain fund investments.
Investment expenses were up by € 4 mn to € 76 mn.
Administrative expenses decreased by € 29 mn to € 409 mn as a result of reduced variable remuneration in Italy and Germany – and to a lesser extent fewer staff.
Our net interest, fee and commission result increased by € 15 mn to € 559 mn. Our net fee and commission result was up by € 16 mn to € 225 mn. This was mainly due to higher management and performance fee income, in line with higher assets under management in Italy. Our net interest result remained unchanged at € 334 mn (2014: € 335 mn). However, this result benefited from a special dividend, whereas the low-interest yield environment put pressure on our interest rate margin in almost all Banking units.
Our loan loss provisions increased by € 15 mn to € 60 mn. Higher general loan loss allowances in Bulgaria were the largest driver of this increase.
Overview: 2015 results versus previous year outlook1 2015 results versus previous year outlook for 2015 outlook 2015 – as per annual report 2014 results 2015 allianz Group Operating profit of € 10.4 Bn, plus or minus € 0.4 Bn. Operating profit of € 10.7 Bn. Protection of shareholders’ investments, while continuing to provide attractive returns and dividends.
Including a strong positive foreign currency impact, gross premiums written increased by 6.8 % driven by both internal growth (of 2.9 %) and external acquisitions.
Combined ratio below 96 % over the cycle. Combined ratio was 94.6 %. Pressure on operating investment income (net) due to reinvestments in a low interest rate environment.
Operating investment income (net) increased slightly by € 54 mn compared to the prior year.
Margin on reserves between 50 and 70 basis points. Margin on reserves at 67 basis points. Pressure on investment income due to low interest rates and continued capital market uncertainty.
Underlying cost-income ratio of 60.0 % or below. Cost-income ratio deteriorated 5.3 percentage points to 64.5 %. Adjusted for Special Performance Award at pimCo and restructuring charges related to AllianzGi 2.0, underlying cost-income ratio was 61.9 %.
Economic outlook1 At the beginning of 2016, the global economic picture is, broadly speaking, split between industrialized countries and emerging markets. On the one hand, economic activity in industrialized countries is likely to remain quite solid. In the United States, domestic demand looks set to firm up further. In the Eurozone, the economic recovery is likely to continue, supported by improved competitiveness and lower energy prices. With real gross domestic product expected to increase by 1.7 %, growth will be slightly higher than in 2015. Supported by improving economic conditions in the Eurozone and a favorable environment for private consumption, the German economy could expand by more than 2 % in 2016. On the other hand, growth prospects for several major emerging market countries remain subdued – for both cyclical and structural reasons. Following a severe recession in Brazil and Russia last year, economic activity is expected to gradually stabilize in the course of 2016. Overall, global output is likely to expand by about 2.7 % in 2016, compared with 2.4 % in 2015. Industrialized countries are expected to register gross domestic product growth of 2.0 %, while in emerging markets it could increase to 3.7 % from the 3.3 % seen in 2015, which was the lowest economic expansion since the great recession of 2009. At the global level, inflation is likely to remain very low, with a few exceptions in Latin America and Eastern Europe, where inflation rates have risen sharply for country-specific reasons (for example in Venezuela and in Ukraine).
As in 2015, financial markets will primarily be driven by monetary policy and geopolitical tensions, but also by economic and political developments in major emerging market countries such as China. On the monetary policy front, the Federal Reserve is likely to continue to hike interest rates very cautiously this year. By contrast, the European Central Bank is expected to keep key interest rates at present or even lower levels throughout 2016. We also do not see any trimming of the European Central Bank’s unconventional measures before the end of this year.
In the life sector, the overall picture is quite similar – although premium growth is much more volatile than in the property-casualty sector. In the coming year, this volatility may be exacerbated further by new regulations, changing government policies and ensuing shifts in the product mix. One thing, however, is unlikely to change: The highest premium growth is expected in emerging Asia, where countries such as China and Indonesia should continue with high, in many cases double-digit growth. Rising incomes and social security reforms remain strong engines for growing insurance demand. All in all, we expect global premium revenue to rise in the 4.0 – 5.0 % range in 2016 (in nominal terms, adjusted for foreign currency translation effects).
Although we see a more challenging environment for the asset management industry in 2016, prospects for further growth in almost all classes in the asset management industry are buoyed by these positive economic conditions as well as trends in client demand. However, profitability in the industry is under pressure from continuous flows into passive products and rising distribution and/or marketing costs that are tightening operating margins. Measures aimed at increasing regulatory oversight and reporting could also affect profitability in the asset management sector.
In order to continue growing, it is vital that asset managers have sufficient business volumes, maintain efficient operations and keep investment results above benchmark levels.
Pressure on investment income due to low interest rates and continued capital market uncertainty.
Looking at profitability, there is no expected relief from the pains associated with the low yield environment and regulation. As a result, the rebalancing of investment portfolios will continue as well as the shift in the product mix. New, less capital-intensive products, mixing unit-linked product characteristics with some sort of return guarantees, will increasingly replace the old-style savings products. At the same time, mastering the digital transformation is becoming more and more crucial. This mix of strategic challenges will not only spur industry consolidation but could also act as a drag on overall profitability.
− A 100 basis point increase or decrease in interest rates would, respectively, either raise or lower operating profits by approximately € 0.1 BN in the first year following the rate change. This does not include fair value changes in interest rate-sensitive positions that are reported in our income statement.
− A 10 % weakening or strengthening of the U.S. Dollar versus our planned exchange rate of 1.11 to the Euro would have a negative or positive impact on operating profits of approximately € 0.3 BN, respectively.
Management’s assessment of expected revenues and earnings for 2016 In 2015, our total revenues amounted to € 125.2 BN, representing a 2.4 % increase and a 2.1 % decrease on a nominal and internal basis, respectively, compared to last year. We expect a rather flat revenue development in 2016, with Property-Casualty advancing and Asset Management revenues slightly decreasing. Life/Health revenues are likely to be under pressure due to our selective focus on profitable growth.
Our net income attributable to shareholders increased, reaching € 6.6 BN in 2015. Consistent with our disclosure practice in the past and given the susceptibility of our non-operating results to adverse capital market developments, we do not provide a precise outlook for net income. However, since our outlook presumes no major disruptions of capital markets, we anticipate a rather stable net income for 2016.
property-Casualty insuranCe We expect our revenues to increase by approximately 2 % in 2016 (2015: 6.8 %), supported by favorable volume and – to a lesser extent – price effects as well as external growth. This growth is expected to be supported by the acquisition of the commercial portfolio of Aegon, strengthening our position in the attractive Benelux Property-Casualty market.
In 2015, our combined ratio was at 94.6 %. In 2016, we expect progress towards our 2018 ambition of 94 % or better. This rests on our expectation that the aggregate effect of improvements in pricing, claims management, and productivity will compensate for any underlying claims inflation. Despite the high volatility of natural catastrophes in recent years, we have assumed such claims will be in line with their expected average level in 2016.
Overall, we expect our 2016 operating profit to be in the range of € 5.2 BN to € 5.8 BN (2015: € 5.6 BN).
life/HealtH insuranCe In 2015, our operating profit of € 3.8 BN exceeded our target range – due to a higher level of net harvesting from our active portfolio derisking actions. This more than compensated for the loss recognition in South Korea. For 2016, we expect operating profit in our Life/Health business segment to be between € 3.3 BN and € 3.9 BN.
