Balances with banks payable on demand 7,295 7,498 Balances with central banks 2,277 389 Cash on hand 223 263 Treasury bills, discounted treasury notes, similar treasury securities, bills of exchange and checks 2,642 2,342 Total cash and cash equivalents 12,437 10,492 1 Refers to cash flows from certificated liabilities, participation certificates and subordinated liabilities.
Reconciliations The previous analysis is based on our consolidated financial statements and should be read in conjunction with them. In addition to our stated figures according to the Interna­ tional Financial Reporting Standards (IFRS), the Allianz Group uses operating profit and internal growth to enhance the understanding of our results. These additional measures should be viewed as complementary to, and not a substi­ tute for, our figures determined according to IFRS.
Corporate and Other Total revenues (Banking) 590 567 587 consisting of: Interest and similar income 719 734 683 Income from financial assets and liabilities carried at fair value through income (net) 14 (2) 1 Fee and commission income 456 430 445
Fee and commission expenses (247) (221) (210) Consolidation effects (Banking within Corporate and Other) (2) – 1
We believe that an understanding of our total revenue per­ formance is enhanced when the effects of foreign currency translation as well as acquisitions and disposals (or chang­ es in scope of consolidation) are separately analyzed. Accordingly, in addition to presenting nominal growth, we also present internal growth, which excludes these effects.
Internal growth Changes in scope of consolidation Foreign currency translation Nominal growth
Risk PRofile Allianz is exposed to a variety of risks through its core insurance and asset management activities. These include financial market, credit, insurance, operational, business and strategic risks. The three largest risks in terms of their contribution to Allianz’s internal model risk capital results are: − Financial market risk, especially interest rate risk driven by the duration mismatch between assets and liabilities for long-term savings products; − Credit and credit spread risk, again driven by the assets backing long-term savings products; − Property & Casualty premium risk, which is driven by natural and man-made catastrophes as well as accident year claims uncertainty.
Allianz’s risk profile is relatively stable over time, being driven by Allianz’s risk appetite and steered by our risk management practices and limits – which are described in greater detail later in this report.
In addition, due to the market value balance sheet approach, the Solvency II regime is expected to lead to higher volatility in regulatory capital requirements compared to Solvency I, specifically with regard to long-term asset accumulation and savings products in the life insurance segment. Therefore, product design, investment strategies and hedging programs will likely need to be adapted throughout the industry to mitigate this volatility.
− The Group’s management also believes that Allianz is well positioned to deal with potential future adverse events, in part due to our internal limit framework defined by the Group’s risk appetite and risk management practices. The Group’s management is confident that, through our risk appetite and management practices, we have achieved an appropriate balance between potential earnings, earnings volatility and solvency considerations.
− The Group has a conservative investment profile and disciplined business practices in the Property-Casualty, Life/Health and Asset Management segments, leading to sustainable operating earnings with a well-balanced risk/return profile.
We closely monitor the capital positions of the Group and operating entities and apply regular stress tests based on standard adverse scenarios. This allows us to take appropriate measures to ensure our continued capital and solvency strength.
RegulatoRy caPital adequacy The Allianz Group is a financial conglomerate within the scope of the E.U. Financial Conglomerates Directive and the related German law in force since 1 January 2005. The law requires that a financial conglomerate calculates the capital available to meet its solvency requirements on a consolidated basis, which we refer to as “eligible capital”. Currently, the requirements for our insurance business with regard to conglomerate solvency 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.
The conglomerate solvency ratio decreased by approxi­ mately 17 percentage points as of 1 January 2013 due to amended IAS 19.2 external rating agenCy Capital adequaCy Rating agencies apply their own models to evaluate the re­ lationship between the required risk capital of a company and its available capital resources. An assessment of capital adequacy is usually an integral part of the rating process. Meeting rating agencies’ capital requirements and main­ taining strong credit ratings are strategic business objec­ tives of the Allianz Group.
1 For further details on changes in eligible capital and solvency requirement, please refer to the chapter Balance Sheet Review from page 166 onwards.
insurer finanCial strength ratings of allianz se C 083 standard & poor’s moody’s a.m. best 2012 AA Negative outlook
The overview below presents the ratings for the Group, assigned to Allianz SE by major rating agencies.
internal Capital adequaCy The Allianz Group’s available capital is based on sharehold­ ers’ equity adjusted to reflect the full economic capital base available to absorb unexpected economic losses.1 For ex­ ample, hybrid capital and the present value of future profits of in­force business in the Life/Health segment are added to shareholders’ equity, whereas goodwill and other intan­ gible assets are subtracted and the reserves of Property­ Casualty business are discounted to obtain the economic capital base.
requirements. These minimum requirements are deter­ mined by our internal risk capital model according to a 99.5 % confidence level over a holding period of one year – the anticipated parameterization of Solvency II. To allow for a consistent measurement and steering of risks, we bench­ mark our operating entities to similar internal capital re­ quirements.
available Capital and internal risk Capital C 085 € bn 12/31/20111 12/31/2012
Capital ratio Available capital Internal risk capital 1 Recalculated based on model updated in 2012. For further information, please refer to Model updates in 2012 from page 193 onwards.
Overall, our internal model solvency ratio rose from 191 % to 199 %. This was due to two factors: First, a strong increase in available capital – which was mainly driven by a growth in operating profit and tighter credit spreads. Second, par­ tially offsetting the increase in available capital, internal risk capital grew mostly driven by the continuing decline in interest rates and higher fixed income exposures due to tightening credit spreads predominantly impacting market risk.
This Risk Report provides both pre­diversified and Group­ diversified internal risk capital results. Pre­diversified in­ ternal risk capital reflects the diversification effect within each risk category (i.e. market, credit, underwriting, busi­ ness and operational risk) but does not include the diversifi­ cation effect across categories. Group­diversified internal risk capital captures the total diversification effect across all risk categories and regions. Pre­diversified internal risk capital is used to measure concentration risks.
allocated inteRnal Risk caPital (total PoRtfolio befoRe non-contRolling inteRests) as of 31 deceMbeR 2012 [31 deceMbeR 20111] C 086 € Mn by Risk categoRy by business segMent
Market risk Credit risk Underwriting risk Business risk Operational risk Tax impact Total after tax
As of 31 December 2012, the Group-diversified internal risk capital before non-controlling interests of € 24.8 bn represented a diversification benefit of approximately 45.1 % across risk categories and regions. Pre-diversified and Group-diversified internal risk capital are broken down as follows:
geneRal aPPRoach We apply an internal risk capital model for the management of our risk and solvency position and are working towards meeting the forthcoming Solvency II internal model requirements. Our model is based on a best practice technical platform with an up-to-date methodology covering all modeled sources of quantifiable risks. This forms the integral part of our internal risk capital framework.
The implementation of this framework incorporates our internal approach towards managing risks while aiming at following the Solvency II standards. The model framework is being assessed by European regulators in the course of the internal model pre-application process and will be adjusted in accordance with the final Solvency II rules. The updates to the model that were implemented during 2012 are described in the section Model updates in 2012.
The required internal risk capital is defined as the difference between the current portfolio value and the portfolio value under adverse conditions dependent on the 99.5 % confidence level. Because we consider the impact of a negative event on all sources of risks and covered businesses at the same time, all diversification effects across sources of risk and regions are taken into account.
The results of our Monte Carlo simulation allow us to analyze our exposure to each source of risk, both separately and in aggregate. In addition, for market risks we analyze several pre-defined stress scenarios either based on historically observed market movements or based on hypothetical market movement assumptions.
We strive to diversify the risks to which we are exposed in order to limit the impact of any single source of risk and help ensure that the positive developments of some businesses neutralize the possibly negative developments of others. The degree to which diversification can be realized depends in part on the level of relative concentration of those risks. The greatest diversification is generally obtained in a balanced portfolio without any disproportionately large exposures to only a few risks. In addition, the diversification effect depends on the joint movement of sources of risks. One measure of the degree of the joint movement of two sources of risk is linear correlation, characterized by a value between “–1” and “+1”.
Where possible, we derive correlation parameters for each pair of market risks through statistical analysis of historical market data, considering weekly observations over several years. In case historical market data or other portfolio-specific observations are insufficient or not available, we rely on the professional judgment of experts for the respective risk categories. In general, we set the correlation parameters to represent the joint movement of risks under adverse conditions. Based on these correlations, we use an industrystandard approach, the Gaussian Copula approach, to determine the dependency structure of quantifiable sources of risk within the applied Monte Carlo simulation.
Non-market assumptions Our internal risk capital model also includes non-market assumptions such as claims trends, inflation, mortality, longevity, morbidity, policyholder behavior, expense, etc. To the extent available, we use our own internal historical data for non-market assumptions and also consider recommendations from supervisory authorities and actuarial associations.
scoPe By design, our internal risk capital model takes into account the following sources of risk, classified as risk categories per segment: inteRnal Risk caPital Model C 087
Credit risk ◼ ◼ ◼ Possible losses in the market value of the portfolio due to deterioration in the credit quality of counter parties including their failure to meet payment obligations or due to nonperformance of instruments (i. e. overdue payment).
Underwriting risk Unexpected financial losses due to the inadequacy of premiums for natural catastrophe, terror and non-catastrophe risks, due to the inadequacy of reserves or due to the unpredictability of mortality, disability, morbiditiy or longevity.
Business risk Possible losses resulting from unexpected changes in business assump tions and unanticipated earnings fluctuations due to a decline in income without corresponding decrease in expenses, as well as changes in policyholder behavior related to early termination of contracts and unanticipated use of options such as renewals and annuitization.
Our internal risk capital model covers: − All of our major insurance operations; − Our assets (including bonds, mortgages, investment funds, loans, equities and real estate) and liabilities (including the cash flow profile of all technical reserves as well as deposits and issued securities); − For the Life/Health segment, the interaction between assets and liabilities is driven by local management decisions – such as investment strategies and policyholder participation rules. Traditional Life/Health products sold in Western Europe generally feature policyholder participation in the profits (or losses), subject to management discretion and typically floored at a minimum guaranteed crediting rate. The majority of our Life/ Health contracts in Western Europe comprise a significant level of policyholder participation, thereby reducing major sources of risk, including market, credit, underwriting and cost risks;1
− Almost all of our derivatives, such as options, swaps and futures, in particular if they are part of the operating entity ’s regular business model (e.g. at Allianz Life Insurance Company of North America) or if they have a significant impact on the resulting internal risk capital (e.g. in the Life/Health segment, if material obligations to policyholders are hedged through financial derivatives). In general, embedded derivatives contained in a host contract are also included.2
“worst case” amount in economic value that we might lose at a certain confidence level. However, there is a statistically low probability of 0.5 % that actual losses could exceed this threshold at Group level in the course of one year.
As described previously, insurance liability values are derived from replicated portfolios of standard financial market instruments in order to allow for effective risk management. However, for life portfolios with embedded guarantees, the available replicating instruments may be too simple or too restrictive to capture all factors affecting the change in value of insurance liabilities. Therefore, the optimal replicating portfolio, which is used to calculate internal risk capital, is subject to the set of available replicating instruments. Its value and behavior under market movements may deviate from the actual liabilities’ characteristics.
Nevertheless, we believe that the liabilities are adequately represented by the replicating portfolios due to our stringent data and process quality controls.
Model uPdates in 2012 In 2012, we also updated our internal model. Our general practice was to apply changes in areas where the final Solvency II regulation is clear but take our own economic view where uncertainty about the final regulation still prevails. The following section briefly summarizes the most important model updates implemented during 2012 that affect both our available capital and internal capital models. In order to provide an isolated view of the impact, we recalculated our 2011 disclosed figures, taking only these updates into account.
Further internal capital model updates With respect to our internal risk capital model, the aggregate impact of all other model changes leads to an additional reduction in risk capital at the 99.5 % confidence level of € 3.5 bn – from € 26.7 bn to € 23.2 bn – based on 2011 year-end. The reduction can be allocated to risk categories as follows: Business risk and operational risk model Business risk and operational risk were the areas most affected by the model changes, with a net reduction in internal risk capital of € 3.1 bn. This is primarily due to the full integration of our internal operational risk model (represented now as a separate risk category) taking diversification into account. This is in contrast to the past where we applied a conservative undiversified add-on in line with the requirements of the current Solvency II standard model.
In the Life/Health segment, we have implemented a new life non-market risk framework which introduces clearer segmentation of risks in both business and underwriting modules. The inclusion of previously non-modeled business risks such as cost inflation and mass lapse partially compensated the impacts above.
gRouP-diveRsified allocated inteRnal Risk caPital by Risk categoRy and business segMent (total PoRtfolio befoRe non-contRolling inteRests) C 089 € Mn as of 31 December 2011 Under internal model as used in 2011
At the Group level, we identify and measure concentration risks consistently across business segments in terms of pre­diversified internal risk capital and in line with the risk categories covered by our internal risk capital model. Within the individual categories, we use supplementary approaches to manage concentration risks, which are described in the remainder of this section. In the subsequent sections, all risks are presented on a pre­diversified and Group­diversi­ fied basis and concentrations of single sources of risk are discussed accordingly.
With respect to investments, top­down indicators – such as strategic asset allocation benchmarks – are defined and closely monitored to ensure balanced investment port­ folios. Financial VaR limits are in place for the Life/Health and Property­Casualty segments at the Group level. They are based on the internal risk capital model, complement­ ed by standalone interest rate and equity sensitivity limits, in order to protect the economic capital position and man­ age peak risks.
To avoid disproportionately large risks that might accumu­ late and have the potential to cause substantial losses (e.g. natural catastrophes or credit events) we closely monitor those risks on a standalone basis (i.e. before the diversifica­ tion effect) within a global limit framework.
probability of 0.4 % – which corresponds to a frequency of one in 250 years. They are subject to an annual review. Tradi­ tional reinsurance coverage and dedicated financial trans­ actions at Group level are examples of two instruments to mitigate the peak risks and limit the potential adverse im­ pact on our financial results and shareholders’ equity (e. g. severe natural catastrophe losses). In 2012, for example, we renewed the risk swaps by which we exchange European windstorm, U.S. hurricane and earthquake risks – which are among our largest natural catastrophe exposures – for Japanese typhoon and earthquake risks, to which we have less exposure as our Property­Casualty operations are smaller in this region. In addition, we have in place a num­ ber of catastrophe bonds, protecting us against U.S. hurri­ cane and earthquake risks.
In order to assess and monitor concentration risk, stan­ dardized CRisP reports are provided quarterly to senior management of the Group and operating entities. These present the top 100 obligor group concentrations and their contribution to the credit risk of the respective portfolio.
The Board of Management delegates authorities for limit setting and modification to the Group Risk Committee and Group CRO by clearly defining maximum limit amounts. All limits are subject to annual review and approval according to the delegated authorities.
Market risk Credit risk Underwriting risk Business risk Operational risk Total gRouP-diveRsified 1 2011 figures recalculated based on model updates in 2012.
Regional diversification also helps mitigate market risks across individual market places.1
The Allianz Group’s internal market risk capital model is an integral part of the overall internal risk capital framework. It is centrally developed, parameterized and controlled.
In the following table, we present our Group-wide internal risk capital related to market risks: allocated inteRnal MaRket Risk caPital by business segMent and souRce of Risk (total PoRtfolio befoRe tax and non-contRolling inteRests)1 C 091 € Mn Interest rate Credit spread Equity Real estate Currency Total
Share of total Groupinternal risk capital in % 43.1 40.9 gRouP-diveRsified 1 2011 figures recalculated based on model updates in 2012.
Total Group-diversified internal market risk capital increased mostly due to the impact of changed market conditions in the Life/Health segment. The rise was driven by a higher sensitivity of options and guarantees due to the continuing decline in the interest rate environment affecting most of the market risk types. In addition, higher fixed income exposures caused by tightened spreads led to an even more pronounced increase in credit spread risk.
The following chart presents the sensitivity of the internal solvency ratio under certain standard financial scenarios, which are defined by reasonably possible individual movements in key market parameters while keeping all other parameters constant with the effects impacting both the available capital and internal risk capital.
iMPact of standaRd financial scenaRios on inteRnal caPital Ratios (total PoRtfolio befoRe non-contRolling inteRests and afteR tax and gRouP diveRsification)1 C 092
Internal capital ratio 12/31/2012 12/31/2011 1 2011 figures recalculated based on model updates in 2012.
We manage interest rate risk from a comprehensive corporate perspective: While the potential payments related to our liabilities in the Property-Casualty segment are typically shorter in maturity than the financial assets backing them, the opposite usually holds true for our Life/Health segment due to the long-term life insurance contracts. This provides us with a natural hedge on an economic basis at the Group level.
Equity risk The Allianz Group’s insurance operating entities hold investments usually to diversify their portfolios and take advantage of attractive long-term returns. Strategic asset allocation benchmarks and investment limits are used to manage and monitor these exposures. In addition, they fall within the scope of the Group-wide country and obligor group limit management framework (CRisP) to avoid a disproportionately large concentration of risk. 93.1 % of the pre-diversified internal risk capital allocated to the PropertyCasualty and Life/Health segments for equity risk arises from our entities operating locally in Germany, Italy, France and the United States.
Currency risk In addition to any local regulatory requirements, the Group’s policy is to require each operating entity to match liabilities in congruent currencies with assets and keep local currency risk within limit boundaries. Based on a foreign exchange management limit framework, currency risk is monitored and managed with the support of Group Treasury and Corporate Finance at operating entity and Group levels.
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 decline. This risk is allocated to the respective business segments.
In addition, limited exposures to non-Euro denominated assets and liabilities are held at the Corporate and Other segment level.
Credit risk The Allianz Group monitors and manages credit risk exposures and concentrations with the aim of ensuring that it is able to meet policyholder obligations when they are due, and to maintain adequate capital and solvency positions for the operating entities and the Group as a whole. This objective is supported by the internal credit risk model and the Group-wide country and obligor group limit management framework (CRisP) as described under Concentration of risks.
Our internal credit risk capital model covers counterparty risk and country risk. Counterparty risk arises from our fixed income investments, cash positions, derivatives, structured transactions, receivables from Allianz agents and other debtors – as well as reinsurance recoverables and credit insurance.1 Country risk exposure is calculated as cross-border exposure to all obligors domiciled abroad from each operating entity perspective.
1 Exposures to the national governments of OECD and EEA states are modeled as risk free in the credit risk internal model, if the exposure is issued in the local currency of the government. This is in line with the EIOPA’s advice on Level 2 Implementation Measures on Solvency II.
Credit risk capital for the Group remained mostly stable. Small increases in Life/Health and Property-Casualty are due to the continued financial repression caused by the European sovereign debt crisis impacting credit markets and ratings. For Life/Health the impact is mainly driven by long term investments and for Property-Casualty segment it can be attributed mostly to Euler Hermes credit insurance. The decline in credit risk for the Corporate and Other segment is primarily due to divestment of some concentrated exposures.
The following table displays the sensitivities of credit risk capital to certain scenarios: deterioration of credit quality measured by issuer rating 1 downgrades and the decline of recovery rates in the event of a default (Loss-Given-Default, LGD). The sensitivities are calculated by applying each scenario to all exposures individually but keeping all other parameters constant.2 1 Credit risk capital calculations are based on issuer (borrower) ratings as opposed to issue (instrument) ratings. The difference between issue and issuer ratings is primarily due to collateralization and seniority and is reflected in loss-given-default (LGD).
2 Scenarios are applied only to investment and reinsurance exposure positions in portfolios of Allianz operating entities.
iMPact of selected cRedit scenaRios on inteRnal cRedit Risk caPital (PRe-diveRsified)1 C 094 € Mn Total as of 31 December 2012 20112
Different sources of Allianz credit risk exposure are described in the table below: allocated inteRnal cRedit Risk caPital by business segMent, (total PoRtfolio befoRe tax and non-contRolling inteRests) as of 31 deceMbeR 2012 [31 deceMbeR 20111] C 093
Credit risk – investment As of 31 December 2012, 83.4 % of our total Group pre-diversified internal credit risk capital was allocated to investment exposures of the Property-Casualty, Life/Health as well as Corporate and Other segments – 55.5 % of which was related to issuers and counterparties in the United States and Germany. We limit the credit risk of our fixed income investments by setting high requirements on the creditworthiness of our issuers, by diversifying our investments and by setting obligor concentration limits.
