A To Our Investors 7 Letter to the Investors 16 Supervisory Board Report 23 Supervisory Board 24 Board of Management 27 International Executive Committee 28 Allianz Share
Your AlliAnz 63 Business Operations and Markets 70 Strategy and Steering 73 Progress in Sustainable Development
Net income from continuing operations3 € Mn 6,603 4.1 % 6,343 5,558 2,853 5,209 4,650 4,268 – Net income (loss) from discontinued operations, net of income taxes3 € Mn – – – – – – (395) (6,373) –
Balance sheet as of 31 December thereof: Reserves for insurance thereof: Reserves for loss and loss
Share price as of 31 December € 137.35 5.4 % 130.35 104.80 73.91 88.93 87.15 75.00 29 Market capitalization as of 31 December € Mn 62,769 5.5 % 59,505 47,784 33,651 40,419 39,557 33,979 29
Other data Return on equity after income tax7,8 % 11.2 (0.7) %-p 11.9 11.1 5.9 11.9 12.5 9.9 –
Standard & Poor’s rating12 AA – AA AA AA AA AA AA 125 Total assets under management as of 31 December13 € Mn 1,801,178 1.8 % 1,769,551 1,852,332 1,656,993 1,517,538 1,202,122 950,548 99 thereof: Third-party assets under management as of 31 December13 € Mn 1,312,910 (3.5) % 1,360,759 1,438,425 1,281,256 1,163,982 925,699 703,478 100 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).
5 Proposal. 6 Total dividend based on total amount of shares. Actual dividend payment will be reduced by the dividend amount attributable to treasury shares.
8 Based on net income from continuing operations after non-controlling interests. 9 Solvency according to the E.U. Financial Conglomerates Directive. Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the solvency ratio as of 31 December 2014 and 2013 would be 172 % and 173 %, respectively.
Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking.
HR Fact Book is the official and most comprehensive report on key human resources facts and figures, highlighting major HR achievements over the past year and revealing the outlook for 2015.
Shareholders’ equity page 109 AA Standard & Poor's rating since 2007
Allianz Global Corporate & Specialty is the Allianz center of expertise for global business insurance and large corporate and specialty risks.
With a worldwide network in more than 160 countries, we are one of the very few global insurers with an exclusive focus on the needs of global corporate and specialty clients.
We offer our clients global business insurance through a comprehensive service range including alternative risk transfer, financial lines, aviation, international insurance programs, captive and fronting services, liability, claims services, marine, energy, property, engineering and risk consulting.
More than 2,000 International Insurance Solutions (IIS) programs for our global clients‘ multi-national risks.
An increase in the frequency and severity of data breaches and IT glitches threatening businesses has prompted the launch of Allianz Cyber Protect to enable companies to protect themselves against potential financial and reputational losses.
Allianz center of excel lence for large or complex business risks
AGCS’ expertise covers pre-launch operations, the launches themselves and their life in orbit. During the course of the year, our satellite insurance primarily covered telecommuni- cation satellites, but also earth observation and scientific satellites and satellite constellations.
7 Letter to the Investors 16 Supervisory Board Report 23 Supervisory Board 24 Board of Management 27 International Executive Committee 28 Allianz Share
I wrote my first letter to you in our 2003 Annual Report. After a difficult financial year in 2002, I promised you that nothing was more important for the management team, the employees and for me personally than returning your Allianz to the league of the most reputable international financial service providers.
Allianz has long since secured its permanent place in this league. Since 2009, Allianz has been the largest international insurance company in terms of revenues and the best in terms of operating profit. In the past year, we were able to further strengthen our leading position.
Overview of the 2014 financial year 2014 was characterized by extremely low interest rates, geopolitical tensions in the Middle East and Ukraine, a sharp decline in the oil price and a weak Euro against the U.S. Dollar. The number and scale of severe weather events were, by contrast, lower than in previous years.
The two subsidiaries in our Asset Management business developed differently. While Allianz Global Investors recorded net inflows in all quarters, PIMCO reported, in the wake of the resignation of its founder, net outflows that were at the upper end of our expectations.
In our Property-Casualty business, we increased revenues by 3.7 % and improved our operating profit to € 5.4 bn (+ 2.2 %). Our combined ratio remained stable at a very good 94.3 %. In comparison to the previous year, the impact from natural catastrophe events decreased. We also made progress with the expense ratio. However, special circumstances at Fireman’s Fund, and in Russia and Brazil, weighed on our results and neutralized some of the progress we made.
7 Letter to the Investors 16 Supervisory Board Report 23 Supervisory Board 24 Board of Management 27 International Executive Committee 28 Allianz Share took over part of the property insurance operations and distribution capacities of UnipolSai, and in Australia we purchased the general insurance business of the Territory Insurance Office.
In addition, your company made five important decisions in the past year. These concerned: – motor insurance in Russia, – Fireman’s Fund, – the organizational structure of PIMCO, – our dividend policy, and – the composition of the Board of Management of Allianz SE.
During the course of the financial year, we significantly scaled down the motor insurance business in Russia. We are therefore now mainly active in the commercial and health insurance business. In light of the continuing deteriora - tion of the economic climate in the country, this was an appropriate decision taken at the right time.
We are now managing the old in-force business that has traditionally been problematic – for example asbestos liabilities – in a specialized liquidation unit within our reinsurance business.
In the case of PIMCO, we had already introduced the new leadership structure at the last AGM and were able to carry on working immediately after the departure of the founder in September. Despite the highly recognized management team, we nonetheless experienced significant net outflows in the last few months of the financial year. However, I am convinced that we now have the right set-up to ensure the future sustainable development of PIMCO.
We have redefined our dividend strategy in the past year after greater clarity emerged about capital requirements under the new Solvency II framework that enters into force from 2016. Going forward, we will distribute 50 % of the Group’s net profit as dividends (previously 40 %). Dividends per share should always be at least at the level of the previous year. Every three years, we will also consider whether to distribute any unused funds set aside for acquisitions. In this way, we will ensure an adequate participation of shareholders in corporate profits as well as a sound capitalization to fund future growth.
Since the beginning of 2015 there have been changes to the Board of Management of Allianz SE. Dr. Theis has taken over responsibility for Global Lines and for our companies in Great Britain and Ireland from Mr. Booth, who has stepped down from the Board having reached retirement age. Mr. Balbinot has recently joined Allianz and is responsible for our companies in southern and western Europe. Due to the decision to reorganize our business in North America, Mr. Bhojwani has stepped down from the Board of Management. I would like to express my sincere thanks to Clement Booth and Gary Bhojwani for their successful work in recent years.
At this year’s AGM, I will myself resign as Chairman of the Board of Management of Allianz after exactly twelve years at the helm. The Supervisory Board has chosen Oliver Bäte as my successor. Mr. Bäte has worked in various Board of Management positions for Allianz over the last seven years. I am convinced that the Supervisory Board has made an excellent choice in selecting Mr. Bäte, and I wholeheartedly wish him the very best of luck.
Outlook 2015 began with high volatility on the capital markets, a further weakening of the Euro, even lower interest rates and the announcement of a bond purchase program by the European Central Bank. There is still no sustainable end in sight to the geopolitical conflicts. 2015 will, therefore, be a difficult year for the global economy, even if the low oil price promises to provide some growth stimulus.
The European Central Bank will continue its low interest rate policy for the foreseeable future. At the start of this year, the yield on 10-year German government bonds dropped below 0.3 % for the first time and the yield on 5-year bonds fell into negative territory. These developments represent a burden for all savers, and therefore also for life insurers and – to a lesser extent – for propertycasualty insurers too. We do not expect a significant increase in interest rates in the immediate future.
Our outlook for the 2015 financial year must be cautious in light of these prevailing conditions, without losing sight of the strength of Allianz.
Furthermore, the strong results for 2014 give me confidence that we have set the right course for further profitable growth in Allianz. I would like to explain to you what my confidence is based on: – The capitalization of Allianz is solid. That is proven by our solvency ratio of 181 %. Our AA S & P rating with a stable outlook confirms this. Our excellent capital base inspires confidence among our clients, who rely on our longterm promises, above all in the life insurance business. This is where Allianz
– We have laid the foundation for the future with successful product innovations. I would like to highlight the new life insurance products that are offered in Germany under the name “Perspektive”. Customers who choose reduced guarantees may receive a higher share of investment income. More than 70,000 new contracts in 2014 demonstrate that we are on the right track with such low capital-intensive products.
Further examples are our modular property insurance policies that, after Italy, we are now offering in other markets. The customer receives highly personalized, but also comprehensive insurance cover. At the same time, these modules can be configured online by customers themselves. They are therefore suitable for a purely internet-based distribution, as well as for clients who do their own research online before finalizing their contract in a personal meeting with their agent.
– Finally, I would like to mention the dangers inherent in new technologies (keyword cyber protection), which make insurance more relevant than ever. Here, too, we are active in the market with innovative products for both retail and commercial business.
These points prove to me that Allianz has an excellent foundation for further growth. However, we do not target growth at any price, but focus our efforts on those areas in which profitable insurance business is possible. In the case of PIMCO, we will be aiming to stabilize third-party assets under management in the current financial year in order to return to the growth path in the medium term.
1890 – 2015: 125 years of Allianz In the current financial year, we will be marking the 125th anniversary of the founding of Allianz. We are placing this anniversary year under the heading
Annual Report 2014 Allianz Group 17 and personnel changes at PIMCO. Our further key areas of focus were the continuing reorganization of the property/casualty business in the United States and Russia.
issues discussed in the supervisOry BOard plenary sessiOns In all of the Supervisory Board’s 2014 meetings, the Board of Management reported on Group reve nues and results, developments in individual business segments and on the capital, financial and risk situation. We were regularly informed by the Board of Management about the impact of natural catastrophes, the status of major legal disputes and other essential developments.
In the meeting of 26 February 2014, the Supervisory Board dealt comprehensively with the provi­ sional financial figures for the 2013 fiscal year and the Board of Management’s recommended dividend. The appointed audit firm, KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG), Munich, reported in detail on the provisional results of their audit. In addition, the Board of Management submitted its annual report on risk developments in 2013. During the further course of the meeting, the Supervisory Board also reviewed the extent to which individual members of the Board of Management had achieved their targets and set their variable remuneration for the 2013 fiscal year. The Supervisory Board subsequently dealt with succession planning and the next steps to be taken regarding the Board of Management contracts expiring in 2014. In light of the regulatory requirements under Solvency II, we also amended the guidelines for the selection and appoint­ ment of the Board of Management.
In the meeting of 13 March 2014, the Supervisory Board discussed the audited annual Allianz SE and consolidated financial statements as well as the recommendation for the appropriation of earnings by the Board of Management for the 2013 fiscal year. KPMG confirmed there were no discrepancies to their February report and issued an unqualified auditor’s report for the individual
and consolidated financial statements. The Supervisory Board also dealt with the agenda for the 2014 AGM of Allianz SE and approved the Supervisory Board’s proposals for resolution, which included the proposal to elect Mr. Jim Hagemann Snabe as the successor to Mr. Igor Landau on the Supervisory Board. In this context, we also adopted an amendment to the Declaration of Conformity with the German Corporate Governance Code (Code) of 12 December 2013: As Mr. Snabe was still a member of the Executive Board of SAP AG when elected to the Allianz SE Supervisory Board in May, he exceeded the figure of three Supervisory Board mandates as recommended by the Code for active Management Board members for a two­week period. The Supervisory Board also resolved to appoint KPMG as auditor for the individual and consolidated financial statements for the 2014 fiscal year and for the auditor’s review of the 2014 half­yearly interim report. In addition, the Chief Compliance Officer provided the annual report on the compliance organization and key com pliance­related matters. The Supervisory Board was also informed about the performance of the global industrial insurer Allianz Global Corporate & Specialty SE. At this meeting, the Super­ visory Board also dealt with the issue of succession for certain Board of Management positions.
In our meeting on 7 August 2014, the Board of Management reported in depth on the half­yearly results. We examined the performance of PIMCO and Allianz Russia, the planned restructuring of the United States property/casualty business and the Life Insurance Reform Act in Germany. We also dealt with the issuance of Allianz shares to employees of the Allianz Group. By way of a presentation, we were informed about the requirements stemming from the Global Systemically Important Insurers regulation, in particular the required recovery and resolution plans. In addi­ tion, the Board of Management presented Allianz’s IT security program to us and the Supervisory Board dealt with the upcoming personnel decisions for the Board of Management. The meeting was followed by a separate information session for members of the Supervisory Board at which Allianz managers gave presentations on current topics.
Allianz Group, in particular the operating priorities in individual business segments, the management of regulatory and capital market risks, capital efficiency and the general aspects of the dividend strategy.
At the extraordinary meeting on 6 November 2014, the Supervisory Board discussed the results for the third quarter. We then focused on the Board of Management’s proposal on the dividend policy and agreed to it.
cOmmittee activities The Supervisory Board has formed various committees in order to perform its duties efficiently: the Standing Committee, the Personnel Committee, the Audit Committee, the Risk Committee and the Nomination Committee. The committees prepare the discussion and adoption of resolutions in the plenary sessions. Furthermore, in appropriate cases, the authority to adopt resolutions has www.allianz.com/corporate-governance
The Audit Committee held five meetings in 2014. In the presence of the auditors, it discussed the annual financial statements of Allianz SE and the consolidated financial statements of the Allianz Group, the management reports and auditor’s reports. In addition, the committee reviewed the half­yearly and quarterly financial reports and, together with the auditors, went through the details of the auditor’s review of these financial statements. After carrying out these reviews, the Audit Committee saw no reason to raise any objections. The committee also dealt with the auditor’s engagement, established priorities for the annual audit and discussed assignments to the auditors for services not connected to the audit itself. In addition, the committee dealt extensively with the compliance system, the internal auditing system as well as the accounting process and internal financial reporting control mechanisms, including the appropriateness of the respective systems and processes. The committee received regular reports from the Head of Group Audit, from the General Counsel and from the Chief Compliance Officer on the audit department’s work and on legal and compliance issues. The committee approved the audit plan produced by Group Audit for 2015.
The Risk Committee held three meetings in 2014, during which it discussed the current risk situation of the Allianz Group with the Board of Management. The risk report and other risk­related state­ ments in the annual Allianz SE and consolidated financial statements and management and group management reports were reviewed with the auditor and the Audit Committee was informed of the result. The appropriateness of the early risk recognition system at Allianz was also discussed. In addition, the committee looked in detail at the effectiveness of the risk management system, including an examination of its compliance with minimum supervisory requirements. Other mat­ ters considered were Solvency II, the risk strategy and insurance and credit risk. The Risk Committee also focused on developments at PIMCO.
In February 2014, the Nomination Committee adopted a resolution by written procedure regarding the proposal to elect Mr. Jim Hagemann Snabe as successor to Mr. Igor Landau on the Supervisory Board.
Chair and committees of the Supervisory Board – as of 31 December 2014 Chairman of the Supervisory Board: Dr. Helmut Perlet Deputy Chairmen: Dr. Wulf H. Bernotat, Rolf Zimmermann Standing Committee: Dr. Helmut Perlet (Chairman), Dr. Wulf H. Bernotat, Prof. Dr. Renate Köcher, Gabriele Burkhardt­Berg, Rolf Zimmermann Personnel Committee: Dr. Helmut Perlet (Chairman), Christine Bosse, Rolf Zimmermann Audit Committee: Dr. Wulf H. Bernotat (Chairman), Dr. Helmut Perlet, Jim Hagemann Snabe, Jean­Jacques Cette, Ira Gloe­Semler Risk Committee: Dr. Helmut Perlet (Chairman), Christine Bosse, Peter Denis Sutherland, Dante Barban, Franz Heiß Nomination Committee: Dr. Helmut Perlet (Chairman), Prof. Dr. Renate Köcher, Peter Denis Sutherland audit Of annual accOunts and cOnsOlidated financial statements In compliance with the special legal provisions applying to insurance companies, the statutory auditor and the auditor for the review of the half­yearly financial report are appointed by the Supervisory Board of Allianz SE and not by the AGM. The Supervisory Board has appointed KPMG as statutory auditor for the annual Allianz SE and consolidated financial statements as well as for the review of the half­yearly financial report. KPMG audited the financial statements of Allianz SE and the Allianz Group as well as the respective management reports. They issued an auditor’s report without any reservations. The consolidated financial statements were prepared on the basis of the international financial reporting standards (IFRS), as adopted in the European Union. KPMG performed a review of the half­yearly and quarterly financial reports.
All Supervisory Board members received the documentation relating to the annual financial statements and the auditor’s reports from KPMG for the 2014 fiscal year on schedule. The provisional financial statements and KPMG’s audit results were discussed in the Audit Committee on 24 Feb­ ruary 2015 and in the plenary session of the Supervisory Board on 25 February 2015. The final finan­ cial statements and KPMG’s audit reports were reviewed on 12 March 2015 by the Audit Committee and in the Supervisory Board plenary session. The auditors participated in these discussions and presented the main results from the audit. No material weaknesses in the internal financial reporting control process were discovered. There were no circumstances that might give cause for concern about the auditor’s independence.
On the basis of our own reviews of the annual Allianz SE and consolidated financial statements, the management and group management reports and the recommendation for appropriation of earnings, we raised no objections and agreed with the results of the KPMG audit. We approved the Allianz SE and consolidated financial statements prepared by the Board of Management. The
memBers Of the supervisOry BOard and BOard Of manaGement Mr. Igor Landau left the Supervisory Board at the end of the Annual General Meeting on 7 May 2014 and Mr. Jim Hagemann Snabe was elected by the AGM as his successor. The current term of the Supervisory Board will expire following the 2017 AGM.
Supervisory Board Dr. Helmut Perlet Chairman Former Member of the Board of Management of Allianz SE
Jean-JaCques Cette Chairman of the Group Works Council of Allianz France S.A.
Prof. Dr. renate köCHer Head of Institut für Demoskopie Allensbach (Allensbach Institute)
iGor lanDau Member of the Board of Directors of Sanofi S.A. until 7 May 2014
Board of Management miCHael Diekmann Chairman of the Board of Management until 6 May 2015 oliver Bäte Insurance Western & Southern Europe until 31 December 2014 Global Property-Casualty until 6 May 2015 Chairman of the Board of Management from 7 May 2015 serGio BalBinot Insurance Western & Southern Europe since 1 January 2015 manuel Bauer Insurance Growth Markets
Jay ralPH Asset Management U.S. Life Insurance since 1 January 2015
Dr. axel tHeis Global Insurance Lines & Anglo Markets since 1 January 2015 Global Property-Casualty from 7 May 2015
Clement BootH until 31 December 2014 Allianz SE Germany eliZaBetH Corley Allianz Global Investors Germany
Jon Dye Allianz Insurance PLC United Kingdom moHameD el-erian Allianz SE USA
GeorGe sartorel Allianz SE – Asia-Pacific Singapore viCente tarDío Barutel Allianz Companía de Seguros y Reaseguros Spain axel tHeis Allianz SE Germany anDreW torranCe Fireman’s Fund Insurance Company USA
The price gains made in 2014 also underpinned the appeal of a long-term investment in Allianz shares. Investors who have kept our shares in their portfolios for five years and opted to reinvest their dividends in Allianz shares achieved an average annual performance of 14.7 % over this period of time. Over the last ten years the corresponding gain amounted to 7.5 %.
Allianz (excl. dividends) 5.4 9.5 3.5 Allianz (incl. dividends) 10.0 14.7 7.5
Total number of issued shares as of 31 December 457,000,000 456,500,000 455,950,000 455,300,000 454,500,000 Share price as of 31 December € 137.35 130.35 104.80 73.91 88.93
Given our new dividend policy, we will be proposing to the Annual General Meeting a dividend increase of € 1.55 to € 6.85. This represents a dividend yield of 5.0 % on the year-end share price. The payout ratio will rise from 40 % to 50 %. You can find more detailed information on the dividend policy in the Outlook 2015 chapter starting on page 104 and at www.allianz.com/dividend.