As communicated at the Capital Markets Day in November 2015, RoE1 will be one of the major key performance indicators (KPIs) for the steering of our Life business. In 2016 we expect RoE1 in our Life/Health business segment to be between 9.0 % and 11.0 %.
asset manaGement Although we see a more challenging environment for the asset management industry in 2016 compared to previous years, we expect positive net flows at PIMCO in 2016 and continued solid net inflows at AllianzGI. Market returns are expected to contribute moderately to a positive development of total AuM. Management and loading fees as well as performance fees are expected to decrease slightly. Lower operating expenses are expected to only partially offset the impact of lower operating revenues. Therefore, we envisage our operating profit to be in the range of € 1.9 BN and € 2.5 BN in 2016 (2015: € 2.3 BN).
Corporate anD otHer Our Corporate and Other business segment recorded an operating loss of € 0.9 BN in 2015. Due to the expectation of an improving operating result of the Holding & Treasury reportable segment – mainly attributable to lower administrative expenses – we predict an operating loss in the range of € 0.7 BN to € 0.9 BN for Corporate and Other (including consolidation) in 2016.
Management’s overall assessment of the current economic situation of the Allianz Group Overall, at the date of issuance of this Annual Report and given current information regarding natural catastrophes and capital market trends – in particular foreign currency, interest rates and equities – the Board of Management has no indication that the Allianz Group is facing any major adverse developments.
Balance Sheet Review − Shareholders’ equity increased by € 2.4 bn to € 63.1 bn. − Conglomerate solvency ratio up 19.6 percentage points to 200 %.1
2 This does not include non-controlling interests of € 2,955 mn as of 31 December 2015 and 2014, respectively. For further information, please refer to note 25 to the consolidated financial statements. Retained earnings include foreign currency translation adjustments of € (926) mn and € (1,977) mn as of 31 December 2015 and 31 December 2014, respectively.
Regulatory capital adequacy The Allianz Group is a financial conglomerate within the scope of the E.U. Financial Conglomerates Directive and the related German law in force since 2005. The law requires that financial conglomerates calculate the capital available to meet their solvency requirements on a consolidated basis, which we refer to as “eligible capital”. From 1 January 2016 onwards, capitalization based on Solvency II will be utilized for regulatory purposes.
Conglomerate solvency ratio Eligible capital Requirement 1 Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the conglomerate solvency ratios would be 191 % and 172 % as of 31 December 2015 and 31 December 2014, respectively.
As of 31 December 2015, our conglomerate solvency ratio amounted to 200 % – 19.6 percentage points higher compared to year-end 2014. The Group’s eligible capital for solvency purposes went up by € 8.1 bn to € 58.0 bn, including off-balance sheet reserves of € 2.7 bn (31 December 2014: € 2.3 bn). This increase was mainly driven by our net income
(net of accrued dividends) of € 3.3 bn, the issuance of a subordinated bond (€ 1.5 bn), and changes in deferred tax assets/liabilities and intangibles. The required funds were up by € 1.4 bn to € 29.0 bn, mainly because of higher aggregate policy reserves in the Life/Health business segment, but also due to strong nominal growth in our PropertyCasualty business segment. This was only partly offset by lower required funds for our Asset Management business segment due to an amended calculation methodology. At year-end 2015, our eligible capital surpassed the minimum legally stipulated level by € 29.0 bn.
Investment portfolio as of 31 December 2015: € 638.3 bn [as of 31 December 2014: € 614.6 bn] in %
Compared to year-end 2014, our investment portfolio grew by € 23.7 bn to € 638.3 bn as of 31 December 2015, with no relative change in our overall asset allocation despite some major realizations.
Our direct exposure to real estate was up by € 0.6 bn to € 12.0 bn mainly due to new investments.
Total fixed-income portfolio as of 31 December 2015: € 568.1 bn [as of 31 December 2014: € 549.8 bn] in %
Our government bond exposure was up by € 8.3 bn to € 217.5 bn, still representing 38 % of our fixed income portfolio. The increase in absolute terms was mainly driven by new investments. The allocation of our government and government-related direct bond exposure showed marginal changes in the geographical portfolio weightings, all of which were less than two percentage points. Our sovereign debt exposure in Italy and Spain equaled 5.2 % and 1.7 % of our fixed income portfolio, respectively. The corresponding unrealized gains (gross) amounted to € 5,506 mn in Italy and to € 679 mn in Spain.
1 Equity gearing is defined as the ratio of our equity holdings allocated to the shareholder after policyholder participation and hedges to shareholders’ equity plus off-balance sheet reserves less goodwill.
Our corporate bonds exposure increased by € 19.8 bn to € 164.9 bn – in relative terms, three percentage points to 29 %. This was primarily driven by new investments. The slight regional shift from Eurozone corporate bonds to North American ones, as reported in 2014, continued in 2015.
Our exposure to bank securities – including exposure to subordinated securities in banks – decreased by € 1.1 bn to € 31.3 bn. This exposure still represented 6 % of our fixed-income portfolio. The exposure to subordinated securities in banks decreased from € 5.3 bn to € 4.6 bn.
Operating investment result Interest and similar income (net)1 22,033 21,028 1,005 Operating income from financial assets and liabilities carried at fair value through income (net) (2,089) (1,301) (788) Operating realized gains/losses (net) 6,726 3,205 3,521 Operating impairments of investments (net) (1,258) (697) (561)
Our total investment income (net) increased by € 3,456 mn – or 16.0 % – to € 25,042 mn. This was largely due to higher realized gains and the increase in interest and similar income (net)1, partly offset by increases in operating losses from financial assets and liabilities carried at fair value through income (net) and impairments (net).
Operating realized gains and losses (net) more than doubled from € 3,205 mn to € 6,726 mn. This was driven by higher realizations on both debt securities and equities.
Interest and similar income (net)1 was up by € 1,005 mn to € 22,033 mn, reflecting almost equal increases in income from both debt securities and equities. The former increase benefited from positive foreign exchange effects from our exposures denominated in U.S. Dollar, held domestically by our U.S. life insurance business.
Our operating impairments of investments (net) increased by € 561 mn to € 1,258 mn. The greatest part of these impairments was related to equities and was consistent with unfavorable developments in the respective equity markets, in particular in the third quarter of 2015.
Investment expenses rose by € 132 mn to € 1,094 mn. This was mainly due to higher management fees from the increased asset base.
Non-operating investment result Our non-operating investment income (net) more than doubled from € 312 mn to € 724 mn. This was almost entirely driven by higher nonoperating realized gains, which expanded by € 399 mn to € 1,211 mn mainly as a result of higher realizations on equities.
Non-operating income from financial assets and liabilities carried at fair value through income (net) improved by € 84 mn to a loss of € 219 mn. This mainly stemmed from capital hedging activities related to our U.S. life insurance business.
Property-Casualty assets The Property-Casualty asset base remained almost unchanged at € 110.1 bn (31 December 2014: € 109.2 bn). A slight increase in debt securities was partly offset by a decline in loans and advances to banks and customers.
CompoSition of aSSet baSe – fair valueS1 € bn as of 31 December 2015 2014
Debt securities 74.8 72.4 Cash and cash pool assets4 5.0 5.6
As of 31 December 2015, the business segment’s gross reserves for loss and loss adjustment expenses and discounted loss reserves amounted to € 65.1 bn – an increase of € 2.5 bn compared to year-end 2014. On a net basis, our reserves – including discounted loss reserves – increased from € 55.6 bn to € 57.5 bn. Foreign currency translation effects and other changes contributed € 1.2 bn to this increase on a net basis.
Debt securities 343.8 331.8 Cash and cash pool assets3 7.7 8.0
Loans and advances to banks and customers 95.1 91.4 Financial assets for unit-linked contracts4 105.9 94.6 Life/Health asset base 596.9 565.4 1 This comprises assets of € 1.4 bn and € 1.4 bn and liabilities (including the market value lia bility option) of € (8.8) bn and € (8.2) bn as of 31 December 2015 and 31 December 2014, respectively.