As of 31 December 2012, approximately 94.5 % (2011: 93.8 %) of the fixed income investment portfolio (€ 444.5 bn) of the insurance companies of the Allianz Group had an investment grade rating and approximately 71.6 % (2011: 80.6 %) of the fixed income investments were distributed among obligors that had been assigned at least an A rating by Standard & Poor’s.
In the Life/Health segment these assets tend to be long term to cover long-term liabilities. Typical investments are government bonds, senior corporate bonds, covered bonds and also self-originated mortgages and loans. The premiums for traditional life products typically contain a savings component, which makes the fixed income investments the largest credit exposure for Allianz. Due to the nature of the business, the fixed income securities in the PropertyCasualty segment tends to be short to mid term. Additional asset classes like cash or derivatives fall within the scope of our credit risk model, but contribute only marginally to the credit risk at the Allianz Group level.1 1 Additionally 4.1 % of our total Group pre-diversified internal credit risk capital is allocated to receivables and potential future exposure for derivatives and reinsurance.
fixed incoMe investMents by Rating class as of 31 deceMbeR 2012 – faiR values C 096
allianz coMPonents of cRedit Risk exPosuRe C 095 allianz coMPonents of cRedit Risk descRiPtion investMent PoRtfolio Premiums collected from our customers and shareholders’ capital, which is required to support the risks under written, are invested to a great extent in fixed income instruments. These investment portfolios ultimately cover the future claims to our customers. However, for certain life insurance products, losses due to credit events can be shared with the policyholder, as described in the context of market risks.
Credit risk – credit insurance Our credit insurance portfolio is modeled by Euler Hermes based on a proprietary model reviewed by Allianz Group Risk. The result is integrated into the Group’s internal credit risk model to capture the concentration and diversification effects. As of 31 December 2012, 10.4 % of our total Group prediversified internal credit risk capital was allocated to Euler Hermes credit insurance exposures.
Credit risk – reinsurance As of 31 December 2012, 2.1 % of our total Group pre-diversified internal credit risk capital was allocated to reinsurance exposures – 57.5 % of which was related to reinsurance counterparties in the United States and Germany.
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 2012, 76.4 % (2011: 77.6 %) of the Allianz Group’s reinsurance recoverables were distributed among reinsurers that had been assigned at least an A rating by Standard & Poor’s. Non-rated reinsurance recoverables represented 21.7 % (2011: 21.6 %) of the total reinsurance recoverables as of 31 December 2012. Reinsurance recoverables without Standard & Poor’s rating include exposures to brokers, companies in run-off and pools – where no rating is available – as well as companies rated by A.M. Best.
allocated inteRnal undeRwRiting Risk caPital (total PoRtfolio befoRe tax and non-contRolling inteRests) as of 31 deceMbeR 2012 [31 deceMbeR 20111] C 098 € Mn by souRce of Risk 2 by business segMent 3
Total Group internal underwriting risk capital: 11,117 [10,900] Share of total Group internal risk capital: 24.7 % [26.1 %]
3 As risks are measured by an integrated approach on an economic basis, internal risk capital takes reinsurance effects into account. Allowing for a defined deductible, there are contingent liabilities of up to U.S. Dollar 184 MN in connection with certain insurance reserves of Fireman’s Fund Insurance Co., Novato, allocated to the Corporate and Other segment.
Total Group-diversified internal underwriting risk capital remained stable throughout the year based on a close to unchanged exposure in 2012.
aveRage, high and low allocated inteRnal undeRwRiting Risk caPital by souRce of Risk (total PoRtfolio befoRe non-contRolling inteRests and afteR gRouP diveRsification)1 C 099 € Mn Premium natural catastrophe Premium terror Premium non-catastrophe Reserve Biometric Total Group quaRteRly Results 1 2011 figures recalculated based on model updates in 2012.
The Group’s net exposure to natural catastrophes remained within our risk appetite in 2012. About 30 % of the pre-diversified internal premium risk capital allocated to natural catastrophe risk was borne by our top 5 perils: Europe Windstorm, U.S. Hurricane, Germany Flood, Germany Earthquake and Germany Hail as of December 2012. Our largest exposures to natural catastrophes are provided in the following table.
the five laRgest single accuMulation scenaRios: loss Potential net of ReinsuRance foR individual events, MeasuRed at a PRobability level of one loss in 250 yeaRs (99.6 % confidence level) C 101 € Mn
Reserve risk We estimate and hold reserves for past claims that have not yet been settled. If the reserves are not sufficient to cover claims to be settled in the future due to unexpected changes, we would experience losses. The volatility of past claims measured over a one-year time horizon defines our reserve risk. An indicator for this coverage is the amount of net surplus 1 compared to the initial reserves.2
2 This figure is provided on a calendar year basis in note 19 to the consolidated financial statements.
Biometric risk Biometric risks associated with life and health insurance include mortality, disability, morbidity, and longevity risks.
− Mortality, disability, and morbidity risks are risks associated with the death or disability of policyholders’ or when medical claims are higher than expected.
− Longevity risk is the risk that policyholders live longer than expected. For modeling these risks within our internal risk capital model, we distinguish level, trend volatility, and calamity risks. Biometric assumptions, such as life expectancy, play a significant role.
Due to product design, the offsetting effects of mortality risk, morbidity risk and longevity risk inherent in the combined portfolios of life insurance and annuity products, as well as because of our geographically diverse portfolio, our Life/Health segment did not have significant concentrations of biometric risk as of 31 December 2012.1
Business risk Business risks consist of cost risks and policyholder behavior risks. Cost risks consist of unexpected changes in business assumptions and unanticipated fluctuations in earnings arising from a decline in income without a corresponding decrease in expenses. They include the risk that expenses incurred in acquiring and administering policies are higher than expected as a result of inflation, lower revenues or higher costs than budgeted.
Policyholder behavior risks are risks related to the early termination of contracts as well as risks that policyholders’ actions – such as withdrawals, renewals and annuitization
Total Group internal business risk capital: 4,444 [4,076] Share of total Group internal risk capital: 9.9 % [9.8 %] € Mn € Mn 12/31/2011 12/31/2012
Operational risk Operational risks represent losses resulting from inadequate or failed internal processes, from personnel and systems, or from external events such as interruption of business operations due to an electricity breakdown or flooding, damage caused by employee fraud or losses caused by court cases – as operational risks also include legal risk. For example, insurance companies are faced with the continued trend towards consumer protection, especially in the realms of transparency, sales practices and suitability for life insurance products.
Operational risk remained mostly stable in the course of 2012. Small changes were driven by refinements in exposure coverage.
Allianz has developed a Group-wide operational risk management framework that focuses on the early recognition and proactive management of operational risks. The framework defines roles and responsibilities, risk processes and methods and has been implemented at our major operating entities. Local risk managers ensure this framework is implemented in their respective operating entities. The operating entities identify and evaluate relevant operational risks and control weaknesses via a structured self-assessment. Furthermore, operational risk losses are collected in a central loss database. An analysis of the causes of significant losses is carried out to enable the operating entities to implement measures aimed at avoiding or reducing future losses. The measures adopted may include revising processes, improving failed or inappropriate controls, installing comprehensive security systems and strengthening emergency plans. This reporting is designed to provide comprehensive and timely information to senior management of the Allianz Group and the relevant local operating entities.
allocated inteRnal oPeRational Risk caPital by business segMent (total PoRtfolio befoRe tax and non-contRolling inteRests) as of 31 deceMbeR 2012 [31 deceMbeR 20111] C 103
Property-Casualty Life/Health Asset Management Corporate and Other 1 Recalculated based on model updates in 2012.
Strategic risk Strategic risk is the risk of an unexpected negative change in the company’s value, arising from the adverse effect of management decisions regarding business strategies and their implementation. This risk reflects the compatibility between strategic goals, the business strategies and the resources deployed to achieve those goals. Strategic risk also includes the risk of management failing to effectively analyze and react to external factors (e.g. market conditions ), which could affect the future direction of the relevant operating entity or the Group as a whole.
These risks are evaluated and analyzed quarterly in the same way as reputational risk as described below. The Board of Management of Allianz SE formulates the business objectives. Strategic goals are translated into a three-year business plan, which is approved by the Supervisory Board of Allianz SE. To ensure proper implementation of these goals, 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 Management level committees (e. g. Group Capital Committee, Group Risk Committee, Group Finance Committee). The assessment of the associated risks is a fundamental element of these discussions. For example, merger and acquisition transactions are subject to review by the Group Finance Committee if the size exceeds the defined thresholds set for the type of transaction.
Detailed information regarding Allianz Group’s liquidity risk exposure, liquidity and funding – including changes in cash and cash equivalents – is provided in the chapter Liquidity and Funding Resources starting on page 175 and notes 17, 23, 24 and 43 to the consolidated financial statements.
Furthermore, in the case of an extraordinary event, a portion of the applicable payments may be made with a certain time lag, which reduces the risk that short-term current payment obligations cannot be met.
Board 1 as applicable. As stakeholder perceptions differ between markets, operating entities complement the Group guidelines with locally-sensitive business areas and guidelines, which take into account specifics such as product portfolios and the cultural environment.
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. The key elements of our risk management framework are: − Promotion of a strong risk management culture supported by a robust risk governance structure.
This comprehensive framework ensures that risks are identified, analyzed and assessed in a consistent manner across the Group (“Top Risk Assessment”). The Group’s risk 1 The Allianz ESG Board is constituted as an advisor to the Board of Management of Allianz SE and will further elevate environmental, social and governance aspects in corporate governance and decision-making processes of Allianz Group.
appetite is defined by a clear risk strategy and limit structure. Close risk monitoring and reporting allows us to detect potential deviations from our risk tolerance at an early stage at both the Group and operating entity levels.
Property-Casualty underwriting framework Our sound Group-wide underwriting framework forms the basis for adequate risk taking and management decisions and helps us limit potentially significant individual risks, including reputational risks. The framework defines common minimum requirements for our underwriting activities in the international corporate and commercial Property-Casualty insurance business, both for direct and reinsurance business.
Life product management framework According to our Life product management framework, product development and approval are local processes overseen by the operating entities. However, there are Group review requirements for new high-risk products or product features to ensure that the operating entities are aware of the associated risks. Alternative risk-mitigating product features are considered in the design phase and material real world assumptions are explicitly acknowledged as a core component of the business model. The framework also defines profitability standards, while at the same time allowing for individual exceptions approved for competitive reasons in the light of local market characteristics. The profitability of new and existing business is closely monitored and regularly reported to the Board of Management of Allianz SE.
− The Group Risk Committee defines risk standards and forms the major limit setting authority within the framework set by the Board of Management.
− The Group Finance Committee is authorized by the Board of Management to oversee investment and financing activities, including the approval of significant transactions of Allianz SE and Allianz Group companies.
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, written policies, limit systems, documentation and reporting. These standards ensure the accurate and timely flow of risk-related information, as well as 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 and returns of their decisions. Our “second line of defense” is made up of our independent, global oversight functions such as Risk, Compliance and Legal. Audit forms the “third line of defense”. On a periodic basis, Group Audit independently reviews risk governance implementation, performs quality reviews of risk processes and tests adherence to business standards.
Group Risk Group Risk is headed by the Group Chief Risk Officer (Group CRO) and reports to the Board member responsible for Finance, Controlling and Risk. Group Risk supports the aforementioned Allianz Group committees responsible for risk oversight, through (i) the analysis and communi cation of risk management related information and (ii) by facilitating the communication and implementation of committee decisions.
In addition, Group Risk independently supports the adequacy of the operating entity risk management (i) through the development of a common risk management framework and (ii) by monitoring adherence to Group minimum requirements for methods and processes.
Group Risk strengthens and maintains the Group’s risk network through regular and close interaction with the operating entities’ management and key areas such as the local finance, risk, actuarial and investment departments. A strong risk network across the Group allows us to identify risks early and bring them to the attention of management.
Group Legal and Compliance seeks to mitigate legal risks with support from other departments. Legal risks include legislative changes, major litigation and disputes, regulatory proceedings and contractual clauses that are unclear or construed differently by the courts. The objectives of Group Legal and Compliance are to ensure that laws and regulations are observed, to react appropriately to all impending legislative changes or new court rulings, to attend to legal disputes and litigation, and to provide legally appropriate solutions for transactions and business processes. Group Legal and Compliance is in addition responsible for integrity management – which aims to protect the Allianz Group, our operating entities and employees from regulatory risks.
As an active participant of the Emerging Risk Initiative of the Chief Risk Officer Forum, we monitor with other chief risk officers of major European insurance companies and financial conglomerates the industry-wide risk landscape and raise awareness of major risks for the insurance industry.
Finally, given the remaining uncertainty surrounding the final implementation measures and their interpretation, we will need to adapt our internal risk capital framework and risk processes as necessary to comply with the evolving Solvency II standards.
Our approach can be summarized as follows: − We use a top-down, risk-based approach to determine the accounts and operating entities that should fall under the scope of our internal control systems. We do so by carrying out an annual, qualitative and quantitative analysis of our consolidated financial statements and disclosures.
− Then, our local entities identify risk scenarios that could lead to material financial misstatements, taking into account the likelihood of a risk materializing and the potential impact of any resulting error.
− Finally, we focus on ensuring that controls are appropriately designed to mitigate risk, but also that they are effectively executed. We have set consistent documentation requirements across the Allianz Group for elements such as processes, related key controls and their execution. We conduct an annual assessment of our control system to continuously maintain and enhance its effectiveness. Group Audit and local internal audit functions ensure that the overall quality of our control system is kept under constant scrutiny.
These controls include the validation of models and assumptions by independent external reviews and continuous benchmarking to market and/or peer assumptions and practices. We benchmark and explain our non-market assumptions against practices in the industry, actuarial associations and guidance from supervisory authorities.
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.
220 Consolidated inCome statements 221 Consolidated statements of Comprehensive inCome 222 Consolidated statements of Changes in equity 223 Consolidated statements of Cash flows 226 notes to the Consolidated finanCial statements
General information 226 1 nature of operations and basis of presentation 226 2 summary of significant accounting policies 244 3 Use of estimates and assumptions 249 4 Recently adopted and issued accounting pronouncements 258 6 segment reporting notes to the Consolidated Balance sheets 272 7 Cash and cash equivalents 272 8 financial assets carried at fair value through income 276 10 loans and advances to banks and customers 278 11 Reinsurance assets 279 12 deferred acquisition costs 280 13 other assets 282 14 non-current assets and assets of disposal groups classified as held for sale 282 15 intangible assets 288 16 financial liabilities carried at fair value through income 288 17 liabilities to banks and customers 289 18 Unearned premiums 289 19 Reserves for loss and loss adjustment expenses 299 20 Reserves for insurance and investment contracts 304 21 financial liabilities for unit-linked contracts 305 22 other liabilities 306 23 Certificated liabilities 307 24 Participation certificates and subordinated liabilities
Consolidated Financial Statements notes to the Consolidated income statements 311 26 Premiums earned (net) 312 27 interest and similar income 313 28 income from financial assets and liabilities carried at fair value through income (net) 314 29 Realized gains/losses (net) 315 30 fee and commission income 316 31 other income 316 32 income and expenses from fully consolidated private equity investments 317 33 Claims and insurance benefits incurred (net) 318 34 Change in reserves for insurance and investment contracts (net) 319 35 interest expenses 319 36 loan loss provisions 319 37 impairments of investments (net) 320 38 investment expenses 320 39 acquisition and administrative expenses (net) 321 40 fee and commission expenses 321 41 other expenses 321 42 income taxes other information 324 43 derivative financial instruments 327 44 financial instruments 335 45 Related party transactions 336 46 Contingent liabilities, commitments, guarantees, and assets pledged and collateral 341 47 Pensions and similar obligations 344 48 share-based compensation plans 349 49 Restructuring plans 353 50 earnings per share 354 51 other information 355 52 subsequent events 357 list of participations of the allianz Group as of 31 december 2012 according to § 313 (2) hgB
365 Responsibility statement 366 auditor’s report annual Report 2012 allianz Group218
Consolidated BalanCe sheets consolidated balance sheets D 001 € mn as of 31 December Note 2012 2011 assets Cash and cash equivalents 7 12,437 10,492 Financial assets carried at fair value through income 1 8 7,283 8,466
Total liabilities and equity 694,621 641,472 1 As of 31 December 2012 and 2011, no financial assets carried at fair value through income are pledged to creditors and can be sold or repledged.
Acquisition and administrative expenses (net) 39 (22,133) (20,762) (20,883) Fee and commission expenses 40 (2,896) (2,564) (2,561) Amortization of intangible assets 15 (259) (449) (327)
Expenses from fully consolidated private equity investments 32 (848) (1,653) (1,803)
Reclassifications to net income – 4 (9) Changes arising during the year (85) 344 1,347
Cash flow hedges Reclassifications to net income (2) (1) (2) Changes arising during the year 67 (4) 11
Share of other comprehensive income of associates Reclassifications to net income (1) – (2) Changes arising during the year 10 46 41
Consolidated statements of Changes in equity consolidated statements of changes in eQUitY D 004 € mn
Transactions between equity holders – (53) – – (53) 126 73
Paid-in capital 52 – – – 52 – 52 1 Total comprehensive income in shareholders’ equity for the year ended 2012 comprises net income attributable to shareholders of € 5,169 mn (2011: € 2,545 mn, 2010: € 5,053).
Share of earnings from investments in associates and joint ventures (143) (201) (183) Realized gains/losses (net) and impairments of investments (net) of: Available-for-sale and held-to-maturity investments, investments in associates and joint ventures, real estate held for investment, loans and advances to banks and customers (3,393) 226 (2,864) Other investments, mainly financial assets held for trading and designated at fair value through income 518 957 444
Depreciation and amortization 1,124 1,053 1,098 Loan loss provisions 111 121 50 Interest credited to policyholder accounts 4,790 4,686 4,747 Net change in: Financial assets and liabilities held for trading (2,242) 399 (1,525) Reverse repurchase agreements and collateral paid for securities borrowing transactions 256 277 (189) Repurchase agreements and collateral received from securities lending transactions 724 900 346
Reserves for loss and loss adjustment expenses 1,101 1,921 74 Reserves for insurance and investment contracts 8,554 5,399 8,138 Deferred tax assets/liabilities (68) 163 159
Payments for the purchase or origination of: Financial assets designated at fair value through income (1,121) (4,930) (8,973) Available-for-sale investments (144,354) (143,928) (153,527) Held-to-maturity investments (1,012) (362) (463) Investments in associates and joint ventures (538) (176) (448) Non-current assets and assets of disposal groups classified as held for sale (229) – – Real estate held for investment (1,112) (671) (1,610) Loans and advances to banks and customers (purchased loans) (5,811) (8,485) (7,624) Property and equipment (1,607) (1,201) (1,472)
Business combinations (note 5): Proceeds from sale of subsidiaries, net of cash disposed – (14) 193 Acquisitions of subsidiaries, net of cash acquired (8) (69) –
Net cash flow provided by (used in) financing activities (941) 2,035 4,465
Loans and advances to banks and customers – (314) – Financial assets held for trading – (5) – Available-for-sale investments – 294 – Other assets – 2 – Foreign currency translation adjustment – 1 – Realized loss from loans and advances to banks and customers – 22 –
Allianz SE is a stock corporation in the form of a European Company (Societas Europaea). Allianz SE shares are listed on all German stock exchanges and Allianz SE American Depositary Receipts (ADRs) are traded in the U.S. over the counter on OTCQX.
The consolidated financial statements of the Allianz Group for the year ended 31 December 2012 were authorized for issue by the Board of Management on 18 February 2013.
Basis of preseNtatioN The consolidated financial statements of the Allianz Group have been prepared in conformity with International Financial Reporting Standards (IFRS), as adopted under European Union (E.U.) regulations in accordance with § 315a of the German Commercial Code (HGB). Within these consolidated financial statements, the Allianz Group has applied all standards and interpretations issued by the IASB and endorsed by the E.U., that are compulsory as of 31 December 2012. IFRS comprise International Financial Reporting Standards (IFRS), International Accounting Standards (IAS) and interpretations developed by the IFRS Interpretations Committee (formerly called the IFRIC) or the former Standing Interpretations Committee (SIC).