WeighTing of AlliAnz shAres in mAjor inDices as of 31 December 2014 Weighting in % Ranking Index members msci World Financials 1.1 16 350
With more than 445,000 shareholders, Allianz is one of the most widely held publicly-owned corporations in Europe. Apart from approximately 0.6 % of Allianz shares held in treasury, all our shares continue to be held in free float. At the end of the year, 85 % were held by institutional investors and 15 % by private investors. The breakdown by region shows that 74 % of Allianz shares were owned by Europeans and 26 % by non-Europeans. For up-to-date information on our shareholder structure, please refer to www.allianz.com/shareholders.
International leader in assistance, travel insurance and health, life and home care services
The AC also kept phoning the driver, who finally answered back and told him of his injury and the need for an ambulance. About 20 minutes later, the emergency services arrived. Thanks to cutting-edge telematics and our AC’s fast and accurate reaction, the driver was rescued and given timely treatment.
Corporate Constitution of the European Company (SE) As a European Company, Allianz SE is subject to special European SE regulations and the German SE Implementation Act (“SE-Ausführungsgesetz ”) in addition to German stock corporation law. However, the main features of a German stock corporation – in particular the twotier board system (Board of Management and Supervisory Board) and the principle of equal employee representation on the Super visory Board – have been maintained by Allianz SE.
The Board of Management manages Allianz SE and the Allianz Group. During the reporting period it comprised eleven members. Its responsibilities include setting business objectives and the strategic direction, coordinating and supervising the operating entities, as well as implementing and overseeing an efficient risk management system. It is responsible for monitoring adherence to statutory provisions and official regulations. The Board of Management also prepares the quarterly and half-yearly financial reports, as well as the Group’s consolidated financial statements and the annual financial statements of Allianz SE.
Board of ManaGeMent and Group CoMMittees In the financial year 2014, there were the following Board of Management committees: Board CoMMittees
Group investMent CoMMittee Members of the Board of Management and executives below Allianz se Board level
The Board of Management reports regularly and comprehensively to the Supervisory Board on business development, the financial position and earnings, planning and achievement of objectives, business strategy and risk exposure.
Certain important decisions of the Board of Management require approval by the Supervisory Board. Some of these requirements are stipulated by law or by decisions of the Annual General Meeting (AGM). These include approval for the Board of Management to increase the share capital (Authorized Capital), acquire treasury shares or issue convertible bonds or bonds with warrants. In addition, the Statutes also provide approval requirements for certain transactions, such as intercompany agreements and the launch of new business segments or closure of existing ones, insofar as such actions are material to the Group. Approval is also required for acquisitions of companies and holdings in companies as well as divestments of Group companies which exceed certain threshold levels. The Agreement concerning the Participation of Employees in Allianz SE requires the approval of the Supervisory Board for the appointment of the member of the Board of Management responsible for employment and social welfare.
Principles and function of the Supervisory Board The German Co-Determination Act (“Mitbestimmungsgesetz”) does not apply to Allianz SE because it has the legal form of a European Company (SE). The size and composition of the Supervisory Board are instead determined by general European SE regulations. These regulations are implemented in the Statutes and by the Agreement concerning the Participation of Employees in Allianz SE dated 3 July 2014 (hereinafter “SE Agreement”).
The Supervisory Board held six regular meetings and one extraordinary meeting in the 2014 financial year and is scheduled to meet three times each half calendar year in the future. Extraordinary meetings may be convened as needed. The committees also hold regular meetings. The Supervisory Board takes all decisions based on a simple majority. The special requirements for appointing members to the Board of Management contained in the German Co-Determination Act and the requirement for a Conciliation Committee do not apply to an SE. In the event of a tie, the casting vote lies with the Chairman of the Supervisory Board, who at Allianz SE must be a shareholder representative. If the Chairman is not present in the event of a tie, the casting vote lies with the deputy chairperson from the shareholder side. A second deputy chairperson is elected on the proposal of the employee representatives.
− Two further shareholder representatives (Prof. Dr. Renate Köcher, Dr. Wulf H. Bernotat)
− Monitoring of the audit procedures, including the independence of the auditor and the services addi - tionally rendered, awarding of the audit contract and determining the focal points of the audit risk CoMMittee 5 members − Chairman: appointed by the Supervisory Board (Dr. Helmut Perlet)
− Two further shareholder representatives (Prof. Dr. Renate Köcher, Peter Denis Sutherland)
puBLiCation of detaiLs of MeMBers’ partiCipation in MeetinGs presenCe in perCent pLenary sessions of tHe supervisory Board Dr. Helmut Perlet (Chairman) 7/7 100 Dr. Wulf H. Bernotat (Vice Chairman) 7/7 100 Rolf Zimmermann (Vice Chairman) 7/7 100 Dante Barban 5/7 71.43 Christine Bosse 7/7 100 Gabriele Burkhardt-Berg 6/7 85.71 Jean-Jacques Cette 6/7 85.71 Ira Gloe-Semler 7/7 100 Franz Heiß 6/7 85.71 Prof. Dr. Renate Köcher 7/7 100 Igor Landau 2/3 1 66.67 Jim Hagemann Snabe 4/4 2 100 Peter Denis Sutherland 6/7 85.71 standinG CoMMittee Dr. Helmut Perlet (Chairman) 4/4 100 Dr. Wulf H. Bernotat 4/4 100 Gabriele Burkhardt-Berg 4/4 100 Prof. Dr. Renate Köcher 4/4 100 Rolf Zimmermann 4/4 100 personneL CoMMittee Dr. Helmut Perlet (Chairman) 4/4 100 Christine Bosse 4/4 100 Rolf Zimmermann 4/4 100 audit CoMMittee Dr. Wulf H. Bernotat (Chairman) 5/5 100 Jean-Jacques Cette 4/5 80 Ira Gloe-Semler 4/5 80 Igor Landau 2/2 3 100 Jim Hagemann Snabe 3/3 4 100 Dr. Helmut Perlet 5/5 100 risk CoMMittee Dr. Helmut Perlet (Chairman) 3/3 100 Dante Barban 3/3 100 Christine Bosse 3/3 100 Franz Heiß 3/3 100 Peter Denis Sutherland 3/3 100 1 As Mr. Landau left the Supervisory Board during the year as at the end of the Annual General Meeting on 7 May 2014, only the February, March and May meetings were relevant.
2 As Mr. Snabe was elected to the Supervisory Board during the year by the Annual General Meeting on 7 May 2014, only the August, October and December meetings as well as the extraordinary meeting in November were relevant.
3 As Mr. Landau left the Supervisory Board during the year, only two meetings of the Audit Committee were relevant.
oBjeCtives of tHe supervisory Board reGardinG its CoMposition In order to implement a recommendation by the Code, the Supervisory Board specified the following objectives for its composition at its meeting on 12 December 2012: 1 See the BaFin notice on the monitoring of members of administrative and supervisory bodies pursuant to the German Banking Act (KWG) and the German Insurance Supervision Act (“Versicherungsaufsichtsgesetz – VAG”) dated 3 December 2012.
“The aim of Allianz se’s Supervisory Board is to have members who are equipped with the necessary skills and competence to properly supervise and advise Allianz se’s management. Supervisory Board candidates should possess the professional expertise and experience, integrity, motivation and commitment, independence and personality required to successfully carry out the responsibilities of a Supervisory Board member in a financial-services institution with international operations. To promote additional cooperation among Supervisory Board members, care should be taken in selecting the candidates to ensure that adequate attention is paid to ensuring diversity in occupational backgrounds, professional expertise and experience.
In addition, at least one member must be independent within the meaning of § 100 (5) of the German Stock Corporation Act (AktG).
It must be taken into account that the possible emergence of conflicts of interest in individual cases cannot, as a general rule, be excluded. Potential conflicts of interest must be disclosed to the chairman of the Supervisory Board and will be resolved by appropriate measures.
Members of the Board of Management and the Supervisory Board are obliged by the German Securities Trading Act (“Wertpapierhandelsgesetz ”) to disclose any transactions involving shares of Allianz SE or financial instruments based on them to both Allianz SE and the German Federal Financial Supervisory Authority should the value of the shares acquired or divested by the member or a person closely associated to the member amount to five thousand Euros or more within a calendar year. Such disclosures are published on our website at www.allianz.com/management-board and www.allianz.com/ supervisory-board.
Shareholders exercise their rights at the Annual General Meeting. When adopting resolutions, each share carries one vote. In order to facilitate the exercise of shareholders’ rights, Allianz SE allows shareholders to follow the AGM’s proceedings on the internet and be represented by proxies appointed by Allianz SE. These proxies exercise voting rights exclusively on the basis of instructions given by the shareholder. Shareholders are also able to cast their votes by postal voting. This option is also available via the internet in the form of online voting. Allianz SE regularly promotes the use of e-mail and internet services.
To ensure maximum transparency, we inform our shareholders, financial analysts, the media and the general public of the company’s situation on a regular basis and in a timely manner. The annual financial statements of Allianz SE, the Allianz Group’s consolidated financial statements and the respective management reports are published within 90 days of the end of each financial year. Additional information is provided in the Allianz Group’s quarterly and halfyearly financial reports, which are reviewed by the auditor in advance. Information is also made available at the AGM, at press and analysts’ conferences, as well as on the Allianz Group’s website. Our website also provides a financial calendar listing the dates of major publications and events, such as annual reports, quarterly and half-yearly financial reports and AGMs.
The regulatory environment remains in a state of flux. We expect that further regulatory requirements will be imposed in addition to Solvency II as a result of the Allianz Group’s classification as a systemically important insurer. The Allianz Group will integrate these requirements into its existing governance system.
Declaration of Conformity with the German Corporate Governance Code On 11 December 2014, the Board of Management and the Supervisory Board issued the following Declaration of Conformity of Allianz SE with the German Corporate Governance Code: DECLARATION OF CONFORMITY WITH THE GERMAN CORPORATE GOVERNANCE CODE
“Declaration of Conformity by the Management Board and the Supervisory Board of Allianz SE with the recommendations of the German Corporate Governance Code Commission in accordance with § 161 of the German Stock Corporation Act (AktG)
1. The recommendations of the German Corporate Governance Code Commission (Code Commission) in the version of June 24, 2014 published in the official section of the Federal Gazette (“Bundesanzeiger”) on September 30, 2014 have been complied with since their publication and will be complied with except for the following: According to Item 5.3.2 German Corporate Governance Code the Audit Committee of the Supervisory Board shall be responsible for the monitoring of the risk management system. The Supervisory Board of Allianz SE has additionally established a specific Risk Committee, which is responsible for the monitoring of the risk management system.
2. Since the last Declaration of Conformity as of December 12, 2013 and its amendment in March 2014, all recommendations of the Code Commission in the version of May 13, 2013 were complied with except for the above mentioned deviation as well as the deviation declared in March 2014. In deviation from Item 5.4.5 para. 1 sentence 2, Mr. Jim Hagemann Snabe was member of the Management Board of SAP AG and held four Supervisory Board mandates in external listed companies at the same time. However, such deviation has expired with Mr. Snabe retiring from his office as Management Board member of SAP AG with effect as of May 21, 2014.
In addition, Allianz SE follows all the suggestions of the Code Commission in its 24 June 2014 version and also followed all suggestions in the previous version of 13 May 2013.
The Declaration of Conformity and further information on corporate governance at Allianz can be found on our website at www.allianz.com/corporate-governance. The listed Group company Oldenburgische Landesbank AG
There are legal provisions against corruption and bribery in almost all countries in which Allianz has a presence. The global AntiCorruption Program of the Allianz Group ensures the continuous monitoring and improvement of the internal anti-corruption controls (more information on the Anti-Corruption Program can be found under Progress in Sustainable Development starting on page 73).
Shares acquired by employees of the Allianz Group as part of the Employee Stock Purchase Plan are in principle subject to a one-year lock-up period. Outside Germany, the lock-up period may in some cases be up to five years. In some countries, in order to ensure that the lock-up period is observed, the employee shares are held throughout that period by a bank, another natural person or a legal entity acting as a trustee. Nevertheless, employees may instruct the trustee to exercise voting rights or have power-of-attorney granted to them to exercise such voting rights. Lock-up periods contribute to the Employee Stock Purchase Plan’s aims of committing employees to the company and letting them benefit from the performance of the stock price.
− Up to a total of € 13,720,000 (Authorized Capital 2014/II). The shareholders’ subscription rights can be excluded in order to issue the new shares to employees of Allianz SE and its Group companies as well as for fractional amounts.
The Board of Management may buy back and use Allianz shares for other purposes until 6 May 2019 on the basis of the authorization of the General Meeting of 7 May 2014 (§ 71 (1) No. 8 of the German Stock Corporation Act). Together with other treasury shares that are held by Allianz SE or which are attributable to it under §§ 71a et seq. of the German Stock Corporation Act, such shares may not exceed 10 % of the share capital at any time. The shares acquired pursuant to this authorization may be used, under exclusion of the shareholders’ subscription rights, for any legally admissible purposes, and in particular those specified in the authorization. Furthermore, the acquisition of treasury shares under this authorization may also be carried out using derivatives such as put options, call options, forward purchases or a combination thereof, provided such derivatives do not relate to more than 5 % of the share capital.
essential agreements of allianz se with Change of Control Clauses and Compensation agreements providing for takeover sCenarios The following essential agreements of the company are subject to a change of control condition following a takeover bid: − Our reinsurance contracts, in principle, include a clause under which both parties to the contract have an extraordinary termination right in the case where the other party to the contract merges or its ownership or control situation changes materially. Agreements with brokers regarding services connected with the purchase of reinsurance cover also provide for termination rights in case of a change of control. Such clauses are standard market practice.
B Corporate Governance 35 Corporate Governance Report 40 Statement on Corporate Management pursuant to § 289a of the HGB
The report is prepared in accordance with the requirements of the German Commercial Code (HGB) and the International Financial Reporting Standards (IFRS). It also takes into account § 64b Law on the Supervision of Insurance Undertakings (“Versicherungsaufsichts­ gesetz – VAG”), the requirements of the German Ministry of Finance’s Insurance Remuneration Regulation (“Versicherungs­Vergütungs verordnung – VersVergV”) and the recommendations of the German Corporate Governance Code.
− Alignment of pay and performance: The performance­based, variable component forms a significant portion of the overall remuneration.
REMUNERATION STRUCTURE, COMPONENTS AND TARGET SETTING PROCESS There are four main remuneration components. Each has the same weighting within annual target remuneration: base salary, annual bonus, annualized mid­term bonus (MTB) and equity­related remu­ neration. The target compensation of each variable component does not exceed the base salary, with the total target variable compensa­ tion not exceeding three times the base salary. In addition, Allianz offers pensions and similar benefits and perquisites.
Each year, the Supervisory Board agrees on performance targets for the variable remuneration with the members of the Board of Man­ agement. These are documented for the upcoming financial year. Every three years, the MTB sustainability criteria are set for the follow­ ing mid­term period.
member of the Board of Management equals the base salary of € 750 THOU (excluding perquisites). The maximum total direct com­ pensation (excluding perquisites) is € 4,125 THOU: base salary € 750 THOU + € 3,375 THOU (150 % of the sum of all three variable com­ pensation components at target).
The performance of the Chairman of the Allianz SE Board of Management is determined by the average target achievement of the other Board of Management members and can be adjusted by the Supervisory Board based on the Chairman’s personal per­ formance.
− MTB (mid­term): A deferred award which reflects the achieve­ ment of the annual targets by accruing an amount identical to the annual bonus. The payout of the award at the end of a three­ year cycle is subject to a sustainability assessment for these three years. The following criteria are considered: − adjusted capital growth vs. planned development in light of risk capital employed (adjusted capital essentially represents the fair value of the shareholders’ equity),
1 The fair market value of the RSUs is further subject to a small reduction of a few Euro cents due to the 200 % cap on the RSU payout. This reduction is calculated based on a standard option price formula.
2 The relevant share price used to determine the final number of RSUs granted and the 200 % cap is only available after sign-off by the external auditors.
To make the remuneration related to the performance year 2014 more transparent the column “actual grant” was added and includes fixed compensation accrual bonus paid for 2014, the MTB 2013 – 2015 tranche accrued for performance year 2014 and the fair value of the RSU grant in 2015 for the performance year 2014.
Deferred Compensation MTB (2013 – 2015) 1,180 1,280 – 1,920 1,546 – – 700 750 – 1,125 1,009 – – 700 750 – 1,125 778 – – AEI 2015/RSU2 – 1,280 – 1,920 1,546 – – – 750 – 1,125 1,009 – – – 750 – 1,125 778 – – AEI 2014/RSU2 1,180 – – – – – – 700 – – – – – – 700 – – – – – – GEI 2010/SAR3 – – – – – – 963 – – – – – – 438 – – – – – – – GEI 2009/SAR3 – – – – – 408 – – – – – – 242 – – – – – – – – GEI 2009/RSU2,3 – – – – – – 376 – – – – – – 228 – – – – – – – GEI 2008/RSU2,3 – – – – – 911 – – – – – – 531 – – – – – – – –
1 In accordance with the German Corporate Governance Code, the annual bonus is disclosed for performance year 2014. It was paid in 2015 and for performance year 2013 in 2014. The payments for equity-related deferred compensation (GEI), however, are disclosed for the year in which the actual payment was made.
5 Michael Diekmann received a payment of € 267 THOU in 2013 for 25 years of service at Allianz.
Annual Variable Compensation – Annual Bonus 700 750 – 1,125 718 942 718 700 750 – 1,125 1,037 945 1,037 700 750 – 1,125 763 904 763
Deferred Compensation MTB (2013 – 2015) 700 750 – 1,125 718 – – 700 750 – 1,125 1,037 – – 700 750 – 1,125 763 – – AEI 2015/RSU2 – 750 – 1,125 718 – – – 750 – 1,125 1,037 – – – 750 – 1,125 763 – – AEI 2014/RSU2 700 – – – – – – 700 – – – – – – 700 – – – – – – GEI 2010/SAR3 – – – – – – – – – – – – – – – – – – – – – GEI 2009/SAR3 – – – – – – – – – – – – 299 – – – – – – – – GEI 2009/RSU2,3 – – – – – – – – – – – – – 307 – – – – – – – GEI 2008/RSU2,3 – – – – – – – – – – – – 531 – – – – – – – –
7 Dr. Christof Mascher received a payment of € 156 THOU in 2014 for 25 years of service at Allianz. 8 Dr. Christof Mascher joined the Board of Management in September 2009. His payout from the GEI 2009 plans are shown pro rata temporis.
€ THOU Dr. Christof Mascher (Appointed: 09/2009) Jay Ralph (Appointed: 01/2010) Dr. Dieter Wemmer (Appointed: 01/2012)
Deferred Compensation MTB (2013 – 2015) 700 750 – 1,125 907 – – 700 750 – 1,125 912 – – 700 750 – 1,125 996 – – AEI 2015/RSU2 – 750 – 1,125 907 – – – 750 – 1,125 912 – – – 750 – 1,125 996 – – AEI 2014/RSU2 700 – – – – – – 700 – – – – – – 700 – – – – – – GEI 2010/SAR3 – – – – – – – – – – – – – – – – – – – – – GEI 2009/SAR3 – – – – – 1658 – – – – – – – – – – – – – – – GEI 2009/RSU2,3 – – – – – – 1318 – – – – – – – – – – – – – – GEI 2008/RSU2,3 – – – – – – – – – – – – – – – – – – – – –
3 The equity-related remuneration that applied before 2010 consisted of two vehicles: virtual stock awards known as RSUs and virtual stock options known as “Stock Appreciation Rights” (SARs). Only RSUs have been awarded since 2010. The remuneration system valid until December 2009 is disclosed in the Annual Report 2009 (starting on page 17). Whereas the GEI/RSU grants are automatically exercised at the vesting date, the GEI/SAR grants are exercised by the Board member within the exercise period following the vesting date. Hence, the total payout from SARs depends on the individual decision by the Board member. SARs are released to plan participants upon expiry of the vesting period, assuming all other exercise hurdles are met. For SARs granted until and including 2008, the vesting period was two years and the exercise period five years. For SARs granted in 2009 and 2010, the vesting period is four years and the exercise period three years. SARs can be exercised on condition that the price of the Allianz SE stock is at least 20 % above the strike price at the time of grant. During the term of the plan, at least once on five consecutive trading days the Allianz SE stock must relatively appreciate at least 0.01 percentage points above the appreciation of the Dow Jones EURO STOXX Price Index (600).