Management Discussion and Analysis 67 Business Environment 69 Executive Summary of 2015 Results 74 Property-Casualty Insurance Operations 80 Life/Health Insurance Operations 86 Asset Management 90 Corporate and Other 98 Balance Sheet Review 105 Liquidity and Funding Resources 110 Reconciliations finanCial aSSetS for unit-linked ContraCtS1 € bn Unit-linked insurance contracts
Net premium inflows (outflows) 4.4 5.9 10.3 Changes in fund value 0.8 0.3 1.2 Foreign currency translation adjustments 3.4 (0.2) 3.2 Other changes (3.4) – (3.4)
Driven by a decrease in its largest component, cash and cash pool assets, the business segment’s asset base was down by € 0.4 bn to € 2.2 bn.
Asset Management liabilities Liabilities in our Asset Management business segment increased by aSSetS and liabilitieS of the Corporate and other buSineSS Segment
Loans and advances to banks and customers 15.6 17.5 Corporate and Other asset base 47.5 44.7 1 This comprises assets of € 0.2 bn and € 0.2 bn and liabilities of € (0.8) bn and € (0.6) bn as of 31 December 2015 and 31 December 2014, respectively.
2 These do not include affiliates of € 92.4 bn and € 77.2 bn as of 31 December 2015 and 31 December 2014, respectively. The increase was triggered by the streamlining of the legal corporate structure in Italy, which led to the move of respective opposite consolidation effects from business segment level to group level. For further information on the streamlining, please refer to page 57.
3 Including cash and cash equivalents, as stated in our business segment balance sheet, of € 2.0 bn and € 2.0 bn and receivables from cash pooling amounting to € 1.6 bn and € 1.7 bn, net of liabilities from securities lending and derivatives of € (0.2) bn and € (0.0) bn as well as liabilities from cash pooling of € (6.2) bn and € (7.9) bn as of 31 December 2015 and 31 December 2014, respectively.
AbS within the Corporate and Other business segment asset base decreased by € 0.3 bn to € 1.7 bn and in relative terms from 4.5 % to 3.7 %.
2 For further information on Allianz SE debt as of 31 December 2015, please refer to notes 23 and 24 to the consolidated financial statements.
The Allianz Group enters into various commitments including loan and leasing commitments, purchase obligations and other commitments. Please refer to note 47 to the consolidated financial statements for more details.
Liquidity management and funding of Allianz SE The responsibility for managing the funding needs of 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 result mainly from the capital maintenance rules under applicable company laws and the regulatory solvency capital requirements for regulated group companies.
We receive a large part of premiums before payments of claims or policy benefits are required, generating solid cash flows from our insurance operations. This allows us to invest the funds in the inter­ im to create investment income.
Long-term debt funding As of 31 December 2015, Allianz SE had senior and subordinated bonds in a variety of maturities outstanding, reflecting our focus on long­term 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.
Allianz SE has the option to increase its equity capital base according to authorizations provided by our shareholders. The fol­ lowing table outlines Allianz SE’s capital authorizations as of 31 December 2015: mAtUritY strUCtUre of ALLiAnz se’s senior AnD sUBorDinAteD BonDs As of 31 DeCemBer 2015 nominal value in € Bn perpetual2016
Interest expenses on senior bonds increased to € 270 MN (2014: € 264 MN). This was due to the appreciation of the British Pound against the Euro. For subordinated bonds, interest expenses increased to € 560 MN (2014: € 554 MN). This was primarily driven by slightly higher outstanding volumes on average in 2015.
1 For further information on Allianz SE debt (issued or guaranteed) as of 31 December 2015, please refer to notes 23 and 24 to the consolidated financial statements.
The table below details the long­term debt issuances and redemp­ tions of Allianz SE during 2015 and 2014: issUAnCes AnD reDemptions of ALLiAnz se’s senior AnD sUBorDinAteD BonDs € mn as of 31 December Issuances1 Redemptions1 Issuances net of redemptions
Funding in currencies other than the Euro enables us to diversify our investor base or to take advantage of favorable funding costs in those markets. Funds raised in non­Euro currencies are incorporated in our general hedging strategy. As of 31 December 2015, approximately 12.5 % (2014: 12.2 %) of long­term debt was issued or guaranteed by Allianz SE in currencies other than the Euro.
CUrrenCY ALLoCAtion of ALLiAnz se’s senior AnD sUBorDinAteD BonDs nominal value in € mn as of 31 December Euro Non-Euro Total
The Group maintained its A­1+/Prime­1 ratings for short­term issu­ ances. Thus we can continue funding our liquidity under the Euro 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.
Interest expenses € 62 mn 1.375 % bond issued by Allianz Finance ii B.V., Amsterdam Volume € 0.5 Bn Year of issue 2013 Maturity date 13/3/2018 isin De 000 A1h g1J 8 Interest expenses € 7 mn 4.75 % bond issued by Allianz Finance ii B.V., Amsterdam Volume € 1.5 Bn Year of issue 2009 Maturity date 22/7/2019 isin De 000 A1A khB 8 Interest expenses € 74 mn 3.5 % bond issued by Allianz Finance ii B.V., Amsterdam Volume € 1.5 Bn Year of issue 2012 Maturity date 14/2/2022 isin De 000 A1g 0rU 9 Interest expenses € 54 mn 3.0 % bond issued by Allianz Finance ii B.V., Amsterdam Volume € 0.75 Bn Year of issue 2013 Maturity date 13/3/2028 isin De 000 A1h g1k 6 Interest expenses € 24 mn 4.5 % bond issued by Allianz Finance ii B.V., Amsterdam Volume gBp 0.75 Bn Year of issue 2013 Maturity date 13/3/2043 isin De 000 A1h g1L 4 Interest expenses € 50 mn Total interest expenses for senior bonds € 270 mn 2. sUBorDinAteD BonDs3 5.75 % bond issued by Allianz Finance ii B.V., Amsterdam Volume € 2.0 Bn Year of issue 2011 Maturity date 8/7/2041 isin De 000 A1g nAh 1 Interest expenses € 116 mn 5.625 % bond issued by Allianz se Volume € 1.5 Bn Year of issue 2012 Maturity date 17/10/2042 isin De 000 A1r e1Q 3 Interest expenses € 86 mn 1 For further information on Allianz SE debt (issued or guaranteed) as of 31 December 2015, please refer to notes 23 and 24 to the consolidated financial statements.
2.241 % bond issued by Allianz se Volume € 1.5 Bn Year of issue 2015 Maturity date 7/7/2045 isin De 000 A14 J9n 8 Interest expenses € 25 mn 4.375 % bond issued by Allianz Finance ii B.V., Amsterdam Volume € 1.4 Bn Year of issue 2005 Maturity date perpetUAL
Interest expenses € 53 mn 4.75 % bond issued by Allianz se Volume € 1.5 Bn Year of issue 2013 Maturity date perpetUAL isin De 000 A1Y CQ2 9 Interest expenses € 72 mn 3.25 % bond issued by Allianz se Volume Chf 0.5 Bn Year of issue 2014 Maturity date perpetUAL
Interest expenses € 17 mn 3.375 % bond issued by Allianz se Volume € 1.5 Bn Year of issue 2014 Maturity date perpetUAL isin De 000 A13 r7z 7 Interest expenses € 52 mn Total interest expenses for subordinated bonds € 527 mn 3. issUes reDeemeD in 2015 6.5 % bond issued by Allianz Finance ii B.V., Amsterdam Volume € 1.0 Bn Year of issue 2002 Maturity date 13/1/2025
Interest expenses € 2 mn Sum of interest expenses € 799 mn Interest expenses from external debt not presented in the table € 50 mn Total interest expenses from external debt € 849 mn 3 The terms of the subordinated bonds do not explicitly provide for early termination rights in favor of the bondholder.