Subsidiaries are consolidated as from the date on which control is obtained by the Allianz Group. Subsidiaries are consolidated up to the date on which the Allianz Group no longer maintains control. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Allianz Group. The effects of intra- Allianz Group transactions have been eliminated.
Business combinations from 1 January 2010 are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value, and the amount of any non-controlling interest in the acquired. Acquisition-related costs are generally recognized as expenses. For each business combination, the Allianz Group has an option to measure any non-controlling interests in the acquired either at the acquisition date fair value or at the non-controlling interest’s proportionate share of the acquired’s identifiable net assets. The Allianz Group uses an expanded presentation for insurance contracts acquired in a business combination or portfolio transfer to measure insurance contracts in line with the accounting policy of the Allianz Group, while presenting the difference to fair value at inception as an intangible asset.
Goodwill is measured as the difference at the acquisition date between the cost of the acquisition and the fair value of the net assets acquired. The acquirer recalculates any previously-held equity interest to fair value at the date of obtaining control, with the difference being recorded in the consolidated income statement. If the Allianz Group’s proportionate share in the fair value of the net assets exceeds the acquisition cost, the Allianz Group reassesses the identification and measurement of the identifiable assets, liabilities and contingent liabilities, as well as the measurement of the cost of the combination and recognizes any excess remaining after that assessment immediately in income.
In the event that significant influence or joint control over an associate or jointly controlled entity is lost, a gain or loss equal to the difference between (i) the sum of any proceeds from interests disposed of, fair value of any interests retained and any amounts reclassified from equity and (ii) the carrying amount of the investment at the date significant influence or joint control was lost, is recognized in profit or loss.
Translation from any foreign currency into 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. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using the closing exchange rate. Non-monetary assets and liabilities denominated in foreign currencies that are measured at historical cost are translated at historical rates and non-monetary items that are measured at fair value are translated using the closing rate. Foreign currency gains and losses arising from foreign currency transactions are reported in income from financial assets and liabilities carried at fair value through income (net), except when the gain or loss on a non-monetary item measured at fair value is recognized directly in other comprehensive income. In this case, any foreign exchange component of that gain or loss is also directly recognized in other comprehensive income.
Translation to the presentation currency For the purposes of the consolidated financial statements, the results and financial position of each of the Allianz Group’s subsidiaries are expressed in Euro, the presentation currency of the Allianz Group. Assets and liabilities of subsidiaries not reporting in Euro are translated at the closing rate on the balance sheet date and income and expenses are translated at the quarterly average exchange rate.
The investments are initially recognized at cost. The positive difference between the cost of the investment and the Allianz Group’s share of the net fair value of the associate ’s or joint ventures identifiable assets and liabilities is accounted for as goodwill and included in the carrying amount of the investment. The carrying amount of the investment is subsequently increased or decreased to recognize the Allianz Group’s share in profit or loss after the date of acquisition. The investments are tested for impairment when respective triggering events occur. Any impairment loss will correspond to the excess of the investment’s carrying amount over its recoverable amount. In general, the triggering events are similar to those used for impairment testing for financial instruments while the measurement of impairment losses is similar to the measurement of impairment losses for other assets.
− financial liabilities carried at fair value through income, − liabilities to banks and customers, − investment contracts with policyholders, − derivative financial instruments used for hedging, − financial liabilities for puttable equity instruments, − certificated liabilities, or − participation certificates and subordinated liabilities.
Active markets – Quoted market price – Fair value Level 1: The fair values of financial instruments that are traded in active markets are based on quoted market prices or dealer price quotations on the last exchange trading day prior to and at the balance sheet date. The quoted market price used for a financial asset held by the Allianz Group is the current bid price; the quoted market price used for financial liabilities is the current ask price.
Any foreign currency translation differences, including those arising from the equity method, are recorded directly in other comprehensive income, as foreign currency translation adjustments.
− financial assets carried at fair value through income, − available-for-sale investments, − held-to-maturity investments, − loans and advances to banks and customers, or − derivative financial instruments used for hedging.
Furthermore, financial assets include funds held by others under reinsurance contracts assumed and financial assets for unit-linked contracts.
No active markets – Equity instruments – Fair value Levels 2 and 3: Equity securities are measured at fair value when the ownership interest is less than 20 % and no significant influence exists, and the fair value is reliably measurable. If the fair value cannot be measured reliably, unquoted equity instruments and derivatives linked to such instruments are stated at cost until a fair value can be measured reliably. These financial instruments are subject to the normal impairment procedures.
Funds held by others under reinsurance contracts Funds held by others under reinsurance contracts assumed relate to cash deposits to which the Allianz Group is entitled, but which the ceding insurer retains as collateral for future obligations of the Allianz Group. The cash deposits are recorded at face value, less any impairments for balances that are deemed not to be recoverable.
Liabilities to banks and customers Liabilities to banks and customers are subsequently measured at amortized cost. Herein included are repurchase (“repo”) agreements and securities lending transactions. Repo transactions involve the sale of securities by the Allianz Group to a counterparty, subject to the simultaneous agreement to repurchase these securities at a certain later date, at an agreed upon price. If all of the risks and rewards of the securities remain substantially with the Allianz Group over the entire lifetime of the transaction, the securities concerned are not derecognized by the Allianz Group. The proceeds of the sale are reported under liabilities to banks or customers. Interest expenses from repo transactions are accrued over the duration of the agreements and reported in interest expenses.
Loans and advances to banks and customers Loans and advances to banks and customers are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and which are not classified as financial assets held for trading, designated at fair value through income or designated as available -for-sale investments. Loans to banks and customers are initially recognized at fair value. Subsequently they are recorded at amortized cost using the effective interest method. Interest income is accrued on the unpaid principal balance, net of impairments. Using the effective interest method, net deferred fees and premiums or discounts are recorded as an adjustment of interest income yield over the lives of the related loans.
Loans and advances to banks and customers include reverse repurchase (“reverse repo”) agreements and collateral paid for securities borrowing transactions. Reverse repo transactions involve the purchase of securities by the Allianz Group from a counterparty, subject to a simultaneous obligation to sell these securities at a certain later date, at an agreed upon price. If all of the risks and rewards of the securities remain substantially with the counterparty over the entire lifetime of the agreement of the transaction, the securities concerned are not recognized as assets. The
Impairment of held-to maturity and available-forsale debt securities and of loans A held-to-maturity or available-for-sale debt security, as well as a loan is impaired if there is objective evidence that a loss event has occurred after initial recognition of the security and up to the relevant date of the Allianz Group’s consolidated balance sheet, and that loss event has nega-
derecoGNitioN of fiNaNcial iNstruMeNts A financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire or the Allianz Group transfers the asset and substantially all of the risks and rewards of ownership. A financial liability is derecognized when it is extinguished.
deriVatiVe fiNaNcial iNstruMeNts The Allianz Group uses derivative financial instruments such as swaps, options and futures to hedge against market risks (i.e. interest rates, equity prices or foreign exchange rates) or credit risks in its investment portfolios.
reclassificatioN of fiNaNcial iNstruMeNts Once a financial instrument has been classified into a particular category at initial recognition, transfers into or out of that category from or to another category are prohibited for some categories and are expected to be rare in all other circumstances.
offsettiNG of fiNaNcial iNstruMeNts Financial assets and liabilities are offset and the net amount reported in the balance sheet only when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.
its fair value; any net unrealized gains and losses accumulated in other comprehensive income are recognized in the consolidated income statement (i.e. recycled) when the planned transaction affects the consolidated income statement. After a hedge of a net investment in a foreign entity is discontinued, the Allianz Group continues to report the derivative financial instrument at its fair value and any net unrealized gains or losses accumulated in other comprehensive income remain there until the disposal of the foreign entity.
disclosures relatiNG to fiNaNcial iNstruMeNts IFRS 7, Financial Instruments: Disclosures, requires the grouping of financial instruments into classes that are appropriate to the nature of the information disclosed and that take into account the characteristics of those financial instruments. The scope of IFRS 7 includes recognized and unrecognized financial instruments. Recognized financial instruments are those financial assets and financial liabilities within the scope of IAS 39. Unrecognized financial instruments, such as loan commitments, are financial instruments that are outside of the scope of IAS 39 but within the scope of IFRS 7. The classes of financial instruments within the Allianz Group are mainly in line with the categories according to IAS 39.
Certain risk disclosure requirements of IFRS 7 are reflected in the following sections within the Risk Report in the Group Management Report: − Internal Risk Capital Model including all subsections other than Assessment of assumptions,
in fair value of the hedged item attributable to the hedged risk, are recognized in income from financial assets and liabilities carried at fair value through income (net).
Deferred acquisition costs Deferred acquisition costs (DAC), present value of future profits (PVFP) and deferred sales inducements comprise the deferred acquisition costs in the consolidated balance sheets.
Costs that vary with and are directly related to the acquisition and renewal of insurance contracts are deferred by recognizing a DAC asset. DAC generally consists of commissions, underwriting expenses and policy issuance costs. At inception, DAC is tested to ensure that it is recoverable over the life of the contracts. Subsequently, loss recognition tests at the end of each reporting period ensure that only the amount of DAC that is covered by future profits is carried on the consolidated balance sheet. For short-duration contracts, traditional long-duration contracts, and limitedpayment contracts, DAC is amortized in proportion to premium revenue recognized.
For unit-linked investment contracts without discretionary participation features (DPF) accounted for under IAS 39 at fair value, acquisition costs are deferred in accordance with IAS 18, Revenue, if the costs are incremental. Acquisition costs are incremental, so long as no costs are incurred from non-issuance of the related contracts. For non-unitlinked investment contracts without discretionary participation features accounted for under IAS 39 at amortized cost, acquisition costs that meet the definition of transaction costs under IAS 39, are considered in the aggregate policy reserves.
Insurance and investment contracts Contracts issued by insurance subsidiaries of the Allianz Group are classified according to IFRS 4 as insurance or investment contracts. Contracts under which the Allianz Group accepts significant insurance risk from a policyholder are classified as insurance contracts. Contracts under which the Allianz Group does not accept significant insurance risk are classified as investment contracts. Certain investment contracts include discretionary participation features. All insurance contracts and investment contracts with discretionary participating features are accounted for under the related insurance accounting provisions of US GAAP as at first-time adoption of IFRS 4 on 1 January 2005 when IFRS 4 does not provide specific guidance. Investment contracts without discretionary participation features are accounted for as financial instruments in accordance with IAS 39.
Unearned premiums For short-duration insurance contracts, like most of the property and casualty contracts, premiums to be earned in future years are recorded as unearned premiums according to the insurance accounting provisions of US GAAP. These premiums are earned in subsequent periods in relation to the insurance coverage provided.
Amounts charged as consideration for origination of certain long-duration insurance contracts (i.e. initiation or front-end fees) are reported as unearned revenue which are included in unearned premiums. According to the insurance accounting provisions of US GAAP, these fees are recognized using the same amortization methodology as DAC.
Unbundling Certain insurance contracts contain both an insurance component and a deposit component. The Allianz Group has recognized all rights and obligations related to issued insurance contracts according to its accounting policies. As a result, the Allianz Group has not separately recognized an unbundled deposit component in respect of any of its insurance contracts.
Case reserves for reported claims are based on estimates of future payments that will be made with respect to claims, including LAE relating to such claims. Such estimates are made on a case-by-case basis, based on the facts and circumstances available at the time the reserves are established. The estimates reflect the informed judgment of claims personnel based on general insurance reserving
− incremental to amounts the Allianz Group credits on similar contracts without sales inducements, and
Aggregate policy reserves for traditional long-duration insurance contracts Aggregate policy reserves for traditional long-duration insurance contracts, such as traditional life and health products, are computed in accordance with the related insurance accounting provisions under US GAAP using the net level premium method, which represents the present value of estimated future policy benefits to be paid including future claims handling costs and administration fees less the present value of estimated future net premiums to be collected from policyholders. The method uses best estimate assumptions adjusted for a provision for adverse deviation for mortality, morbidity, expected investment yields, surrenders and expenses at the policy inception date, which remain locked in thereafter unless a premium deficiency occurs. DAC and PVFP for traditional life and health products are amortized over the premium paying period of the related policies in proportion to the earned premium using assumptions consistent with those used in computing the aggregate policy reserves.
There is no adequate statistical data available for some risk exposures in liability insurance, such as environmental and asbestos claims and large-scale individual claims, because some aspects of these types of claims become known very slowly and continue to evolve. Appropriate provisions have been made for such cases based on the Allianz Group’s judgment and analyses of the portfolios in which such risks occur. These provisions represent the Allianz Group’s best estimate. Current reserves reflect subsequent loss development and re-estimation of initial reserves. The reserves for loss and loss adjustment expenses for asbestos and environmental claims are regularly reviewed and respective trends are monitored. Changes in the asbestos and environmental reserves during 2012 are described in more detail in Note 19 Reserves for loss and loss adjustment expenses on page 289.
Deferred acquisition costs 2.5 – 6.0 % 2.2 – 5.0 % Aggregate policy reserves 2.5 – 6.0 % 0.8 – 4.3 %
Unrealized gains and losses recognized for availablefor -sale investments are recognized in the latent reserve for premium refunds to the extent that policyholders will participate in such gains and losses on the basis of statutory or contractual regulations when they are realized. The profit participation allocated to participating policyholders or disbursed to them reduces the reserve for premium refunds.
Aggregate policy reserves for universal life-type insurance contracts The aggregate policy reserves for universal life-type insurance contracts in accordance with the related insurance accounting provisions under US GAAP are equal to the account balance, which represents premiums received and investment return credited to the policy less deductions for mortality costs and expense charges. The aggregate policy reserve for universal life-type contracts includes insurance reserves for unit-linked insurance contracts and investment contracts with discretionary participation features. DAC and PVFP for universal life-type contracts are amortized over the expected life of the contracts in proportion to EGPs based upon historical and anticipated future experience, which is determined on a best estimate basis and evaluated at the end of each reporting period. The present value of EGPs is computed using the interest rate that accrues to the policyholders, or the credited rate. EGPs include margins from mortality, administration, investment income including realized gains and losses and surrender charges. The effect of changes in EGPs are recognized in net income in the period revised.
The interest rate assumptions used in the calculation of deferred acquisition costs and aggregate policy reserves were as follows: Annual Report 2012 Allianz Group
Software, which includes software purchased from third parties or developed internally, is initially recorded at cost and is amortized on a straight-line basis over the estimated useful service lives or contractual terms, generally over 2 to 10 years.
NoN-curreNt assets aNd disposal Groups classified as Held for sale Non-current assets or disposal groups are classified as held for sale if their carrying amounts will be principally recovered through a sale transaction rather than through continuing use. This requires that the asset or disposal group must be available for immediate sale in its present condition and its sale must be highly probable. The appropriate level of management must be committed to a plan to sell
Aggregate policy reserves for non-unit-linked investment contracts Non-unit-linked investment contracts without DPF are accounted for under IAS 39. The aggregate policy reserve for those contracts is initially recognized at amortized cost, or the amount of the deposit by the contract holder, net of the transaction costs that are directly attributable to the issuance of the contract. Subsequently, those contracts are measured at amortized cost using the effective interest rate method.
Liability adequacy testing Liability adequacy tests are performed for each insurance portfolio on the basis of estimates of future claims, costs, premiums earned and proportionate investment income. For short-duration contracts, a premium deficiency is recognized if the sum of expected claim costs and claim adjustment expenses, expected dividends to policyholders, capitalized DAC, and maintenance expenses exceeds related unearned premiums while considering anticipated investment income. For traditional long-duration contracts and limited payment contracts, if actual experience regarding investment yields, mortality, morbidity, terminations or expense indicate that existing contract liabilities, along with the present value of future gross premiums, will not be sufficient to cover the present value of future benefits and to recover capitalized DAC, a premium deficiency is recognized. For other long-duration contracts, if the present value of estimated gross profits or margins, plus unearned revenue liability if applicable, will not be sufficient to recover capitalized DAC, a premium deficiency is recognized.
Indefinite life intangibles are not amortized but are tested for impairment at least annually or more frequently if events or changes in circumstances indicate that impairment may have occurred. Intangible assets with finite useful lives are amortized over their useful lives and are subsequently recorded at cost less accumulated amortization and impairments. An intangible asset is impaired and a respective impairment amount is recognized to the extent the carrying amount exceeds the recoverable amount. Where it is not possible to identify separate cash flows for estimating the recoverable amount of an individual asset, an estimate of the recoverable amount of the cash generating unit to which the asset belongs is used.
otHer liaBilities Other liabilities include payables, unearned income, provisions, deposits retained for reinsurance ceded, derivative financial instruments used for hedging that meet the criteria for hedge accounting, firm commitments, financial liabilities for puttable equity instruments and other liabilities. These liabilities are reported at redemption value.
GoodWill aNd otHer iNtaNGiBle assets Intangible assets include intangible assets with indefinite useful lives like goodwill and brand names and intangible assets with finite useful lives like long-term distribution agreements and customer relationships.
Goodwill resulting from business combinations is initially recorded at cost and subsequently measured at cost less accumulated impairments. Goodwill is allocated to each of the Allianz Group’s cash generating units expected to benefit from the business combination.
The Allianz Group conducts an annual impairment test of goodwill during the fourth quarter or more frequently if there is an indication that goodwill is not recoverable. The impairment test includes comparing the recoverable amount to the carrying amount, including goodwill, of all relevant cash generating units. A cash generating unit is impaired if the carrying amount is greater than the recoverable amount. The impairment amount is allocated to first reduce any goodwill, followed by allocation to the carrying amount of any remaining non financial assets of the cash generating unit. Impairments of goodwill are not reversed. Gains or losses realized on the disposal of subsidiaries include any related goodwill. Please refer to note 3, where the processes and controls for ensuring an appropriate use of estimates and assumptions are explained.
dividend is established. Interest on finance leases is recognized in income over the term of the respective lease so that a constant period yield based on the net investment is attained.
iNcoMe froM fiNaNcial assets aNd liaBilities carried at fair Value tHrouGH iNcoMe (Net) Income from financial assets and liabilities carried at fair value through income includes all investment income, and realized and unrealized gains and losses from financial assets and liabilities carried at fair value through income. In addition, commissions attributable to trading operations and related interest expenses and transaction costs are included in this line item. Foreign currency gains and losses are also reported within income from financial assets and liabilities carried at fair value through income (net).
Non-controlling interests represent the proportion of equity that is attributable to the respective shareholders of subsidiaries.
preMiuMs earNed aNd claiMs aNd iNsuraNce BeNefits paid Premiums for short-duration contracts are recognized as revenues over the period of the contract in proportion to the amount of insurance protection provided. Unearned premiums are calculated separately for each individual policy to cover the unexpired portion of written premiums. Premiums for short-duration contracts could arise from Property-Casualty, Life and Health insurance contracts. For those contracts, claims and insurance benefits are recognized when incurred.
Long-duration contracts are contracts that are non-cancelable by the insurance company and guaranteed renewable and that are expected to remain in force over an extended period of time. Premiums for long-duration contracts are recognized as earned when due. Long-duration contracts can comprise Life and Health, and certain Property-Casualty insurance contracts.
iNterest aNd siMilar iNcoMe/eXpeNses Interest income and interest expenses are recognized on an accrual basis. Interest income is recognized using the effective interest method. This line item also includes dividends from available-for-sale equity securities, interest recognized on finance leases and income from investments in associated entities and joint ventures. Dividends are recognized in income when the right to receive the
note 47. The census date for the primary pension plans is October or November, with any significant changes through 31 December taken into account.
sHare-Based coMpeNsatioN plaNs The share-based compensation plans of the Allianz Group are classified as either equity settled or cash settled plans. Equity settled plans are measured at fair value on the grant date and recognized as an expense, with a corresponding increase to shareholders’ equity, over the vesting period. Equity settled plans include a best estimate of the number of equity instruments that are expected to vest in determining the amount of expense to be recognized. For cash settled plans, the Allianz Group accrues the fair value of the award as a compensation expense over the vesting period. Upon vesting, any change in the fair value of any unexercised awards is also recognized as a compensation expense.
The preceding note 2 describes the accounting policies that the Allianz Group follows in preparing its consolidated financial statements. The section below describes how certain reported figures can be significantly affected by the use of estimates and assumptions, and the processes the Allianz Group has in place to control the judgments which are made.