5 Gary Bhojwani’s base salary and variable compensation is denominated in USD. The contractually agreed USD/€ exchange rate of 1.347910 (2011 fourth quarter average) was applied. According to his cancellation agreement, Gary Bhojwani received a payment of € 3,750 THOU in January 2015 for his remaining term of contract (until 31 December 2016). His variable remuneration components for 2014 and the pro rata MTB (2013 – 2015) will be paid out according to plan conditions. He does not receive pension contributions into the Allianz SE pension plans, but only under his Allianz of America employment agreement.
6 Clement Booth retired on 31 December 2014. According to his service contract, he will receive his fixed salary of € 62.5 THOU per month for a period of 6 months from July 2015 as a transition payment which will be set off against the regular pension payment. As part of the transition payment, he will receive 25 % of the annual variable target compensation (€ 562.5 THOU) in spring 2016.
INDIVIDUAL REMUNERATION: 2014 AND 2013 € THOU Dr. Werner Zedelius (Appointed: 01/2002)
Annual Variable Compensation – Annual Bonus 700 750 – 1,125 1,032 910 1,032
Deferred Compensation MTB (2013 – 2015) 700 750 – 1,125 1,032 – – AEI 2015/RSU2 – 750 – 1,125 1,032 – – AEI 2014/RSU2 700 – – – – – – GEI 2010/SAR3 – – – – – – 187 GEI 2009/SAR3 – – – – – 1,272 – GEI 2009/RSU2,3 – – – – – – 1,048 GEI 2008/RSU2,3 – – – – – 664 –
Annual Variable Compensation – Annual Bonus 700 750 – 1,125 909 924 909
3 The equity-related remuneration that applied before 2010 consisted of two vehicles: virtual stock awards known as RSUs and virtual stock options known as “Stock Appreciation Rights” (SARs). Only RSUs have been awarded since 2010. The remuneration system valid until December 2009 is disclosed in the Annual Report 2009 (starting on page 17). Whereas the GEI/RSU grants are automatically exercised at the vesting date, the GEI/SAR grants are exercised by the Board member within the exercise period following the vesting date. Hence, the total payout from SARs depends on the individual decision by the Board member. SARs are released to plan participants upon expiry of the vesting period, assuming all other exercise hurdles are met. For SARs granted until and including 2008, the vesting period was two years and the exercise period five years. For SARs granted 2009 and 2010, the vesting period is four years and the exercise period three years. SARs can be exercised on the condition that the price of the Allianz SE stock is at least 20 % above the strike price at the time of grant. During the term of the plan, at least once on five consecutive trading days the Allianz SE stock must relatively appreciate at least 0.01 percentage points ahead of the appreciation of the Dow Jones EURO STOXX Price Index (600).
4 Pension Service Cost in accordance with IAS 19: represents the company cost, not the actual entitlement nor a payment, however, according to the German Corporate Governance Code, the Pension Service Cost is to be included in all columns.
GRANTS, OUTSTANDING HOLDINGS AND EqUITY COMPENSATION ExPENSE UNDER THE ALLIANz EqUITY PROGRAM
2 Grants of equity-related remuneration are accounted for as cash settled awards. The fair value of the granted RSUs and SARs is remeasured at each reporting date and accrued as a compensation expense proportionately over the vesting and service period. Upon vesting, any subsequent changes in the fair value of the unexercised SARs are also recognized as a compensation expense.
EqUITY-RELATED REMUNERATION In accordance with the approach described earlier, a number of RSUs were granted to each member of the Board of Management in March 2015 which will vest and be settled in 2019.
2 Plan participants contribute 3 % of their relevant salary to the AVK. For the AVK the minimum guaranteed interest rate is 2.75 % – 3.50 % depending on the date of joining Allianz. In general, the company funds the balance required via the APV. Before Allianz’s founding of the APV in 1998, both Allianz and the plan par- ticipants were contributing to the AVK.
4 Expected annual pension payment at assumed retirement age (age 60), excluding current pension plan. 5 SC = service cost. Service costs are calculatory costs for the DBO related to the reported business year. 6 DBO = defined benefit obligation, end of year. The figures show the obligation for Allianz resulting from defined benefit plans taking into account realistic assumptions with regard to interest rate, dynamics and biometric probabilities.
7 Gary Bhojwani only holds pension plans subject to his Allianz of America employment agreement, denominated in USD. All amounts in the table are € amounts derived by applying the contractually agreed USD/€ exchange rate of 1.347910. The Allianz Retirement Plan (ARP) and the Supplemental Retirement Plan (SRP) are two completely frozen DB plans, i.e. there are no future accruals in these plans. Current pension plans for Gary Bhojwani include the Deferred Compensation Plan (DCP) and the 401(k) plan. Both current plans are defined contribution plans. Their contributions are included in the table.
The Allianz Group paid € 4 MN (2013: € 4 MN) to increase reserves for pensions and similar benefits for active members of the Board of Management. As of 31 December 2014, reserves for pensions and similar benefits for active members of the Board of Management amounted to € 56 MN (2013: € 41 MN). This increase is predominantly a result of the significant decrease in interest rates.
TERMINATION Of SERVICE Board of Management contracts are limited to a period of five years. For new appointments, in compliance with the German Corporate Governance Code, a shorter period is typical.
Board members who were appointed before 1 January 2011 are eli­ gible to use a company car for a period of one year after their retirement.
Severance payment cap Payments to Board members for early termination with a remaining term of contract of more than two years are capped at two years’ com­ pensation.
OUTLOOK fOR 2015 The Supervisory Board approved the following changes to the remu­ neration of the Board of Management in December 2014: − The remuneration of the new regular members of the Board of Management, Mr. Sergio Balbinot and Dr. Axel Theis, has been set at the same level as for the other regular members of the Board of Management.
− The pension contributions as a percentage of base salary paid by the company to the contribution­based pension plan remain unchanged.
The remuneration of the Supervisory Board is governed by the Statutes of Allianz SE and the German Stock Corporation Act. The structure of the Supervisory Board’s remuneration is regularly reviewed with respect to German, European and international corporate gover ­ nance recommendations and regulations.
REMUNERATION PRINCIPLES − Set total remuneration at a level aligned with the scale and scope of the Supervisory Board’s duties and appropriate to the company’s activities and business and financial situation.
− Set a remuneration structure to allow for proper oversight of business as well as for adequate decisions on executive personnel and remuneration.
REMUNERATION STRUCTURE AND COMPONENTS The remuneration structure, which comprises fixed and committee ­ related remuneration only, was approved by the Annual General Meeting 2011 and is laid down in the Statutes of Allianz SE.
Committee-related remuneration The Chairperson and members of the Supervisory Board committees receive additional committee­related remuneration. The committee­ related remuneration is as follows: COMMITTEE-RELATED REMUNERATION
Attendance fees and expenses In addition to the fixed and committee­related remuneration, mem­ bers of the Supervisory Board receive an attendance fee of € 750 for each Supervisory Board or committee meeting they attend. Should several meetings be held on the same or consecutive days, the atten­ dance fee will be paid only once. Allianz SE reimburses the members of the Supervisory Board for their out­of­pocket expenses and the VAT payable on their Supervisory Board activity. For the performance of his duties, the Chairman of the Supervisory Board is furthermore entitled to an office with secretarial support and use of the Allianz carpool service. In the financial year 2014, Allianz SE reimbursed expenses totaling € 54,294.
REMUNERATION fOR 2014 The total remuneration for all Supervisory Board members, including attendance fees, amounted to € 2,035 THOU in 2014 (€ 2,018 THOU in 2013). The following table shows the individual remuneration for 2014 and 2013: INDIVIDUAL REMUNERATION: 2014 AND 2013
Loans to members of the Supervisory Board On 31 December 2014 there was one outstanding loan granted by Allianz Group companies to members of the Supervisory Board of Allianz SE. One member received a mortgage loan of € 80 THOU from Allianz Bank in 2010. The loan has a duration of ten years and was granted at a normal market interest rate.
Competence Center to boost automotive expertise and innovations in the fields of telematics, engineering and insights.
The global cooperation with BMW, which has been in place since 2009, was extended by another five years in September 2014. Since the partnership was launched, the joint business volume of insurance policies sold at the point of sale has more than tripled. Today, BMW and Allianz are collaborating in 27 markets worldwide with more than 50 joint BMW­branded products. As far as the upcoming international cooperation cycle is con­ cerned, the focus is on expanding the business with innovative insurance solutions in the e­mobility, used car and driver assistance system segments.
63 Allianz Group structure 63 Insurance operations 64 Asset Management 64 Corporate and Other 65 Worldwide presence and business segments 66 Our markets
92 Statutory premiums 93 Premiums earned (net) 93 Present value of new business premiums (PVNBP) 94 Operating profit 96 Net income 98 Life/Health insurance operations by reportable segments
99 Assets under management 101 Operating revenues 101 Operating profit 101 Net income 102 Corporate and other 103 Earnings summary 103 Operating earnings summaries by reportable segments 104 Overview: 2014 results versus previous year outlook 105 Economic outlook 2015 105 Insurance industry outlook 106 Asset management industry outlook 106 Outlook for the Allianz Group 106 Overview: outlook and assumptions 2015 107 Management’s assessment of expected revenues and earnings for 2015 108 Financing and liquidity development and capitalization 108 Expected dividend development 108 Management’s overall assessment of the current economic situation of the Allianz Group 109 balance Sheet Review 109 Shareholders’ equity 109 Regulatory capital adequacy 110 Total assets and total liabilities 115 Off-balance sheet arrangements 116 liquidity and Funding Resources 116 Organization 116 Liquidity management of our operating entities 116 Liquidity management and funding of Allianz SE 120 Allianz Group consolidated cash flows 121 Reconciliations 121 Composition of total revenues 121 Composition of total revenue growth 122 Life/Health Insurance Operations risk AnD opportunitY report AnD FinAnciAl control 123 Risk and opportunity Report 123 Allianz risk profile and management assessment 124 Capitalization 127 Internal risk capital framework 130 Internal risk assessment 139 Risk governance 141 Risk management priorities for 2015 142 Further future challenges and opportunities 144 Controls over Financial Reporting and Risk Capital 144 Internal controls over financial reporting 145 Risk capital controls
Allianz SE and its subsidiaries (the Allianz Group) offer propertycasualty insurance, life/health insurance and asset management products and services in over 70 countries, with the largest of its operations in Europe. Allianz SE, as the parent company of the Allianz Group, has its headquarters in Munich, Germany.
The Allianz Group structure reflects both business segments and geographical regions. The business activities are first organized by product and type of service based on how these are strategically 1 At the end of the financial year 2014, Allianz announced its decision to realign its property-casualty insurance business in the United States. For further information, please refer to the Our markets section starting on page 66. Respective changes in the group structure will become effective in 2015. For further information, please refer to Executive Summary of 2014 Results starting on page 81.
Worldwide presence and business segments mArket positions of our business operAtions1
3 Based on total market ranking (including domestic competitors), China Property-Casualty ranked in category IV. and India Property-Casualty and Life/Health both in category III., respectively.
‘AllSecur’ brand. For our life insurance business, we are active in retail and commercial markets and provide a comprehensive range of products. The main classes of coverage offered include annuity, endowment, term, disability and long-term care insurance. Many customers have been rethinking risk and return factors in their retirement arrangement. For years we have been successfully enlarging our product range and in the summer of 2013 we launched our new “Perspektive” offering. This has separate guarantees in the savings and payout phases, from which our customers can expect higher returns as a result of much less stringent capital adequacy requirements. In 2014, new business for “Perspektive” through our tied agents channel accounted for 24.3 % of our retirement arrangement-related retail business. In our commercial lines, we serve our customers with group life insurance and provide companies with services and solutions in connection with defined benefit pension arrangements and defined contribution plans.
As in the previous year, our single premium business grew strongly again in 2014. We expect, however, that this exceptional growth will not reoccur in 2015.
As the market leader in the German property-casualty market, we offer a wide variety of insurance products for retail and commercial customers. Germany is a rather mature market for property-casualty business, with intense competition. In 2014, our premiums grew mostly in motor business and commercial non-motor business. In September 2014, the new retail motor product ‘digital+’ was launched in order to reach so-called hybrid customers who are not addressed by our existing products ‘Mein Auto’ and ‘AllSecur’. These customers switch between the online and offline world, doing their research online but making the final purchase offline or doing both their research and purchase online, merely requiring personal help in the case of claims. Although the property-casualty market continued to be competitive, our ongoing strategic focus on strengthening sales, 1 The following sections do not cover our global insurance lines, e. g. Allianz Global Corporate & Specialty, our credit insurer Euler Hermes or Allianz Worldwide Partners, even if those entities also operate in the respective market.
Annual Report 2014 Allianz Group 67 profitability, the combined ratio remained at low levels, reflecting our strong technical capabilities achieved through continuous investment and innovation. The latest statistics show Allianz with a significant combined ratio advantage versus the market.
This achievement was strongly supported by the performance of our agent network. In 2014, the network expanded by almost half through the acquisition of parts of the insurance business of UnipolSai Assicurazioni S.p.A. including 725 agencies which were successfully integrated subsequently. The introduction of the common digital platform Digital Agency has been instrumental in this integration, with the new agencies running it exclusively, benefiting from simple, mobile and paperless processes. Another driver of innovation in the agent network has been the introduction of ‘Allianz1’, which provides modular family coverage against most risks. Its success has greatly exceeded expectations, with more than 100,000 contracts written in 2014, paid on an affordable monthly basis. Monthly premium schedules have also been successfully introduced for motor.
In direct, Genialloyd grew premiums by 10.5 % in a contracting market and contributed to our strong performance in property-casualty. Property-casualty bancassurance premiums also grew strongly, aided by the launch of a retail motor product distributed through Italian branches of UniCredit.
In our life business, we increased our premium volume by 34.4 % and AuM by 15 %. This growth was particularly supported by our bancassurance cooperation with UniCredit, which helped premiums rise by 58.3 %, and benefited further from additional branches distributing our products. Our unit-linked product market share increased again, with sales of low-capital-consuming unit-linked products accounting for 63 % of GWP, compared to an estimated market average of below 30 %. Our highly successful decumulation product, Progetto Reddito, has been extended to the bancassurance channel and generated over € 1.6 BN of new business in 2014. We also completed the reduction of minimum guarantees to 0 % for virtually all new products, lowering capital absorption in the low interest rate environment.
France Allianz France S.A. is a major provider of insurance and financial services in the French retail and commercial markets, offering a broad range of property-casualty and life/health products for individuals and corporate customers. These include liability insurance, disability cover and investment and savings products. We distribute these offerings mostly via agents, life and health consultants, brokers and independent financial advisors, as well as selected external partners. In addition, our customers can research and buy products online – either through ‘eAllianz’ or via our direct sales channel ‘AllSecur’. A new strategic plan for 2015-2020, ‘Innovation & Trust’, has just been launched which capitalizes on several innovative successes Allianz France achieved in 2014. Examples include offering fast-quote and the new life product ‘Vie Génération’ as the first insurer in the French market as well as securing innovative partnerships with drivy (car sharing), TomTom (telematics) and Nest Protect (fire protection).
We also hold a strong position in the health market, often combining elements of life, health and disability insurance as comprehensive solutions for individual and commercial customers. Recent regulatory changes have created new opportunities for the development of our group business. In response, we have created a new employee benefits institution (B2V) which aims to take advantage of these new opportunities.
In all major segments we will capitalize on our ability to combine growth and strong profitability.
Through FFIC, we underwrote personal and commercial lines and sold these products through independent agents and brokers. We also participated in a crop insurance program through a reinsurance arrangement. Our personal business unit focused on affluent and high-net-worth individuals while our commercial business unit offered specialized property-casualty coverage for small and mediumsized businesses. FFIC was one of the few carriers in the United States that had a nationwide personal and commercial lines presence.
At FFIC, while personal lines showed a stable premium development, we were impacted by low commodity prices in crop insurance and slowing rate increases in commercial lines which unfavorably impacted our premiums. A deterioration in accident year results and further reserve strengthening led to disappointing business results.
– a market we remain committed to. Our life and annuity business primarily underwrites fixed index and variable annuities and fixed index universal life insurance products – all of which are sold through independent distribution channels, as well as large financial institutions such as banks and wire houses.
Despite a competitive market environment in 2014 we expanded our position as market leader in the fixed index annuity market as a result of an innovative index strategy and higher penetration into the Securities and Exchange Commission (SEC) licensed broker-dealer channel. Although the persisting low interest rate environment remains challenging, we actively manage our product pricing strategy to maintain profitability.
We anticipate continued economic uncertainty, equity market volatility and a low interest rate environment in the long term. On the upside, we continue to believe that U.S. demographic trends present us with an excellent opportunity in the retirement market. In order to reap these benefits, we will continuously strengthen our distribution network and value proposition to our customers through product innovation and high-quality services.
Australia Allianz Australia Insurance Ltd. serves the Australian and New Zealand property-casualty and life insurance markets. Based on market share Allianz Australia is the fourth largest property-casualty insurer in Australia, providing insurance coverage for both retail and corporate segments.
With its disciplined underwriting approach and investments in risk prevention and accumulation controls, Allianz Australia successfully responded to a number of natural disasters in both Australia and New Zealand between 2010 and 2014.
United Kingdom We serve the U.K. market mainly via our subsidiary Allianz Insurance plc, which is the fifth largest general property-casualty insurer in the United Kingdom and offers a wide range of commercial and personal insurance products. Our commercial products cover a broad spectrum of customers, from sole traders to large commercial organizations. We also provide engineering inspection services distributed principally through brokers. In personal lines we distribute our broad selection of products via a multi-channel approach through brokers, affinity partners, veterinary practices and direct channels.
Despite the persistence of a very competitive insurance market we have doubled our brand awareness amongst our target audience in the last two years, driven by an increase in multimedia advertising and sponsorship programs. These successful brand building activities, our differentiated portfolio and our market-leading underwriting capability in commercial lines allowed us to outgrow the market while delivering superior underwriting results.
Looking ahead, we aim to gain further market share despite continuing challenging market conditions and to preserve our combined ratio advantage via further investments in digital transformation, process efficiency and in our Indian offshore service center.
Latin America (with focus on Brazil) Allianz operates in the Latin American region with a presence in Brazil, Colombia, Argentina and Mexico. It is a strong player in the propertycasualty segment, with motor as the predominant line of business (except in the Mexican market) followed by industrial lines. Life products are also distributed in the Mexican, Colombian and Brazilian markets. The company follows a regional strategy based on excellence of services and processes, efficiency and product simplicity, that allows the entities to leverage the brokers and the agents network and to focus on continuously increasing the customer base.
Asset mAnAGement mArket 2014 was another favorable year for the asset management industry as a whole. Markets showed net inflows into actively-managed AuM. There was also a significant shift to passive products visible in the markets, especially in the United States. For equity and fixed income strategies the main net inflow drivers were global equities and taxable bonds in more mid to shorter-term as well as floating rate strategies. High yield and emerging market bond strategies recorded net outflows.
For further information on the asset management industry business environment, please refer to page 80.