Net cash outflow used in investing activities decreased by € 6.5 BN to € 20.4 BN in 2015. This was mainly due to lower net cash outflows from available­for­sale investments, especially in our Life/Health business segment in Germany, the United States, and France. This was partly offset by Allianz SE, Allianz Korea, and our banking activi­ ties in Italy. In addition, we recorded higher cash inflows from loans and advances to banks and customers, primarily at Allianz SE and Allianz Korea. This was only partly offset by our Life/Health business segment in the Netherlands.
Cash and cash equivalents increased by € 1.0 BN to € 14.8 BN as of 31 December 2015, mainly stemming from our Life/Health business segment in Germany.
CAsh AnD CAsh eQUiVALents € mn as of 31 December 2015 2014
Acquisition expenses and commissions2 (4,915) (4,912) Definitions 32 28 Scope (379) (319) Acquisition costs incurred3 (5,262) (5,203)
Both capitalization and amortization is included in the line item premiums earned (net) in the group income statement.
Capitalization of daC2 1,741 1,904 Definition: urr capitalized 603 566 Definition: policyholder participation3 880 908 Scope 141 123 Capitalization of DAC4 3,364 3,502
Acquisition expenses and commissions2 (4,915) (4,912) Administrative and other expenses2 (1,695) (1,610) Capitalization of daC2 1,741 1,904 Amortization, unlocking and true-up of daC2 (2,073) (1,516) Acquisition and administrative expenses (6,942) (6,134) Definitions 125 341 Scope (224) (169) Commissions and profit received on reinsurance business ceded 115 88 Administrative expenses on reinsurance business ceded 4 14 Acquisition and administrative expenses (net)3,4 (6,922) (5,860)
1 Prior year figures changed in order to reflect the roll out of profit source reporting to Malaysia. 2 As per Group Management Report.
Risk pRofile and maRket enviRonment The Allianz Group is exposed to a variety of risks through its core insurance and asset management activities. These include market, credit, insurance, operational, business, and strategic risks. The three 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 as well as equity risk, which we take to benefit from the expected risk premium; − Credit and credit spread risks driven by assets backing long-term savings products; − Property-Casualty premium and reserve risks resulting from natural and man-made catastrophes as well as from claims uncertainty.
Financial markets and operating environment The European Central Bank is continuing its expansive monetary policy in order to fight low inflation rates and stimulate the Eurozone economy. As a result, financial markets are characterized by historically low interest rates and risk premia, prompting investors to look for higher-yielding – and potentially higher-risk – investments. In addition to sustained low interest rates, the challenges of implementing long-term structural reforms in key Eurozone countries and the uncertainty about the future path of monetary policy may lead to continued market volatility. This could be accompanied by a flight to quality, combined with falling equity and bond prices due to rising spread levels, even in the face of potentially lower interest rates. Also, possible asset bubbles (as observed in the Chinese equity market) might spill over to other markets, contributing to increasing volatility. Therefore, we continue to closely monitor the political and financial developments in the Eurozone – such as in Greece during 2015 – in order to manage our overall risk profile to specific event risks.
Capitalization For the benefit of shareholders and policyholders alike, Allianz’s aim is to ensure that the Group is adequately capitalized at all times and that all operating entities meet their respective regulatory capital requirements. Furthermore, risk capital and cost of capital are important aspects taken into account in business decisions.
RegulatoRy capital adequacy The Allianz Group is a financial conglomerate within the scope of the E.U. Financial Conglomerates Directive and the related German law in force since 1 January 2005. The law requires that a financial conglomerate calculates the capital available to meet its solvency requirements on a consolidated basis, which we refer to as “eligible capital”. For the 2015 financial year, the requirements for our insurance business are based on Solvency I. These capital requirements, as well as the definition and calculation of eligible capital, will be replaced by the Solvency II rules once the new regulation becomes binding on 1 January 2016. Allianz expects to be well capitalized also under these future regulatory requirements.
Eligible capital 58.0 49.8 1 Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the conglomerate solvency ratios would be 191 % and 172 % as of 31 December 2015 and 31 December 2014, respectively.
solvency ii RegulatoRy capitalization The Allianz Group’s own funds as well as the capital requirements are based on the market value balance sheet approach as the major economic principle of Solvency II rules.1 From 1 January 2016 onwards, the Solvency II capitalization will replace the capitalization based on Solvency I as the regulatory binding one. Our objective is to maintain available capital at the Group level that is above the minimum indicated requirements and consistent with our risk profile, risk appetite and capital management strategy. Our capitalization based on these 1 Own funds and capital requirement are calculated under consideration of volatility adjustment and yield curve extension, as described in Yield curve and volatility adjustment assumptions on page 116.
requirements is shown in the following table. Our U.S.-based life business, Allianz Life of North America (AZ Life), is included on the basis of third-country equivalence treatment2.
allianz gRoup: solvency ii RegulatoRy capitalization € Bn as of 31 December 2015 2014
The solvency ratio as of 31 December 2015 reflects regulatory model changes necessary for the go-live of Solvency II in 2016. These changes are described in detail in the section Model changes in 2015.
The following table presents the sensitivity of our predicted Solvency II capitalization ratio under certain standard financial scenarios. These are defined by reasonably possible individual movements in key market parameters, while keeping all other parameters constant, with the effects impacting both the available capital and the internal risk capital.
Risk and Opportunity Report and Financial Control 112 Risk and Opportunity Report 131 Controls over Financial Reporting and Risk Capital allianz gRoup: solvency ii RegulatoRy capitalization Ratios
Base capitalization ratio 200 191 Interest rates up by 0.5 %1 208 205 Interest rates down by 0.5 %1 185 170 Equity prices up by 30 % 208 199 Equity prices down by 30 % 190 179 Combined scenario: Interest rate down by 0.5 %1 Equity prices down by 30 % 176 158 1 Non-parallel interest rate shifts due to extrapolation of the yield curve beyond the last liquid point in line with forthcoming Solvency II rules.
Risk pRofile With Solvency II becoming the binding regulatory regime and the approval of our partial internal model, risk is measured and steered based on the risk profile underlying our regulatory capital requirement. By that we allow for a consistent view on risk steering and capitalization under the Solvency II framework. This is supplemented by economic business scenarios and sensitivities.
This Risk and Opportunity Report outlines the Group’s risk figures, reflecting its risk profile based on pre-diversified risk figures and group-diversification effects. Pre-diversified risk figures reflect the diversification effect within each modeled risk category (i.e. market, credit, underwriting, business, and operational risk) but does not comprise the diversification effects across risk categories. Groupdiversified risk figures also capture the diversification effect across all risk categories.
As of 31 December 2015, the group-diversified risk reflecting our risk profile before non-controlling interests of € 36.4 bn (2014: € 35.3 bn1) represented a diversification benefit2 of approximately 27 % (2014: 27 %1) across risk categories and business segments. The groupdiversified risk is broken down as follows: 1 2014 risk profile figures recalculated based on model changes in 2015 as described in Model changes in 2015 from page 118.