Subsidiaries of the Allianz Group are required to establish controls which promote a culture of good judgment and sound decision-making around accounting estimates. These include providing training programs, hiring people with the right background for the job (i.e., certified or experienced accountants, actuaries and finance professionals), and providing formalized policies and procedures manuals for accounting and internal controls.
− reserves for loss and loss adjustments expenses of € 72,540 MN mainly for the Property-Casualty operations, including run-off business and reinsurance business assumed,
Life/Health reserves are dependent on estimates and assumptions, especially on the life expectancy of an insured individual (mortality and longevity risk) and on the development of interest rates and investment returns (asset-liability mismatch risk). These assumptions also have an impact on the presentation of costs arising from the origination of insurance business (acquisition costs and sales inducements) and the value of acquired insurance business (PVFP). To ensure consistency in the application of 1 Please refer to note 2 Summary of significant accounting policies. For further details, please refer to note 12 Deferred acquisition costs, note 19 Reserves for loss and loss adjustment expenses, and note 20 Reserves for insurance and investment contracts.
Property-Casualty reserves are particularly dependent on the use of estimates and judgment regarding the development of loss reserves. Similar to Life/Health, a two stage reserving process is in place.
In a first stage, in each jurisdiction, reserves are calculated for individual lines of business, taking into consideration a wide range of local factors. This local reserving process begins with local reserving actuaries gathering data, typically dividing reserving data into the smallest possible homogeneous segments, while maintaining sufficient volume to form the basis for stable projections. Once data is collected, they derive patterns of loss payment and emergence of claims based on historical data organized into development triangles arrayed by accident year versus development year. Loss payment and reporting patterns are selected based on observed historical development factors and also on the judgment of the reserving actuary using an understanding of the underlying business, claims processes, data and systems as well as the market, economic, societal and legal environment. Expected loss ratios are then developed, which are derived from the analysis of historical observed loss ratios, adjusted for a range of factors such as loss development, claims inflation, changes in premium rates, changes in portfolio mix and changes in policy terms and conditions.
Using the above estimate of ultimate loss and LAE by accident year – with respect to the origin year of losses – subsidiaries of the Allianz Group directly estimate the total loss and LAE reserves by subtracting cumulative payments for claims and LAE through the relevant balance sheet date. Finally, local reserving actuaries calculate the relevant IBNR reserves as the difference between
− the total loss and LAE reserves, and − the case reserves as established by claims adjusters on a case-by-case basis.
For Life/Health, as well as for Property-Casualty the central oversight process includes the following key components: Group-wide standards and guidelines: They define the reserving practices which must be conducted by each subsidiary including aspects of assumptions and estimates. This includes the organization and structure, data, methods, and reporting. The Allianz Group Actuarial Department monitors compliance with these standards and guidelines.
Regular site visits: The Allianz Group Actuarial Department regularly visits Allianz subsidiaries in order to ensure that they apply the Group-wide standards and guidelines. The on-site review focuses on all significant changes in assumptions and methodologies as well as on procedures and professional practices relevant for the reserving process. Furthermore, these meetings are to update knowledge of the underlying local business developments.
fair Value aNd iMpairMeNts of fiNaNcial iNstruMeNts As of 31 December 2012, the Allianz Group reported financial instruments carried at fair value of:1
− € 185,448 MN of the financial assets and € 3,997 MN of the financial liabilities carried at fair value are classified within Level 2 of the fair value hierarchy (valuation technique with observable market inputs)
In particular, current publicly available information relating to the issuer and the particular security is considered relating to factors including, but not limited to, evidence of significant financial difficulty of the issuer and breach of contractual obligations of the security, such as a default or delinquency on interest or principal payments. The Allianz Group also considers other factors which could provide objective evidence of a loss event, including the probability of bankruptcy and the lack of an active market due to financial difficulty. The presence of either a decline in fair value below amortized cost or the downgrade of an issuer’s credit rating does not by itself represent objective evidence of a loss event, but may represent objective evidence of a loss event when considered with other available information.
GoodWill As of 31 December 2012, the Allianz Group reported total goodwill of € 11,679 MN, of which: 1
Provisions for restructuring programs are recognized when the Allianz Group has a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to imple1 Please refer to note 2 Summary of significant accounting policies, and note 47 Pensions and similar obligations, for further details.
The aim of the consolidation project was to develop a single consolidation model that applies the same criteria for all entities. In this context, the IASB reaffirmed the control concept as primary determinant for consolidation, revised the definition of ‘control’ and enhanced related disclosure requirements.
IFRS 10, Consolidated Financial Statements, supersedes the requirements of IAS 27, Consolidated and Separate Financial Statements, for consolidated financial statements as well as SIC-12, Consolidation – Special Purpose Entities. Financial reporting in separate financial statements is set out by the amended version of IAS 27. The revised version of IAS 28, Investments in Associates and Joint Ventures, supersedes the former IAS 28, Investments in Associates. It defines ‘significant influence’, provides guidance on the application of the equity method of accounting and describes how impairment is assessed in associates and joint ventures. IFRS 11, Joint Arrangements, supersedes IAS 31, Interests in Joint Ventures, as well as SIC13, Jointly Controlled Entities – Non-Monetary Contributions by Ventures. The standard requires entities to define their rights and obligations arising from a joint arrangement such as joint operations or joint ventures and provides guidance on how to account for these rights and obligations.
IFRS 13, Fair Value Measurement IFRS 13, Fair Value Measurement, was issued in May 2011 and is effective for annual periods beginning on or after 1 January 2013. It defines the term ‘fair value’, sets out a framework how fair value is to be measured as well as the disclosure requirements when fair value is applied. However, the standard does not determine when an asset, a liability or an entity’s own equity instrument is required or permitted to be measured at fair value. The requirements of IFRS 13 regarding measurement and disclosure apply when another IFRS requires or permits an item to be measured at fair value. The adoption of this standard is not expected to have a material impact on the financial position and financial results of the Allianz Group.
Amendments to IAS 19 – Employee Benefits In June 2011, the IASB issued an amended version of IAS 19 which will be effective for annual periods beginning on or after 1 January 2013. The amendments in particular eliminate the corridor approach and require all actuarial gains 4 – Recently adopted and issued accounting pronouncements Recently Adopted AccountIng pRonouncementS effective 1 January 2012
The following amendments and revisions to standards and interpretations became effective for the Allianz Group’s consolidated financial statements as of 1 January 2012: − IFRS 7, Financial Instruments: Disclosures – Amendments for Transfers of Financial Assets
IFRSs 10, 11, 12, Amendments to IAS 27 and 28 – Consolidation As part of the consolidation project, the IASB issued IFRSs 10, 11 and 12 as well as amendments to IAS 27 and IAS 28 in May 2011. Further amendments were issued in 2012 on transition guidance and investment entities. These new standards and amendments generally are effective for periods beginning on or after 1 January 2013, however, the E.U. endorsed these IFRSs with a mandatory effective date for periods beginning on or after 1 January 2014. Early adoption is generally allowed but not intended by the Allianz Group.
and losses to be recognized in the other comprehensive income (OCI). While all remeasurements need to be recorded in the OCI, service and interest costs have to be recognized in the profit and loss account. The long-term return on plan assets has to be calculated using the same interest rate as used to discount the defined benefit obligation (DBO). Disclosure requirements are increased under the amended IAS 19. The Allianz Group will apply the amended IAS 19 for periods beginning on or after 1 January 2013. The adoption of this standard is expected to increase the net amount recognized for defined benefit plans by approximately € 4.7 Bn and to decrease total equity by approximately € 3.3 Bn net of tax as of 1 January 2013. The overall impact of the adoption of this standard on net income is not expected to be significant.
IAS 1, Presentation of Financial Statements: Amendment for Presentation of Items of Other Comprehensive Income
Annual Improvements to IFRSs 2009 – 2011 Annual periods beginning on or after 1 January 2013
The amendments and interpretations are not expected to have a material impact on the financial position and financial results of the Allianz Group. Early adoption is generally allowed but not intended by the Allianz Group.
otheR ReclASSIFIcAtIonS Certain prior period amounts have been reclassified to conform to the current period presentation.
Number of fully consolidated Special Purpose Entities (Spe) 7 7 4 Total number of fully consolidated entities 912 908 986 Number of joint ventures valued at equity 17 16 17 Number of associated entities valued at equity 125 112 125 1 Includes 5 (2011: 5; 2010: 6) subsidiaries, where the Allianz Group owns less than the majority of the voting power, including CreditRas Vita S.p.A. and CreditRas Assicurazioni S.p.A. (CreditRas) as well as Antoniana Veneta Popolare Vita S.p.A. and Antoniana Veneta Popolare Assicurazioni S.p.A. (Antoniana). The Allianz Group controls these entities on the basis of shareholder agreements between the Allianz Group subsidiary owning 50.0 % of each such entity and the other shareholders. Pursuant to these shareholder agreements, the Allianz Group has the power to govern the financial and operating policies of these subsidiaries and the right to appoint the general manager, in the case of CreditRas, and the CEO, in the case of Antoniana, who have been given unilateral authority over all aspects of the financial and operating policies of these entities, including the hiring and termination of staff and the purchase and sale of assets. Furthermore, all management functions of these subsidiaries are performed by the employees of the Allianz Group. The Allianz Group also develops all insurance products written through these subsidiaries. Although the Allianz Group and the other shareholders each have the right to appoint half of the directors of each subsidiary, the rights of the other shareholders are limited to matters specifically reserved to the board of directors and shareholders under Italian law, such as decisions concerning capital increases, amendments to articles and similar matters. In addition, in the case of Antoniana, the Allianz Group has the right to appoint the Chairman.
All subsidiaries, joint ventures and associated enterprises are individually listed in the list of participations of the Allianz Group from page 357 of this Annual Report onwards.
The negative goodwill of € 3 mn arising from the acquisition is derived from the development of the value of the acquired business between 1 January 2012 and 1 August 2012. The amount has been recognized, as of the acquisition date, in the consolidated income statement and is reported in realized gains/losses (net).
Europensiones S.A. Entidad Gestora de Fondos de Pensiones, Madrid 60.0 9/8/2011 Asset Management 452 Acquisition Popular Gestión S.g.I.I.c. S.A., Madrid 60.0 9/8/2011 Asset Management – Obtain control 1 At the date of first-time consolidation.
The transaction was approved by the General Assembly of Mensura CCA on 13 July 2012 and by the Belgian National Bank on 17 July 2012.
No consideration has been paid in the course of this transaction. Acquisition-related costs in the amount of € 1 mn are included in administrative expenses.
The impact of the brokerage portfolio-related activities of Gan Eurocourtage on the Allianz Group’s total revenues and net income since the acquisition was € 152 mn and € 4 mn, respectively.
The gross premiums written, total revenues and net income of the combined entity ( Allianz Group including the Property-Casualty brokerage portfolio-related activities of Gan Eurocourtage) for the year ended 31 December 2012, would have been € 72,756 mn, € 107,053 mn and € 5,476 mn, respectively, if the acquisition date was 1 January 2012.
In the fourth quarter of 2012, Mensura Assurances SA has been merged into Allianz Belgium. The merger was completed retrospectively with an effective date as of 1 August 2012.
The impact of the insurance activities acquired from Mensura CCA, net of cash acquired, on the consolidated statement of cashflows for the year ended 31 December 2012, was: menSuRA – ImpAct on the conSolIdAted StAtement oF cASh FlowS D 013 € mn
Investments (918) Reinsurance assets (30) Deferred acquisition costs (2) Deferred tax assets (5) Other assets (80) Financial liabilities carried at fair value through income 4 Unearned premiums 26 Reserves for loss and loss adjustment expenses 992 Other liabilities 32 Total equity 3 Acquisition, net of cash acquired 22
Brokerage portfolio-related activities of Gan Eurocourtage, Paris Effective as of 1 October 2012, Allianz France acquired the Property-Casualty brokerage portfolio-related activities (excluding transport) of Gan Eurocourtage, a wholly owned subsidiary of Groupama SA, after having received the formal approvals from the European anti-trust authorities and from the French regulatory authority, Autorité de Contrôle Prudentiel (ACP). Gan Eurocourtage is a leading Property and Casualty franchise in the French brokerage market. This acquisition will create one of the largest brokerage franchises in France.
The contingent consideration arrangement requires the Allianz Group to pay the former owner 20 % of the difference between the net income and the agreed net income targets for Eurovida S.A., Europensiones S.A. and Popular Gestión S.G.I.I.C. S.A. The contingent consideration will be paid out in five installments until 2026, each installment comprising a time period of three years. The minimum potential amount of all future payments that the Allianz Group could be required to make under the contingent consideration agreement is zero, the maximum amount is unlimited.
Immediately before the acquisition date, the acquisitiondate fair value of the interest in Europensiones S.A. amounted to € 120 mn. As a result of remeasuring to fair value the interest in Europensiones S.A., a gain of € 99 mn was recognized in the consolidated income statement and is reported in the line realized gains/losses (net).
Investments (1,313) Reinsurance assets (190) Deferred tax assets (20) Other assets (319) Intangible assets excluding goodwill (34) Goodwill (67) Reserves for loss and loss adjustment expenses 1,633 Reserves for insurance and investment contracts 1 Deferred tax liabilities 35 Other liabilities 244 Acquisition, net of cash acquired (30)
Europensiones S.A. Entidad Gestora de Fondos de Pensiones, Madrid, and Popular Gestión S.G.I.I.C. S.A., Madrid To strengthen the existing partnership with Banco Popular, on 23 March 2011, the Allianz Group signed a share purchase agreement to acquire 11 % of the shares in the pension fund manager Europensiones S.A., Madrid, and 60 % of the shares in the asset manager Popular Gestión S.G.I.I.C. S.A., Madrid. After the approval of the relevant regulatory and competition authorities the transactions were closed on 8 September 2011, so that the Allianz Group now holds 60 % of the shares in each company.
The total consideration comprises the following components: euRopenSIoneS + populAR geStIon – totAl conSIdeRAtIon D 016 € mn
The total revenues of the combined entity ( Allianz Group including Europensiones and Popular Gestión) for the year ended 31 December 2011, would have been € 103,595 mn if the acquisition date had been 1 January 2011. The net income of the combined entity for the year ended 31 December 2011, would have been € 2,824 mn if the acquisition date had been 1 January 2011.
Management – Sale to third party W Finance, Paris 100.0 12/21/2011 27 Life/Health – Sale to third party Allianz Takaful, Manama 100.0 11/30/2011 – Property-
7 Sale to third party manroland Ag, Offenbach 74.0 11/25/2011 – Corporate and Other 28 Deconsolidation due to insolvency
– Sale to third party euRopenSIoneS + populAR geStIon – ImpAct on the conSolIdAted StAtement oF cASh FlowS D 018 € mn
SIgnIFIcAnt dISpoSAlS And deconSolIdAtIonS During 2012, no significant disposals occurred. The disposals and deconsolidations of 2011 and 2010 are summarized in the following table.
manroland AG, Offenbach In November 2011, the Allianz Group deconsolidated manroland AG, Offenbach, and its subsidiaries. The impact of the deconsolidation, net of cash balances, on the consolidated statement of cash flows for the year ended 31 December 2011, was: mAnRolAnd – ImpAct on the conSolIdAted StAtement oF cASh FlowS D 022 € mn
Coparc, Paris In December 2011, the Allianz Group sold Coparc, Paris. The impact of the disposal, net of cash disposed, on the consolidated statement of cash flows for the year ended 31 December 2011, was: copARc – ImpAct on the conSolIdAted StAtement oF cASh FlowS D 021 € mn
Allianz Bank Zrt., Budapest In September 2010, the Allianz Group completed the sale of Allianz Bank Zrt., Budapest. The impact of the disposal, net of cash disposed, on the consolidated statement of cash flows for the year ended 31 December 2010, was: AllIAnZ bAnk ZRt. – ImpAct on the conSolIdAted StAtement oF cASh FlowS D 024 € mn
Alida Grundstücksgesellschaft mbH & Co. kg, Hamburg 4/4/2012 39.8 22 12 (34) Allianz-Slovenská poist’ovna a.s., Bratislava 6/1/2012 15.0 144 (49) (95) Allianz Insurance plc, Guildford 9/3/2012 2.0 29 (2) (27)
Asset Management The reportable segment Asset Management operates as a global provider of institutional and retail asset manage­ ment products and services to third­party investors and provides investment management services to the Allianz Group’s insurance operations. The products for retail and institutional customers include equity and fixed income funds as well as alternative products. The United States and Germany as well as France, Italy and the Asia­Pacific region represent the primary asset management markets.
Corporate and Other The reportable segment Holding & Treasury includes the management and support of the Allianz Group’s businesses through its strategy, risk, corporate finance, treasury, finan­ cial reporting, controlling, communication, legal, human resources and technology functions. The reportable seg­ ment Banking consists of the banking activities in Germany, France, Italy, the Netherlands and Bulgaria. The banks offer a wide range of products for corporate and retail clients with the main focus on the latter. The reportable segment Alternative Investments provides global alternative invest­ ment management services in the private equity, real estate, renewable energy and infrastructure sectors, mainly on behalf of the Allianz Group’s insurance operations. The Alternative Investments reportable segment also includes a fully consolidated private equity investment. The income and expenses of this investment are included in the non­ operating result.
RepoRtable segments measuRe of pRofit oR loss The Allianz Group uses operating profit to evaluate the per­ formance of its reportable segments and the Allianz Group as a whole. Operating profit highlights the portion of in­ come before income taxes attributable to the ongoing core operations of the Allianz Group. The Allianz Group considers the presentation of operating profit to be useful and mean­ ingful to investors because it enhances the understanding of the Allianz Group’s underlying operating performance and the comparability of its operating performance over time.
Asset management activities represent a separate report­ able segment. Due to differences in the nature of products, risks and capital allocation, corporate and other activities are divided into three reportable segments: Holding & Trea­ sury, Banking and Alternative Investments. In total, the Allianz Group has identified 17 reportable segments in ac­ cordance with IFRS 8, Operating Segments.
Life/Health In the Life/Health category, reportable segments offer a comprehensive range of life and health insurance products on both an individual and a group basis, including annui­ ties, endowment and term insurance, unit­linked and in­ vestment­oriented products as well as full private health and supplemental health and long­term care insurance.
upcoming change of the RepoRtable segments measuRe of pRofit oR loss As of the first quarter 2013, all restructuring charges will be presented within operating profit. The Allianz Group be­ lieves this change will result in information that is more relevant to the economic decision­making needs of users of financial statements as it better reflects that restructur­ ing charges relate to improving the competitiveness of or­ dinary business activities. There is neither an impact on recognition and measurement of the restructuring charges, nor on the shareholders’ equity or the net income arising out of this change. If this change of the reportable seg­ ments measure of profit or loss had been applied in 2012, the operating profit would have been reduced by € 252 mn (2011: € 167 mn; 2010: € 263 mn).
Recent oRganizational changes At the beginning of 2012, the Allianz Group reorganized the structure of its insurance activities to reflect the changes in the responsibilities of the Board of Management. The insur­ ance activities of Spain, Portugal, Mexico and South Amer­ ica were combined in the newly created reportable seg­ ment Iberia & Latin America. As a consequence, the former Europe incl. South America was renamed into Western & Southern Europe and nAFTA Markets was reduced to USA. Previously reported information has been adjusted to re­ flect this change in the composition of the Allianz Group’s reportable segments. Additionally, some minor realloca­ tions between the reportable segments have been made.
To better understand the ongoing operations of the busi­ ness, the Allianz Group generally excludes the following non­operating effects: − acquisition­related expenses and the amortization of intangible assets, as these relate to business combina­ tions; − restructuring charges, because the timing of these is largely at the discretion of the Allianz Group; − interest expenses from external debt, as these relate to the capital structure of the Allianz Group; − income from fully consolidated private equity invest­ ments (net), as this represents income from industrial holdings, which is outside the Allianz Group’s normal scope of operating business; − income from financial assets and liabilities carried at fair value through income (net), as this does not reflect the Allianz Group’s long­term performance; − realized capital gains and losses (net) or impairments of investments (net), as the timing of sales that would result in such realized gains or losses is largely at the discretion of the Allianz Group and impairments are largely dependent on market cycles or issuer­specific events over which the Allianz Group has little or no con­ trol and which can and do vary, sometimes materially, through time.
Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) (80) (52) (64) 13 (24) (40) Non-operating realized gains/losses (net) 671 562 605 132 3 36 Non-operating impairments of investments (net) (232) (452) (191) (49) (291) (47) Subtotal 359 58 350 96 (312) (51)
Net income (loss) attributable to: 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).
Gross premiums written 11,630 11,328 11,292 9,496 9,158 9,227 Ceded premiums written (1,955) (1,892) (1,956) (655) (638) (740) Change in unearned premiums (1) 34 18 (158) (51) 73 Premiums earned (net) 9,674 9,470 9,354 8,683 8,469 8,560 Interest and similar income 1,197 1,216 1,180 868 908 866 Operating income from financial assets and liabilities carried at fair value through income (net) (4) (8) 28 5 7 1
2 From 2012 on, AGF UK is shown in Global Insurance Lines & Anglo Markets instead of Western & Southern Europe. Prior year figures have been adjusted.
4 From the third quarter of 2012 on, Allianz Worldwide Care is shown in Global Assistance instead of Global Insurance Lines & Anglo Markets. Prior year figures have been adjusted.
Operating realized gains/losses (net) – – – – – – 168 21 42
Change in reserves for insurance and investment contracts (net) 1 – – – – – (430) (272) (300)
Operating impairments of investments (net) – – – – – – (17) (46) (9)
German Speaking Countries Western & Southern Europe Iberia & Latin America
Interest and similar income 245 354 293 719 734 683 Operating income from financial assets and liabilities carried at fair value through income (net) 18 (9) (41) 14 (2) 1 Fee and commission income 17 132 198 456 430 445 Other income 6 1 – – – – Operating revenues 286 478 450 1,189 1,162 1,129
Balances with banks payable on demand 7,295 7,498 Balances with central banks 2,277 389 Cash on hand 223 263 Treasury bills, discounted treasury notes, similar treasury securities, bills of exchange and checks 2,642 2,342
As of 31 December 2012, compulsory deposits on accounts with national central banks under restrictions due to required reserves from the European Central Bank totaled € 305 mn (2011: € 389 mn).
FinanCial assets Carried at Fair value through inCome D 034 € mn as of 31 December 2012 2011
available-For-sale investments D 036 € mn as of 31 December 2012 2011
Government and government agency bonds 1 Includes bonds issued by Spanish banks with a fair value of € 508 MN (2011: € 1,115 MN), thereof subordinated bonds with a fair value of € 107 mn (2011: € 322 MN).
2 Includes shares invested in Spanish banks with a fair value of € 279 MN (2011: € 521 MN).
held-to-maturity investments held-to-maturity investments D 037 € mn as of 31 December 2012 2011
Government and government agency bonds 2,598 331 – 2,929 2,462 196 (31) 2,627 1 Also includes corporate mortgage-backed securities.
€ mn Less than 12 months Greater than 12 months Total as of 31 December Fair Value Unrealized
Government and agency mortgage-backed securities (residential and commercial) 86 (1) 9 (1) 95 (2) Corporate mortgage-backed securities (residential and commercial) 402 (26) 782 (81) 1,184 (107)
Government and agency mortgage-backed securities (residential and commercial) 22 (1) – – 22 (1) Corporate mortgage-backed securities (residential and commercial) 1,333 (101) 455 (81) 1,788 (182)
Government and government agency bonds Total unrealized losses amounted to € 455 mn as of 31 December 2012. The Allianz Group holds a large variety of government bonds, mostly of OECD countries (Organization of vestment category and length of time such investments have been in a continuous unrealized loss position as of 31 December 2012 and 2011.
Economic Cooperation and Development). In general, the credit risk of government and government agency bonds is rather moderate since they are backed by the fiscal capacity of the issuers who typically hold an “investment grade” country- and/or issue-rating.
The unrealized losses on the Allianz Group’s investment in government bonds were mainly caused by investments in certain European countries. These unrealized losses are attributable to changes in credit spreads, caused by concerns in the market. The Allianz Group believes that this is a temporary issue and that markets will recover. During 2012, government and government agency bond performance has been positive with spreads narrowing which resulted unrealized losses on available-For-sale investments and held-to-maturity investments The following table sets forth gross unrealized losses on available-for-sale investments and held-to-maturity investments and the related fair value, broken down by in-
equity investments Carried at Cost As of 31 December 2012, fair values could not be reliably measured for equity investments with carrying amounts totaling € 223 mn (2011: € 418 mn). These investments are primarily investments in privately held corporations and partnerships. During the year ended 31 December 2012, such investments with carrying amounts of € 99 mn (2011: € 96 mn) were sold leading to no gains or losses (2011: gains of € 1 mn and losses of € 1 mn).
investments in assoCiates and joint ventures As of 31 December 2012, loans to associated enterprises and joint ventures and available-for-sale debt securities issued by associated enterprises and joint ventures held by the Allianz Group amounted to € 290 mn (2011: € 136 mn). As of 31 December 2012, the fair value of investments in associates and joint ventures was € 3,378 mn (2011: € 2,801 mn).
Cost as of 1 January 11,383 11,630 10,413 Accumulated depreciation as of 1 January (2,719) (2,958) (2,899) Carrying amount as of 1 January 8,664 8,672 7,514
Reclassifications into non-current assets and assets of disposal groups classified as held for sale (20) (238) (46) Foreign currency translation adjustments 20 48 292
Corporate bonds Total unrealized losses amounted to € 955 mn as of 31 December 2012. The Allianz Group holds a large variety of bonds issued by corporations mostly domiciled in OECD countries. For the vast majority of the Allianz Group’s corporate bonds, issuers and/or issues are of “investment grade”. The unrealized losses have decreased by € 3,360 mn, primarily due to the recovering bond market performance of the financial sector. Based on a detailed analysis of the underlying securities, the Allianz Group did not consider these investments to be impaired as of 31 December 2012.
Equity securities As of 31 December 2012, unrealized losses from equity securities amounted to € 95 mn. These unrealized losses concern equity securities that did not meet the criteria of the Allianz Group’s impairment policy for equity securities as described in note 2. Substantially all of the unrealized losses have been in a continuous loss position for less than 6 months.
As of 31 December 2012, the fair value of real estate held for investment was € 14,247 mn (2011: € 13,168 mn). As of 31 December 2012, real estate held for investment pledged as security and other restrictions on title were € 37 mn (2011: € 37 mn).
10 – Loans and advances to banks and customers loans and advanCes to banks and Customers D 041 € mn as of 31 December 2012 2011
Collateral paid for securities borrowing transactions and derivatives 365 – 365 264 – 264 loans and advanCes to banks and Customers by ContraCtual maturity loans and advanCes to banks and Customers by ContraCtual maturity D 042 € mn as of 31 December 2012 Up to 3 months > 3 months up to 1 year > 1 year up to 3 years > 3 years up to 5 years
Loans and advances to banks 4,115 4,568 8,383 8,258 44,522 69,846 Loans and advances to customers 2,597 3,749 6,441 5,995 30,893 49,675
loans and advanCes to banks and Customers by geographiC region loans and advanCes to banks and Customers by geographiC region D 043 € mn as of 31 December 2012 2011
Collateral paid for securities borrowing transactions and derivatives 6 359 365 46 218 264 loans and advanCes to Customers (prior to loan loss allowanCes) by eConomiC seCtor loans and advanCes to Customers (prior to loan loss allowanCes) by eConomiC seCtor D 044 € mn as of 31 December 2012 2011 germany Corporate Customers
11 – Reinsurance assets reinsuranCe assets D 047 € mn as of 31 December 2012 2011
Unearned premiums 1,546 1,394 Reserves for loss and loss adjustment expenses 7,318 7,006 Aggregate policy reserves 4,295 4,364 Other insurance reserves 95 110 reConCiliation oF allowanCes For Credit losses by Class oF FinanCial assets D 045 € mn Loan loss allowance Provision for credit losses Total
Foreign currency translation adjustments – – 1 – – – – – 1 Reclassifications to non-current assets and assets of disposal groups classified as held for sale – – – – – (6) – – (6)
Changes in deFerred aCquisition Costs D 050 € mn property-Casualty Carrying amount as of 1 January 4,197 4,121 3,789
Carrying amount as of 31 December 4,323 4,197 4,121 liFe/health Carrying amount as of 1 January 14,579 14,459 14,452
Carrying amount as of 31 December 945 1,053 1,180 Accumulated amortization as of 31 December 1,838 1,725 1,602 Cost as of 31 December 2,783 2,778 2,782 1 During the year ended 31 December 2012, includes interest accrued on unamortized PVFP of € 59 MN (2011: € 63 MNN; 2010: € 65 MN).
Deferred acquisition costs Property-Casualty 4,323 4,197 Life/Health 13,521 14,579 Asset Management 139 146
As of 31 December 2012, the percentage of PVFP that is expected to be amortized in 2013 is 15.30 % (12.11 % in 2014, 10.63 % in 2015, 9.63 % in 2016 and 8.84 % in 2017).
Cost as of 1 January 4,584 4,162 3,828 Accumulated amortization as of 1 January (3,191) (2,875) (2,531) Carrying amount as of 1 January 1,393 1,287 1,297
Reclassification into non-current assets and assets of disposal groups classified as held for sale – – (8) Foreign currency translation adjustments 5 (2) 21
Changes in the consolidated subsidiaries of the Allianz Group (8) 3 3
Reclassifications into non-current assets and assets of disposal groups classified as held for sale – – (22) Foreign currency translation adjustments – 8 22
Cost as of 1 January 4,022 4,269 4,008 Accumulated depreciation as of 1 January (1,216) (1,194) (1,092) Carrying amount as of 1 January 2,806 3,075 2,916
Changes in the consolidated subsidiaries of the Allianz Group 60 (124) (97)
Reversals of impairments 8 2 1 Carrying amount as of 31 December 2,885 2,806 3,075 Accumulated depreciation as of 31 December 1,136 1,216 1,194 Cost as of 31 December 4,021 4,022 4,269
14 – Non-current assets and assets of disposal groups classified as held for sale non-Current assets and assets oF disposal groups ClassiFied as held For sale D 058 € mn as of 31 December 2012 2011
Non-current assets classified as held for sale Real estate held for investment 15 3
Changes in the consolidated subsidiaries of the Allianz Group – (46) 248
Carrying amount as of 31 December 1,225 1,113 1,117 Accumulated depreciation as of 31 December 579 460 470 Cost as of 31 December 1,804 1,573 1,587 1 Includes fixed assets of wind parks, solar parks, manroland and Selecta.
Intangible assets with finite useful lives Long-term distribution agreements 2 796 941 Customer relationships 152 207 1 Includes primarily the brand name of Selecta aG, Muntelier. 2 Consists of the long-term distribution agreements with Commerzbank aG of € 410 MN (2011: € 539 MN) and Banco Popular s.a. of € 386 MN (2011: € 402 MN). 3 Includes primarily acquired business portfolios and renewal rights of € 67 MN (2011: € 44 MN), other distribution rights of € 20 MN (2011: € 22 MN), heritable building rights of € 15 MN (2011: € – MN), bancassurance agreements of € 10 MN (2011: € 12 MN) and research and development costs of € 11 MN (2011: € 9 MN).
The allocated goodwill of the Cash Generating Unit (CGU) Selecta AG was impaired by € 89 mn in the segment Corporate and Other. This impairment was triggered by lower expectations regarding future economic developments of Selecta’s core markets and lower multiples.
Disposals of 2011 include goodwill from the loss of control in manroland AG, Offenbach, due to the opening of insolvency proceedings during the fourth quarter.
As a result of the annual impairment test, the goodwill of the CGU Property-Casualty Insurance USA1 was impaired by € 93 mn, the goodwill of the CGU Life/Health Asia-Pacific and Middle East was impaired by € 149 mn, the goodwill of the CGU Banking Germany was impaired by € 95 mn and the intangible asset of the CGU Banking Germany was impaired by € 19 mn.
Additions of 2010 include goodwill from the acquisition of a 100 % participation in Windpark Werder Zinndorf GmbH & Co. KG, Sehestedt, the acquisition of a 100 % participation in Solarpark BPS Brindisi S.r.l., Brindisi, and the acquisition of a 100 % participation in Solarpark Orsa Maggiore PV S.r.l., Milan.
The brand name of the Insurance Company “Progress Garant ” was impaired in the second quarter of 2012 and the brand name of Russian People’s Insurance Society “ROSnO” is amortized over the next four years due to the rebranding activities of Allianz Group in the Russian market.
− Asia-Pacific and Middle East, − Central and Eastern Europe including Bulgaria, Croatia, the Czech Republic, Hungary, Slovakia, Poland, Romania and Russia,
− Specialty Lines I including Allianz SE Re, Allianz Global Corporate & Specialty, ART and Credit Insurance,
The carrying amounts of goodwill and brand names are allocated to the Allianz Group’s CGU as of 31 December 2012 and 2011 as follows:1 alloCation oF Carrying amounts oF goodwill and brand names to Cgu D 061 € mn as of 31 December 2012 2011
Cash generating unit Goodwill Brand names Goodwill Brand names property-Casualty German Speaking Countries 284 – 284 – Insurance Western & Southern Europe 924 – 851 – Iberia & Latin America 21 – 22 – Asia-Pacific and Middle East 89 – 88 – Central and Eastern Europe 467 16 454 24 Global Insurance Lines & Anglo Markets 323 – 317 – Specialty Lines i 38 – 38 – Specialty Lines ii 18 – 18 –
ties included in the CGU. The capitalized earnings value is calculated by discounting the future earnings using an appropriate discount rate. The business plans applied in the value in use calculations are the results of the structured management dialogues between the Board of Management of the Allianz Group and the operating entities in connection with a reporting process integrated into these dialogues. Generally, the business plans comprise a planning horizon of three years and are based on the current market environment.
For all CGU in the Life/Health segment the value in use is based on an Appraisal Value method which is derived from the Embedded Value and new business value calculation.
As a starting point for the impairment test for the CGU in the Life/Health segment, the Market Consistent Embedded Value (mCEV) and a multiple of the Market Consistent Value of New Business is used. The mCEV is an industry specific valuation method to assess the current value of the in force portfolio and is in compliance with the general principles of the discounted earnings methods. The Market Consistent Embedded Value approach applied is based on the CFO Forum Principles and the Allianz Group’s Embedded Value guidelines. It is a risk-neutral valuation that includes explicit allowance for non-financial risk as well as allowance for options and guarantees using market consistent stochastic simulations that are in line with market prices for similar financial instruments.
The discount rate is based on the capital asset pricing model (CAPm) and appropriate eternal growth rates. The assumptions, including the risk free interest rate, market risk premium, segment beta and leverage ratio, used to calculate the discount rates are in general consistent with the parameters used in the Allianz Group’s planning and controlling process. The discount rates and eternal growth rates for the CGU in the Property-Casualty segment are as follows: disCount rate and eternal growth rate For the Cgu in the property-Casualty segment D 062
For entities included in the CGU of the segment Life/Health, the projection of profits underlying the mCEV and the Traditional Embedded Value calculation is based on assumptions set with allowance for profit-sharing as well as a projection of unrealized capital gains and unallocated premium reserves. The profits estimated for the mCEV and the Traditional Embedded Value calculation consist of premium income, investment return on technical reserves, expenses, commissions, death and morbidity claims, surrender claims, maturity claims, increases in technical reserves, taxation and levies. For projecting future profits, assumptions have to be made on the asset performance of the operating entity. This requires consideration of the development of the market together with assumptions on the operating entity’s investment strategy as well as the current asset portfolio and allocation. The projection of investment returns includes the consideration of projection of returns for the current asset portfolio and a projection of returns for reinvestments. All assumptions have been developed by management under consideration of internal and external sources.
For the calculation of the mCEV the projected future profits were discounted using risk-neutral discount rates, as the risks are already explicitly allowed for in the market consistent valuation. Time-dependent and scenario-dependent discount factors are applied. As a reference rate, the swap yield curve with appropriate adjustments for, e.g., credit risk and illiquidity premium, was used for determining the
Health Germany mCev: eur swap curve minus 10 bps credit risk adjustment plus 33 bps illiquidity premium
Asia-Pacific and Middle East mCev: Local swap curve minus 10 bps credit risk adjustment plus 0 bps illiquidity premium tev: 5.76 % for Allianz Taiwan
The new business value calculation is based on a best-estimate of one year of value of new business, multiplied by a factor (multiple) to capture expected future new business. The best-estimate of new business is generally derived from the achieved value of new business. The new business multiple accounts for the risk and growth associated with future new business in analogy to the discount rate and the growth rate in a capitalized earnings method. For all CGU in the Life/Health segment, a multiple of not more than ten times value of new business is applied.
For the CGU Selecta AG, the discount rate applied to determine the value in use is 8.0 %. The value in use results from the discounted expected sales proceeds, assuming a sale to occur in the mid-term future. The sale proceeds are estimated by using a multiple valuation. The multiple is derived from industry peer companies and management judgment and is applied to projected results derived from the internal business plan, which is mainly based on expectations regarding future economic developments of Selecta’s core markets.
In the Life/Health segment, for life entities where the Appraisal Value is based on mCEV, sensitivity analyses were performed based on mCEV sensitivity testing on the reference rate. For life entities where the Appraisal Value is based on Traditional Embedded Value, sensitivity analyses were performed with respect to the risk discount rate. For the CGU Insurance USA, any increase in the risk discount rate would lead to the Appraisal Value not exceeding its carrying value assuming ten times the new business value. For the CGU Asia-Pacific and Middle East, an increase in the risk discount rate in Taiwan of 100 basis points would lead to the Appraisal Value still exceeding its carrying value assuming seven times the new business value.
intangible assets with Finite useFul lives Amortization expenses of intangible assets with finite useful lives are estimated to be € 131 mn in 2013, € 130 mn in 2014, € 126 mn in 2015, € 120 mn in 2016 and € 120 mn in 2017. Thereof, the amortization expenses relating to the intangible assets of Selecta AG are included in the line item “Expenses from fully consolidated private equity investments”.
The long-term distribution agreements with Commerzbank AG have useful lives of 13.5 years and 15 years, which were determined by contractual agreements. They are amortized on a straight-line basis over the remaining useful life of 11 years. The long-term distribution agreements were impaired by € 84 mn in the fourth quarter 2012 as a result of adjusted estimated distribution volumes. The longterm distribution agreements with Banco Popular S.A. have useful lives of 25 years, which were determined by contractual agreements. They are amortized on a straight-line basis over the remaining useful lives of 23.75 years.
The customer relationships of cominvest and Selecta have useful lives of 4 years and 10 years, which were determined by average customer retention period for German mutual funds and by the multi-period excess earnings method. The customer relationships of cominvest were fully amortized by the end of 2012. The customer relationships of Selecta are amortized on a straight-line basis over the remaining useful lives of 4.5 years.
Term deposits and certificates of deposit 986 1,651 2,637 1,107 2,234 3,341
Reserves for loss and loss adjustment expenses for the Property-Casualty segment are described in detail in the following sections.
Foreign currency trans lation adjustments and other changes 1 (96) (2) (98) 684 (84) 600 2,188 (344) 1,844 Changes in the consolidated subsidiaries of the Allianz Group 2,625 (220) 2,405 13 (3) 10 (242) 26 (216)
reserves For loss and loss adjustment expenses For the individual accident years at the respective reporting date (net) D 072 € mn Accident year as of 31 December
The ultimate loss of an accident year comprises all payments made for that accident year up to the reporting date, plus the loss reserve at the reporting date. Given complete information regarding all losses incurred up to the balance sheet date, the ultimate loss for each accident-year period would remain the same. In practice, however, the ultimate loss (based on estimates) is exposed to fluctuations that reflect the increase in knowledge regarding the loss cases. The loss ratio presented above varies slightly from the reported loss ratio because the ultimate loss in the table above is based on the sum of the payments plus the loss reserve, and not the incurred loss from the profit and loss account.
The run-off triangles are not prepared on a currency-adjusted basis. This means all figures are translated from the respective local currency into the Allianz Group currency (Euro), consistently using the exchange rates applicable at the reporting date. This ensures that the reserves reconcile with reserves in the consolidated balance sheet.