In 2014, AllianzGI followed up the implementation of its ‘One Firm’ strategy, while at the same time further expanding its product offerings in equities, fixed income and alternative assets. Besides, AllianzGI is developing new approaches for client interaction, leveraging the opportunities of the digital space.
Strategy and Steering Our longer-term vision is unchanged: to be the world’s strongest financial community. 2014 was another milestone on this journey, with the Allianz Group achieving further revenue growth and another strong operating result.
Property-Casualty We aim to be the leading property-casualty insurer in terms of revenue and profitability. In 2014, Allianz finished among the top-3 in our global peer group in premium growth and Combined Ratio (as a measure of profitability), defending our position as the world’s largest and one of the most profitable international property-casualty insurers.
The Group has taken further action to strengthen its propertycasualty portfolio: we completed bolt-on acquisitions in two of our strongest markets, Italy and Australia. At the same time we reduced our exposure to the Russian retail market and are restructuring our U.S. commercial activities into one carrier, AGCS in the United States, to ensure scale and build a competitive and profitable platform for our business in the world’s largest property-casualty market. Further, it was also agreed to sell the personal insurance business in the United States, where we expect the transaction to close in the first half of 2015.
Accelerating organic growth will remain a priority. We continue to invest in the digitalization of our business to capture new opportunities, such as the growing number of hybrid buyers and the shift in customer behavior towards convenience, mobility and an individualized offering. At the same time we are going to strengthen further our capabilities to serve customers through any channel they choose to approach us.
board of management and organiZationaL structure1 Allianz SE has a divisional Board structure that is split into functional and business responsibilities. The business-related divisions reflect members of the board of management and their responsibiLities in 2014 (incLuding changes in 2015)
Chairman of the Board of Management (from 7 May 2015) Sergio Balbinot (since 1 January 2015) Insurance Western & Southern Europe (since 1 January 2015) Manuel Bauer Insurance Growth Markets; Insurance Australia (since 1 January 2015) Gary Bhojwani (until 31 December 2014) Insurance USA (until 31 December 2014) Clement Booth (until 31 December 2014) Global Insurance Lines & Anglo Markets (until 31 December 2014) Dr. Helga Jung Insurance Iberia & Latin America, Legal & Compliance, Mergers & Acquisitions Dr. Christof Mascher Operations, Allianz Worldwide Partners Jay Ralph Asset Management; U.S. Life Insurance (since 1 January 2015) Dr. Axel Theis (since 1 January 2015) Global Insurance Lines & Anglo Markets (since 1 January 2015), Global Property-Casualty (from 7 May 2015) Dr. Dieter Wemmer Finance, Controlling, Risk Dr. Werner Zedelius Insurance German Speaking Countries, Banking, Human Resources Dr. Maximilian Zimmerer Investments, Global Life/Health target setting and monitoring The Allianz Group steers its operating entities and business segments via an integrated management and control process. This starts with the definition of a business-specific strategy and goals, which are discussed and agreed between the Holding and operating entities. According to this strategy, a three-year plan is prepared by the operating entities and aggregated to form the financial plans for the business divisions and the Allianz Group. This plan also forms the basis for our capital management. The Supervisory Board then approves the plan and sets corresponding targets for the Board of Management. The performance-based remuneration of the Board of Management is linked to short-, mid- and long-term targets to ensure effectiveness and emphasize sustainability. For further details about the remuneration structure, including target setting and performance assessment, please refer to the Remuneration Report starting on page 45.
We continuously monitor our business performance against these targets through monthly reviews to ensure that appropriate measures can be taken in the event of negative developments. During these reviews, we monitor key operational and financial metrics. Operating profit and net income are the main financial performance our business segments Property-Casualty, Life/Health, Asset Management and Corporate and Other. These were overseen by seven board members, with six members concentrating on the insurance business segments and one on Asset Management as a stand-alone segment. The remaining four divisions (i.e. Chairman of the Board of Management, Finance, Investments and Operations) focus on Group functions, along with business-related responsibilities.
Besides performance steering, we also have a risk steering process in place, which is described in the Risk and Opportunity Report starting on page 123.
Non-financial key performance indicators (KPIs) are mainly used for the sustainability assessment of the mid-term bonus. Under the category “partner of choice” mainly the following KPIs are considered: Allianz Engagement Survey and Net Promoter Score results, brand performance (measured by the Funnel Performance Index), diversity development, organizational transparency (as measured by the Transparency International Corporate Reporting ranking) and sustainable development (as measured by widely-recognized indices and rankings).
1 For further information about changes to the structure of the Board of Management effective 2015, please refer to the Executive Summary of 2014 Results on page 84.
As a multi-faceted organization we play a number of different roles, whether that be as a company, a corporate citizen, an employer, an insurer or an investor. We take our responsibility for environmental and social issues seriously, regardless of the role that we play. Our commitment is also reflected in national and international initiatives we support: In early 2014, we became a signatory to the United Nations (UN) Principles for Sustainable Insurance, which complements our existing commitment to the UN Principles for Responsible Investment.
ESG procESS for inSurancE and invEStmEntS Strengthening the governance and integration of environmental and social aspects in our core business processes continued to be a priority in 2014. This commitment covers both our insurance business and how we invest our own and third-party assets.
We do not exclude certain businesses by default, instead, we analyze each risk on a case-by-case basis and see if and how the risk can be mitigated. When an ESG risk is detected in one of the sensitive business areas during due diligence, a mandatory referral process is triggered, which can result in an escalation up to Board level. Over the course of 2014, Allianz assessed a wide range of sensitive business for ESG considerations. Overall, 150 transactions were reviewed across our insurance and investment business. 81 % of transactions were approved, 10 % were given conditional approval subject to further information or mitigating actions being taken and 9 % declined.
Integrating ESG considerations into existing core processes allows for quicker implementation and adoption by our underwriters and investment and asset managers. During 2014, we integrated our sensitive business areas and sensitive countries list into the core underwriting and investment standards for alternative investments of own assets and our overarching risk management framework2.
We therefore aim for real-time customer interaction and invest in the technology needed to easily and efficiently provide personalized offers and services, combining face-to-face advice from Allianz agents and partners with customer service centers and online tools. In an increasing number of markets, Allianz customers can get an insurance offer simply and quickly over the internet by providing only a few pieces of data and can then decide to buy directly online or finalize their purchase at an agency. This innovative “FastQuote” approach reflects our customers’ preference for easy online access to insurance products. With “ Allianz1”, for example, a modular offering launched in Italy in 2014, customers can tailor their insurance cover to their individual requirements and personal budget by choosing from 13 modules ranging from home and accident insurance to life and health cover as well as assistance services.
In 2014, 47 % of Allianz businesses significantly outperformed their local peer average and 32 % achieved loyalty leadership in their market. While we did improve our performance in many markets, so too did our local peers. In 2015, by leveraging successful customer experience initiatives among our local entities, we expect that more Allianz companies will outperform their local peer average with their NPS performance.
With our established sponsorship portfolio, we anchor corporate responsibility as a vital component in our strategy: for example through our commitment to the Paralympic Movement, which was highlighted by the Paralympic Winter Games 2014 in Sochi, or our partnerships in Formula 1TM and our Road Safety program with 36 local entities participating in 2014. As a long-term investment in the Allianz brand, we strengthened our successful partnership with FC Bayern München, acquiring an 8.33 % share. With the opening of Allianz Parque in Sao Paulo in 2014 and the Allianz Stadion in Vienna, which will be built by 2016 as the new home ground for the Austrian football team SK Rapid Wien, we now have six members in our family of stadiums. Our global stadium sponsorship and naming rights strategy was acknowledged at TheStadiumBusiness Awards 2014 by receiving the Sponsorship, Sales & Marketing Award as well as the Sustainability Award for Allianz Park in London. Furthermore, our partnership with world-renowned pianist Lang Lang and his Lang Lang International Music Foundation received the International Sponsoring Award for its innovative approach in combining youth education with a brand ambassador.
Energy 53.9 Travel 40.3 Paper 4.1 Water 0.2 Waste 1.5 1 KPMG Wirtschaftsprüfungsgesellschaft AG has provided limited assurance on the 2014 environmental performance information. For further information, please refer to www.allianz.com/sustainability.
compLiancE manaGEmEnt Allianz’s Compliance Management System aims to ensure compliance with internationally recognized laws, rules and regulations, and to promote a culture of integrity in order to safeguard the company’s reputation. In 2014, we continued with measures to further strengthen the effectiveness of compliance management by enhancing quality assurance, global reporting on compliance risks and independent reviews of key elements of our compliance program1.
As a global company, we take our role in society very seriously and see this as more than “just” making donations. We therefore offer our employees the possibility of donating their skills and experience to advance social well-being in our local communities.
poLiticaL EnGaGEmEnt As a company headquartered in Germany, Allianz contributes to democratic political parties that support the social market economy. In 2014, as in the previous year, we contributed equal amounts to political parties in Germany representing a variety of views within the political spectrum: the Green Party (Bündnis 90/Die Grünen), Christian Democrats (CDU), Christian Social Union (CSU), Liberals (FDP) and Social Democrats (SPD). To support their activities during the European Parliament elections in May 2014 these political parties received a one-time donation of € 20,000. We also donated € 10,000 to each of the junior organizations of the Green Party (Green Youth), CDU (Junge Union), CSU (Young Union in Bavaria), the FDP (JuLis) and SPD (Young Socialists).
Globally, we employ 147,425 (2013: 147,627)2 people in over 70 countries. Our business strategy requires us to have the best people in place in order to deliver success today and over the long term. Our aim is to create a consistent approach to HR management across the Group and we do this by providing Allianz companies with strategic HR frameworks, principles and tools covering key areas such as talent management, rewards and performance, employee engagement and diversity.
taLEnt manaGEmEnt We take a common and systematic approach to developing talent across all Allianz companies. To ensure the quality and performance of our employees, we focus on managing and developing talent and careers by assessing performance and potential, providing appropriate development actions and ensuring robust succession plans. We develop both leadership and functional skills to ensure our employees can achieve current and future business and personal development goals. In order to meet future staff needs, we promote the necessity of lifelong learning. Also, our Strategic Workforce Planning proactively supports strategic HR decision-making by supplying forecasts on economic, demographic and socio-cultural trends.
Total expenses in training € mn 91 86 93 Training expenses per employee € 668 629 707 Average training days per employee, staff 3.0 3.0 2.6 1 Figures based on the number of employees in Allianz’s core business. Excluded are fully consolidated companies which are considered as pure financial investments, non-profit organizations e.g. foundations and companies classified as held for sale.
divErSity Allianz recognizes the importance of having a diverse, inclusive workforce that is made up of employees from different backgrounds. We understand that promoting diversity is necessary to be successful as a global company and have implemented a number of initiatives to support this. Consistent with our Code of Conduct, Allianz has a zero-tolerance policy against discrimination and harassment in the workplace.
2 Total number of employees with an employment contract of all affiliated companies (core and non-core business).
As part of our efforts to advance women at Allianz, in 2008 we set ourselves the global target of increasing the share of women in the talent pool for executive positions to 30 % by 2015. A top management sponsorship program for women and flexible work-life programs, such as part-time employment or job sharing, are part of our supporting actions taken in several countries.
2 Including women at all executive positions below the Board of Management. 3 Including women functionally responsible for other staff, regardless of level, e.g. division, department, and team managers.
EmpLoyEE EnGaGEmEnt The Group-wide Allianz Engagement Survey (AES) gathers employee feedback on a range of relevant issues, including factors identified as promoting a high-performance culture within Allianz. In 2014, over 120,000 employees from 67 Allianz companies were invited to participate, with 84 % responding. The Employee Engagement Index is a key measure of employee satisfaction, loyalty, advocacy and pride. The results of the AES are directly linked to the performance objectives of the Group’s Board of Management.
ESG in undErwritinG We apply our ESG Guidelines on Sensitive Business Areas to all insurance businesses globally, focusing on corporate customers. They are relevant to all contracts, whether we act as lead insurer or as part of a panel, whether it is for single projects, multi-site risks or supporting complex global insurance client needs. In 2014, we set up a support function in Allianz Global Corporate & Specialty (AGCS), our industrial insurer, to pre-screen business before escalation for Group review on sensitive business. The unit offers ESG support for insurance transactions and acts as a center of competence for Property- Casualty insurance, as well as providing proactive screening of ESG risks in portfolios. Training is a key part of successfully implementing our ESG approach and in 2014 we integrated the ESG risk escalation process into global training modules for underwriters and delivered a range of trainings to our engineering and liability underwriters.
microinSurancE The people most vulnerable to risks associated with natural disasters, accidents and illness are those with low incomes, living in developing countries. Microinsurance offers an affordable way of protecting against these risks, with premiums that start from as low as € 1 a year. Allianz offers microinsurance products in eleven countries in Asia, Africa and Latin America and our products range from life insurance to crop index insurance. 2014 saw continued strong growth and we now insure 44.6 million people (2013: 26.1 million)1, with revenues of € 114 MN (2013: € 86 MN)2. For more information on future risks and opportunities, please refer to the Risk and Opportunity Report from page 123.
1 2013 figure was adjusted for error corrections. 2 Figures include non-consolidated entities (i.e. India).
ESG in invEStmEnt of own aSSEtS As large institutional investors, insurance companies play an important role in funding a low-carbon economy. Climate-related investments, such as renewable energy, are an attractive growth market as they contribute to greater portfolio diversification. They also provide sound and stable long-term returns that are generally not linked to the ups and downs of the financial markets – which fits in well with our investment strategy for life insurance premiums. We are one of the leading investors in renewable energy globally, with more than € 2 BN invested to the end of 2014 (2013: € 1.7 BN). We are steadily expanding in this sector, with planned investments of around € 400 MN per year.
ESG in tHird-party aSSEt manaGEmEnt Embedding ESG issues into asset management and offering corresponding products and services are common practice in both AllianzGI and PIMCO. Building strong ESG research capabilities, engaging with the companies they invest in and pursuing active share ownership through proxy voting are at the heart of their ESG strategies. The SRI portfolio has been growing over the last few years. At the end of 2014, assets under management in our SRI funds totaled € 95.4 BN (2013: € 78.2 BN) for PIMCO and € 22.0 BN (2013: € 17.5 BN) for AllianzGI, bringing the total to € 117.4 BN – which is 7 % of our total third-party assets under management.
Gross domestic product (GDP) in industrialized countries rose by about 1.6 % on average last year. While the United States registered fairly solid growth of 2.4 %, real GDP in Japan more or less stagnated, weighed down by weak domestic demand in the wake of last year’s VAT hike. Real GDP in the Eurozone increased on average by 0.9 % in 2014, the first positive result in three years. The overall Eurozone figure conceals some major differences, however. For the first time in several years all member countries that underwent severe macroeconomic adjustments finally returned to growth. Spain, for example, registered growth of 1.4 % last year, following a protracted spell of economic contraction. Irish GDP expanded by more than 4 %. At 1.6 % the German economy recorded moderate growth, but fears that the deterioration in sentiment in the summer might trigger a downswing did not materialize. By their standards, emerging markets expanded by a rather disappointing 4.0 % on average, with economic growth in emerging Asian markets coming in at 6.1 %.
In 2014, financial markets stood under the twin spell of monetary policy and geopolitical tensions – like the conflict between Russia and Ukraine. In the United States, the Federal Reserve Bank started a gradual exit from its ultra-loose monetary policy by completely phasing out its bond purchasing program in the course of 2014. By contrast, the European Central Bank continued to ease its monetary policy stance, amongst other measures by further lowering its key interest rate to 0.05 %. Yields on 10-year German government bonds ended 2014 at 0.5 %, a decline of about 140 basis points compared with a year earlier. Spreads on sovereign bonds of debt-ridden Eurozone member countries continued to narrow substantially, with the exception of Greece. The performance of major stock market indices was mixed, with gains in the Eurozone more muted than in 2013. The Euro depreciated considerably against the U.S. Dollar in the second half of 2014. The diverging monetary policies of the Federal Reserve Bank and the European Central Bank were a key factor behind this downward correction. The massive drop in oil prices that started in mid-2014 exacerbated the economic crisis in Russia, prompting a steep slide in the Ruble against major currencies. Against the Euro the Russian currency lost 33 % in the course of 2014.
Business environment 2014: insurance and asset management industry Against the backdrop of subdued economic growth and rising geopolitical tensions, the insurance industry as a whole weathered the year 2014 rather well, with premium growth and profitability remaining more or less stable. However, this stability conceals considerable differences between business lines and markets. In the propertycasualty sector, premium growth eased up, mainly due to the economic slowdown in the emerging markets. On the other hand, premium growth in the life sector picked up, led by strong demand in China and the rebound in the United States. The relative stable profitability, too, masks different trends: while the gradual strengthening of premium rates and a benign claims environment were positives in 2014, the investment environment remained challenging, to say the least. The prolonged period of low interest rates increased the reinvestment risk as assets had to be reinvested at lower rates, putting returns under pressure.
Stock markets were highly volatile and European indices were particularly prone to strong fluctuations in the second half of 2014. At the end of the year equity markets reacted negatively to falling oil prices, to the prospects of an interest rate hike from the Federal Reserve in the first half of 2015 and to market expectations of additional monetary stimulus in the Eurozone and Japan.
Executive Summary of 2014 Results − Revenues increased to € 122.3 BN. − Operating profit grew 3.3 % to € 10,402 MN. − Net income increased to € 6,603 MN. − Solvency ratio remained strong at 181 %.1
Allianz Group overview Allianz SE and its subsidiaries (the Allianz Group) have operations in over 70 countries. The Group’s results are reported by business segment: Property-Casualty insurance operations, Life/Health insurance operations, Asset Management and Corporate and Other.
Total revenues 122,253 110,773 Operating profit 10,402 10,066 Net income 6,603 6,343 Solvency ratio1 in % 181 182
Earnings summary mAnAgement’s Assessment of 2014 results Our total revenues grew 10.4 % – or 10.6 % on an internal basis2 – reaching € 122.3 BN. However, the operating environment remains challenging, especially for our Life/Health business. Our revenue growth was mainly driven by our Life/Health business, supported by a strong increase in our Property-Casualty revenues. Revenues in our Corporate and other business remained flat, while operating revenues in our Asset Management business declined.
Our operating profit went up 3.3 % to € 10,402 MN, which is within the upper end of our target range. The main driver of this was the strong investment margin in our Life/Health business. In our Corporate and Other business, the recovery in the banking segment was the biggest driver of the improvement, while our Property-Casualty business benefited from strong premium growth and a stable combined ratio. Our Asset Management business, however, was impacted by lower operating revenues.
Property-Casualty gross premiums written grew 3.7 % and totaled € 48.3 BN. Internal growth2 of 3.0 % was entirely volume driven.
Life/Health statutory premiums amounted to € 67.3 BN3, an increase of 19.5 % on an internal basis2. This growth was largely driven by our fixed-indexed annuity product business in the United States, strong sales of unit-linked and savings products in Italy and an increase in the single premium business with reduced guarantees in Germany.
Asset Management operating revenues amounted to € 6.4 BN, a decrease of 8.5 % compared to 2013 on an internal basis2. This was mainly due to lower performance fees, which were exceptionally high in 2013 and thus fell by € 235 MN to € 275 MN in 2014, as well as lower average assets under management. The allocation of certain entities to other business segments4 also contributed to the decrease in operating revenues.
Total revenues in our Banking operations (reported in our Corporate and Other business segment) were flat at € 556 MN.
4 Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking.
Property-Casualty Life/Health Asset Management Corporate and Other Growth 1 Total operating profit includes € (91) mn (2013: € (68) mn) from consolidation.
Asset Management operating profit fell by € 558 MN to € 2,603 MN, a decrease of 14.6 % on an internal basis5. The main driver of this development was the decline in operating revenues, outpacing the decline in operating expenses. The cost-income ratio deteriorated by 3.4 percentage points to 59.2 %, mainly driven by the sharply lower performance fees compared to 2013 and lower assets under management driven income.