Total Group 36,423 35,313 1 2014 risk profile figures recalculated based on model changes in 2014, as described in Model changes in 2015 from page 118. With Solvency II becoming the regulatory binding regime, the breakdown reflects Allianz’s regulatory capital requirements, including the third-country equivalence treatment of AZ Life.
geneRal appRoach We utilize an approach for the management of our risk profile and solvency position that reflects the forthcoming Solvency II rules. This comprises our approved partial internal model covering all major insurance operations1. Other entities are reflected based on their standard model results as well as on sectoral or local requirements, in accordance with the Solvency II framework. Our partial internal model is based on a best-practice technical platform with an up-todate methodology covering all modeled sources of quantifiable risks.
inteRnal Risk capital model Our partial internal risk capital model is based on a Value-at-Risk (VaR) approach using a Monte Carlo simulation. Following this approach, we determine the maximum loss in the portfolio value of our businesses in the scope of the model within a specified timeframe (“holding period”) and probability of occurrence (“confidence level”). We assume a confidence level of 99.5 % and apply a holding period of one year. In the risk simulation, we consider risk events from all modeled risk categories (“sources of risk”) and calculate the portfolio value based on the net fair value of assets and liabilities under potentially adverse conditions.
Actuarial assumptions Our partial internal risk capital 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.
scope By design, our partial internal risk capital model takes into account the following risk categories: market risk, credit risk, underwriting risk, business risk, and operational risk – whenever these risks are present. A further breakdown of the risk categories can be found in the section on internal risk assessment. With the exception of the Asset Management business segment, all business segments are exposed to the full range of stated risk categories. By contrast, the Asset Management business segment is mainly exposed to operational and market risk and to a lesser extent to credit risk.
Coverage of the risk capital calculations Allianz’s partial internal risk capital model covers all major insurance operations1. This includes the relevant assets (including bonds, loans, mortgages, investment funds, equities and real estate) and liabilities (including the cash flow run-off profile of all technical reserves 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 – including policyholder participation rules – are taken into account.2
2 For further information about participating life business, please refer to note 20 to the consolidated financial statements.
For our Asset Management business segment, we assign internal risk capital requirements based on the sectorial regulatory capital requirements as envisaged in Solvency II. The Asset Management business is mainly affected by operational risks. However, since most of our Asset Management business is not located within the Eurozone, at the Group level it also bears foreign exchange rate risk. Our Asset Management business is covered by adequate risk controlling processes, including regular reporting and qualitative risk assessments (such as Top Risk Assessment) to the Group. However, since it is mainly affected by the previously mentioned two risk types (operational and foreign exchange rate), and due to the fact that the impact on total pre-diversified risk capital is minor, risk management with respect to Asset Management is not discussed in more detail.
Limitations Our partial internal risk capital model expresses the potential “worstcase ” amount in economic value that we might lose at a certain confidence level. However, there is statistically a low probability of 0.5 % that actual losses could exceed this threshold at Group level in the course of one year.
We use model and scenario parameters derived from historical data, where available, to characterize future possible risk events. If future market conditions differ substantially from the past, for example in an unprecedented crisis, our VaR approach may be too conservative or too liberal in ways that are too difficult to predict. In order to mitigate reliance on historical data, we complement our VaR analysis with stress testing. Our ability to back-test the model’s accuracy is limited because of the high confidence level of 99.5 %, the one-year holding period as well as the fact that for some insurance risk events – such as natural catastrophes – only limited data are available.
Furthermore, as historical data is used where possible to calibrate the model, historical data cannot be used for validation. Instead, we validate the model and parameters through sensitivity analyses, independent internal peer reviews and, where appropriate, external reviews by independent consulting firms, focusing on methods for selecting parameters and control processes. To ensure proper validation we established an Independent Validation Unit (IVU) within Group Risk responsible for validating our partial internal model within a comprehensive model validation process. Overall, we believe that our validation efforts are effective and that the model adequately assesses the risks to which we are exposed.
model changes in 2015 In 2015, our partial internal model has been adjusted, based on both regulatory developments and feedback received during the ongoing consultations with regulators as part of our internal model approval process. For the sake of clarity, all model changes and the resulting changes to our risk profile are presented jointly within this section, based on data as of 31 December 2014. This also comprises changes in the model scope, for example the third-country equivalence treatment of AZ Life, in order to reflect the risk profile according to the new regulatory binding capital requirement, effective from 1 January 2016.
In all subsequent sections the figures after the model changes will form the basis for the movement analysis of our risk profile in 2015.
Total Group 38,427 35,313 1 2014 risk profile figures as reported previously. 2 2014 risk profile figures recalculated based on new model.
Otherwise, changes to our partial internal model focused on the following risk categories: Market risk Market risk was significantly affected by the change in model scope. In addition, the modelling of how impairments within special funds are treated was updated to better reflect the management of special funds. Furthermore, the assumptions on dynamic lapses were adjusted, based on updated lapse evaluations, to better reflect policyholder behavior in a low interest rate environment. Also the modelling of cash flows related to Surplus funds under emergency scenarios was enhanced to better reflect the Surplus fund value. Finally, there are regulatory required add-ons on Group level allocated to segments and risk types. The different model changes decreased the total market risk by € 5.0 bn to € 23.1 bn.
Underwriting risk The decrease in underwriting risk both in the Life/Health and the Property-Casualty business segment is mainly due to the change in model scope.
Business Risk The decrease in business risk in the Life/Health business segment is mainly due to the change in model scope and parametrization changes for dynamic lapses.
Operational risk In 2015, a central model change regarding a more conservative definition of operational risk capital led to an overall increase in operational risk capital.
Internal risk assessment Risk pRofile and Risk management As we are an integrated financial services provider offering a variety of products across different business segments and geographic regions, diversification is key to our business model. Diversification is a key element in managing our risks efficiently by limiting the economic impact of any single event and by contributing to relatively stable results and our risk profile in general. Therefore, our aim is to maintain a balanced risk profile without any disproportionately large risk concentrations and accumulations.
Furthermore, we have put in place standards for hedging activities due to exposures to fair value options embedded in life insurance products. Life/Health operating entities carrying these exposures are required to follow these standards, including making a conscious decision on the amount of hedging.1 The hedging of risks stemming from investments is also an element applied to manage and limit risks efficiently. For example, protective puts are used to limit the downward exposure of certain investments2.
It is the ultimate responsibility of the Board of Management to decide upon limit budgets. The Board of Management delegates authorities for limit setting and modification to the Group Finance and Risk Committee and Group Chief Risk Officer by clearly defining maximum limit amounts. All limits are subject to annual review and approval according to the delegated authorities.
In addition, central elements of Allianz’s dividend policy are linked to the Solvency II capitalization based on our partial internal model. This shows that the partial internal model is fully integrated in the business steering of Allianz and that the application of the partial internal model satisfies the so-called “use-test” under Solvency II.
Market risk As an inherent part of our insurance operations, we collect premiums from our customers and invest them in a wide variety of assets. Thereby, the Allianz Group holds and uses many different financial instruments. The resulting investment portfolios back the future claims and benefits to our customers. In addition, we invest shareholders ’ capital, which is required to support the risks underwritten. As the fair values of our investment portfolios depend on financial markets, which may change over time, we are exposed to market risks. The following table presents our Group-wide risk figures related to market risks by business segment and source of risk.
allianz gRoup: Risk pRofile – maRket Risk By Business segment and souRce of Risk (total poRtfolio BefoRe tax and non-contRolling inteRests)
This was partly offset by a decrease in interest rate risk, predominantly due to management actions aiming at reducing our interest rate sensitivity by asset/liability management (ALM) measures.
Interest rate risk As interest rates may fall below the rates guaranteed to policyholders in some life/health markets, and given the long duration of insurance obligations, we are specifically exposed to interest rate risk because we have to reinvest maturing assets prior to the maturity of life contracts. This interaction of our investment strategy and obligations to policyholders forms an integral part of our internal risk capital framework. In addition, our ALM approach is closely linked to the internal risk capital framework and designed to achieve investment returns over the long term in excess of the obligations related to insurance and investment contracts.
