20 Takeover-Related Statements and Explanations (part of the Group Management Report)
The Consolidated Financial Statements are presented in millions of Euros (€ mn) unless otherwise stated. Due to rounding, numbers presented may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.
With the end of 2018 we concluded the first phase of our Renewal Agenda. We are happy and proud to present the results of our efforts. When embarking on the Renewal Agenda in 2015, we had set ourselves ambitious targets building on our strong heritage. We were determined to improve both the performance and the organizational health of Allianz. And we have made significant progress on both dimensions.
Our current financial performance is strong: In 2018, we achieved the highest operating profit in the history of Allianz: € 11.5 bn, a 3.7 % increase compared to 2017. Furthermore, we generated record revenues of € 130.6 bn. Our net income attributable to shareholders grew by 9.7 % and reached € 7.5 bn. This allows us to propose the highest dividend of our history: € 9.00 per share. We also withstood the beginning turmoil in the capital markets, once again recording a strong
Net Promoter Score. When we started the Renewal Agenda, less than half of our businesses reported Net Promoter Scores above market average, by 2018 it was 74 % of them. Our people and leaders are on board for the cultural change we seek, as indicated by the rise in our Inclusive Meritocracy Index from 68 to 71. We trust that you, our investors, are as satisfied with this development as we are.
Taking a closer look back at the past business year, there are a series of achievements we are particularly proud of. Let me name a few: − For the first time in years, we’ve managed to significantly reduce the expense ratio in our Property-Casualty business segment. We intend to eliminate whatever doesn’t add value for our customers.
− We have received approval for the preparatory establishment of the first-ever insurance holding company in China that is 100 percent owned by a foreign insurer.
− We have invested in preparing our employees for the transformation. 40,000 employees have registered for LinkedIn
− We have taken another big step towards a sustainable future: Allianz has set itself long-term climate goals which are linked to the two-degree target of the Paris Climate Agreement. By 2040 we will have phased out coal-based business in our proprietary investments and insurance activities. Our achievements have been very positively acknowledged.
Allianz has gained leading positions and high scores in key sustainability ratings.
All these successes are the result of a team effort. I am grateful to all our employees and partners – it is they who have brought our Renewal Agenda to life. Every day they work to provide the best possible service to our customers: They offer expert advice. They give comfort in the uncomfortable situation around an accident. They carefully and expertly invest the money our customers entrust us with. They bring their hearts and minds to work.
Gratified by our customers’ trust, economically successful, and financially solid, we are now ready to take the next steps. As we implement our Renewal Agenda 2.0, we will move up a gear. The next chapter of our strategy will be launched with the motto “Simplicity wins”. Simplicity is key, as it enhances customer and employee satisfaction and increases our productivity and flexibility. Our goal is for Allianz to become a simple, digital, and scalable organization that is fully customer-centric.
− Simple – We are going to reduce the complexity of our products and processes. This will make our offerings more intuitive, and it will free up more time to serve our customers. Furthermore, it will increase customer loyalty and fuel growth also in highly competitive markets.
− Digital – We are going to digitalize products and processes and use data analytics to improve product design as well as pricing and claims, and win new customers.
− Scalable – We are going to harmonize products and processes across our businesses. By using knowledge, best practice, and technology assets at scale, we continuously aim to become faster and more productive.
Officer. We also developed the Allianz Customer Model as our common standard to achieve simplicity and digitization. In addition, we are redesigning our direct-to-consumer processes and building a highly efficient and scalable platform from scratch which will give us higher flexibility and speed to react to changing customer demands.
Motivated by these successes, we feel confident in committing to ambitious targets for the upcoming years. Our three-yearplan is to increase our earnings per share by a minimum of 5 % on average per annum and to achieve a return on equity of 13 % or higher. At the same time, we will not compromise on our balance sheet strength and keep the target Solvency II
Thank you for your continuous support – and we look forward to the joint path ahead.
In all of the Supervisory Board’s 2018 meetings, the Board of Management reported on Group revenues and results as well as developments in individual business segments. The Board of Management informed the
Management introduced in 2019, personnel matters related to the Board of Management as well as with the findings of the review of the efficiency of the Supervisory Board, which was carried out with the support of an external advisor.