Non-operating realized gains and losses (net) were down by € 141 MN to € 812 MN due to a reduction in realizations on equities. This was only partly offset by higher realizations on debt securities mainly within our Property-Casualty business segment.
Non-operating impairments of investments (net) decreased by € 116 MN to € 197 MN. An increase in impairments on debt securities was more than offset by a respective decrease on equities.
Non-operating interest expenses from external debt improved by € 55 MN to € 846 MN reflecting lower expenses on subordinated bonds.
Reclassification of tax benefits had a negative impact on our nonoperating result of € 901 MN in favor of the operating result. Thereof, € 892 MN are related to a favorable Federal Fiscal Court decision, initiated by Allianz Leben in Germany, concerning tax deductibility of equity losses. For the Life/Health business segment reporting, the tax benefits are reclassified and shown within the operating profit in order to adequately reflect policyholder participation. Thus, the nonoperating result is reduced. For the Allianz Group reporting, the tax benefits are presented according to IAS 12 in the income tax line.
The proposal for appropriation of net earnings reflects the 2,729,536 treasury shares held directly and indirectly by the company at the time of the publication of the convocation of the Annual General Meeting in the Federal Gazette. Such treasury shares are not entitled to the dividend pursuant to § 71b of the German Stock Corporation Act (AktG). Should there be any change in the number of shares entitled to the dividend by the date of the Annual General Meeting, the above proposal will be amended accordingly and presented for resolution on the appropriation of net earnings at the Annual General Meeting, with an unchanged dividend of € 6.85 per each share entitled to dividend.
The Allianz Group was not subject to any subsequent events which could significantly impact the Group financial results after the balance sheet date and before the financial statements were authorized for issue.
ChAnges in segment struCture Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking.
BoArd of mAnAgement struCture 2015 The Supervisory Board of Allianz SE agreed to the request of Michael Diekmann to not further extend his board appointment beyond the Annual General Meeting (AGM) on 6 May 2015. He will remain Chairman of the Board of Management up to that day. Oliver Bäte has been appointed as new CEO of Allianz SE with effect from 7 May 2015. His contract has been extended until 30 September 2019. Oliver Bäte will continue to be responsible for Global Property and Casualty up to the AGM 2015. The Supervisory Board also agreed to the request of Clement Booth to not further extend his board appointment. His mandate ended on 31 December 2014. Upon mutual agreement and in keeping with his request, the board mandate of Gary Bhojwani ended on 31 December 2014. The Supervisory Board appointed Sergio Balbinot as a member of the Board of Management of Allianz SE for a duration of four years starting 1 January 2015. Sergio Balbinot takes over responsibility for the insurance business in the countries of western and southern Europe (France, Benelux, Italy, Greece, Turkey and Africa). Also effective beginning of this year Dr. Axel Theis has been appointed as a member of the Board of Management of Allianz SE with a duration of four years. He is in charge of the global industrial insurance business, credit insurance, reinsurance and the insurance totAl revenues And reConCiliAtion of operAting profit (loss) to net inCome (loss)
Interest and similar income 21,443 20,918 Operating income from financial assets and liabilities carried at fair value through income (net) (1,301) (1,868) Operating realized gains/losses (net) 3,205 3,334 Interest expenses, excluding interest expenses from external debt (415) (421) Operating impairments of investments (net) (697) (298) Investment expenses (961) (905)
Income (loss) before income taxes 8,848 9,643 Income taxes (2,245) (3,300) Net income (loss) 6,603 6,343
new dividend poliCy with inCreAsed pAy-out rAtio of 50 % During the last quarter of 2014 the Board of Management and the Supervisory Board of Allianz SE decided to alter their dividend policy to target an increase in pay-out ratio from 40 to 50 % of the Allianz Group net income (attributable to shareholders). In the interest of dividend continuity, the objective is to keep the dividend per share at least at the level paid in the previous year. It is further intended to evaluate and return to the shareholders the unused budget earmarked for external growth every three years. The first evaluation would take place at the end of 2016. The dividend policy is subject to a sustainable Solvency II ratio above 160 %.
This dividend policy represents the current intention of the Board of Management and the Supervisory Board and may be revised in the future. Also, the dividend payment in any given year is subject to specific dividend proposals by the Board of Management and the Supervisory Board, each of which may elect to deviate from this dividend policy if appropriate under the then prevailing circumstances, as well as to the decision of the Annual General Meeting.
Other parts of the Group Management Report The following information also forms part of the Group Management Report: − Statement on Corporate Management pursuant to § 289a of the HGB starting on page 40,
− Takeover-related Statements and Explanations starting on page 42 and the
On a nominal basis, we recorded gross premiums written of € 48,322 MN, an increase of € 1,744 MN or 3.7 % compared to 2013. Negative foreign currency translation effects amounted to € 640 MN, largely due to the depreciation of the Australian Dollar, the Argentine Peso and the Turkish Lira against the Euro. This was partly offset by positive effects from the British Pound.2 Consolidation/deconsolidation effects were positive at € 963 MN, mainly because of the acquisition of a part of the insurance business of UnipolSai, the transfer of the French International Health business to the reportable segment Allianz Worldwide Partners3 and the acquisition of Yapı Kredi Sigorta in Turkey in 2013.
On an internal basis, our gross premiums written grew 3.0 % fully driven by a favorable volume effect.
Analyzing internal premium growth in terms of price and volume, we use four clusters based on 2014 internal growth over 2013: Cluster 1: Overall growth – both price and volume effects are positive.
2 Based on the average exchange rates in 2014 compared to 2013. 3 In the fourth quarter of 2014, our French International Health business was transferred from France (Life/
Health) to the reportable segment Allianz Worldwide Partners effective 1 January 2014.
cluster 1 In the United Kingdom gross premiums increased 12.0 % on an internal basis to € 2,684 MN. This was mainly due to higher volumes in our motor retail and pet insurance business.
Allianz Worldwide Partners recorded gross premiums of € 3,341 MN. The main drivers of the internal growth of 9.9 % were positive volume effects in our travel business in the United States and United Kingdom as well as in our international health business.
In Ireland gross premiums amounted € 439 MN – up 6.7 % on an internal basis. This was largely due to higher volumes in our personal lines.
In Germany gross premiums climbed to € 9,532 MN – an increase of 2.6 % on an internal basis. This growth was generated by our motor retail and commercial non-motor business with favorable price and volume effects.
At AGCS gross premiums stood at € 5,389 MN – a rise of 8.1 % on an internal basis. The strong volume effects in our liability and engineering lines were partly offset by negative price effects in our energy and aviation lines of business.
In Australia gross premiums totaled € 2,763 MN. The internal growth of 3.7 % was mainly due to higher volumes in our motor business, which could not be offset by slightly negative price effects in our domestic motor and commercial property business.
In Spain gross premiums grew 2.9 % on an internal basis to € 2,015 MN. This increase was mainly generated by positive volume effects across all our lines of business.
In Italy we recorded gross premiums of € 4,196 MN. On an internal basis, gross premiums dropped 1.2 %, mainly due to a negative price effect in our motor business, which could not be offset by volume increases in our non-motor business.
Underwriting result 2,251 2,170 Operating investment income (net) 3,066 3,049 Other result1 66 48 Operating profit 5,382 5,267 1 Consists of fee and commission income/expenses, other income/expenses and restructuring charges.
Operating profit increased by € 115 MN to € 5,382 MN. This was mainly driven by strong growth in premiums earned and a stable combined ratio.
France: 0.3 percentage points. This was driven by an improvement in the attritional loss ratio supported by lower claim frequencies and less impact from single large losses.
The following operations contributed negatively to the development of our accident year loss ratio: Latin America: 0.4 percentage points. The negative impact stemmed mainly from Brazil.
AGCS: 0.2 percentage points. This was driven by a higher impact of single large losses.
Interest and similar income (net of interest expenses) 3,525 3,542 Operating income from financial assets and liabilities carried at fair value through income (net) 6 (75) Operating realized gains/losses (net) 186 70 Operating impairments of investments (net) (20) (11) Investment expenses (323) (315) Expenses for premium refunds (net)2 (307) (162) Operating investment income (net) 3,066 3,049 1 The operating investment income (net) for our Property-Casualty business segment consists of the operating investment result – as shown in note 6 to the consolidated financial statements – and expenses for premium refunds (net) (policyholder participation) as shown in note 34 to the consolidated financial statements.
Interest and similar income (net of interest expenses) decreased slightly by € 17 MN to € 3,525 MN resulting from reduced interest income on debt securities due to lower interest rates, partially compensated by higher income on equities. The average asset base1 stood at € 104.6 BN – up 1.9 % from € 102.6 BN compared to the previous year.
Operating realized gains and losses (net) increased by € 116 MN to € 186 MN. This reflects the higher realized gains on equities in Germany mainly within the APR (accident insurance with premium refunds) business.
Net income went down by € 369 MN to € 3,448 MN compared to the previous year. The higher operating profit was more than offset by a non-operating one-off effect from the inter-segment pension revaluation2 recorded in the first quarter of 2014.
Claims and insurance benefits incurred (net) (28,878) (27,713) Change in reserves for insurance and investment contracts (net) (538) (384) Interest expenses (71) (52) Operating impairments of investments (net) (20) (11) Investment expenses (323) (315) Acquisition and administrative expenses (net), excluding one-off effect from pension revaluation (12,400) (11,942) Fee and commission expenses (1,180) (1,141) Restructuring charges (30) (62) Other expenses (45) (21) Operating expenses (43,485) (41,641)
Loss ratio2 in % 66.0 65.9 Expense ratio3 in % 28.3 28.4 Combined ratio4 in % 94.3 94.3 1 For the Property-Casualty business segment, total revenues are measured based upon gross premiums written.
2 Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 3 Represents acquisition and administrative expenses (net), excluding one-off effect from pension revaluation, divided by premiums earned (net).
4 Represents the total of acquisition and administrative expenses (net), excluding one-off effect from pension revaluation, and claims and insurance benefits incurred (net) divided by premiums earned (net).
3 Starting from 2014, “Münchener und Magdeburger Agrarversicherung AG” is included in Germany with gross premiums written of € 35 MN, premiums earned (net) of € 15 MN and operating profit of € 7 MN. Prioryear numbers were not adjusted. Contribution to German Speaking Countries before consolidation in 2013 was gross written premiums of € 32 MN, premiums earned (net) of € 14 MN of and operating loss of € 1 MN. 4 Effective 1 July 2014, the Allianz Group acquired parts of the insurance business of UnipolSai Assicurazioni
7 Contains € 7 MN and € 11 MN operating profit for 2014 and 2013, respectively, from a management holding located in Luxembourg.
Middle East and North Africa 97.4 95.6 62.6 61.4 34.7 34.1
11 The reportable segment Allianz Worldwide Partners includes the business of Allianz Global Assistance and Allianz Worldwide Care as well as the reinsurance business of Allianz Global Automotive and income and expenses of a management holding. In the fourth quarter of 2014, the French International Health business was transferred from France (Life/Health) to the reportable segment Allianz Worldwide Partners effective 1 January 2014. The reinsurance business of Allianz Global Automotive contributed gross premiums written of € 91 MN, premiums earned (net) of € 67 MN and an operating loss of € 28 MN for 2014 and with gross premiums written of € 82 MN, premiums earned (net) of € 35 MN and an operating loss of € 24 MN for 2013.
Life/Health Insurance Operations − Statutory premiums grew strongly by € 10.5 bn to € 67.3 bn. − Operating profit increased 22.8 % to € 3,327 mn.
Statutory premiums1 67,331 56,784 Operating profit1,2 3,327 2,709 Net income1,2 2,320 1,941 Margin on reserves (bps)1,2,3 65 58
In 2014, statutory premiums amounted to € 67,331 mn, an increase of € 10,547 mn. On an internal basis5, premiums increased by 19.5 % or € 10,963 mn. This excludes unfavorable foreign currency translation effects of € 192 mn and adverse consolidation/deconsolidation effects of € 224 mn, largely from the transfer – effective 1 January 2014 – of our French International Health business to the reportable segment Allianz Worldwide Partners in the business segment Property-Casualty in the fourth quarter of 2014.
5 In the following section, we comment on the development of our statutory gross premiums written on an internal basis, i.e. adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information.
In Asia-Pacific, premiums grew 15.0 % to € 5,732 mn. This was driven by favorable developments in all markets, in particular due to increased sales of single premium unit-linked products in Taiwan and higher sales of single premium investment-oriented products distributed via the bancassurance channel in South Korea.
In our German life business, premiums grew 11.8 % to € 19,014 mn. This growth was driven by an increase in our single premium business with savings products while regular premiums were relatively flat. In particular the product “Perspektive” – which was launched in the second quarter of 2013 and balances reduced guarantees and higher expected returns for the policyholder with lower capital requirements for the shareholder – contributed most of this premium growth. Statutory premiums in our German health business decreased 0.6 % to € 3,245 mn due to a lower contribution from full health care coverage business.
Premiums in Central and Eastern Europe grew 2.2 % to € 909 mn. This increase was largely because of positive business developments in Poland, driven by unit-linked sales via bancassurance. This more than compensated for the decline in premiums in Russia resulting from the termination of one bancassurance partnership and in Hungary due to a shifting focus from short- and mid-term single premium products to regular premium unit-linked pension products.
In Spain, premiums totaled € 1,259 mn. The increase of 2.0 % was primarily driven by unit-linked products.
The guaranteed savings & annuities line of business accounted for the largest part of PVnbP, mostly from the products family with reduced or minimized interest rate risk and innovative products such as the index strategy product in the United States. The transfer of our French International Health business to the reportable segment Allianz Worldwide Partners slightly decreased the PVnbP in our protection & health line of business.
Overall, the single premium share in PVnbP increased from 60 % in 2013 to 64 % in 2014.
present value of new business premiums (pvnbp) by lines of business
Operating profit operating profit by profit sources The objective of the Life/Health operating profit sources analysis is to explain movements in IFRS results by analyzing underlying drivers of performance on a Life/Health business segment consolidated basis.
Loadings from premiums as % of statutory premiums 5.1 5.7 Loadings from reserves as % of average reserves1 0.2 0.2 Unit-linked management fees as % of average unit-linked reserves2 0.6 0.6 1 Aggregate policy reserves and unit-linked reserves. 2 Calculation based on only unit-linked management fees, excluding Asset Management fees, on unitlinked reserves.
The increase of loadings from reserves by € 93 mn to € 1,094 mn was driven by a higher reserve volume.
Investment margin Investment margin is defined as IFRS investment income net of expenses less interest credited to IFRS reserves and policyholder participation (including policyholder participation beyond contractual and regulatory requirements for German life business).
Technical interest (8,713) (8,650) Policyholder participation (5,996) (6,215) Investment margin 2,972 2,386
Investment margin2 in basis points 80 69 1 Other comprises the delta of out-of-scope entities, which are added here with their respective operating profit and different line item definitions compared to the financial statements, such as interest paid on deposits for reinsurance, fee and commission income and expenses excluding unit-linked management fees.
Technical margin Technical margin comprises risk result (risk premiums less benefits in excess of reserves less policyholder participation), lapse result (surrender charges and commission clawbacks) and reinsurance result.
Capitalization of Dac 1,937 1,596 Amortization, unlocking and true-up of Dac (1,513) (1,519) Impact of change in DAC1 425 77 1 Impact of change in DAC includes effects of change in DAC, URR and VOBA and is the net impact of deferral and amortization of acquisition costs and front-end loadings on operating profit and therefore deviates to the financial statements.
The operating profit increase in the guaranteed savings & annuities line of business was largely driven by the higher investment margin mainly in Germany and the United States.
Operating profit in the protection & health line of business was rather stable. However, it was marginally impacted by a slightly lower technical margin due to a lower risk result compared to last year.
Investment margin 2,972 2,386 Investment margin net of policyholder participation 2,972 2,386
Acquisition expenses and commissions (4,833) (4,233) Administrative and other expenses (1,577) (1,519)
Impact of change in DAC3 425 77 Capitalization of Dac 1,937 1,596 Amortization, unlocking and true-up of Dac (1,513) (1,519)
Margin on reserves4 in basis points 65 58 1 Profit sources are based on in-scope operating entities with coverage of 97.3 % of statutory premiums. Operating profit from operating entities that are not in-scope is included in investment margin.
4 Represents operating profit divided by the average of the current and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets.
Annual Report 2014 Allianz Group 97 life/health operating profit by profit sources anD lines of business1 € mn
Operating profit before change in DAC 2,903 2,632 2,058 1,915 577 575 268 141
Life/HeaLtH insurance operations by reportabLe segments € mn Statutory premiums1 Premiums earned (net) Operating profit (loss) Margin on reserves2 (bps)
Global Insurance Lines & Anglo Markets 537 515 537 515 398 430 14 23 76 111
3 Statutory premiums adjusted for foreign currency translation and (de-)consolidation effects. 4 Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset
Asset Management − Operating profit decreased 17.6 % to € 2,603 MN. − Cost-income ratio at 59.2 %. − Total assets under management grew 1.8 % to € 1,801 BN. − Third-party net outflows of € 226 BN.
Assets under management Development of total assets unDer management1 € bn
Fixed income Equities Other Changes 1 Based on legal entity view.
Market effects contributed € 111 BN to total AuM, with € 81 BN at PIMCO and € 31 BN at AllianzGI. For further information regarding market developments, please refer to Business Environment starting on page 79.
As of 1 January 2014, the Allianz Group allocated certain entities to other business segments which resulted in a decrease of € 32 BN in AuM at the beginning of 2014.1 This was partially compensated for by a change in reporting to include third-party fund of fund AuM in our total AuM. These effects were the main drivers of the net decline in total AuM of € 13 BN, reported as consolidation, deconsolidation and other effects.
We recorded favorable foreign currency translation effects of € 155 BN, in particular on fixed income assets, mainly as a result of the appreciation of the U.S. Dollar against the Euro.2
thirD-party assets unDer management by region/country1 as of 31 December 2014 [31 December 2013] in %
1 Based on the location of the asset management company. 2 “Other” consists of third-party assets managed by other Allianz Group companies which were allocated to other business segments as of 1 January 2014. 3 “America” consists of the United States, Canada and Brazil (approximately € 772 BN, € 15 BN and € 1 BN
The share of third-party AuM between our retail and institutional clients3 changed slightly – down one percentage point for retail clients (36 %) and up one percentage point for institutional clients (64 %).
The overall three-year rolling investment performance of our Asset Management business remained on a high level, with 84 % of our assets outperforming their respective benchmarks (31 December 2013: 85 %). 88 % of PIMCO assets outperformed their respective benchmarks, while 55 % of AllianzGI assets did so.
Operating profit dropped by € 558 MN – or 17.6 % – to € 2,603 MN, reflecting the decline in operating revenues and a less pronounced decline in operating expenses. On an internal basis1, operating profit went down by 14.6 %.
Our net income decreased by € 304 MN – or 15.8 % – to € 1,621 MN, which is largely consistent with our operating profit development.
Business segment overview Corporate and Other encompasses the reportable segments Holding & Treasury, Banking and Alternative Invest ments. Holding & Treasury includes the management of and support for the Allianz Group’s businesses through its strategy, risk, corporate finance, treasury, financial reporting, controlling, communication, legal, human resources, technology and other functions. Our banking products offered in Germany, Italy, France, the Nether lands and Bulgaria complement our insurance product port folio. We also provide global alternative investment management services in the private equity, real estate, renewable energy and infrastructure sectors, mainly on behalf of the Allianz Group.