Inflation risk As an insurance company we are exposed to changing inflation rates, predominantly due to our non-life insurance obligations. In addition, internal pension obligations contribute to our exposure to inflation. Since inflation increases both claims and costs, higher inflation rates will lead to greater liabilities. Inflation assumptions are already taken into account in our product development and pricing and the risk of changing inflation rates is incorporated in our partial internal model.
1 The stated market value includes all investments whose market value is sensitive to interest rate movements (excluding unit-linked business) reflecting the Solvency II framework, and therefore is not based on classifications given by accounting principles.
2 The stated market value includes all investments whose market value is sensitive to equity movements (excluding unit-linked business) reflecting the Solvency II framework, and therefore is not based on classifications given by accounting principles.
Currency risk Based on our foreign exchange management limit framework, currency risk is monitored and managed at the operating entity and Group level. As our operating entities are typically invested in assets of the same currency as their liabilities, the major part of foreign currency risk results from the economic value of our non-Euro operating entities. If non-Euro foreign exchange rates decline against the Euro from a Group perspective, the Euro-equivalent net asset values also decrease. However, at the same time the capital requirements in Euro terms from the respective non-Euro entity also decrease, partially mitigating the total impact on the capitalization.
Credit risk is measured as the potential economic loss in the value of our portfolio due to changes in the credit quality of our counterparts (“migration risk”) or the inability or unwillingness of the counterparty to fulfill contractual obligations (“default risk”). Our internal credit risk modeling framework covers counterparty risk and 3 2014 figure recalculated based on model changes in 2015 as described in Model changes in 2015 from page 118.
The loss profile of a given portfolio is obtained through a MonteCarlo simulation, taking into account interdependencies and exposure concentrations per obligor segment. To reflect portfolio specific diversification effects, the loss profiles are calculated at different levels of the Allianz Group structure (pre-diversified). They are then fed into the overall partial internal risk capital model for further aggregation across sources of risk to derive group-diversified internal credit risk.
By managing our credit risk on the basis of our limit management and credit risk modeling frameworks, we have composed a well-diversified credit portfolio. Our long-term investment strategy to hold investments through the cycle to maturity enables us to keep our portfolio stable even under adverse market conditions. It also gives us the opportunity to earn planned excess returns throughout the entire holding period of the investments. In our credit insurance business, proactive credit management offers opportunities to keep losses from single credit events below expected levels and therefore strongly supports writing business that contributes to a balanced Group credit portfolio.
AlliAnz Group: risk profile – AllocAted credit risk by business seGment (totAl portfolio before tAx And non-controllinG interests)
Property-Casualty 2,406 2,379 Life/Health 6,141 5,408 Asset Management 26 26 Corporate and Other 667 701 Total Group 9,240 8,514 Share of total Group pre-diversified risk 16.3 % 15.9 %
The following table displays the sensitivities of credit risk to certain scenarios: a deterioration of credit quality measured by issuer rating1 downgrades and the decline of recovery rates in the event of a default (Loss-Given-Default, LGD). The sensitivities are calculated by applying each scenario to all exposures individually, but keeping all other parameters constant.2
AlliAnz Group: impAct of selected credit scenArios on credit risk1 pre-diversified, € mn Total as of 31 December 2015 20142
Base case 9,240 8,514 Rating down by 1 notch 10,135 9,313 Rating down by 2 notches 11,485 10,560 1 A notch is referred to rating sub-classes, such as “AA+”, “AA”, “AA-” at Standard & Poor’s scale or “Aa1”, “Aa2”, “Aa3” at Moody’s scale.
The majority of credit risk and the impact of sensitivity analysis can be allocated to long-term sovereign debt as well as senior unsecured bonds with lower investment grade borrowers.
1 Credit risk calculations are based on issuer (borrower) ratings as opposed to issue (instrument) ratings. The difference between issue and issuer ratings is primarily due to collateralization and seniority and is reflected in Loss-Given-Default (LGD).
Credit risk – investment As of 31 December 2015, credit risk arising from the investment portfolio accounted for 88.2 % (2014: 92.7 %) of our total Group pre-diversified internal credit risk. Credit Risk in the Life/Health business segment is primarily driven by long-term assets covering long-term liabilities. Typical investments are government bonds, senior corporate bonds, covered bonds, self-originated mortgages and loans, as well as a modest amount of derivatives. Due to the nature of the business, the fixed-income securities in the Property-Casualty business segment tend to be short- to mid-term, which explains the lower Credit Risk consumption in this segment.1 1 Additionally, 4.8 % (2014: 2.4 %) of our total Group pre-diversified internal credit risk is allocated to receivables, potential future exposure for derivatives and reinsurance, and other off-balance sheet exposures.
A dedicated team selects our reinsurance partners, focusing on companies with strong credit profiles. We may also require letters of credit, cash deposits, or other financial measures to further mitigate our exposure to credit risk. As of 31 December 2015, 86.0 % (2014: 82.9 %) of the Allianz Group’s reinsurance recoverables were distributed among reinsurers that had been assigned at least an “A-” rating by Standard & Poor’s or A.M. Best. As of 31 December 2015, non-rated reinsurance recoverables represented 13.3 % (2014: 15.7 %). Reinsurance recoverables without a Standard & Poor’s rating include exposures to brokers, companies in run-off, and pools – where no rating is available.
Government & 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 Solvency II framework.
Credit risk – reinsurance As of 31 December 2015, 0.4 % (2014: 0.4 %) of our total Group pre-diversified internal credit risk was allocated to reinsurance exposures – of which 52.0 % (2014: 58.5 %) was related to reinsurance counterparties in the United States and Germany.
BBB+ to BBB- 0.08 0.17 Non-investment grade – – Not assigned 1.76 1.97 1 Represents gross exposure broken down by reinsurer.
Underwriting risk Underwriting risk consists of premium and reserve risks in the Property -Casualty business segment as well as biometric risks in the Life/ Health business segment. For the Asset Management business segment and our banking operations, underwriting risks are not relevant. The following table presents the pre-diversified risk calculated for underwriting risks stemming from our insurance.1 allianz gRoup: Risk pRofile – allocated undeRwRiting Risk By Business segment and souRce of Risk (total poRtfolio BefoRe non-contRolling inteRests)1 pre-diversified, € mn Premium natural catastrophe Premium terror Premium non-catastrophe Reserve Biometric Total
Asset Management – – – – – – – – – – – –
Share of total Group pre-diversified risk 21.1 % 21.7 % 1 As risks are measured by an integrated approach on an economic basis, internal risk profile takes reinsurance effects into account.
Property-Casualty risk changes are mainly driven by exposure and model updates as well as foreign currency translation effects. For biometric risk there were only minor movements.
Underwriting risk Property-Casualty Our Property-Casualty insurance businesses are exposed to premium risk related to the current year’s new and renewed business, as well as reserve risks related to the business in force.
Premium risk1 As part of our Property-Casualty business operations, we receive premiums from our customers and provide insurance protection in return. Changes in profitability over time are measured based on loss ratios and their fluctuations.2 1 2014 risk profile figures recalculated based on model changes in 2015.
2 Please refer to the section Property-Casualty Insurance Operations – Property-Casualty insurance operations by reportable segments from page 78 for a regional breakdown of loss ratios over the past two years.
Premium risk is subdivided into natural catastrophe risk, terror risk, and non-catastrophe risk. We calculate premium risk based on actuarial models that are used to derive loss distributions. Premium risk is actively managed by the Allianz Group and its local operating entities.