Development of reserves for loss and loss adjustment expenses The following table summarizes the development of the Allianz Group’s loss and LAE reserves over the past eight years. The table presents calendar year data, not accident year data.
The cumulative surplus can be distorted due to various effects. The liabilities will change if, through either acquisition, sale of a company or reclassification, entire new portfolios of claim payments and reserves are added to or subtracted from the data. In addition, changes in currency exchange rates can lead to distortions in the cumulative surplus. The effective run-off result is derived after adjusting for these effects.
Given that the table below presents calendar year data and not, as in the tables above, accident year data, conclusions composition oF reserves For loss and lae by line oF business The time lag until claims are reported and subsequently settled is an important consideration in establishing reserves. Short-tail claims, such as motor property damage claims, are typically reported within a few days or weeks and are generally settled within two to three years. Medium -tail claims such as personal and commercial motor liability claims generally take four to six years to settle, development oF reserves For loss and loss adjustment expenses D 075 € mn Calendar year
Six years later 41,181 43,379 45,086 Seven years later 41,550 45,052 Eight years later 42,827 Cumulative surplus
In 2012, net loss and LAE reserves increased by € 2,971 mn or 5.6 % to € 55,806 mn, resulting partially from the acquired insurance activities of Mensura CCA by the Belgian subsidiary and the acquired brokerage portfolio-related activities of Gan Eurocourtage by the French subsidiary. Reserve developments during 2012 are described in further detail in the section “Changes in reserves for loss and LAE during 2012”.
about future results may not be derived from the information presented in this table.
Construction Damage and Liability 2,448 2,096 2,020 1 Other comprises primarily Package/Multiple Perils, Legal Protection, Aviation and Travel Insurance lines of business.
2 Insurance activities of Mensura and brokerage portfolio-related activities of Gan Eurocourtage were acquired in 2012. The gross reserves associated with the acquisitions were € 2,625 mn.
The major highlights of the reserve developments in 2012 are discussed by line of business below. The discussion is based on net loss and LAE reserves in the local currency of the relevant local operating entity before consolidation and converted into Euro for uniform presentation. Only significant developments for the Allianz Group’s major operating entities are included and therefore the amounts do not fully reconcile to the line of business totals in the above table.
Motor For Motor, net loss and LAE reserves developed favorably during 2012 by € 692 mn, or 4.1 % of reserves at 31 December 2011. Favorable development was caused by different effects across several operating entities. The following subsidiaries were the largest contributors: € 161 mn at Allianz Italy. The reduction was driven by a further decrease in claims frequency as compared to the expectation, due to the implications of difficult economic climate. This was only offset to a small extent by other factors such as an increase in VAT.
€ 114 mn at Allianz Australia mainly driven by a favorable incurred cost experience in motor third party liability.
€ 59 mn at Allianz France due to a trend of decreasing claims frequency, especially for Motor Own Damage and Motor Third Party Liability property damage losses, as well as favorable development on large bodily injury losses in Motor Third Party Liability.
Workers Compensation / Employers Liability For Workers Compensation / Employers Liability, net loss and LAE reserves developed unfavorably during 2012 by € 71 mn, or 1.6 % of reserves at 31 December 2011. This development was caused by different effects across several operating entities. The largest contributor was Fireman’s Fund Insurance Company, with an unfavorable development of € 73 mn due to higher trends for medical inflation.
Credit Insurance Credit Insurance is underwritten in the Allianz Group by Euler Hermes. During 2012, Euler Hermes experienced a favorable development of € 206 mn net of reinsurance, or 18.5 % of reserves, mainly driven by a better than expected development of the previous years claims in almost all regions where Euler Hermes operates.
€ 51 mn favorable from all AGCS entities and classes of business due to an unallocated LAE estimate reduction following an enhancement of the unallocated LAE estimation methodology.
3 Prior year figures adjusted due to a correction of the determination of discounted reserves.
While the U.S. A&E claims still represent a majority of the total A&E claims reported to the Allianz Group, the insurance industry is facing an increased prominence in exposures to A&E claims on a global basis. The Allianz Group continues to monitor these A&E exposures. During 2012 the acquired brokerage portfolio-related activities of Gan Eurocourtage resulted in a portfolio entry of € 23 mn asbestos reserves. An additional increase of € 75 mn for higher defense costs and large claims contributed to the overall reserve change of € 130 mn or 4.2 % of the A&E reserves as at 31 December 2011.
counted, and the interest rates used for discounting for the years ended 31 December: Annual Report 2012 Allianz Group298
reserves For insurance and investment contracts D 081 € mn as of 31 December 2012 2011
Participating life insurance contracts 146,609 141,776 Traditional long-duration insurance contracts 58,222 56,520 Universal life-type insurance contracts 144,083 138,846 Non-unit-linked investment contracts 1,330 1,176
Changes in aggregate policy reserves for participating life insurance contracts and traditional long-duration insurance contracts for the years ended 31 December 2012 and 2011 were as follows: changes in aggregate policy reserves For participating liFe insurance contracts and traditional long-duration insurance contracts D 083 € mn
Reserves for loss and LAE as of 1 January 3,124 3,272 3,099 – Loss and lae payments (188) (124) (195) + Change in reserves for loss
Reserves for loss and LAE as of 31 December 3,066 3,124 3,272
Foreign currency translation adjustments 4 5 35 Changes in the consolidated subsidiaries of the Allianz Group (1) (2) (20)
discretionary participation features. Similarly, a significant portion of the Allianz Group’s unit-linked contracts in France and Italy do not incorporate significant insurance risk.
Changes in financial liabilities for unit-linked insurance contracts and unit-linked investment contracts for the years ended 31 December 2012 and 2011 were as follows: changes in Financial liabilities For unit-linked insurance contracts and unit-linked investment contracts D 089 € mn
Foreign currency translation adjustments (520) 41 697 (71) Changes in the consolidated subsidiaries of the Allianz Group – – (588) –
other liabilities D 090 € mn as of 31 December 2012 2011
Provisions Pensions and similar obligations 3,852 3,754 Employee related 2,100 1,901 Share-based compensation plans 558 792 Restructuring plans 304 280 Loan commitments 67 24 Contingent losses from non-insurance business 166 374 Other provisions 1,632 1,430
Deposits retained for reinsurance ceded 1,834 1,760 Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments 462 237 Financial liabilities for puttable equity instruments 2,601 2,881 Other liabilities 6,270 5,337
Contractual interest rate 0.80 % – – – – – – –
3 Change due to the issuance of a € 1.5 Bn bond in the first quarter of 2012 and the repayment of a € 0.9 Bn bond in the fourth quarter of 2012.
Current interest rate – – – – – 5.56 % – –
Total all other subsidiaries – – – – – 444 444 443 1 Except for interest rates. Interest rates represent the weighted average. 2 Includes subordinated bonds issued by Allianz Finance II B.V. and guaranteed by Allianz SE.
3 Change due to redemption of a € 2 Bn subordinated bond in the second quarter of 2012, the issuance of a € 1.5 Bn subordinated bond in the fourth quarter of 2012 and the issuance of a 1 Bn USD subordinated bond in the fourth quarter of 2012.
Foreign currency translation adjustments (2,073) (1,996) Unrealized gains and losses (net) 2 10,122 4,626
authorized capital As of 31 December 2012, Allianz SE had authorized capital for the issuance of 214,843,750 shares until 4 May 2015, with a notional amount of € 550 mn (Authorized Capital 2010/I). The shareholders’ subscription rights can be excluded for capital increases against contribution in kind. For a capital increase against contributions in cash, the shareholders’ subscription rights can be excluded: (i) for fractional amounts, (ii) if the issue price is not significantly below the market price and the shares issued under exclusion of the subscription rights pursuant to § 186 (3) sentence 4 of the German Stock Corporation Law (Aktiengesetz) do not exceed 10 % of the share capital, (iii) to the extent necessary to grant a subscription right for new shares to the holders of bonds that carry conversion or option rights or provide for mandatory conversion, and (iv) if the new shares are issued in connection with a listing of Allianz shares on a stock exchange in the People’s Republic of China, the issue price for the new shares is not significantly below the market price, and the new shares do not exceed 10 % of the share capital. An overall limit for the exclusion of subscription rights of up to € 232 mn (corresponding to 20 % of the share capital at year-end 2009) applies for the Authorized Capital 2010/I and the Conditional Capital 2010.
Purchase Plan 2013, whereas 2,606,169 (2011: 2,606,169) shares were held as a hedge for obligations from the Allianz Equity Incentive Program (former Group Equity Incentive Program).
In the fourth quarter of 2012, 650,000 (2011: 800,000) new Allianz shares were issued in the context of a capital increase for the Employee Stock Purchase Plan 2012. In 2012, 627,118 (2011: 878,233) shares were sold to employees of Allianz SE and its subsidiaries. Of these, 148,387 (2011: 226,620) originated from the capital increase for the Employee Stock Purchase Plan in 2011 and 478,731 (2011: 651,613) from the capital increase for the Employee Stock Purchase Plan in 2012. Employees of the Allianz Group purchased shares at prices ranging from € 52.17 (2011: € 45.65) to € 75.19 (2011: € 54.34) per share. The remaining 171,269 (2011: 148,387) shares from the capital increase in 2012 will be used for the Employee Stock Purchase Plan of Allianz SE and its subsidiaries in 2013. The total change of holdings in Allianz SE own shares for the year ending 31 December 2012, amounted to an increase of 22,882 (2011 decrease: 78,233) shares which corresponds to € 58,578 (2011: € 200,276) or 0.01 % (2011: 0.02 %) of issued capital.
Issued shares outstanding as of 1 January 452,473,025 451,548,760 451,197,223 Capital increase for employee shares 650,000 800,000 600,000 Change in treasury shares held for non-trading purposes 48,951 124,265 (248,463) Issued shares outstanding as of 31 December 453,171,976 452,473,025 451,548,760
dividends For the year ending 31 December 2012, the Board of Management will propose to shareholders at the Annual General Meeting the distribution of a dividend of € 4.50 per qualifying share. For the years ended 31 December 2011 and 2010, Allianz SE paid a dividend of € 4.50 per qualifying share.
treasury shares As of 31 December 2012, Allianz SE held 2,777,438 (2011: 2,754,556) own shares. Of these, 171,269 (2011: 148,387) shares were held for covering subscriptions by employees of the Allianz Group in the context of the Employee Stock
The minimum capital requirements are based on various criteria including, but not limited to, volume of premiums written or claims paid, amount of insurance reserves, investment risks, mortality risks, credit risks, underwriting risks and off-balance sheet risks.
As of 31 December 2012, the Allianz Group’s insurance subsidiaries were in compliance with all applicable regulatory solvency and capital adequacy requirements.
Some insurance subsidiaries are subjected to regulatory restrictions on the amount of dividends which can be remitted to Allianz SE without prior approval by the appropriate regulatory body. Such restrictions provide that a company may only pay dividends up to an amount in excess of certain regulatory capital levels or based on the levels of undistributed earned surplus or current year income or a percentage thereof. By way of example only, the operations of the Allianz Group’s insurance subsidiaries located in the United States are subject to limitations on the payment of dividends to their parent company under applicable state insurance laws. Dividends paid in excess of these limitations generally require prior approval of the insurance commissioner of the state of domicile. The Allianz Group believes that these restrictions will not affect the ability of Allianz SE to pay dividends to its shareholders in the future.
As of 31 December 2012, the Allianz Group’s eligible capital for the solvency margin, required for the insurance segments and the Asset Management and Banking business, was € 48.4 Bn (2011: € 42.6 Bn) including off-balance sheet reserves 1 of € 2.2 Bn (2011: € 2.2 Bn), surpassing the minimum legally stipulated level by € 23.8 Bn (2011: € 18.8 Bn). This margin resulted in a preliminary cover ratio of 197 % (2011: 179 %) as of 31 December 2012. The ratio decreased by approximately 17 %-points as of 1 January 2013 due to amendments to IAS 19.
Corporate and Other segment For the year ended 31 December 2012, income/(expenses) from financial assets and liabilities held for trading (net) in the Corporate and Other segment include income of € 354 mn (2011: expenses of € 458 mn; 2010: income of € 72 mn) from derivative financial instruments. This includes expenses of € 14 mn (2011: expenses of € 9 mn; 2010: income of € 33 mn) from financial derivative instruments to protect investments and liabilities against foreign exchange rate income/(exPenses) from financial assets and liabilities held for trading (net)
Income/(expenses) from financial assets and liabilities held for trading (net) (98) (832) (2) 237 48 (647) Income/(expenses) from financial assets and liabilities designated at fair value through income (net) (25) 454 72 (1) (1) 499 Income/(expenses) from financial liabilities for puttable equity instruments (net) 46 (240) (50) – – (244) Foreign currency gains and losses (net) (49) (96) (4) 30 – (119)
Income/(expenses) from financial assets and liabilities held for trading (net) (99) (731) (5) (427) 56 (1,206) Income/(expenses) from financial assets and liabilities designated at fair value through income (net) 59 (169) (40) (3) (1) (154) Income/(expenses) from financial liabilities for puttable equity instruments (net) 11 85 39 – – 135 Foreign currency gains and losses (net) 25 (75) (5) (7) – (62)
Income/(expenses) from financial assets and liabilities held for trading (net) (114) (1,040) 1 76 3 (1,074) Income/(expenses) from financial assets and liabilities designated at fair value through income (net) 107 867 27 2 (1) 1,002 Income/(expenses) from financial liabilities for puttable equity instruments (net) (21) (286) (12) – – (319) Foreign currency gains and losses (net) (18) 438 3 (68) (2) 353
fluctuations. In 2012, hedging of strategic equity investments not designated for hedge accounting produced income of € 3 mn (2011: expenses of € 36 mn; 2010: expenses of € 16 mn). Financial derivatives related to investment strategies produced income of € 180 mn (2011: expenses of € 316 mn; 2010: income of € 68 mn). Expenses of € 126 mn (2011: income of € 32 mn; 2010: expenses of € 14 mn) from the hedges of share based compensation plans (restricted stock units) are also included.
income/(exPenses) from financial assets and liabilities designated at fair value through income (net) For the year ended 31 December 2012, income/(expenses) from financial assets and liabilities designated at fair value through income (net) in the Life/Health segment include income from equity investments of € 273 mn (2011: expenses of € 217 mn; 2010: income of € 132 mn) and income of € 181 mn (2011: € 48 mn; 2010: € 735 mn) from debt investments.
Investments in associates and joint ventures 1 15 120 237 Real estate held for investment 221 285 277 Loans and advances to banks and customers 829 215 135 Non-current assets and assets and liabilities of disposal groups classified as held for sale 36 104 –
1 During the year ended 31 December 2012, includes realized gains from the disposal of subsidiaries and businesses of € 12 mN (2011: € 18 mN; 2010: € 224 mN).
ProPerty-casualty Fees from credit and assistance business 721 (6) 715 673 (4) 669 661 (4) 657
Investment advisory and Banking activities 595 (234) 361 549 (250) 299 563 (252) 311
Realized gains from disposals of real estate held for own use 23 10 18 Other income from real estate held for own use 8 2 1
Claims and insuranCe benefits inCurred (net) D 104 € mn Property-Casualty Life/Health Consolidation Group
Claims and insurance benefits paid (30,149) (20,529) 25 (50,653) Change in loss and loss adjustment expenses (689) (411) 8 (1,092)
Net Claims and insurance benefits paid (27,828) (20,050) 3 (47,875) Change in loss and loss adjustment expenses (664) (336) 1 (999)
Net Claims and insurance benefits paid (26,459) (18,738) – (45,197) Change in loss and loss adjustment expenses (682) (217) – (899)
Change in reserves for insuranCe and investment ContraCts (net) D 105 € mn Property-Casualty Life/Health Consolidation Group
Other insurance reserves (5) (78) – (83) Expenses for premium refunds (292) (6,376) (9) (6,677)
Other insurance reserves (5) (72) – (77) Expenses for premium refunds (292) (6,363) (9) (6,664)
Ceded Aggregate policy reserves (16) 113 – 97 Other insurance reserves 1 12 – 13 Expenses for premium refunds 8 7 – 15
Net Aggregate policy reserves (123) (8,094) – (8,217) Other insurance reserves 4 (243) – (239) Expenses for premium refunds (181) (4,992) (242) (5,415)
Liabilities to banks and customers (339) (389) (379) Deposits retained on reinsurance ceded (51) (47) (74)
Held-to-maturity investments – (33) (1) Investments in associates and joint ventures (23) – – Real estate held for investment (48) (52) (106) Loans and advances to banks and customers (58) (26) (28) Non-current assets and assets and liabilities of disposal groups classified as held for sale (3) (33) (82)
Commissions and profit received on reinsurance business ceded 110 (1) 109 99 (1) 98 94 (1) 93
40 – Fee and commission expenses fee and Commission expenses D 111 € mn
Expected income taxes 2,548 1,398 2,099 Trade tax and similar taxes 237 201 176 Net tax exempt income (189) (40) (571) Effects of tax losses 2 178 279
Foreign currency translation adjustments (11) (1) 41 Available-for-sale investments (2,522) 81 (146) Cash flow hedges (27) 4 (9) Share of other comprehensive income of associates – (1) (6)
The recognized income taxes for the year ended 31 December 2012 are € 591 mn above (2011: € 644 mn above; 2010: € 135 mn below) the expected income taxes. The following table shows the reconciliation from the expected income taxes of the Allianz Group to the effectively recognized taxes. The Allianz Group’s reconciliation is a summary of the individual company-related reconciliations, which are based on the respective country-specific tax rates after taking into consideration consolidation effects with an impact
Tax losses carried forward are scheduled according to their expiry periods as follows: tax losses Carried forward D 117 € mn >10 years 284 Unlimited 9,779 Total 10,894
deferred tax assets and liabilities deferred tax assets and liabilities D 116 € mn as of 31 December 2012 2011
Deferred acquisition costs 1,984 1,449 Other assets 1,184 923 Intangible assets 156 136 Tax losses carried forward 2,548 2,834 Insurance reserves 3,935 3,824 Pensions and similar obligations 149 171 Other liabilities 992 810 Total deferred tax assets 13,853 13,847 Non-recognition or valuation allowance for deferred tax assets on tax losses carried forward (714) (753) Effect of netting (11,869) (10,773) Net deferred tax assets 1,270 2,321 Deferred tax liabilities Financial assets carried at fair value through income 91 78
Deferred acquisition costs 4,371 4,428 Other assets 592 620 Intangible assets 381 368 Insurance reserves 2,420 2,375 Pensions and similar obligations 417 218 Other liabilities 882 633 Total deferred tax liabilities 17,038 14,654 Effect of netting (11,869) (10,773) Net deferred tax liabilities 5,169 3,881 Net deferred tax assets/(liabilities) (3,899) (1,560)
Market and counterparty risks arising from the use of derivative financial instruments are subject to control procedures.
The counterparty settlement risk is virtually excluded in the case of exchange-traded products, as these are standardized products. By contrast, over-the-counter (OTC) products, which are individually traded contracts, carry a theoretical credit risk amounting to the replacement value. The Allianz Group therefore closely monitors the credit rating of counter parties for OTC derivatives. To reduce the counterparty risk from trading activities, so-called crossproduct netting master agreements with the business partners are established. In the case of a defaulting counterparty, netting makes it possible to offset claims and liabilities not yet due.
Insurance subsidiaries in the Allianz Group use derivatives to manage the risk exposures in their investment portfolios based on general thresholds and targets. The most important purpose of these instruments is hedging against adverse market movements for selected securities or for parts of a portfolio. Specifically, the Allianz Group selectively uses derivative financial instruments such as swaps, options and forwards to hedge against changes in prices or interest rates in its investment portfolio.
Derivative financial instruments D 118 € mn as of 31 December 2012 2011
1 As of 31 December 2012, includes embedded derivatives related to equity-indexed annuities with negative fair values of € (3,578) mn (2011: € (3,513) mn).
Cash flow hedges During the year ended 31 December 2012, cash flow hedges were used to hedge variable cash flows exposed to interest rate, exchange rate fluctuations and inflation. As of 31 December 2012, the derivative instruments utilized had a positive fair value of € 75 mn (2011: negative fair value of € 2 mn). Unrealized gains and losses (net) in shareholders’ equity increased by € 65 mn (2011: decreased by € 5 mn).