Key figures reportable segments € mn holding & treasury Operating revenues 469 361 Operating expenses (1,386) (1,301) Operating result (917) (939)
banKing Operating revenues 1,114 1,096 Operating expenses (1,047) (1,187) Operating result 66 (91)
Other income increased from € 0 mn to € 116 mn. This positive impact on income was due to policyholder participation related to the pension revaluation with our German subsidiaries.1
Our net fee and commission result deteriorated from a loss of € 178 mn to a loss of € 205 mn. This was the result of higher IT investment costs in accordance with our strategic initiatives to further digitalize our business.2
In 2014 we further reduced provisions for restructuring plans mainly related to our global data center consolidation project by € 4 mn, € 30 mn less than last year.
Investment expenses were down by € 7 mn to € 72 mn.
Our net interest, fee and commission result improved by € 25 mn to € 534 mn. Our net interest result increased by € 7 mn to € 329 mn, driven by a higher loan volume and lower interest expenses resulting from decreased interest rates. Our net fee and commission income increased from € 188 mn to € 206 mn. This was driven by increased management fee income in line with the growth in assets under management. The allocation of a former Asset Management entity to the reportable segment Banking in Italy also contributed to this increase.
Administrative expenses went up by € 31 mn to € 429 mn primarily because of higher commissions paid to financial agents and costs for the opening of new financial agents’ offices in Italy. The above-mentioned allocation also contributed to this development.
Our loan loss provisions decreased by € 36 mn to € 47 mn. This was mainly because of lower loan loss provisions related to our ship financing business in Germany.
alternative investments Our operating profit increased by € 6 mn to € 30 mn due to higher interest income and lower administrative expenses. This was only partly offset by minor decreases in our net fee and commission income and income from financial assets and liabilities carried at fair value.
Outlook 2015 − Global economic activity is likely to expand moderately in 2015. − Allianz Group operating profit outlook in the range of € 10.4 BN, plus or minus € 0.4 BN.
Overview: 2014 results versus previous year outlook1 2014 results versus previous year outlook for 2014 outlook 2014 – as per annual report 2013 results 2014 allianz Group Operating profit of € 10.0 Bn, plus or minus € 0.5 Bn. Operating profit of € 10.4 Bn. Protection of shareholders’ investments, while continuing to provide attractive returns and dividends.
Operating profit in the range of € 5.1 Bn to € 5.7 Bn. Operating profit of € 5.4 Bn is at the mid-point of our target range, with a low impact from natural catastrophes offset by lower than expected results in Brazil, Russia and the United States.
Combined ratio below 96 % over the cycle. Combined ratio was stable at a favorable 94.3 %. Pressure on operating investment income (net) due to reinvestments in a low interest rate environment.
life/HealtH Revenues in the range of € 52.0 Bn to € 56.0 Bn. Statutory premiums of € 67.3 Bn. Exceptional growth driven by the United States and Germany where we offered innovative products with managed minimum guarantees that addressed customers changing preference for safety.
Operating profit between € 2.7 Bn and € 3.3 Bn. Operating profit of € 3.3 Bn at top end of target range. Margin on reserves between 50 and 70 basis points. Margin on reserves at 65 basis points. Pressure on investment income due to low interest rates and continued capital market uncertainty.
asset ManaGeMent Slight growth in total assets under management (AuM) due to positive equity, but subdued fixed income product inflows.
Increase of total AuM by 1.8 % driven by positive market and foreign currency impacts and mostly offset by fixed income net outflows at piMCo.
Operating profit in the range of € 2.5 Bn to € 2.9 Bn. Operating profit of € 2.6 Bn – below the mid-point of the outlook range mainly due to lower average AuM and a lower AuM-driven margin.
Cost-income ratio at or below 60.0 %. Cost-income ratio deteriorated by 3.4 percentage points to 59.2 %.
With short-term rates practically at zero, there are limited prospects of markedly higher yields on longer-term bonds. We expect yields on 10-year German and U.S. government bonds to climb only modestly to 0.5 % and 2.2 % respectively by the end of 2015. In the early months of 2015 a number of factors, such as diverging monetary policies of the Federal Reserve Bank and the European Central Bank, will weigh on the Euro. Once it becomes evident that the economic recovery in the Eurozone is getting back onto a firmer footing, the Euro is likely to stabilize.
With economic growth forecasts more positive for 2015, demand for insurance is expected to increase slightly, supporting premium growth. At the same time, differences in growth levels between markets will become wider, reflecting specific political, regulatory and economic conditions. As a result, we will see not only the usual growth gap between emerging and industrialized countries but also a widening gulf within these groups, namely between America and Europe on the one hand and Asia and other emerging markets on the other. The outlook for profitability is somewhat more subdued as many challenges remain, for example low investment returns and a more demanding regulatory environment.
Assuming weather-related claims are at previous years’ levels, overall underwriting profitability should remain more or less stable as reduced pricing power is offset by low – or even negative – claims inflation. On the other hand, investment returns are expected to remain low: interest rates will rise only modestly and impact returns very slowly.
Markets have shown some volatility in recent months and with investors anticipating an increase in U.S. interest rates we expect this volatility to continue in equity as well as in fixed income markets. However, if the longer-term trend is indeed towards moderately higher interest rates – especially in the United States – coupled with global demographic developments, then bonds should remain attractive. This holds true in particular for liability-driven investors and for the growing number of retirees in the developed world looking for a stable stream of income.
A continuing improvement of economic conditions – in particular in the United States – as well as trends in client demand, still represent a positive environment for further asset management industry growth. Nevertheless, the industry has to deal with several challenges that will also put pressure on profitability: flows into passive products as well as rising distribution or marketing costs will tighten operating margins and increased regulatory oversight and reporting will take their toll.
asset ManaGeMent Slight decrease in total AuM due to continued, but receding, expected net outflows at piMCo. Operating profit in the range of € 2.2 Bn to € 2.8 Bn. Underlying cost-income ratio of 60.0 % or below.
assuMptions Our outlook assumes no significant deviations from the following underlying assumptions: − Moderately higher global economic growth. − Continued low interest rate environment. − No dramatic interest rate movements.
− A 10 % weakening or strengthening of the U.S. Dollar versus our planned exchange rate of 1.20 to the Euro would have a negative or positive impact on operating profits of approximately € 0.3 BN, respectively.
We expect our business mix and profitability to remain largely unchanged compared to 2014. Our Property-Casualty business segment will carry on making up the majority of our operating profit. We anticipate that the Asset Management business segment will continue to be a significant source of operating profit, even though at a slightly reduced level. This reduction is mainly due to lower average AuM and
Low interest rates will remain a major headwind in 2015. Therefore, companies will have to continue to adapt their business models to the challenging environment. Besides a stronger focus on the protection business – including health – new and more flexible guarantee concepts are set to come to the forefront in the savings business. At the same time, insurers will continue to de-risk their balance sheets and look for new, long-term investment opportunities, paying special attention to infrastructure investments. These adjustments should enable the insurance industry to cope with low interest rates and more stringent capital and reserve requirements. All things considered, profitability is set to remain at levels seen in previous years.
In 2014, our operating profit neared the upper end of our outlook range, hitting € 10.4 BN. In 2015, we envisage operating profit of € 10.4 BN, plus or minus € 0.4 BN, as we expect a slightly higher operating profit in the Property-Casualty business segment, a moderately lower operating profit in the Asset Management business segment and a largely unchanged operating profit in the Life/Health business segment.
We believe the overall slow rise in prices we witnessed in a number of markets in 2014 will continue in 2015. However, as in previous years, we will keep our focus on achieving outstanding underwriting results by adhering to our strict underwriting discipline and will be willing to accept a lower top line if target margins cannot be achieved.
Overall, we expect our 2015 operating profit to be in the range of € 5.2 BN to € 5.8 BN (2014: € 5.4 BN).
life/HealtH insuranCe In 2014, our operating profit of € 3.3 BN reached the upper end of our target range, mainly due to capital market-related gains. For 2015, we expect operating profit in our Life/Health segment to be between € 3.0 BN and € 3.6 BN, mainly supported by growth in our underlying asset base. Our outlook reflects a margin on reserves ranging between 50 and 70 basis points.
asset ManaGeMent Although the environment for the asset management industry is rather positive, we expect continued but receding net outflows in 2015. We also anticipate a slight decline in our operating profit. Lower management and loading fees due to lower average AuM, expenses associated with the Special Performance Award at PIMCO and investments for future growth will weigh on the operating profit. On the other hand, we expect an increased level of performance fees, mainly stemming from illiquid alternatives vehicles. Therefore, we envisage our operating profit to be in the range of € 2.2 BN and € 2.8 BN in 2015 (2014: € 2.6 BN).
We expect to maintain an underlying cost income ratio of 60.0 % or below in 2015 (2014: 59.2 %), supported by our focus on expense discipline and operational excellence.
We expect to have steady access to financial markets at reason- able costs in order to maintain our strong financial flexibility. This is supported by prudent steering of our liquidity resources and a maturity profile focusing on a long-dated average remaining term. Based on current interest rate expectations, our average capital market financing costs in 2015 should be broadly in line with 2014.
Overall, at the date of issuance of this Annual Report and given current information regarding natural catastrophes and capital market trends – in particular foreign currency, interest rates and equities – the Board of Management has no indication that the Allianz Group is facing any major adverse developments.
Such deviations may arise due to, without limitation, (i) changes of the general economic conditions and competitive situation, particularly in the Allianz Group’s core business and core markets, (ii) performance of financial markets (particularly market volatility, liquidity and credit events) (iii) frequency and severity of insured loss events, including from natural catastrophes, and the development of loss expenses, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) particularly in the banking business, the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rates including the Euro/U.S. Dollar exchange rate, (ix) changes in laws and regulations, including tax regulations, (x) the impact of acquisitions, including related integration issues, and reorganization measures, and (xi) general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences.
The Allianz Group is a financial conglomerate within the scope of the E.U. Financial Conglomerates Directive and the related German law in force since 2005. The law requires that financial conglomerates calculate the capital available to meet their solvency requirements on a consolidated basis, which we refer to as “eligible capital”.
dividend payout ratio as recently introduced1) of € 3.1 bn. The issuance of two subordinated bonds in the first and third quarter of € 1.9 bn in total was partly offset by the redemption of a € 1.0 bn subordinated bond in January 2015 and the potential call of hybrid capital of € 0.4 bn in 2015. An increase in actuarial losses on the valuation of our pension benefit obligation was in part offset by higher unrealized gains on equities (we have not elected to use unrealized gains on debt securities as eligible capital) and favorable foreign currency translation adjustments. The required funds increased by € 2.0 bn to € 27.6 bn, mainly due to higher aggregate policy reserves in Life/ Health. As a result, our eligible capital surpassed the minimum legally stipulated level by € 22.2 bn.
Our cash and other investments were up by € 2.4 bn to € 12.2 bn. For further information on our liquidity position, please refer to Liquidity and Funding Resources starting on page 116.
Annual Report 2014 Allianz Group 111 reinvest in those bonds at the low yield levels. The overall increase in our government bond exposure was primarily driven by positive market effects. Our sovereign debt exposure in Italy and Spain equaled 5.7 % and 1.1 % of our fixed income portfolio, reflecting minor realizations in Italy and new investments in Spain during 2014. The corresponding unrealized gains (gross) amounted to € 5,587 mn in Italy and € 945 mn in Spain. Furthermore, we restored our exposure to Irish government bonds – representing 0.1 % of our fixed income portfolio
– which was substantially reduced in 2012 and 2013. Our government bond exposure in Portugal remained limited, with small unrealized gains. We continued to have virtually no exposure to Greek and no exposure to Ukrainian government bonds. The respective exposure to Russia was relatively small in the context of our overall portfolio.
Our covered bond portfolio was up by € 5.1 bn to € 107.6 bn. Its fixed income portfolio share decreased slightly to 20 %. 44 % (31 December 2013: 47 %) of this portfolio was German Pfandbriefe, backed by either public sector loans or mortgage loans. Another 16 %, 10 % and 7 % of the covered bonds were attributable to France, Spain and Italy, respectively. Covered bonds provide a cushion against real estate price deterioration and payment defaults through minimum required security buffers and overcollateralization.
Our exposure to bank securities – including the exposure to subordinated securities in banks – remained almost unchanged at € 32.4 bn (31 December 2013: € 33.1 bn). Given the growth in our total fixed income portfolio, the portfolio share of this exposure decreased one percentage point to 6 %. The portfolio share in U.S. banks slightly increased as matured bank securities – mainly from Germany – have been reinvested with a higher percentage going to the United States. The exposure to subordinated securities in banks slightly increased from € 4.8 bn to € 5.3 bn.
Interest and similar income (net)1 21,028 20,497 531 Operating income from financial assets and liabilities carried at fair value through income (net) (1,301) (1,868) 567 Operating realized gains/losses (net) 3,205 3,334 (129) Operating impairments of investments (net) (697) (298) (399)
Non-operating income from financial assets and liabilities carried at fair value through income (net) (303) 23 (326) Non-operating realized gains/losses (net) 812 952 (141) Non-operating impairments of investments (net) (197) (313) 116
Total investment income (net) 21,586 21,423 163 1 Net of interest expenses (excluding interest expenses from external debt).
Operating investment result Our operating investment income (net) increased by € 514 mn to € 21,274 mn due to higher interest and similar income (net) and operating income from financial assets and liabilities carried at fair value through income (net).
Interest and similar income (net)1 increased by € 531 mn – or 2.6 % – to € 21,028 mn. This was driven by higher income from equities in line with our increased exposure to this asset class, but also from higher interest income from debt securities resulting from a higher asset base. This was predominantly due to our Life/Health business segment.
Our operating impairments of investments (net) increased from their comparatively low level by € 399 mn to € 697 mn. This was mainly driven by higher impairments on emerging market debt funds triggered by unfavorable currency movements of emerging markets currencies in the second half of 2013. This led to impairments in 2014 due to respective accounting policies for impairments. Higher impairments on equities also contributed to the increase and were driven by various single equity investments.
Non-operating investment result Our non-operating investment income (net) more than halved from € 662 mn to € 312 mn. This was mainly due to the worsening of nonoperating income from financial assets and liabilities carried at fair value through income (net).
Non-operating income from financial assets and liabilities carried at fair value through income (net) decreased by € 326 mn to a loss of € 303 mn, mainly due to unfavorable hedging results.
Non-operating realized gains and losses (net) were down by € 141 mn to € 812 mn due to a reduction in realizations on equities. This was only partly offset by higher realizations on debt securities, mainly within our Property-Casualty business segment.
Debt securities 72.4 67.0 Cash and cash pool assets4 5.6 4.9
Loans and advances to banks and customers 15.0 16.1 Property-Casualty asset base 109.2 101.1 1 Loans and advances to banks and customers, held-to-maturity investments and real estate held for investment are stated at amortized cost. Investments in associates and joint ventures are stated at either amortized cost or equity, depending on – among other factors – our ownership percentage.
2 This comprises assets of € 0.1 bn and € 0.1 bn and liabilities of € (0.1) bn and € (0.1) bn as of 31 December 2014 and 31 December 2013, respectively.
As of 31 December 2014, the business segment’s gross reserves for loss and loss adjustment expenses and discounted loss reserves amounted to € 62.5 bn – an increase of € 2.7 bn compared to year-end 2013. On a net basis, our reserves – including discounted loss reserves
Debt securities 331.8 269.3 Cash and cash pool assets3 8.0 7.5
2 These do not include affiliates of € 0.2 bn and € 0.8 bn as of 31 December 2014 and 31 December 2013, respectively.
AbS within the Life/Health asset base grew by € 3.0 bn, mainly due to new investments, and amounted to € 16.9 bn. This exposure represented 3.0 % (31 December 2013: 2.8 %) of the business segment’s asset base.
Financial assets for unit-linked contracts increased by € 13.5 bn – or 16.7 % – to € 94.6 bn. Unit-linked insurance contracts went up by € 7.3 bn to € 62.7 bn due to good fund performance (€ 3.7 bn) and premium inflows exceeding outflows by € 2.7 bn. This was partly offset by transfers to the general account in France (€ (1.1) bn). Unit-linked investment contracts increased by € 6.2 bn to € 31.9 bn, with premium inflows significantly exceeding outflows (net € 4.4 bn). Currency effects were driven by the stronger U.S. Dollar (€ 3.1 bn) and Asian currencies (€ 0.6 bn).1
Life/Health liabilities In 2014, Life/Health reserves for insurance and investment contracts increased by € 58.4 bn – or 14.9 % – to € 449.3 bn. The € 23.8 bn increase in aggregate policy reserves was mainly driven by our operations in Germany (€ 9.9 bn), the United States (€ 7.5 bn before currency effects), Italy (€ 2.1 bn), France (€ 0.8 bn) and Luxembourg (€ 0.7 bn). Reserves for premium refund increased by € 24.7 bn due to higher unrealized gains to be shared with policyholders. Currency impacts resulted from the stronger U.S. Dollar (€ 8.2 bn), Asian currencies (€ 1.5 bn) and the Swiss Franc (€ 0.2 bn).1 1 Based on the closing rates on the respective balance sheet dates.
Corporate and Other assets The Corporate and Other asset base increased by € 3.4 bn to € 44.7 bn. This was due to a greater volume of debt securities and, to a lesser extent, equities as well as an improvement in our net position of cash and cash pool assets. It was partly offset by decreased loans and advances to banks and customers.
Debt securities 28.4 26.4 Cash and cash pool assets3 (4.1) (5.0)
Loans and advances to banks and customers 17.5 18.2 Corporate and Other asset base 44.7 41.3 1 This comprises assets of € 0.2 bn and € 0.3 bn and liabilities of € (0.6) bn and € (0.5) bn as of 31 December 2014 and 31 December 2013, respectively.
AbS within the Corporate and Other asset base expanded by € 1.1 bn to € 2.0 bn. This represented an increase from 2.2 % to 4.5 % of the Corporate and Other’s asset base and was mainly due to new investments.
Please refer to the Risk and Opportunity Report from page 123 onwards for a description of the main concentrations of risk and other relevant risk positions.
Liquidity and Funding Resources Asset mAnAgement operAtions Within our Asset Management operations, the most important sources of liquidity are fees generated from asset management activities. These are primarily used to cover operating expenses.
LiQUiDitY resoUrCes AnD Uses Allianz SE ensures adequate access to liquidity and capital for our operating subsidiaries. The main sources of liquidity available for Allianz SE are dividends received from subsidiaries and funding provided by capital markets. Liquidity resources are defined as readily available assets – specifically cash, money market investments and highly liquid government bonds. Our funds are primarily used for paying interest expenses on our debt funding, operating costs, internal and external growth investments and dividends to our shareholders.
The Allianz Group’s liquidity management is based on policies and guide lines approved by the Allianz SE Board of Management. Allianz SE and each of the operating entities are responsible for managing their respective liquidity positions, while Allianz SE provides central liquidity pooling for the Group. Capital allocation is steered by Allianz SE for the entire Group. This structure allows the efficient use of liquidity and capital resources and for Allianz SE to achieve the desired liquidity and capitalization levels for the Group and its operating units.
Liquidity management of our operating entities insUrAnCe operAtions The major sources of liquidity for our operational activities are primary and reinsurance premiums received, reinsurance receivables collected, investment income and proceeds generated from the maturity or sale of investments. These funds are mainly used to pay claims arising from the property-casualty insurance business and related expenses, life policy benefits, surrenders and cancellations, acquisition costs and operating costs.
Please refer to page 43 regarding authorizations to issue and repurchase shares.
fUnDing soUrCes Allianz SE’s access to external funds depends on various factors such as capital market conditions, access to credit facilities, credit ratings and credit capacity. The financial resources available to Allianz SE in the capital markets for short-, mid- and long-term funding needs are described below. In general, mid- to long-term financing is covered by issuing senior or subordinated bonds or ordinary shares.
Equity funding As of 31 December 2014, the issued capital registered at the Commercial Register was € 1,169,920,000. This was divided into 457,000,000 registered shares with restricted transferability. As of 31 December 2014, the Allianz Group held 2,751,961 (2013: 2,763,381) own shares.