In general, our operating entities constantly monitor the development of reserves for insurance claims on a line-of-business level.1 In addition, the operating entities generally conduct annual reserve uncertainty analyses based on similar methods used for reserve risk calculations. Allianz SE performs regular independent reviews of these analyses and Allianz SE representatives participate in the local reserve committees’ meetings.
The risks related to non­compliance or other misconduct are addressed via various dedicated compliance programs. Written poli­ cies detail the Allianz Group’s approach towards the management of these areas of risk. The implementation and communication of those compliance programs are monitored by the Group Compliance func­ tion at Allianz SE. In close cooperation with the Risk function of the Group, the risk­mitigating measures are taken and enforced by a global network of dedicated compliance functions throughout the Allianz Group. With respect to financial statements, our internal con­ trol system is designed to mitigate operational risks.1 1 For additional information regarding our internal control over financial reporting, please refer to Controls over Financial Reporting and Risk Capital from page 131.
Major failures and disasters also at our outsourcing providers, which could cause a severe disruption to our working environment, repre­ sent significant operational risks for the Allianz Group. Our Business Continuity and Crisis Management framework strives to protect criti­ cal business functions from these shocks and enables them to carry out their core tasks on time and at the highest standard. Regularly enhanced, business continuity and crisis activities are embedded in the company’s risk management processes.
Allianz works on a Cyber and Information Security program on an ongoing basis, in order to better respond to current external devel­ opments and to further strengthen the internal control environment around related operational risks.
other risks There are certain risks that cannot be fully quantified across the Group using our partial internal risk capital model. For these risks we also pursue a systematic approach with respect to identification, analysis, assessment, monitoring, and steering. In general, the risk assessment is based on qualitative criteria or scenario analyses. The most important of these other risks are strategic, liquidity and repu­ tational risk.
Strategic risks are evaluated and analyzed in the strategic and planning dialogue between Allianz Group and its operating entities. To ensure proper implementation of strategic goals in the current business plan, strategic controls are carried out by monitoring respective business targets. We also constantly monitor market and competitive conditions, capital market requirements, regulatory conditions, etc., to decide whether to make strategic adjustments. In addition, strategic decisions are discussed in various Board of Man­ agement level committees (e.g. Group Capital Committee, Group Finance and Risk Committee). The assessment of the associated risks is a fundamental element in these discussions.
Reputational risk Allianz’s reputation as a well-respected and socially aware provider of financial services is influenced by our behavior in a range of areas such as product quality, corporate governance, financial performance, customer service, employee relations, intellectual capital, and corporate responsibility. Reputational risk is the risk of an unexpected drop in the value of the Allianz SE share price, the value of the in-force business, or the value of future business, being caused by a decline in our reputation.
Risk governance Risk management fRamewoRk As a provider of financial services, we consider risk management to be one of our core competencies. It is therefore an integral part of our business process. Our risk management framework covers, on a riskbased approach, all operations including IT, processes, products, and departments/subsidiaries within the Group. The key elements of our risk management framework are: − Promotion of a strong risk management culture, supported by a robust risk governance structure.
− Consistent application of an integrated risk capital framework across the Group to protect our capital base and support effective capital management.
− Integration of risk considerations and capital needs into management and decision-making processes through the attribution of risk and allocation of capital to the various business segments.
For the benefit of shareholders and policyholders alike, our risk management framework adds value to Allianz SE and its operating entities through the following four primary components: Risk underwriting and identification: A sound risk underwriting and identification framework forms the foundation for adequate risktaking and management decisions such as individual transaction approvals, new product approvals, and strategic asset allocations. The framework includes risk assessments, risk standards, valuation methods, and clear minimum standards for underwriting.
Risk reporting and monitoring: Our comprehensive qualitative and quantitative risk reporting and monitoring framework provides senior management with the transparency and risk indicators to help them decide on our overall risk profile and whether it falls within delegated limits and authorities. For example, risk dashboards, internal risk allocation, and limit consumption reports are regularly prepared, communicated and monitored.
Supervisory Board and Board of Management Within our risk governance system, the Supervisory Board and Board of Management of Allianz SE have both Allianz SE and Group-wide responsibilities and have set up committees to provide them with support. Examples include: Supervisory Board The Risk Committee of the Supervisory Board monitors the effectiveness of the Allianz risk management and monitoring framework. Furthermore, it focuses on risk-related developments as well as general risks and specific risk exposures.
Board of Management The Board of Management formulates business objectives and a corresponding, consistent risk strategy. The core elements of the risk framework are set out in the Allianz Group Risk Policy, which is approved by the Board of Management.
− The Group Finance and Risk Committee (GFRC) ensures 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 Allianz SE’s risk profiles as well as the availability of capital. The GFRC also ensures that an adequate relationship between return and risk is maintained. Additionally, the GFRC defines risk standards, forms the limit-setting authority within the framework set by the Board of Management and approves major single financing and reinsurance transactions.
Overall risk organization and roles in risk management A comprehensive system of risk governance is achieved by setting standards related to organizational structure, risk strategy and appetite, written policies, limit systems, documentation, and reporting. These standards ensure the accurate and timely flow of risk-related information and a disciplined approach towards decision-making and execution at both the global and local level.
As a general principle, the “first line of defense” rests with business managers in the local operating entities and Allianz Investment Management units. They are responsible, in the first instance, for both the risks of and returns on their decisions. Our “second line of defense” is made up of our independent, global oversight functions such as Risk, Actuarial, Compliance and Legal. Audit forms the “third line of defense”. On a periodic basis, Group Audit independently reviews risk governance implementation, performs quality reviews of risk processes, and tests adherence to business standards, including the internal control framework.
Operating entities Operating entities are responsible for their own risk management, including adherence to both external requirements (for example, those imposed by local regulators) and internal Group-wide standards. The operating entities’ Board of Management is responsible for setting and approving a local risk strategy during the annual Strategic and Planning Dialogues with the Group and for ensuring operating entities’ adherence to their risk strategy.
All business line management functions with a direct profit and loss responsibility (i.e. “first line of defense”, or “risk-taking units”) are in charge of active risk-return management through adherence to delegated limits and the operating entity’s policy framework. “Second line of defense”-functions support, challenge and have the oversight of business functions through proactive risk management.
Group Legal and Compliance seeks to mitigate legal risks with support from other departments. Legal risks include legislative changes, litigation and disputes, regulatory proceedings and contractual clauses that are unclear or construed differently by the courts. Compliance risk is the risk of legal or regulatory sanctions, material financial loss, or loss to reputation that an undertaking may suffer as a result of not complying with applicable laws, regulations, and administrative provisions. The objectives of Group Legal and Compliance are to ensure that laws and regulations are observed, to react appropriately to all impending legislative changes or new court rulings, to attend to legal disputes and litigation, and to provide legally appropriate solutions for transactions and business processes. In addition, Group Legal and Compliance is responsible for integrity management, which aims to protect the Allianz Group, our operating entities and employees from regulatory risks.
Demographic changes are also creating both opportunities and challenges for financial services providers. While the urban populations of Asia and Africa are expanding and their middle classes growing, Western populations are aging and their workforces shrinking. With more people over 60 years old than ever before and declining birth rates, social security systems are under pressure and demand is growing for additional accumulation as well as decumulation products. We are responding to these trends by providing integrated insurance and asset management solutions. Our solid market position in continental Europe and the United States as well as our strong brand and well-diversified product portfolio put us in an excellent position to develop solutions to meet the needs of the retirement, health care, and assistance markets.