Hedge of net investment in foreign operations As of 31 December 2012, the Allianz Group hedges part of its U.S. Dollar net investments through the issuance of U.S. Dollar denominated liabilities with a nominal amount of USD 1.0 Bn.
Derivative financial instruments useD in accountinG heDGes Important hedging instruments are equity forward contracts, equity options, total returns swaps, interest rate swaps, interest rate forwards, currency swaps and currency forwards. Hedging instruments may be implemented for individual transactions (micro hedge) or for a portfolio of similar assets or liabilities (portfolio hedge).
Fair value hedges The Allianz Group uses fair value hedges to hedge its equity portfolio against equity market risk. The financial instruments used in the related fair value hedges had a negative fair value of € 209 mn (2011: positive fair value of € 334 mn) as of 31 December 2012.
Additionally, the Allianz Group uses fair value hedges to protect against the change in the fair value of financial assets due to movements in interest rates or exchange rates. The derivative financial instruments used for the related fair value hedges of the Allianz Group had a total negative fair value as of 31 December 2012 of € 199 mn (2011: negative fair value of € 139 mn).
For the year ended 31 December 2012, the Allianz Group recognized for fair value hedges a net loss of € 210 mn (2011: net gain of € 249 mn; 2010: net loss of € 1 mn) on the hedging instrument and a net gain of € 168 mn (2011: net loss of € 311 mn; 2010: net loss of € 30 mn) on the hedged item attributable to the hedged risk.
The fair value of a financial instrument is defined as the amount for which a financial asset could be exchanged, or a financial liability settled, between knowledgeable, willing parties in an arm’s length transaction. The maximum exposure to credit risk of financial assets, without taking collateral into account, is represented by their carrying amount.
fair values anD carryinG amounts of financial instruments D 119 € mn as of 31 December 2012 2011
2 Includes a correction of the determination of the risk adjusted discount rate for a sub-portfolio (decreases the fair value by € 383 mn).
3 Includes receivables and obligations of deferred compensation plans outsourced to a trust.
Determination of fair value for financial instruments carried at fair value For the following financial instruments, carried at fair value in the consolidated balance sheets, the fair value is determined as described in note 2 – Summary of significant accounting policies: − Financial assets and liabilities held for trading − Financial assets and liabilities designated at fair value through income − Available-for-sale investments − Financial assets and liabilities for unit-linked contracts − Derivative financial instruments and firm commitments included in other assets and other liabilities − Investment contracts with policyholders − Financial liabilities for puttable equity instruments − Assets and liabilities held in trust fair value hierarchy of financial instruments IFRS 7 requires that financial instruments carried at fair value in the consolidated balance sheets are classified into a three-level hierarchy (“the fair value hierarchy”) depending on the valuation techniques used and whether the inputs to those valuation techniques are observable in the market.
Determination of fair value for financial instruments not carried at fair value The determination of the fair value for financial instruments that are not carried at fair value in the consolidated balance sheet, but for which a fair value has to be disclosed under IFRS 7, is described below: Cash and cash equivalents: Cash and cash equivalents comprises cash and demand deposits with banks together with short-term highly liquid investments that are readily convertible to known amounts of cash and subject to insignificant risk of change in value. They are carried at nominal value, which represents a reasonable estimate of the fair value for these short-term financial instruments.
Loans and advances to banks and customers: For loans and advances to banks and customers, quoted market prices are not available as there are no active markets in which these instruments are traded. The fair value is determined using generally accepted valuation techniques with current market parameters. For short-term loans, the carrying amount represents a reasonable estimate of the fair value. For long-term loans, the fair value is estimated by discounting future contractual cash flows using risk-adjusted discount rates.
The following tables present the fair value hierarchy for financial instruments carried at fair value in the consolidated balance sheets as of 31 December 2012 and 2011.
Government and agency mortgage-backed securities (residential and commercial) 33 5,361 – 5,394 Corporate mortgage-backed securities (residential and commercial) 10 11,320 219 11,549 Other asset-backed securities 91 2,203 265 2,559 Government and government agency bonds 113,975 18,184 58 132,217
Financial assets for unit-linked contracts 61,082 2,235 183 63,500 Derivative financial instruments and firm commitments included in other assets – 430 – 430 Assets held in trust 241 – 25 266 financial liabilities Financial liabilities held for trading
Financial assets transferred from Level 2 to Level 1 Available-for-sale – Government and government agency bonds 645 Available-for-sale corporate bonds 2,649
Equity securities within financial assets designated at fair value through income and available-for-sale investments classified as level 3 mainly comprise private equity fund investments of the Allianz Group. Fund manager priced private equity fund investments are usually calculated on a net asset value basis with material non-public information about the respective private equity companies. The Allianz Group has only limited access to this companyspecific data. The fund asset manager prices the underlying single portfolio companies generally on discounted cash flow or multiple approaches.
Available-for-sale investments Equity securities 4,150 1,732 7 (1,036) Corporate mortgage-backed securities (residential and commercial) 219 – (190) (5) Other asset-backed securities 265 52 2 (145) Government and government agency bonds 58 13 (1) (34) Corporate bonds 2,364 731 – (89) Other debt securities 449 13 – (1) Subtotal 7,505 2,541 (182) (1,310)
Financial assets for unit-linked contracts 183 9 3 (13) Assets held in trust 25 91 35 (8) Total financial assets at fair value 8,055 2,776 (134) (1,849)
Reconciliation of Level 3 financial instruments The following tables show a reconciliation of the financial instruments carried at fair value and classified as Level 3: Annual Report 2012 Allianz Group332
reclassification of financial assets In January 2009, certain USD-denominated CDOs were reclassified from financial assets held for trading to loans and advances to banks and customers in accordance with IAS 39.
As of 31 December 2011, the carrying amount and fair value of the CDOs was € 431 mn and € 428 mn, respectively. As of 31 December 2012, the carrying amount and fair value of the CDOs was € 370 mn and € 366 mn, respectively. For the twelve months ended 31 December 2012, the net profit related to the CDOs was not significant.
Tabular disclosure of contractual obligations The table sets forth the Allianz Group’s contractual obligations as of 31 December 2012. Contractual obligations do not include contingent liabilities or commitments. Only transactions with parties outside the Allianz Group are considered.
contractual obliGations D 125 € mn Contractual cash flows as of 31 December 2012
Due in 2013 Due in 2014 - 2017 Due after 2017 Total
Financial liabilities Financial liabilities carried at fair value through income please refer to note 43 Liabilities to banks and customers 1 16,257 3,117 3,051 22,425 Derivative financial instruments and firm commitments included in other liabilities please refer to note 43 Financial liabilities for puttable equity instruments 2,601 – – 2,601 Certificated liabilities, participation certificates and subordinated liabilities 1 3,078 1,729 14,767 19,574 Insurance liabilities
Reserves for loss and loss adjustment expenses 16,041 21,246 18,519 55,806 Other liabilities 1 For materiality reasons, the carrying amount is split up into the different contractual maturities.
2 Including investment contracts with policyholders and financial liabilities for unit-linked contracts.
4 Purchase obligations only include transactions related to goods and services; purchase obligations for financial instruments are not included.
Furthermore, these amounts do not include € 181,531 mn of premiums and fees expected to be received, expenses incurred to parties other than the policyholders such as agents and administrative expenses; nor do they include investment income earned. In addition, these amounts are presented net of reinsurance expected to be received as a result of these cash flows. For further information on reserves for insurance and investment contracts, see note 20 of the consolidated financial statements.
As of 31 December 2012, the Allianz Group substantially retained all the risks and rewards out of the ownership of transferred assets. There were no transfers of financial assets that were derecognized in full or partly, in which Allianz continues to control the transferred assets. Transfers of financial assets mainly relate to securities lending and repurchase agreement transactions. Transferred financial assets in repurchase agreement and securities lending transactions are mainly available-for-sale debt and equity securities for which substantially all of the risks and rewards are retained. As of 31 December 2012, the carrying amount of the assets transferred for securities lending transactions amounted to € 1,531 mn (2011: € 459 mn). For repurchase agreements, the carrying amount of the assets transferred amounted to € 952 mn (2011: € 226 mn) and the carrying amount of the associated liabilities amounted to € 951 mn (2011: € 227 mn). Assets pledged and collateral are described in note 46 – Contingent liabilities, commitments, guarantees, and assets pledged as collateral.
Allianz Life Insurance Company of North America ( Allianz Life) has been named as a defendant in various putative class action lawsuits in connection with the marketing and sale of deferred annuity products. Two of those lawsuits are currently pending as certified class actions in California. The complaints allege generally that the defendant engaged in, among other practices, deceptive trade practices and misleading advertising in connection with the sale of such products. These lawsuits have not yet progressed to a stage at which the outcome or exposure can be determined. In a class action lawsuit in Minnesota the Court, based upon a jury trial, entered final judgment in favor of Allianz Life in January 2010. In another California class action the parties reached settlement, which the court approved in 2011.
In January 2013, Allianz SE received a tax assessment notice from the Italian Tax Authority which declares a tax liability of Allianz SE of € 1.4 Bn including penalties and interest. The Italian Tax Authority asserts that the combination of the businesses in Italy following the cross-border merger of the Italian Riunione Adriatica di Sicurtà (RAS) with and into the former Allianz AG in 2006, which led to the change of legal form into Allianz SE, represents a taxable event. Management believes that the tax liability does not exist and intends to take legal remedy against the tax assessment notice.
With the sale of Dresdner Bank becoming effective on 12 January 2009, Allianz terminated the indemnification undertaking issued in 2001 in favor of the Federal Association 46 – Contingent liabilities, commitments, guarantees, and assets pledged and collateral continGent liabilities
As of 31 December 2012, the future minimum lease payments under non-cancelable operating leases were as follows: future minimum lease payments D 127 € mn
For the year ended 31 December 2012, rental expenses totaled € 325 mn (2011: € 268 mn; 2010: € 239 mn), net of sublease rental income received of € 12 mn.
In addition, as of 31 December 2012, the Allianz Group has other commitments of € 241 mn (2011: € 121 mn) mainly referring to maintenance, real estate development, sponsoring and other purchase obligations.
Allianz and HT1 Funding GmbH have signed a Contingent Indemnity Agreement in July 2006, pursuant to which Allianz may, in certain circumstances, be obliged to make payments to HT1 Funding GmbH. HT1 Funding GmbH issued nominal € 1,000 mn Tier 1 Capital Securities with an annual coupon of 6.352 % (as of 30 June 2017, the coupon will be 12-months EURIBOR plus a margin of 2.0 % p.a.). The contingent payment obligation of the Allianz Group was reduced in 2012 following a reduction of the nominal amount of the Tier 1 Capital Securities from € 1,000 mn to € 416 mn. The securities have no scheduled maturity and the security holders have no right to call for their redemption. The securities may be redeemed at the option of the issuer on 30 June 2017, and thereafter. The expected impact in the foreseeable future has been recognized in other provisions, however, it is not possible for the Allianz Group to predict the ultimate potential payment obligations at this point in time.
Loan commitments The Allianz Group engages in various lending commitments to meet the financing needs of its customers. The following table represents the amounts at risk should customers draw fully on all facilities and then default, excluding the effect of any collateral. Since the majority of these commitments may expire without being drawn upon, the amounts shown are not representative of actual liquidity requirements for such commitments.
aggregate out standing commitment of Allianz Lebensversicherungs -Aktiengesellschaft and its subsidiaries to the insurance guarantee scheme and to Protektor was € 1,123 mn (2011: € 1,071 mn).
According to the German Deposit Guarantee and Investor Compensation Act (EAEG – “Einlagensicherungs- und Anlegerentschädigungsgesetz ”) all credit institutions, investment companies and financial services institutions licensed to do business in Germany must adhere to a statutory compensation scheme. Allianz Global Investors Europe GmbH (former Allianz Global Investors Kapitalanlagegesellschaft mbH), PImCO Deutschland GmbH and risklab GmbH are currently members of EdW (“Entschädigungseinrichtung der Wertpapierhandelsunternehmen”, Berlin). The annual contribution is determined in consideration of each member’s scope of business. In addition, EdW may levy special contributions from its members, if the funds available to EdW are insufficient to satisfy all eligible claims. Special contributions are determined by reference to the preceding yearly contribution. For 2012, the yearly contributions for above mentioned entities have been determined by notification from the EdW in the amount of € 1 mn (2011: € 2 mn). With respect to the insolvency of Phoenix Kapitaldienst GmbH, the German Federal Financial Supervisory Authority (“Bundesanstalt für Finanzdienstleistungsaufsicht ” – BaFin) has determined that certain investor claims will be covered under the compensation scheme and special contributions have been levied. In this regard, special contributions have been notified by EdW to above mentioned entities in 2012 in the amount of € 7 mn (2011: € 4 mn). The above mentioned entities have appealed against the special contributions. For received, but not yet paid notifications, and for the estimated special contribution for 2013, adequate provisions have been accrued.
In accordance with §§ 124 ff. of the German Insurance Supervision Act (“Versicherungsaufsichtsgesetz” - VAG), Allianz Private Krankenversicherungs-AG is a member of the mandatory insurance guarantee scheme (Sicherungsfonds) for German health insurers. In case the guarantee scheme has to resume responsibility for insurance contracts, it will collect special payments from its members to fulfill its tasks. Until today, no contributions have been requested by the scheme. As of 31 December 2012, the potential liabilities of Allianz Private Krankenversicherungs-AG to the insurance guarantee scheme amount to an obligation for special payments of € 45 mn (2011: € 43 mn).
The Allianz Group’s Banking operations in France, in the ordinary course of business, issue market value and performance -at-maturity guarantees in connection with mutual funds offered by the Allianz Group’s Asset Management operations in France. The levels of market value and performance -at-maturity guarantees, as well as the maturity dates, differ based on the underlying agreements. In most cases, the same mutual fund offers both a market value
guarantee and a performance-at-maturity guarantee. Additionally, the performance-at-maturity guarantees are generally linked to the performance of an equity index or group of equity indexes. As of 31 December 2012, the maximum potential amount of future payments of the market value and performance-at-maturity guarantees was € 945 mn (2011: € 983 mn), which represents the total value guaranteed under the respective agreements. The fair value of the mutual funds related to the market guarantees as of 31 December 2012, was approximately € 853 mn (2011: € 948 mn). These funds have a remaining term of maturity of up to five years.
The period in which a retirement pension can be drawn is usually between age 60 and age 67. Disability benefits are granted prior to retirement in the event of an occurrence of a qualifying disability.
DefineD benefit plans Amounts recognized in the Allianz Group’s consolidated balance sheets for defined benefit plans are as follows: Reconciliation DefineD benefit plans balance sheet D 130 € mn as of 31 December 2012 2011
Typically associated with defined benefit plans are biometric risks like longevity, disability and death as well as economic risks like interest rates, inflation and compensation increases. In order to decrease the risk impact the Allianz Group has established new pension plans in some of the important regional companies including those in Germany, the U.S., Ireland, Italy and the U.K. over the last several years. These new plans are primarily based on contributions and may include in some cases guarantees like preservation of contributions or minimum interest rate. Some are still risk exposed, but only to a minor extent.
Most active German employees participate in a contribution -based system using different vehicles to cover the base salary both below and above the German social security ceiling. The Allianz Versorgungskasse VVaG (AVK) financed through employee contributions and the Allianz Pensionsverein e.V. (APV) financed by the employer, provide pension benefits for the base salary up to the German social security ceiling.
Additionally, for salary above the German social security ceiling, Allianz Group contributes to the Beitragsorientierter Pensionsvertrag (BPV). On retirement the accumulated capital is converted to a lifetime annuity. Allianz Group decides each year whether and to which extent a BPV budget is provided. Independently from this decision an additional risk premium is paid to cover death and disability. The BPV was implemented as of 1 January 2005. Formerly existing plans were transferred to the BPV, taking the retained rights into account as appropriate.
Actuarial (gains)/losses 3,107 177 Foreign currency translation adjustments 49 80 Benefits paid (635) (606) Changes in the consolidated subsidiaries of the Allianz Group 1 30 (443) Divestitures – – Settlements, curtailments, termination benefits (60) 2 Defined benefit obligation as of 31 December 2 19,228 15,619 change in faiR value of plan assets Fair value of plan assets as of 1 January 10,136 9,780 Expected return on plan assets 463 456 Actuarial gains/(losses) 478 (36) Employer contributions 372 322 Plan participants’ contributions 97 93 Foreign currency translation adjustments 36 71
2 As of 31 December 2012, € 6,841 mn (2011: € 5,415 mn) of the defined benefit obligation are wholly unfunded, while € 12,387 mn (2011: € 10,204 mn) are wholly or partly funded.
Expected return on plan assets 1 (463) (456) (454) Amortization of past service costs (4) (3) 3 Amortization of net actuarial (gains)/losses 99 84 124 Effect of asset ceiling (3) (10) (48) (Income)/expenses of plan curtailments or settlements (37) 2 – Expense recognized in the consolidated income statements 614 622 658 1 Interest costs on pension obligations less the expected return on plan assets are recognized as administrative expenses.
The calculations are based on current actuarially calculated mortality estimates. Projected turnover depending on age and length of service have also been used, as well as internal Allianz Group retirement projections. An increase in life expectancy by 1 year would lead to an increase of the defined benefit obligation by € 412 mn.
The weighted average value of the assumptions for the Allianz Group’s defined benefit plans used to determine the defined benefit obligation and the expense recognized in profit or loss are as follows: assumptions foR DefineD benefit plans D 134
gRoup equity incentive plans The Group Equity Incentive Plans (GEI) of the Allianz Group support the orientation of senior management, in particular the Board of Management, to substainably increase the value of the Allianz Group. Until 2010, the GEI include grants of stock appreciation rights (SAR) and restricted stock units (RSU). From the 2011 grant onwards, the Allianz Equity Incentive Plan (AEI) replaces the GEI plans. With the AEI Plan, only restricted stock units (RSU) are granted to the plan participants.
For the year ended 31 December 2012, the weighted expected long-term return on plan assets was derived from the following target allocation and expected long-term rate of return for each asset category: long-teRm RetuRn on plan assets D 135
Equity securities 11.9 7.3 Debt securities 62.8 3.9 Real estate 4.3 4.7 Annuity contracts 18.4 4.2
Equity securities 12.2 11.2 Debt securities 55.9 57.8 Real estate 4.0 4.1 Annuity contracts 16.9 16.4
Contributions For the year ending 31 December 2013, the Allianz Group expects to contribute € 277 mn to its defined benefit plans and to pay € 285 mn directly to participants of its defined benefit plans.
As of 31 December 2012, the Allianz Group recorded a provision of € 83 mn (2011: € 25 mn) in other liabilities for the unexercised SAR.
The RSU are virtual stocks without dividend payments. The fair value is calculated by subtracting the net present value of expected future dividend payments until maturity of the RSU from the prevailing share price as of the valuation date.
The RSU are accounted for as cash settled plans as the Allianz Group intends to settle in cash. Therefore, the Allianz Group accrues the fair value of the RSU as a compensation expense over the vesting period. During the year ended 31 December 2012, the Allianz Group recognized a compensation expense related to the non-vested RSU of € 80 mn (2011: € 29 mn; 2010: € 58 mn).
As of 31 December 2012, the Allianz Group recorded a provision of € 141 mn (2011: € 106 mn) in other liabilities for the non-vested RSU.
“out of the money”), the expected life has been estimated to equal the term to maturity of the SAR.
The following table provides the assumptions used in estimating the fair value of the SAR at grant date: assumptions of saR plans D 137
Therefore, the Allianz Group accrues the fair value of the Class B equity units as a compensation expense over the vesting period. Upon vesting, any changes in the fair value of the Class B equity units are recognized as a compensation expense. During the year ended 31 December 2012, the Allianz Group recognized a compensation expense related to the Class B equity units of € 62 mn (2011: € 167 mn; 2010: € 367 mn). In addition, the Allianz Group recognized an expense related to the priority claim on the adjusted operating profits of PImCO LLC of € 32 mn (2011: € 47 mn; 2010: € 74 mn). The Allianz Group called in total 11,800 Class B equity units during the year ended 31 December 2012, whereby 4,399 of these Class B equity units were converted into promissory notes. Additionally, plan participants put 96 Class B equity units during the year ended 31 December 2012. All of them were converted into promissory notes. The promissory notes are recorded in liabilities to banks and customers with a total amount of € 190 mn. The payout of the promissory notes is planned for the first quarter of 2013. The total amount paid related to the call of the remaining Class B equity units was € 262 mn.
allianz equity incentive plan Since the 2011 grant year, the Allianz Equity Incentive Plan (AEI) has replaced the GEI plans. The AEI is granted in the form of restricted stock units (RSU) and is part of a new variable compensation component for the plan beneficiaries.