Interest expenses on senior bonds increased to € 264 MN (2013: € 261 MN). This was due to slightly higher outstanding volumes on average and the appreciation of the British Pound against the Euro. For subordinated bonds, interest expenses declined to € 554 MN (2013: € 610 MN). This was primarily driven by lower funding costs on new issuances compared to subordinated bonds that matured in 2014.
The table below details the long-term debt issuances and redemptions of Allianz SE during 2014 and 2013: issUAnCes AnD reDemptions of ALLiAnz se’s senior AnD sUBorDinAteD BonDs € mn as of 31 December Issuances1 Redemptions1 Issuances net of redemptions
Funding in currencies other than the Euro enables us to diversify our investor base or to take advantage of favorable funding costs in those markets. Funds raised in non-Euro currencies are incorporated in our general hedging strategy. As of 31 December 2014, approximately 12.2 % (2013: 9.3 %) of long-term debt was issued or guaranteed by Allianz SE in currencies other than the Euro.
Short-term debt funding Short-term funding sources available are the Medium-Term Note Program and the Commercial Paper Program. As of 31 December 2014, Allianz SE had money market securities outstanding with a carrying value of € 1,041 MN, a € 172 MN increase in the use of commercial paper compared to the previous year-end. Interest expenses on money market securities decreased to € 3 MN (2013: € 4 MN) due to a lower level of short-term interest rates on average in 2014.
Carrying value Interest expense Average interest rate as of 31 December € mn € mn %
Interest expenses € 62 mn 1.375 % bond issued by Allianz Finance ii B.V., Amsterdam Volume € 0.5 Bn Year of issue 2013 Maturity date 3/13/2018 isin De 000 A1h g1J 8 Interest expenses € 7 mn 4.75 % bond issued by Allianz Finance ii B.V., Amsterdam Volume € 1.5 Bn Year of issue 2009 Maturity date 7/22/2019 isin De 000 A1A khB 8 Interest expenses € 74 mn 3.5 % bond issued by Allianz Finance ii B.V., Amsterdam Volume € 1.5 Bn Year of issue 2012 Maturity date 2/14/2022 isin De 000 A1g 0rU 9 Interest expenses € 54 mn 3.0 % bond issued by Allianz Finance ii B.V., Amsterdam Volume € 0.75 Bn Year of issue 2013 Maturity date 3/13/2028 isin De 000 A1h g1k 6 Interest expenses € 24 mn 4.5 % bond issued by Allianz Finance ii B.V., Amsterdam Volume gBp 0.75 Bn Year of issue 2013 Maturity date 3/13/2043 isin De 000 A1h g1L 4 Interest expenses € 43 mn Total interest expenses for senior bonds € 264 mn 2. sUBorDinAteD BonDs3 6.5 % bond issued by Allianz Finance ii B.V., Amsterdam Volume € 1.0 Bn Year of issue 2002 Maturity date 1/13/2025
Interest expenses € 66 mn 5.75 % bond issued by Allianz Finance ii B.V., Amsterdam Volume € 2.0 Bn Year of issue 2011 Maturity date 7/8/2041 isin De 000 A1g nAh 1 Interest expenses € 116 mn 1 For further information on Allianz SE debt (issued or guaranteed) as of 31 December 2014, please refer to notes 23 and 24 to the consolidated financial statements.
Interest expenses € 13 mn 3.375 % bond issued by Allianz se Volume € 1.5 Bn Year of issue 2014 Maturity date perpetUAL BonD isin De 000 A13 r7z 7 Interest expenses € 15 mn Total interest expenses for subordinated bonds € 519 mn 3. issUes reDeemeD in 2014 5.5 % bond issued by Allianz se Volume € 1.5 Bn Year of issue 2004 Maturity date perpetUAL BonD
Net cash outflows for available-for-sale investments further increased. This stemmed primarily from our Life/Health operation in the United States and was only partially offset by our Banking operation in Italy and Allianz SE.
CAsh AnD CAsh eQUiVALents € mn as of 31 December 2014 2013
Balances with banks payable on demand 6,657 6,574 Balances with central banks 397 449 Cash on hand 184 202 Treasury bills, discounted treasury notes, similar treasury securities, bills of exchange and checks 6,625 3,982 Total cash and cash equivalents 13,863 11,207 1 Refers to cash flows from certified liabilities and subordinated liabilities.
Corporate and Other Total revenues (Banking) 556 551 consisting of: Interest and similar income 590 613 Income from financial assets and liabilities carried at fair value through income (net) 10 8 Fee and commission income 513 475 Interest expenses, excluding interest expenses from external debt (255) (281) Fee and commission expenses (305) (263) Consolidation effects (Banking within Corporate and Other) 3 (2)
We believe that an understanding of our total revenue performance is enhanced when the effects of foreign currency translation as well as acquisitions and disposals (or “changes in scope of consolidation ”) are analyzed separately. Accordingly, in addition to presenting nominal total revenue growth, we also present internal growth, which excludes these effects.
Loadings & fees includes premium and reserve-based fees, unitlinked management fees and policyholder participation on expenses.
Impact of change in Deferred Acquisition Costs (daC) Impact of change in DAC includes effects of change in DAC, unearned revenue reserves (URR) and value of business acquired (VOBA) and is the net impact of the deferral and amortization of acquisition costs and front-end loadings on operating profit.
Amortization, unlocking and true-up of daC (as per md&a) (1,513) (1,519) Definition: urr amortized 13 (174) Definition: policyholder participation1 (1,033) (777)
Amortization, unlocking and true-up of DAC (as per Notes) (2,648) (2,571)
1 For German Speaking Countries, policyholder participation on revaluation of DAC/URR capitalization/ amortization.
1 Excluding one-off effect from pension revaluation. For further details, please refer to note 6 to the consolidated financial statements.
Risk and Opportunity Report − The Allianz risk management approach is designed to add value by focusing on both risk and return.
Allianz risk profile and management assessment Risk pRofile and maRket enviRonment The Allianz Group is exposed to a variety of risks through its core insurance and asset management activities. These include market, credit, insurance, operational, business and strategic risks. The three largest risks in terms of their contribution to Allianz’s risk profile are: − Market risk, especially interest rate risk due to the duration mismatch between assets and liabilities for long-term savings products as well as equity risk, which we take to participate from the expected risk premium; − Credit and credit spread risk driven by assets backing long-term savings products; − Property-Casualty premium and reserve risk, resulting from natural and man-made catastrophes as well as from claims uncertainty.
Allianz’s risk profile is driven by our strategic risk appetite and steered by the risk management practices and limits which are described later in this report. The risk profile and relative contributions have changed in 2014 due to changes in the market environment and due to model changes necessary to enhance our model to provide a basis for our internal model application for Solvency II purposes. These Solvency II-driven model changes reflect our current understanding of forthcoming requirements which are described in the section on model changes.
Financial markets and operating environment Many countries within the Eurozone currently face weak economic growth and low inflation rates. The economic malaise is being addressed by the ECB through its expansive monetary policy. As a result, financial markets are characterized by historically low interest rates and risk premia, prompting investors to look for higher yielding (and potentially higher risk) investments. In addition to sustained low interest rates, the weakening of the Eurozone’s growth momentum, the challenges of implementing long-term structural reforms in key Eurozone countries and the uncertainty about the future path of monetary policy may lead in the future to higher market volatility accompanied by a flight to quality and a scenario with falling equity and bond prices due to rising spread levels accompanied by even lower interest rates.
In any case, due to the market value balance sheet approach, the Solvency II regime will lead to higher volatility in solvency ratios compared to Solvency I.
management assessment The Allianz Group’s management feels comfortable with the Group’s overall risk profile and has confidence in the effectiveness of its risk management framework to meet the challenges of a rapidly changing environment as well as day-to-day business needs. This confidence is based on several factors, which are outlined in more detail in the sections that follow and are summarized here: − The Allianz Group is well capitalized and met its internal-, rating agency- and regulatory-solvency targets as of 31 December 2014. Allianz is also confident that it will meet the capital requirements under the new regulatory regimes and will apply for approval of an internal model in early 2015. Allianz remains one of the highest-rated insurance groups in the world, as reflected by our external rating agencies.
Our risk capital model reflecting our internal risk profile plays a significant role in the management of capital across the Group. In addition, we take into account the external requirements of regulators and rating agencies. While capital requirements imposed by regulators constitute a binding constraint, meeting rating agencies’ capital requirements and maintaining strong credit ratings are strategic business objectives of the Allianz Group.
We closely monitor the capital position of the Group and operating entities along each of these dimensions 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. Due to our effective capital management, the Allianz Group is well capitalized and met its internal-, rating agency- and regulatory -solvency targets as of 31 December 2014.
The conglomerate solvency ratio decreased slightly by one percentage point.1 exteRnal Rating agency capital adequacy Rating agencies apply their own models to evaluate the relationship between the required risk capital of a company and its available capital resources. An assessment of capital adequacy is usually an integral part of the rating process. In November 2014, Moody’s 1 For further details on changes in eligible capital and solvency requirement, please refer to Balance Sheet Review from page 109.
As part of the long-term financial strength rating, Standard & Poor’s has a rating for “Enterprise Risk Management” (ERM). Since 2013 Standard & Poor’s has assigned Allianz its highest possible rating – “very strong” – for the ERM capabilities of our insurance operations. This indicates that Standard & Poor’s regards it as “unlikely that Allianz Group will experience major losses outside its risk tolerance”. Standard & Poor’s stated that the assessment is based on Allianz’s strong risk management culture, strong controls for the majority of key risks and strong strategic risk management. In addition, Standard & Poor’s reviewed our internal capital model initially in 2012 and since then on an annual basis. Based on this review Standard & Poor’s has given further credit to the capital position of the Allianz Group since the fourth quarter of 2012 by taking our internal model results into account when determining the capital requirements in order to meet specific rating classes.
allianz gRoup: solvency ii RegulatoRy capitalization € Bn as of 31 December 2014 2013
Our Solvency II capitalization decreased by 31 percentage points to 191 %, which was driven by an increase in risk capital partly compensated by an increase in own funds. This change was driven by two effects, model changes to reflect our current understanding of the forthcoming Solvency II rules and financial market movements. Impacts of model changes on our internal risk profile are presented in the section “Internal model updates in 2014”. Model changes also had a positive impact on own funds which were mainly driven by changes in transferability restrictions, the treatment of surplus funds in Germany, the third country equivalence treatment of AZ Life as well as actuarial model changes, including the adoption of the volatility adjustment in the Solvency II valuation yield curve.
31 De- cember 30 Sep- tember model update 31 De- cember 1 Own funds and capital requirement are calculated under consideration of volatility adjustment and yield curve extension as described in Yield curve and volatility adjustment assumptions on page 127.
2 Third country equivalence treatment for AZ Life means that the entity is included at Group level with 100 % of its local statutory capital requirement and the local statutory available funds, overall benefiting the Solvency II ratio by +15 percentage points.
The model update as per 1 January 2014 reflected our best estimate of forthcoming Solvency II rules and related model changes at the beginning of 2014. All subsequent quarterly disclosures were based on these model assumptions. Additional model changes implemented for the year-end 2014 reflect our current best estimate and understanding of the forthcoming Solvency II rules.
As of 31 December 2014, the Group-diversified risk reflecting our internal risk profile before non-controlling interests of € 38.4 Bn (2013: € 29.6 Bn1) represented a diversification benefit2 of approximately 30 % (2013: 30 %1) across risk categories and business segments. The Group-diversified risk is broken down as follows: 1 2013 risk profile figures recalculated based on model changes in 2014 as described in Internal model updates in 2014 from page 129.
Total Group 38,427 29,610 1 2013 risk profile figures recalculated based on model changes in 2014 as described in Internal model updates in 2014 from page 129.
We define internal risk capital as the capital required to protect us against unexpected, extreme economic losses, which forms the basis for determining our Solvency II regulatory capitalization and our internal risk profile. On a quarterly basis, we calculate and aggregate internal risk capital across all business segments based on a common standard for measuring and comparing risks across the wide range of different activities that we undertake as an integrated financial services provider.
geneRal appRoach We utilize an internal risk capital model for the management of our risk profile and solvency position, reflecting our current understanding of the forthcoming Solvency II rules. Our model is based on a best practice technical platform with an up-to-date methodology covering all modeled sources of quantifiable risks.
The internal risk capital is defined as the difference between the current portfolio value and the portfolio value under adverse conditions dependent on the 99.5 % confidence level. Because we consider the impact of a negative or positive event on all sources of risks and covered businesses at the same time, diversification effects across products and regions are taken into account. The results of our Monte Carlo simulation allow us to analyze our exposure to each source of risk, both separately and in aggregate. In addition, in particular for market risks, we analyze several pre-defined stress scenarios either based on historically observed market movements or on hypothetical market movement assumptions. This modeling approach, therefore, also enables us to identify scenarios that have a positive impact on our solvency situation.
In addition, we adjust the risk-free yield curves by a volatility adjustment for all business segments except unit-linked business. This is done to better reflect the underlying economics of our business as the cash flows of our insurance liabilities are, to a large degree, predictable. The advantage of being a long-term investor, therefore, gives us the opportunity to invest in bonds yielding spreads over the risk-free return and earning this additional yield component. Being a long-term investor mitigates to a great extent the risk of forced selling at a loss of debt instruments prior to maturity. Therefore, we reflect this mitigation in our model using a volatility adjustment spread risk offset and view the more relevant risk to be default and migration risk rather than credit spread risk.
Diversification and correlation assumptions Our internal risk capital model considers concentration, accumulation and correlation effects when aggregating results at Group level. This reflects the fact that not all potential worst-case losses are likely to materialize at the same time. This effect is known as diversification and forms a central element of our risk management framework.
We strive to diversify the risks to which we are exposed in order to limit the impact of any single source of risk and help increase the chances that the positive developments outweigh the negative. The degree to which diversification can be realized depends in part on the level of relative concentration of those risks and the joint movement of sources of risk.
Where possible, we derive correlation parameters for each pair of market risks through statistical analysis of historical market data, considering quarterly observations over several years. In case historical market data or other portfolio-specific observations are insufficient or not available, correlations are set according to a welldefined, Group-wide process. Correlations are determined by the Correlation Settings Committee, which combines the expertise of
3 For further information about participating life business, please refer to note 20 to the consolidated financial statements.
Risk capital related to our European banking operations is allocated to the Corporate and Other business segment based on the approach applied by banks under the local requirements with respect to the Basel regulation (Basel standards). Capital requirements for banks represent an insignificant amount of approximately 1.4 % (2013: 1.4 %4) of our total pre-diversified internal risk. Therefore, risk management with respect to banking operations is not discussed in more detail.
For our Asset Management business segment we assign internal risk capital requirements based on the sectorial regulatory capital requirements as envisaged in Solvency II. Asset Management business is mainly affected by operational risks. However, since most of our Asset Management business is not located within the Eurozone, at the Group level it also bears foreign exchange rate risk. Our Asset Management business is covered by adequate risk controlling processes including regular reporting and qualitative risk assessments (such as Top Risk Assessment) to the Group. However, since it is mainly affected by the previously mentioned two risk types (operational and foreign exchange rate), and due to the fact that the impact on total pre-diversified internal risk capital is minor, risk management with respect to Asset Management is not discussed in more detail.
Limitations Our internal risk capital model expresses the potential “worst-case” amount in economic value that we might lose at a certain confidence level. However, there is statistically a low probability of 0.5 % that actual losses could exceed this threshold at Group level in the course of one year.
We use model and scenario parameters derived from historical data, where available, to characterize future possible risk events. If future market conditions differ substantially from the past, for example in an unprecedented crisis, our VaR approach may be too conservative or too liberal in ways that are too difficult to predict. In order to mitigate reliance on historical data, we complement our VaR analysis with stress testing. Our ability to back-test the model’s accuracy is limited because of the high confidence level of 99.5 %, the oneyear holding period as well as limited data for some insurance risk events – such as natural catastrophes – being available.
Annual Report 2014 Allianz Group 129 comprehensive model validation process. Overall, we trust that our validation efforts are effective and that our model adequately assesses the risks to which we are exposed.
Total Group 23,637 29,610 1 2013 risk profile figures as reported previously. 2 2013 risk profile figures recalculated based on new model.
The model changes focused mostly on the following risk categories: Market risk The market risk correlation settings were updated to reflect higher systemic risk across financial markets in adverse market scenarios. Furthermore, we enhanced our interest rate modeling to better reflect the risk profile of Allianz’s traditional Life/Health business under the current low yield environment. In addition, we introduced the modeling of the volatility adjustment to mitigate credit spread risk in line with updated regulatory guidance. We also included internal pension obligations into our Solvency II framework, following regulatory guidance, and changed the modeling of the surplus funds in Germany. Finally, we enhanced the modeling of inflation risk and introduced it as a separate risk type – mainly reflecting the risk arising from property, casualty and health liabilities as well as inflation risk in Allianz’s internal pension obligations.
Credit risk The treatment of sovereign exposures has been revised to include capital requirements for sovereigns in the same way as for corporates. However, in accordance with European Insurance and Occupational Pensions Authority’s (EIOPA) advice on Solvency II implementation measures, domestically held exposures towards European Economic Area sovereigns issued in their own currency are treated favorably. This model change led to an increase in Allianz’s credit risk of € 2.0 Bn. Further changes are a new methodology for setting correlation and valuation parameters. These changes improve the granularity of the model in order to meet regulatory requirements. In total, credit risk increased on a pre-diversified basis by € 2.4 Bn to € 8.4 Bn
Operational risk In order to increase consistency across the Group, the risk granularity level has been changed to reflect standards in line with Basel II, which has a negative impact on diversification within the operational risk model. Moreover, to be in line with historical experience and to meet regulatory expectations, conservative assumptions regarding loss severity distributions were introduced centrally. These changes led to an overall increase in operational risk of € 1.9 Bn to € 5.1 Bn.
Treatment of smaller insurance entities In addition, we applied a book value deduction treatment for smaller insurance entities resulting in a decrease in risk figures of € 2.0 Bn, mostly affecting market risk (with a decrease of € 1.1 Bn), underwriting risk (with a decrease of € 0.5 Bn) and credit risk (with a decrease of € 0.3 Bn).
Our limit-setting process ensures that prevailing statutory restrictions regarding the composition of investments are taken into account. Most statutory restrictions apply at the local level, where the statutory restrictions as binding constraints enter the limit setting processes. In addition, guidelines are derived by the Group centers for certain investments, for example concerning the use of derivatives, and compliance with the guidelines is controlled by the respective risk and controlling functions.
Furthermore, we have put in place standards for hedging activities due to exposures to fair value options embedded in life insurance products. Life/Health operating entities carrying these exposures are required to follow these standards, including making a conscious decision on the amount of hedging.1 The hedging of risks stemming 1 For further information about the risk concentration in the Life/Health business segment, please refer to note 20 to the consolidated financial statements.
We also closely monitor concentrations and accumulation of non-market risks already on a stand-alone basis (i.e. before diversification effects) within a global limit framework in order to avoid substantial losses from single events such as natural catastrophes, terror or credit events.
In order to manage counterparty concentration risk, we run a Group-wide country and obligor group limit management framework (CRisP2), which covers credit and equity exposures and is based on data used by the investment and risk experts at the Group and operating entity levels. This limit framework forms the basis for discussions on credit actions and provides notification services with a quick and broad communication of credit-related decisions across the Group. Clearly defined processes ensure that exposure concentrations and limit utilizations are appropriately monitored and managed.
“use-test” under Solvency II. In the following sections we explain the evolution of the risk profile per modeled risk category. All risks are presented on a pre-diversified basis and concentrations of single sources of risk are discussed accordingly.