Board of Management’s verbal reports at the meetings were accompanied by written documents, which were sent to each member of the Supervisory Board in time for the relevant meeting. The Board of Management also informed the Supervisory Board in writing of important events that occurred between meetings. The chairmen of the Supervisory and Management Boards also had regular discussions about major developments and decisions. The Chairman of the Supervisory Board also had individual discussions with each member of the
Details on each member’s participation in meetings of the Supervisory Board and its committees can be found in the Corporate Governance Report, starting on page 12. Members of the Supervisory Board who were unable to attend meetings of the Supervisory Board or its committees were excused and, as a rule, cast their votes in writing.
ISSUES DISCUSSED IN THE SUPERVISORY BOARD PLENARY SESSIONS In the meeting of 15 February 2018, the Supervisory Board comprehensively dealt with the preliminary financial figures for the financial year 2017 as well as the Board of Management’s dividend proposal. The appointed audit firm, KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG), Munich, reported in detail on the preliminary results of their audit. In the further course of the meeting, the Supervisory Board also discussed the target achievement of each individual member of the Board of Management and, on this basis, set their variable remuneration for the financial year 2017. As part of this performance assessment, the fitness and propriety of the members of the Board of Management were also confirmed. In addition, various other issues were dealt with, such as the impact of storm Friederike in Germany, internal reinsurance provided by Allianz Re, ongoing
Wirtschaftsprüfungsgesellschaft (PwC) as auditor for the 2018 individual and consolidated financial statements, the auditor’s review of the 2018 half-yearly financial report, and the assurance engagement of the combined separate non-financial report. In addition, the Supervisory Board received reports on the implementation status of the Renewal Agenda as well as on current developments in the individual business segments. The Supervisory
Board comprehensively dealt with the appointment of Mr. Iván de la Sota to the Board of Management with responsibility for the newly created Transformation and Innovation division as of 1 April 2018.
Mr. Jean-Jacques Cette’s term as employee representative on the Supervisory Board ended on 31 July 2018.
At the meeting of 2 August 2018, the Board of Management reported in detail on half-yearly results as well as on the current developments of Allianz in China, including the regulatory approval of Allianz's property & casualty insurance joint venture with JD.com and current plans for an initial approval of a foreign holding company in
China. Next, the Board of Management gave the first part of its presentation on the future strategy of Allianz.
Mr. Zimmermann leaving the Supervisory Board (effective 31 August 2018), a new composition for the
At the meeting of 12 October 2018, the presentation on the future strategy of the Allianz Group and Allianz SE
(solo) was continued. After outlining on future key value drivers and Allianz’s intended position in the digital arena, the presentation addressed possible approaches to implementing these strategic goals in the context of the Renewal Agenda 2.0. As part of its report on business developments, the Board of Management also addressed the consequences of the collapse of a bridge in Genoa, Italy, the conclusion of an exclusive long-term partnership agreement with the International Olympic Committee (IOC) as well as the current investigation into the financial sector carried out by the Royal Commission in Australia. Next, the Supervisory Board adopted the finalized proposal for a new remuneration system for the Board of Management. For more details, please refer to the Remuneration Report starting on page 23. The Supervisory Board resolved a 5-year extension of
Mr. Oliver Bäte’s term as CEO of Allianz SE. Following the meeting, the Supervisory Board approved in a written procedure the conclusion of a new Board of Management contract with Mr. Bäte in November 2018.
Conformity in accordance with § 161 of the German Stock Corporation Act (“Aktiengesetz”). The declaration was posted on the company website, where it is available to shareholders at all times. Allianz SE fully complies and will continue to fully comply with the recommendations of the German Corporate Governance
§ 289f of the HGB, which starts on page 17. More details on corporate governance are provided on the
In 2018, the Standing Committee held five meetings. It primarily dealt with issues of corporate governance, the preparations for the AGM, the employee stock purchase program, the Supervisory Board’s self-assessment as required under the regulatory regime, and the review of the Supervisory Board's efficiency conducted by an external advisor. In addition, the Standing Committee dealt with the appropriateness of the remuneration of the
Management’s reports on quarterly results. It prepared the engagement of the external advisor and defined key audit areas for the 2018 financial year. The committee also discussed the assignments of non-audit services to the auditors and approved an updated appropriate positive list of pre-authorized audit and non-audit services. In addition, it dealt extensively with the compliance system, the internal audit system, and the financial reporting process as well as the respective internal controls. The committee received regular reports on legal and compliance issues and on the work of the Internal Audit department, as well as the annual report of the head of the actuarial department (Group Actuarial, Planning & Controlling). Furthermore, the committee dealt with the Internal Audit function’s audit plan for 2019. Last but not least, it thoroughly addressed the findings of a BaFin review and the review of the implementation of Solvency II governance requirements in the Allianz Group. The written resolution mentioned above approved the auditor’s engagement to perform non-audit services at Group companies abroad.