The RSU are subject to a vesting period of four years and will be released on the last day of the vesting period. The Allianz Group can choose the settlement method for each unit.
In addition, upon death of a plan participant, a change of control or notice for operational reason, the RSU vest immediately and will be exercised by the company.
The fair value of the underlying M-options was measured using the Black-Scholes option pricing model. Volatility was derived in part by considering the average historical and implied volatility of a selected group of peers. The expected life of one granted option was calculated based upon treating the three vesting tranches (one third in years 3, 4, and 5) as three separate awards.
Weighted average fair value of options granted € 1,600.50 1,719.35 1,462.84 Assumptions: Expected term (years) 3.84 3.84 3.83
Expected dividend yield % 13.0 11.1 10.9 Risk free rate of return % 0.7 1.5 1.9
Exercisable as of 31 December – – – – – –
As of 31 December 2012, the M-options outstanding have an exercise price of between € 6,447.21 and € 14,913.53 and a weighted average remaining contractual life of 2.91 years.
The shares settled by delivery of PImCO LLC shares are accounted for as equity-settled plans by PImCO LLC. Therefore, PImCO LLC measures the total compensation expense to be recognized for the equity-settled shares based upon their fair value as of the grant date. The total compensation expense is recognized over the vesting period.
During the year ended 31 December 2007, Allianz acquired all of the remaining AGF shares from non-controlling interests in the context of the Tender Offer and Squeeze-out. Under the terms of an agreement (the ”Liquidity Agreement”) between Allianz SE, AGF and the beneficiaries of the AGF share option plans 2003-2006 (AGF employees), Allianz has the right to purchase all AGF shares issued through the exercise of these AGF share option plans after the put period (where the beneficiaries have the right to sell to Allianz). The price payable by Allianz per AGF share is a cash consideration equal to the Allianz 20-day-average share price prior to the date the right to buy or to sell is exercised, multiplied by a ratio representing the consideration proposed in the Tender Offer for each AGF share (€ 126.43) divided by the Allianz share price on 16 January 2007 (€ 155.72). This ratio is subject to adjustments in case of transactions impacting Allianz or AGF share capital or net equity. The cash settlement is based upon the initial offer proposed for each AGF share during the Tender Offer. As of 31 December 2007, all shares issued under these plans were fully vested and exercisable.
Due to the change in settlement arising from the Liquidity Agreement, the Allianz Group accounts for the AGF share option plans as cash settled plans, as all AGF employees will receive cash for their AGF shares. Therefore, the Allianz Group recognizes any change in the fair value of the unexercised plans as a compensation expense.
Granted – – – – – – Exercised – – – – – –
As all share option plans are completely vested, the Allianz Group recorded no compensation expenses for the years ended 31 December 2012, 2011 and 2010.
The share option plan expired on 31 January 2012. As the share price of the Allianz SE share of € 84.06 on the date of expiry was below the weighted average exercise price of € 93.33, the share option plan is deemed to be forfeited.
otheR shaRe option anD shaReholDing plans The Allianz Group has other local share-based compensation plans, including share option and employee share purchase plans, none of which, individually or in the aggregate, are material to the consolidated financial statements.
As of 31 December 2012, the Allianz Group has provisions for restructuring resulting from a number of restructuring programs in various segments. These provisions for restructuring primarily include personnel costs, which result from severance payments for employee terminations, and contract termination costs, including those relating to the termination of lease contracts that will arise in connection with the implementation of the respective initiatives.
Additions to existing provisions – – – – 3 – 16 19 Release of provisions recognized in prior years – – – – (5) – (5) (10) Utilization of provisions via payments – – – – (11) (13) (125) (149) Utilization of provisions via transfers – – – – – – (42) (42) Foreign currency translation adjustments – – – – – 3 – 3 Changes in the consolidated subsidiaries of the Allianz Group – – – – – – (63) (63)
Additions to existing provisions – – – – 3 1 25 29 Release of provisions recognized in prior years – – – – (2) (3) (50) (55) Utilization of provisions via payments – – (13) – (17) (19) (51) (100) Utilization of provisions via transfers (30) (12) (1) – (1) – (46) (90) Foreign currency translation adjustments – – (1) – – (1) – (2)
Headcount reduction within this program will occur through employee turnover, the transfer of employees to other positions within the Allianz Group and by agreements in mutual consent with the employees (partial retirement, early retirement and severance payments). Furthermore, a program was offered to the employees to reduce their weekly working hours with the result that working capacity will be decreased.
As of 31 December 2012, the Allianz Germany Group recorded a restructuring provision for this program of € 72 mn. During the year ended 31 December 2012, restructuring charges of € 84 mn were recorded.
allianz global investoRs’s RestRuctuRing plan ( allianzgi) Following the creation of a new organizational structure of Asset Management business in the Allianz Group, AllianzGI has announced a global restructuring plan concerning all respective regions (Europe, United States, Asia). The restructuring program commenced in March 2012 and will be completed in 2014.
In particular, measures to be taken will include a fundamental change and simplification of legal entity structure accompanied by an estimated headcount reduction of up to 320 employees. The reduction of staff within this program comprises mainly terminations in mutual consent with the employees and vacant positions not being refilled.
As of 31 December 2012, AllianzGI restructuring provision for this plan was € 41 mn. During the year ended 31 December 2012, AllianzGI recorded restructuring charges of € 62 mn related to this plan.
allianz beRatungs- unD veRtRiebs- ag’s RestRuctuRing plan (abv ag) In 2012, the ABV AG initiated a restructuring program for its bancassurance distribution channel in order to align the sales capacities with the changed business environment. The program includes the reduction of approximately 360 full time equivalents (FTE). In addition, the ABV AG plans to reduce about 70 FTE in the local offices. The reduction of staff will occur through employee turnover, the transfer of employees to other positions within the Allianz Group and by agreements in mutual consent with the employees (early retirement and severance payments). In 2012, negotiations with the central works council were conducted and initial agreements were reached.
allianz geRmany gRoup’s RestRuctuRing plan The Allianz Germany Group launched the restructuring program “Zukunftsprogramm Sachversicherung“ in order to generate further growth impulses. The program is expected to be completed with the objective of cost savings and higher growth of revenue improving competitiveness and profitability of Allianz Germany’s future property and casualty business.
As of 31 December 2012, Euler Hermes Belgium recorded a restructuring provision of € 7 mn (2011: € 8 mn). During the year ended 31 December 2012, Euler Hermes Belgium recorded restructuring charges of € 1 mn (2011: € 0 mn)
fiReman’s funD insuRance company’s RestRuctuRing plan (fiReman’s funD) In 2011, Fireman’s Fund, a U.S.-based property and casualty insurer, launched a restructuring plan which is expected to be completed by early 2013. The primary objective was to address declining premiums and a high expense ratio by aligning staff levels with a reduced volume of business, including changes that will enable the company to be more customer focused and effectively compete in its markets going forward.
During the year ended 31 December 2012, Fireman’s Fund recorded restructuring charges of € (1) mn (2011: € 90 mn). As of 31 December 2012, the Fireman’s Fund provision for restructuring was € 41 mn (2011: € 63 mn).
To achieve this goal, AmOS decided to materially change its delivery model in the following two areas: − For all AmOS locations that provide IT infrastructure services (Munich, Stuttgart, Frankfurt, Brussels, Rotterdam, Guildford, Dublin) shoring options will be pursued for data center facilities and data center operation services.
− Administrative and highly transactional tasks in procurement and finance will be sourced to an external provider.
This will result in a reduction of headcount of approximately 450 positions. The restructuring program is expected to be completed by year-end 2013.
As of 31 December 2012, a provision for restructuring in the amount of € 40 mn was recorded. During the year ended 31 December 2012, AmOS recorded for this program restructuring charges of € 40 mn.
As of 31 December 2012, the Euler Hermes Group restructuring provision was € 30 mn (2011: € 46 mn). During the year ended 31 December 2012, Euler Hermes Group recorded restructuring charges of € 2 mn (2011: € 6 mn).
In addition, Euler Hermes Belgium decided in 2010 to close its retail credit insurance business at the Brussels office which is no longer profitable in the long run. This measure comprises a reduction of approximately 40 employees, mainly through early retirement. The program was finished in the third quarter of 2011 with ongoing payments occurring over the next years.
Basic earnings per share Basic earnings per share are calculated by dividing net income attributable to shareholders by the weighted average number of common shares outstanding for the period.
Net income attributable to shareholders used to calculate basic earnings per share 5,169 2,545 5,053
Net income attributable to shareholders 5,169 2,545 5,053 Effect of potentially dilutive common shares (33) (61) (22) Net income used to calculate diluted earnings per share 5,136 2,484 5,031
Weighted average number of common shares outstanding 452,666,296 451,764,842 451,280,092 Potentially dilutive common shares resulting from assumed conversion of: Share-based compensation plans 104,344 1,362,570 1,221,057 Weighted average number of common shares outstanding after assumed conversion 452,770,640 453,127,412 452,501,149
Fees billed by KPMG AG and affiliated entities, and KPMG AG and the worldwide member firms of KPMG International (KPMG) are disclosed in four categories: Kpmg fees D 148 € mn
Audit fees KPMG billed the Allianz Group an aggregate of € 36.8 Mn (2011: € 34.6 Mn) in connection with professional services rendered for the audit of the Allianz Group’s consolidated financial statements, statutory audits of the financial statements of Allianz SE and its subsidiaries and services normally provided by KPMG in connection with statutory and regulatory filings or engagements. These services consisted mainly of periodic review engagements and the annual audit.
The average total number of employees for the year ended 31 December 2012 was 142,733.
Salaries and wages 8,875 8,355 8,344 Social security contributions and employee assistance 1,214 1,136 1,107 Expenses for pensions and other post-retirement benefits 1,052 1,034 1,100 issuance of the Declaration of compliance with the german corporate governance coDe accorDing to § 161 aKtg On 12 December 2012, the Board of Management and the Supervisory Board of Allianz SE issued the Declaration of Compliance according to § 161 AktG, which was made permanently available to the shareholders on the company’s website.
The Declaration of Compliance of the publicly traded group company Oldenburgische Landesbank AG was issued in December 2012 and was made available to the shareholders on a permanent basis.
All services provided by KPMG to Allianz Group companies must be approved by the Audit Committee of the Allianz SE Supervisory Board. Services other than audit services must be pre-approved by the Audit Committee. The Audit Committee pre-approval process is based on the use of a
KPMG is the main auditing firm for the Allianz Group and assigned in more than 75 % of all audit-related tasks. Auditing firms other than KPMG billed the Allianz Group an aggregate of € 14.6 Mn (2011: € 11.6 Mn).
The Equity-related remuneration is comprised in 2012 of 119,6712 (2011: 71,5983) Restricted Stock Units (RSU).
1 According to his contract, Dr. Paul Achleitner receives a transition payment of € 1,027.5 THOUSAND after leaving the Allianz SE Board of Management. This amount is included in the Total for 2011.
In 2012, remuneration and other benefits totaling € 7 Mn (2011: € 6 Mn) were paid to retired members of the Board of Management and dependents. Reserves for current pensions and accrued pension rights totaled € 105 Mn (2011: € 73 Mn).
List of participations of the Allianz Group as of 31 December 2012 according to § 313 (2) HGB
Joint ventures BEG Weser-Ems Baugrund- und Erschliessungsgesellschaft mbH & Co. OHG, Oldenburg 50.0 Dealis Fund Operations GmbH, Munich 50.1 7 Partenreederei MT “Multitank Britannia”, Hamburg 50.0
FoReiGn entities Consolidated affiliated entities AB Servicios Selecta Espana S.L., Madrid 100.0 ACMAR SA, Casablanca 55.0 Acropole Monde A, Paris 88.4 3 Administradora de Inversión Colseguros S.A., Bogotá D.C. 100.0 Aero-Fonte S.r.l., Catania 100.0 AGA Alarmcentrale NL B.V., Amsterdam 100.0 AGA Assistance (India) Private Limited, Gurgaon 89.7 AGA Assistance Australia Pty Ltd., Toowong 100.0 AGA Inc., Richmond, VA 100.0 AGA Service Company Corp., Richmond, VA 100.0 AGA Service Italia S.c.a.r.l., Milan 100.0
Allianz Equity Large Cap EMU, Paris 100.0 4 Allianz EURECO Equity, Paris 89.9 3 Allianz Euro Bond Plus, Paris 90.6 3 Allianz Euro Credit SRI, Paris 67.4 3 Allianz Euro Gagnant, Paris 81.4 3 Allianz Euro Inflation, Paris 73.7 3 Allianz Euro Investment Grade, Paris 65.4 3 Allianz Euro Oblig 1-3 Plus, Paris 73.9 3 Allianz Euro Obligations Crédit ISR, Paris 84.1 3 Allianz Europe B.V., Amsterdam 100.0 Allianz Europe Ltd., Amsterdam 100.0 Allianz Finance Corporation, Westport, CT 100.0 Allianz Finance II B.V., Amsterdam 100.0 Allianz Finance II Luxembourg S.à r.l., Luxembourg 100.0 Allianz Finance III B.V., Amsterdam 100.0 Allianz Finance IV Luxembourg S.à r.l., Luxembourg 100.0 Allianz Finance Obligations Monde, Paris 96.7 3 Allianz Finance Pty Ltd., Sydney 100.0 Allianz Finance V Luxembourg S.à r.l., Luxembourg 100.0 Allianz Finance VII Luxembourg S.A., Luxembourg 100.0 Allianz Finance VIII Luxembourg S.A., Luxembourg 100.0 Allianz FinanzPlan 2015, Luxembourg 78.4 3 Allianz FinanzPlan 2020, Luxembourg 88.9 3 Allianz FinanzPlan 2025, Luxembourg 91.8 3 Allianz FinanzPlan 2030, Luxembourg 95.8 3 Allianz FinanzPlan 2035, Luxembourg 97.1 3 Allianz FinanzPlan 2040, Luxembourg 98.0 3 Allianz FinanzPlan 2045, Luxembourg 99.3 3 Allianz FinanzPlan 2050, Luxembourg 99.8 3 Allianz FinanzPlan 2055 C EUR, Luxembourg 100.0 3 Allianz Fire and Marine Insurance Japan Ltd., Tokyo 100.0 Allianz Foncier, Paris 64.0 3 Allianz Formuléo ISR, Paris 99.6 3 Allianz France Investissement OPCI, Paris 100.0 Allianz France Richelieu 1, Paris 100.0 Allianz France S.A., Paris 100.0 Allianz General Insurance Company (Malaysia) Berhad p.l.c., Kuala Lumpur 100.0 Allianz General Laos Ltd., Vientiane 51.0 Allianz generalni sluzby s.r.o., Prague 100.0 Allianz Global Assistance International SA, Paris 100.0 Allianz Global Assistance S.A.S., Paris 100.0 Allianz Global Corporate & Specialty do Brasil Participações Ltda., Rio de Janeiro 100.0 Allianz Global Corporate & Specialty France S.A., Courbevoie 100.0 Allianz Global Corporate & Specialty South Africa Ltd., Marshalltown 100.0 Allianz Global Investors (UK) Ltd., London 100.0 Allianz Global Investors Australia Ltd., Sydney 100.0 Allianz Global Investors Capital Limited, Cardiff 100.0 Allianz Global Investors Distributors LLC, Dover, DE 100.0 Allianz Global Investors France S.A., Paris 100.0 Allianz Global Investors Fund Management LLC, Dover, DE 100.0 Allianz Global Investors Hong Kong Ltd., Hong Kong 100.0 Allianz Global Investors Ireland Ltd., Dublin 100.0 Allianz Global Investors Italia SGR S.p.A., Milan 100.0 Allianz Global Investors Japan Co. Ltd, Tokyo 100.0 Allianz Global Investors Korea Limited, Seoul 100.0 Allianz Global Investors Luxembourg S.A., Senningerberg 100.0 Allianz Global Investors Managed Accounts LLC, Dover, DE 100.0
Allianz Risk Audit OOO, Moscow 100.0 Allianz Risk Consultants Inc., Los Angeles, CA 100.0 Allianz Risk Transfer (Bermuda) Ltd., Hamilton 100.0 Allianz Risk Transfer (UK) Limited, London 100.0 Allianz Risk Transfer AG, Zurich 100.0 Allianz Risk Transfer Inc., New York, NY 100.0 Allianz Risk Transfer N.V., Amsterdam 100.0 Allianz RiskMaster Conservative, Basildon Essex 71.0 3 Allianz RiskMaster Moderate, Basildon Essex 83.8 3 Allianz Rosno Life, Moscow 100.0 Allianz S.A. de C.V., Mexico City 100.0 Allianz S.p.A., Trieste 100.0 Allianz Saint Marc CL, Paris 99.3 3 Allianz SAS S.A.S., Bogotá D.C. 100.0 Allianz Saude S.A., São Paulo 100.0 Allianz Scalinvest, Puteaux 100.0 3 Allianz Secteur Euro Immobilier, Paris 93.8 3 Allianz Secteur Europe Immobilier, Paris 89.5 3 Allianz Seguros de Vida S.A., Bogotá D.C. 100.0 Allianz Seguros S.A., Bogotá D.C. 100.0 Allianz Seguros S.A., São Paulo 100.0 Allianz Sénégal dommages SA, Dakar 83.2 Allianz Sénégal vie, Dakar 95.5 Allianz Services (UK) Limited, London 100.0 Allianz Servicios Administrativos S.A., Madrid 100.0 Allianz Sigorta A.S., Istanbul 84.2 Allianz SNA Sal, Beirut 100.0 Allianz Sociedad Anónima, A.S. Agencia de Seguros, Barcelona 100.0 Allianz Sociedade Gestora de Fundos de Pensões S.A., Lisbon 84.4 Allianz Société Financière S.à r.l., Luxembourg 100.0 Allianz South America Holding B.V., Amsterdam 100.0 Allianz Special FIC De Fi Multimercado Crédito Privado, São Paulo 100.0 4 Allianz Specialised Investments Limited, London 100.0 Allianz Specjalistyczny Fundusz Inwestycyjny Otwarty Subfunduszu Allianz 1, Warsaw 100.0 4 Allianz Specjalistyczny Fundusz Inwestycyjny Otwarty Subfunduszu Allianz 2, Warsaw 100.0 4 Allianz Subalpina Holding S.p.A., Turin 98.1 Allianz Suisse Flexible Fund, Senningerberg 60.0 3 Allianz Suisse Immobilien AG, Volketswil 100.0 Allianz Suisse Lebensversicherungs-Gesellschaft AG, Zurich 100.0 Allianz Suisse Rückversicherungs AG, Zurich 100.0 Allianz Suisse Versicherungs-Gesellschaft AG, Zurich 100.0 Allianz Taiwan Life Insurance Co. Ltd., Taipei 99.7 Allianz Telematics S.p.A., Rome 100.0 Allianz Tiriac Asigurari SA, Bucharest 52.2 Allianz Togo dommages SA, Lome 97.9 Allianz Triplus, Paris 100.0 3 Allianz Ukraine LLC, Kiev 100.0 Allianz Underwriters Insurance Company Corp., Burbank, CA 100.0 Allianz US Investment GP LLC, Wilmington, DE 100.0 Allianz US Investment LP, Wilmington, DE 100.0 Allianz US Private REIT GP LLC, Wilmington, DE 100.0 Allianz US Private REIT LP, Wilmington, DE 100.0 Allianz Valeurs Durables, Paris 67.1 3 Allianz Vermögenskonzept Ausgewogen, Luxembourg 100.0 3 Allianz Vermögenskonzept Defensiv, Luxembourg 96.7 3 Allianz Vermögenskonzept Dynamisch, Luxembourg 98.0 3 Allianz Vie S.A., Paris 100.0 Allianz Voltissimo, Paris 99.0 3