Market risk As an inherent part of our insurance operations, we collect premiums from our customers and invest them in a wide variety of assets. Thereby, the Allianz Group holds and uses many different financial instruments. The resulting investment portfolios back the future claims and benefits to our customers. In addition, we invest shareholders ’ capital, which is required to support the risks underwritten. As the fair values of our investment portfolios depend on financial markets, which may change over time, we are exposed to market risks. The following table presents our Group-wide internal risk figures related to market risks by business segment and source of risk.
allianz gRoup: inteRnal Risk pRofile – maRket Risk By Business segment and souRce of Risk (total poRtfolio BefoRe tax and non-contRolling inteRests)
These risks are reflected in the internal risk profile and managed by interest rate sensitivity limits. A significant part of the Life/Health business segment’s pre-diversified interest rate risk lies in Western Europe – 80.9 % as of 31 December 2014 (2013: 81.3 %) – mainly to cover traditional life insurance products with guarantees.
We manage interest rate risk from a comprehensive corporate perspective: While the potential payments related to our liabilities in the Property-Casualty business segment are typically shorter in maturity than the financial assets backing them, the opposite usually holds true for our Life/Health business segment due to the long-term life insurance contracts. In part, this provides us with a natural hedge on an economic basis at the Group level.
As of 31 December 2014, our interest rate-sensitive investments excluding unit-linked business – amounting to a market value of € 509.9 Bn1 – would have gained € 33.7 Bn or lost € 37.0 Bn in value in case of interest rates changing by -100 and +100 basis points, respectively.
As described above, the risk related to interest rates lies in the fact that in the long run yields that can be achieved by reinvesting may not be sufficient enough to cover the guaranteed rates. In contrast, opportunities may materialize when interest rates increase. This may result in higher returns from reinvestments than the guaranteed rates.
As of 31 December 2014, our investments excluding unit-linked business that are sensitive to changing equity markets – amounting to a market value of € 38.9 Bn2 – would have lost € 10.2 Bn in value assuming equity markets declined by 30 %.
Risks from changes in equity prices are normally associated with decreasing share prices and increasing equity price volatilities. As stock markets also might increase, opportunities may arise from equity investments.
The advantage of being a long-term investor therefore gives us the opportunity to invest in bonds yielding spreads over the risk-free return and earning this additional yield component.
2 The stated market value includes all investments whose market value is sensitive to equity movements (excluding unit-linked business) and therefore is not based on classifications given by accounting principles.
Currency risk Based on our foreign exchange management limit framework, currency risk is monitored and managed at the operating entity and Group level. As our operating entities are typically invested in assets of the same currency as their liabilities, the major part of foreign currency risk results from the economic value of our non-Euro operating entities. If non-Euro foreign exchange rates decline against the Euro from a Group perspective, the Euro equivalent net asset values also decrease. However, at the same time the capital requirements in Euro terms from the respective non-Euro entity also decrease, partially mitigating the total impact on the capitalization.
The internal credit risk capital model is a state-of-the-art tool which provides bottom-up analysis. The major drivers of credit risk for each instrument are exposure at default, ratings, seniority, collateral and maturity. Additional parameters assigned to obligors are migration probabilities and obligor asset correlations reflecting dependencies within the portfolio. Ratings are assigned to single obligors via an internal rating approach which is based on long-term ratings from rating agencies. It is dynamically adjusted using market -implied ratings and the most recently available information.
Property-Casualty 2,374 2,067 Life/Health 7,817 5,589 Asset Management 128 152 Corporate and Other 699 555 Total Group internal credit risk 11,018 8,363 Share of total Group pre-diversified internal risk 18.1 % 16.5 %
Throughout the year the credit environment was mostly stable. There were limited rating actions as the economic situation and outlook was already reflected in current rating levels compared to the economic disruptions of previous years. Credit risk for the Group increased – mainly due to the secondary effects of lower interest rates. Especially long dated assets in the Life/Health business segment have gained significantly in value and, in turn, also loss potential. Additionally, the lower interest rates reduced the loss-absorbing capacity of technical provisions in the traditional life business, which further increased the credit risk after policyholder participation. Finally, for the purpose of asset/liability management under the low yield environment the amount of long duration assets has grown, which contributed to the increase of credit risk, particularly in the Life/Health business segment.
The following table displays the sensitivities of credit risk to certain scenarios: deterioration of credit quality measured by issuer rating1 downgrades and the decline of recovery rates in the event of a default (Loss-Given-Default, LGD). The sensitivities are calculated by applying each scenario to all exposures individually, but keeping all other parameters constant.2 allianz gRoup: impact of selected cRedit scenaRios on inteRnal cRedit Risk1 pre-diversified, € mn Total as of 31 December 2014 20132
The majority of Credit Risk and impact of sensitivity analysis can be allocated to long-term sovereign debt as well as senior unsecured bonds with lower investment grade borrowers.
Credit risk – investment As of 31 December 2014, credit risk arising from the investment portfolio accounted for 92.7 % (2013: 91.0 %) of our total Group pre-diversified internal credit risk. Credit Risk in the Life/Health business segment is primarily driven by long-term assets covering long-term liabilities. Typical investments are government bonds, senior corporate bonds, covered bonds, self-originated mortgages and loans as well as a modest amount of derivatives. Due to the nature of the business, the fixed income securities in the Property-Casualty business segment tend to be short- to mid-term, which explains the lower Credit Risk consumption in this segment.3
As of 31 December 2014, the rating distribution of our fixed income portfolio was as follows: 3 Additionally, 2.4 % (2013: 3.5 %) of our total Group pre-diversified internal credit risk is allocated to receivables and potential future exposure for derivatives and reinsurance.
Government & Agency Covered Bond Corporate Banks ABS / MBS Short-term Loan Other Total 1 In accordance with the Group Management Report stated figures include investments of Banking and Asset Management. Table excludes private loans.
Credit risk – reinsurance As of 31 December 2014, 0.4 % (2013: 0.7 %) of our total Group pre-diversified internal credit risk was allocated to reinsurance exposures – of which 58.5 % (2013: 59.4 %) was related to reinsurance counterparties in the United States and Germany.
Underwriting risk Underwriting risk consists of premium and reserve risks in the Property -Casualty business segment as well as biometric risks in the Life/ Health business segment. For the Asset Management business segment and our banking operations, underwriting risks are not relevant. The following table presents the pre-diversified internal risk calculated for underwriting risks stemming from our insurance.1 1 2013 risk profile figures recalculated based on model changes in 2014.
For biometric risk the main driver was longevity risk due to the inclusion of risks from internal pensions and due to decreased interest rates, which affect the risks for long-term products by increasing the cost of longevity subsidization.
Underwriting risk Property-Casualty Our Property-Casualty insurance businesses are exposed to premium risk related to the current year’s new and renewed business as well as reserve risks related to the business in force.
Premium risk As part of our Property-Casualty business operations, we receive premiums from our customers and provide insurance protection in return. Changes in profitability over time are measured based on loss ratios and their fluctuations.1
The top five perils contributing to the natural catastrophe risk as of December 2014 were: Europe windstorm, U.S. hurricane, Germany hail, Australia hail and California earthquake.
Reserve risk We estimate and hold reserves for claims resulting from past events 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.
Underwriting risk Life/Health Underwriting risks in our Life/Health operations (biometric risks) include mortality, disability, morbidity, and longevity risks. Mortality, disability, and morbidity risks are associated with the unexpected increase in the occurrence of death, disability or medical claims on our insurance products. Longevity risk is the risk that due to changing biometric assumptions, the reserves covering life annuities and group pension products might not be sufficient.
1 For further information, please refer to note 19 to the consolidated financial statements. 2 For further information about insurance risk in the Life/Health business segment, please refer to note 20 to the consolidated financial statements.
In the Life/Health business segment, policyholder behavior risks are risks related to the unpredictability and adverse behavior of policyholders in exercising their different contractual options: early termination of contracts, surrenders, partial withdrawals, renewals and annuity take-up options. Assumptions on policyholder behavior are set in line with accepted actuarial methods and are based on our own historical data, to the extent available. If data is not available, assumptions are based on industry data or expert judgment.
Property-Casualty 917 909 Life/Health 4,404 3,630 Asset Management – – Corporate and Other – – Total Group internal business risk 5,321 4,538 Share of total Group pre-diversified internal risk 8.7 % 9.0 %
For business risk in our Life/Health business segment the main drivers were the decreased interest rates – which affect the cost risk and the lapse risk due to discounting and effects from dynamic policyholder behavior assumptions.
An analysis of the causes of losses exceeding € 1 Mn is carried out to provide comprehensive and timely information to senior management and to share with operating entities so they can implement measures aimed at avoiding or reducing future losses.
The risks related to non-compliance or other misconduct are addressed via various dedicated compliance programs. Written policies detail the Allianz Group’s approach towards the management of these areas of risk. The implementation and communication of those compliance programs are monitored by the Group Compliance function at Allianz SE. In close cooperation with the Risk function of the Group, the risk-mitigating measures are taken and enforced by a global network of dedicated compliance functions throughout the Allianz Group. With respect to financial statements, our internal control system is designed to mitigate operational risks.1 allianz gRoup: inteRnal Risk pRofile – allocated opeRational Risk By Business segment (total poRtfolio BefoRe tax and non-contRolling inteRests)
Property-Casualty 1,797 1,833 Life/Health 2,035 1,975 Asset Management 668 586 Corporate and Other 645 679 Total Group internal operational risk 5,146 5,073 Share of total Group pre-diversified internal risk 8.4 % 10.0 %
Major failures and disasters which could cause a severe disruption to our working environment, facilities and personnel represent significant operational risks for the Allianz Group, its employees and its operating entities. Our Business Continuity and Crisis Management framework strives to protect critical business functions from these shocks and enables them to carry out their core tasks on time and at the highest standard. Regularly enhanced, business continuity and crisis activities are embedded in the company’s risk management processes.
Allianz has launched a Cyber and Information Security program to better respond to current external developments and to further strengthen the internal control environment around related operational risks.
1 For additional information regarding our internal control over financial reporting, please refer to Controls over Financial Reporting and Risk Capital from page 144.
Strategic risk Strategic risk is the risk of an unexpected negative change in the company’s value arising from the adverse effect of management decisions regarding business strategies and their implementation.
Liquidity risk Liquidity risk is defined as the risk that requirements from current or future payment obligations cannot be met or can only be met on the basis of adversely altered conditions. Liquidity risk can arise primarily if there are mismatches in the timing of cash-flows on the asset and liability side. Detailed information regarding the Allianz Group’s liquidity risk exposure, liquidity and funding – including changes in cash and cash equivalents – is provided in Liquidity and Funding Resources from page 116 onwards and notes 17, 23, 24 and 43 to the consolidated financial statements.
The accumulated short-term liquidity forecast is updated daily and is subject to an absolute minimum strategic cushion amount and an absolute minimum liquidity target. Both are defined for the Allianz SE cash pool in order to be protected against short-term liquidity crises. As part of our strategic planning, contingent liquidity requirements and sources of liquidity are taken into account to ensure that Allianz SE is able to meet any future payment obligations
Reputational risk Allianz’s reputation as a well-respected and socially aware provider of financial services is influenced by our behavior in a range of areas such as product quality, corporate governance, financial performance, customer service, employee relations, intellectual capital and corporate responsibility. Reputational risk is the risk of an unexpected drop in the value of the Allianz SE share price, the value of the in-force business or the value of future business caused by a decline in our reputation.
With the support of Group Communications, Group Compliance and the ESG Office1, Group Risk defines sensitive business areas and applicable risk guidelines, which are mandatory for all operating entities in the Allianz Group. All affected Group and operating entity functions cooperate in the identification of reputational risk. Group Communications is responsible for the risk assessment, based on a Group-wide methodology.
1 The Allianz Environmental, Social, Governance (ESG) Board and ESG office are constituted as 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 the Allianz Group.
For the benefit of shareholders and policyholders alike, our risk management framework adds value to Allianz SE and its operating entities through the following four primary components: Risk underwriting and identification: A sound risk underwriting and identification framework forms the foundation for adequate risk taking and management decisions such as individual transaction approvals, new product approvals and strategic asset allocations. The framework includes risk assessments, risk standards, valuation methods and clear minimum standards for underwriting.
Overall risk organization and roles in risk management A comprehensive system of risk governance is achieved by setting standards related to organizational structure, risk strategy and appetite, written policies, limit systems, documentation and reporting. These standards ensure the accurate and timely flow of risk-related information and a disciplined approach towards decision-making and execution at both the global and local level.
In addition, Group Risk independently supports the adequacy of the operating entities’ risk management through the development of a common risk management framework and 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.
A risk function that is independent from the business line management is established by each operating entity. This function operates under the direction of the operating entity’s Chief Risk Officer. In addition, a local Risk Committee supports both the operating entity’s Board of Management and the Chief Risk Officer by acting as the primary risk controlling body. Group Risk is also represented on the local Risk Committees to enhance the risk dialogue between the Group and the operating entities.
Group Legal and Compliance seeks to mitigate legal risks with support from other departments. Legal risks include legislative changes, major litigation and disputes, regulatory proceedings and contractual clauses that are unclear or construed differently by the courts. Compliance risk is the risk of legal or regulatory sanctions, material financial loss or loss to reputation that an undertaking may suffer as a result of not complying with applicable laws, regulations and administrative provisions. The objectives of Group Legal and Compliance are to ensure that laws and regulations are observed, to react appropriately to all impending legislative changes or new court rulings, to attend to legal disputes and litigation, and to provide legally appropriate solutions for transactions and business processes. In addition, Group Legal and Compliance is responsible for integrity management, which aims to protect the Allianz Group, our operating entities and employees from regulatory risks.
Group Actuarial contributes towards assessing and managing risks in line with regulatory requirements. These risks stem from the risk-taking/mitigating activities involving professional actuarial experience and interaction. The role includes, but is not limited to, the activities of: − Calculation and oversight of technical reserves for accounting and regulatory purposes; − Pricing and profitability oversight; − Technical actuarial support of business planning, reporting and result monitoring; − Contribution to the effective implementation of the risk management system.
In order to adapt to a continually changing environment, the Global Issues Forum (GIF) supports the Group in the assessment of longterm trend changes in the risk landscape on a timely basis. 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.
Our first priority is to get the approval for our Solvency II internal model. To this end, we will continue to actively participate in the preapproval process for Solvency II with the relevant European supervisors and file the final internal model application in 2015. In addition, we will prepare for any potential late guidance and changes to the Solvency II regulation and for any regulatory feedback on the internal model application to be ready for the final implementation of Solvency II in 2016.
Regarding regulatory developments, our second priority is to ensure that we meet the emerging requirements for G-SII (Global Systemically Important Insurers). Therefore, we will continue to participate in the capital field-testing exercise conducted by the IAIS (International Association of Insurance Supervisors). In addition, we aim to further strengthen our liquidity risk management framework.
Our third priority will be to further enhance systemic risk management, first by focusing specifically on stress testing and scenario analysis in the context of managing and steering Allianz’s risk profile and, second, by continuing to strengthen the risk culture and the Group-wide risk network to further enhance efficient and effective steering also in systemic crisis situations.
digital, climate and demogRaphic challenges The digital revolution has completely changed the way our customers make purchasing decisions and buy insurance products. The boundaries between buying online and offline are quickly fading. Social networks and other online channels are gaining in importance. In parallel, expectations of service levels are increasing. We are continuously adapting to this new digital lifestyle to stay connected with our stakeholders and improve customer service. In the framework of the Allianz Digital Target Picture program we leverage the opportunities that changing customer preferences provide. We are developing web-based and multi-access customer interaction tools to address changing customer behaviors. On the operational side, we are harmonizing systems across the Group to reduce complexity and improve efficiency.
Global warming threatens to alter our climate and such changes could result in a range of risks and opportunities that affect our entire business. We have a Group-wide strategy covering climate-related risks and opportunities for our business and our customers: we finance and insure low-carbon energy projects, such as wind and solar, offer customers a range of "Green" Solutions and provide them with advice on weather-related risk reduction. As a company we continually reduce and offset our own carbon emissions. We also incorporate not only environmental, but also social and governance factors into our investment and underwriting processes as well as asset management.
In addition, many of the world's industrialized nations are reliant on infrastructure that is 30 to 50 years old and yet public-sector investments in this area have been declining across the board. In order to upgrade this aging infrastructure, billions of Euros are required per year – figures that most governments are not able to cover, especially considering the increase in social security spending due to demographic effects. At the same time, the current workforce is faced first and foremost with the need to accumulate adequate funds for retirement, which is proving very difficult in the sustained low interest rate environment. We are at the forefront of bringing these two challenges together to find solutions for the long term: bridging the public sector infrastructure investment gap and providing profitable retirement provisions. But more still needs to be done in the political sphere to make this investment environment more stable and transparent for institutional investors such as Allianz.
For more information, please refer to Progress in Sustainable Development from page 73.
Leverage Group synergies: We continue to leverage Group synergies via know-how and best practice sharing in underwriting, product development and operations through Global Property-Casualty and Global Life/Health units. We recognize both increasing risk in our operating and regulatory environment and great opportunities in the fast-changing preferences and behavior of our customers. In this spirit, we are reviewing our Group organization structures to take account of the need for strong central governance in some areas, but also greater local entrepreneurship and decision-making in others.
Strategic Investments: Strategic investments also open up new business opportunities. For example, Allianz is growing its Business to Business to Customer (B2B2C) area. By pairing up value propositions
– Automotive with Roadside Assistance, and International Health with Corporate Assistance – under the roof of Allianz Worldwide Partners, we are taking a distinctive position in the B2B2C market. One major advantage for us is to extend agreements with distributors across global markets in a seamless manner. Allianz also operates an incubator to develop and pilot innovative ideas before they are implemented across the Group.
In line with both our prudent approach to risk governance and compliance with regulatory requirements, we have created a structure to identify and mitigate the risk of material errors in our consolidated financial statements. Our internal control system over financial reporting (ICOFR) is based on the revised framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and is regularly reviewed and updated. Our approach also includes the following five interrelated components: Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring. These five components are covered by an Entity Level Control Assessment Process (ELCA), IT General Controls (ITGC) and controls at process levels. The ELCA framework contains controls such as a compliance program or committee governance structure. In the ITGC framework we implemented, for example, controls regarding access right management and project and change management controls.
Risk and Opportunity Report and Financial Control 123 Risk and Opportunity Report 144 Controls over Financial Reporting and Risk Capital
Similar to our ICOFR framework, we have also established a robust and comprehensive control concept in the risk capital calculation and aggregation process, since our internal risk capital calculations incorporate economic factors that are not fully reflected in the accounting results. We have put in place additional controls within our management reporting processes to ensure that these additional estimates are adequately controlled and that the data quality is accurate, consistent and complete.
During 2014, we further strengthened the internal control environment around the computation of our internal risk capital in anticipation of the future Solvency II regime.
− Then, our local entities identify risks that could lead to material financial misstatements including all relevant root causes (i.e. human processing errors, fraud, system weaknesses, external factors, etc.). After identifying and analyzing the risks, the potential impacts and occurrence probabilities are evaluated.
− Preventive and detective key controls over the financial reporting process have been put in place to reduce the likelihood and the impact of financial misstatements. If a potential risk materializes, actions are taken to reduce the impact of the financial misstatement. Given the strong dependence of financial reporting processes upon information technology systems, we also implement IT controls.
The Group Disclosure Committee ensures that these board members are made aware of all material information that could affect our disclosures and assesses the completeness and accuracy of the information provided in the quarterly and annual financial reports. The committee meets on a quarterly basis before the financial reports are issued.
Further control mechanIsms In our opinion, a strong internal control environment is key to manage our company successfully and to reinforce trust with our stakeholders. In addition to ICOFR, for example, we have implemented an enhanced internal control environment across our largest Life insurance operating entities for the Market Consistent Embedded Value (MCEV) reporting process.
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