The Technology Committee held two meetings in the 2018 financial year, in which it extensively discussed IT
Audit Committee: Dr. Friedrich Eichiner (Chairman), Sophie Boissard, Michael Diekmann, Jean-Claude Le Goaër,
Allianz Group as of 31 December 2018, as well as the respective PwC reports were addressed by the Audit
ASSURANCE ENGAGEMENT OF THE COMBINED SEPARATE NON-FINANCIAL REPORT In the financial year 2018, the company was required to issue a separate non -financial report. This report was combined for Allianz SE and the Allianz Group. The Supervisory Board commissioned PwC to perform an assurance engagement of this report. All Supervisory Board members received the combined separate nonfinancial report and the independent practitioner’s assurance report from PwC in due time. The report and
Based on its own review of the combined separate non-financial report, the Supervisory Board did not raise any objections and approved by acknowledgement the results of the PwC assurance engagement.
Goaër replaced Mr. Cette in his function as elected employee representative with effect from 1 August 2018.
Good corporate governance is essential for sustainable business performance. The Board of Management and the Supervisory
(hereinafter referred to as the “Code”). The Declaration of Conformity with the recommendations of the Code, issued by the Board of
Management and the Supervisory Board on 12 December 2018, and the company’s position regarding the Code’s suggestions can be found in the Statement on Corporate Management pursuant to
§ 315d and § 289f of the HGB starting on page 17.
including IT –, Human Resources, Legal, Compliance, Internal Audit, and Mergers & Acquisitions. Business division responsibilities focus on geographical regions or Global Lines such as Asset Management.
BOARD OF MANAGEMENT AND GROUP COMMITTEES In the financial year 2018, the following Board of Management committees were in place: Board Committees
Management of Allianz SE, submitting proposals for resolutions, and ensuring a smooth flow of information within the Group.
The Board of Management reports regularly and comprehensively to the Supervisory Board on business development, the company’s financial position and earnings, planning and achievement of objectives, business strategy, and risk exposure. Details on the Board of Management’s reporting to the Supervisory Board are laid down in the information rules issued by the Supervisory Board.
Participation of Employees in Allianz SE, in the version dated 3 July 2014 (hereinafter “SE Agreement”), requires the approval of the
Board is determined by general European SE regulations. These regulations are implemented in the Statutes and via the SE Agreement.
The Supervisory Board comprises twelve members, including six shareholder representatives appointed by the AGM. The six employee representatives are appointed by the SE works council. The specific procedure for their appointment is laid down in the
SE Agreement. This agreement stipulates that the six employee representatives must be allocated in proportion to the number of
According to § 17 (2) of the German SE Implementation Act (“SE-
The Supervisory Board takes all decisions based on a simple majority. The special requirements for appointing members to the
must be a shareholder representative. If the Chairman is not present in the event of a tie, the casting vote lies with the vice chairperson from the shareholder side. A second vice chairperson is elected at the employee representatives’ proposal.
The Supervisory Board regularly reviews the efficiency of its activities. The Supervisory Board discusses recommendations for improvements and adopts appropriate measures on the basis of recommendations from the Standing Committee. The selfassessment also includes an evaluation of the fitness and propriety of the individual members.
– Preparation of the Declaration of Conformity pursuant to § 161 “Aktiengesetz” (German Stock Corporation Act) and checks on corporate governance
AUDIT COMMITTEE 5 members – Chairman: appointed by the Supervisory Board (Dr. Friedrich Eichiner)
– Three shareholder representatives (in addition to Dr. Friedrich Eichiner: Sophie Boissard, Michael Diekmann)
PERSONNEL COMMITTEE 3 members – Chairman: Chairman of the Supervisory Board (Michael Diekmann)
PUBLICATION OF DETAILS OF MEMBERS’ PARTICIPATION IN MEETINGS The Supervisory Board considers it good corporate governance to publish the details of individual members’ participation in plenary sessions and committee meetings: Publication of details of members’ participation in meetings
Jean-Claude Le Goaër (Member as of 1 September 2018) 2/2 100
The Nomination Committee did not convene any meetings in the 2018 financial year.