In emerging economies, the need for formal social security systems is growing due to the weakening of traditional family ties and support networks. From life to health and crop insurance, our growing microinsurance portfolio helps low-income families in developing countries protect themselves against – and better manage – the risks in life to build a more secure future. For example, in Asia, Allianz is working on an insurance model for rice farmers based on satellite technology.
Internal controls over financial reporting In line with both our prudent approach to risk governance and compliance with regulatory requirements, we have created a structure to identify and mitigate the risk of material errors in our consolidated financial statements. Our internal control system over financial reporting (ICOFR) is based on the revised framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and is regularly reviewed and updated. Our approach also includes the following five interrelated components: Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring. These five components are covered by an Entity Level Control Assessment Process (ELCA), IT General Controls (ITGC) and controls at process levels. The ELCA framework contains controls such as a compliance program or committee governance structure. In the ITGC framework we implemented, for example, controls regarding access right management and project and change management controls.
governance Responsibility for ensuring the completeness, accuracy and reliability of our consolidated financial statements rests with the Chairman of the Board of Management and the Board member responsible for Finance, Controlling and Risk of Allianz SE, supported by Group Center functions, the Group Disclosure Committee and operating entities.
Further control mechanIsms In our opinion, a strong internal control environment is key to managing our company successfully and to reinforce trust with our stakeholders. In addition to ICOFR, for example, we have implemented an enhanced internal control environment across our largest Life insurance operating entities for the Market Consistent Embedded Value (MCEV) reporting process.
Loans and advances to banks and customers 10 117,630 117,075 Financial assets for unit-linked contracts 105,873 94,564
Deferred acquisition costs 12 25,234 22,262 Deferred tax assets 42 1,394 1,046
Non-current assets and assets of disposal groups classified as held for sale 14 109 235
Liabilities of disposal groups classified as held for sale 14 18 102
Gross premiums written 76,723 73,883 Ceded premiums written (5,536) (4,463) Change in unearned premiums (543) (1,146) Premiums earned (net) 26 70,645 68,274 Interest and similar income 27 22,408 21,443 Income from financial assets and liabilities carried at fair value through income (net) 28 (2,307) (1,604) Realized gains/losses (net) 29 7,937 4,017 Fee and commission income 30 10,945 10,119
Foreign currency translation adjustments Reclassifications to net income 85 2 Changes arising during the year 993 1,428
Share of other comprehensive income of associates and joint ventures Reclassifications to net income 1 – Changes arising during the year 79 54
Miscellaneous Reclassifications to net income – – Changes arising during the year 23 (151)
Items that may never be reclassified to profit or loss Actuarial gains and losses on defined benefit plans 470 (1,607) Total other comprehensive income (1,370) 6,988
1 Total comprehensive income in shareholders’ equity for the year ended 31 December 2015 comprises net income attributable to shareholders of € 6,616 mn (2014: € 6,221 mn).
Change in other loans and advances to banks and customers (originated loans) (4,142) (2,403) Other (net) (708) (665) Net cash flow used in investing activities (20,394) (26,927)
sUpplementarY information on the consolidated statements of cash flows Income taxes paid (2,609) (3,081) Dividends received 1,878 1,555 Interest received 19,412 18,851 Interest paid (1,265) (1,326)
Nature of operatioNs Allianz SE and its subsidiaries (the Allianz Group) offer Property-Casualty insurance, Life/Health insurance and Asset Management products and services in over 70 countries, with the largest of its operations in Europe. The Allianz Group’s headquarters and Allianz SE as its parent company are located in Munich, Germany. Allianz SE is recorded in the Commercial Register of the municipal court in Munich under its registered address at Königinstrasse 28, 80802 Munich.
IFRS do not provide specific guidance concerning all aspects of the recognition and measurement of insurance contracts, reinsurance contracts and investment contracts with discretionary participation features. Therefore, as envisioned in IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, to those aspects where specific guidance is not provided by IFRS 4, Insurance Contracts, the provisions embodied under accounting principles generally accepted in the United States of America (US GAAP) as at first-time adoption of IFRS 4 on 1 January 2005 have been applied.
Scope of consolidation In line with IFRS 10, the consolidated financial statements of the Allianz Group comprise the financial statements of Allianz SE and its subsidiaries (including certain investment funds and structured entities) over which the Allianz Group has control. The Allianz Group controls a subsidiary when it is exposed to, or has rights to, variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. Power over a subsidiary arises when the Allianz Group has existing rights that give it the current ability to direct the relevant activities of the subsidiary. This is usually the case when the Allianz Group owns more than half of the voting rights or similar rights. In order to determine whether control exists, potential voting rights that are currently exercisable or convertible are taken into consideration. Where subsidiaries have been designed so that voting or similar rights are not the dominant factor of control, such as when any voting rights relate to administrative tasks only and returns are directed by means of contractual arrangements, control is assessed on the basis of the Allianz Group’s level of involvement in defining the terms and features of these contractual arrangements, as is the case for structured entities. In the case of investment funds managed by Allianz Group internal asset managers, the control assessment considers whether the Allianz Group is in a principal or agent role with a view to the investment funds assessed. This assessment takes into account kickout rights held by third-party investors as well as the aggregate economic interest of the Allianz Group in the investment funds assessed.
Business combinations including acquisitions and disposals of non-controlling interests Business combinations are accounted for using the acquisition method. Non-controlling interests in the acquiree can be measured either at the acquisition date fair value 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.
Translation from any foreign currency to the functional currency The individual financial statements of each of the Allianz Group’s subsidiaries are prepared in the prevailing currency in the primary economic environment where the subsidiary conducts its ordinary activities (its functional currency). Transactions recorded in currencies other than the functional currency (foreign currencies) are recorded at the exchange rate prevailing on the date of the transaction.
For repurchase agreements, the proceeds received from the sale are reported under liabilities to banks or customers. Interest expenses from such transactions are accrued over the duration of the agreements and reported in interest expenses. If for reverse repo transactions all of the risks and rewards of the securities remain substantially with the counterparty over the entire lifetime of the agreement, the securities concerned are not recognized as assets. The amounts of cash disbursed are recorded under loans and advances to banks and customers. Interest income on reverse repo agreements is accrued over the duration of the agreements and is reported in interest and similar income.
Furthermore, hedge accounting may be applied to derivative financial instruments used to hedge the foreign currency risk associated with a net investment in a foreign operation. The effective
The Allianz Group discontinues hedge accounting prospectively when the hedge is no longer expected to be highly effective, when the derivative financial instrument or the hedged item expires, or is sold, terminated or exercised, or when the Allianz Group decides that hedge accounting is no longer appropriate.
Derivative financial instruments designated in hedge accounting relationships are included in the line item other assets and liabilities. Freestanding derivatives are included in the line item financial assets or liabilities held for trading. For further information on derivatives, please refer to note 43 Derivative financial instruments.
Liabilities to banks and customers (Other liabilities) Amortized cost Financial liabilities for unit-linked contracts Fair value Other liabilities
Cash aND Cash eQuiVaLeNts Cash and cash equivalents include balances with banks payable on demand, balances with central banks, cash on hand, treasury bills to the extent they are not included in financial assets held for trading, as well as checks and bills of exchange that are eligible for refinancing at central banks, subject to a maximum term of three months from the date of acquisition.
Financial assets and liabilities are designated at fair value through income to eliminate or significantly reduce an accounting mismatch. Subsidiaries must reach out to the Allianz Group Accounting and Reporting Department for approval before designating any financial asset or liability as at fair value through income.
Held-to-maturity investments 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 securities are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method.
Investments in associates and joint ventures For details on the accounting for investments in associates and joint ventures please see the section ‘principles of consolidation’.