The following requirements and objectives apply to the composition of Allianz SE’s Supervisory Board: I. Requirements relating to the individual members of the Supervisory Board
The members of the Supervisory Board must have the expertise and experience necessary for a diligent and autonomous exercise of the Allianz SE Supervisory Board mandate, in particular for exercising control of and giving advice to the Board of Management as well as for the active support of the development of the company. This comprises in particular: – adequate expertise in all business areas; – adequate expertise in the insurance and finance sector or comparable relevant experience and expertise in other sectors; – adequate expertise in the regulatory provisions material for Allianz SE (supervisory law, including Solvency II regulation, corporate and capital markets law, corporate governance); – ability to assess the business risks; – knowledge of accounting and risk management basics.
To further specify the definition of independence, the Supervisory Board of Allianz SE states the following: – Former members of the Allianz SE Board of Management shall not be deemed independent during the mandatory corporate law cooling-off period.
– Members of the Supervisory Board of Allianz SE in office for more than 15 years shall not be deemed independent.
In addition to the mandatory mandate limitations and the GCGC recommendation for active Management Board members of listed companies (max. three mandates), the common capital markets requirements shall be considered.
The members of the Supervisory Board shall, as a rule, not be older than 70 years of age.
II. Requirements for the entire Supervisory Board 1. Profile of skills and expertise for the entire Supervisory Board
In addition to the expertise-related requirements for the individual members, the following shall apply with respect to the expertise and experience of the entire Supervisory Board: – familiarity of members in their entirety with the insurance and financial services sector; – adequate expertise of the entire board with respect to investment management, insurance actuarial practice, and accounting; – at least one member with considerable experience in the fields of insurance and financial services; – at least one member with comprehensive expertise in the fields of accounting or auditing; – specialist expertise or experience in other economic sectors; – managerial or operational experience.
(statutory gender quota of 30 %) is being met. In addition, the Supervisory Board has five members with international backgrounds. The skills profile is also met by all current members of the Supervisory
Management and the Supervisory Board. It decides on the use of profits, capital transactions, the approval of intercompany agreements, the remuneration of the Supervisory Board, and changes to the company’s Statutes. In accordance with European regulations and the Statutes, changes to the Statutes require a two-thirds majority of votes cast in case less than half of the share capital is represented in the AGM. Each year, an ordinary AGM takes place at which the Board of Management and the Supervisory Board give an account of the preceding financial year. For special decisions, the
In compliance with special legal provisions that apply to insurance companies, the auditor of the annual financial statements and of the half-yearly financial report is appointed by the Supervisory Board, not by the AGM. The audit of the financial statements covers the individual financial statements of Allianz SE
You can find the 2019 financial calendar on our website at www.allianz.com/financialcalendar.
and of the Allianz Group, which are published on our website at www.allianz.com/sfcr.
HGB”) forms part of the Group Management Report. However, according to § 317 (2) sentence 6 of the HGB, this Statement is not included within the scope of the audit.
INTERNAL CONTROL SYSTEMS The Allianz Group has an effective internal risk and control system for verifying and monitoring its operating activities and business processes, in particular financial reporting, as well as compliance with regulatory requirements. The requirements placed on the internal control systems are essential not only for the resilience and franchise value of the company, but also to maintain the confidence of the capital market, our customers, and the public. A comprehensive risk and control management system regularly also assesses the effectiveness and appropriateness of the internal control system as part of the System of Governance. For further information on our risk organization and risk principles, please refer to page 74. For further information on our Controls over Financial Reporting, please refer to
The Compliance function promotes, in partnership with management and business, a culture of integrity and compliance by: − advising on business conduct that is lawful, ethical, and in the interest of our customers, shareholders, business partners, and colleagues; − preventing and detecting violations of laws and regulations through identifying and managing compliance risks; − advocating Allianz’s compliance positions with regulators.
Compliance with all applicable laws, rules, and regulations in all countries in which the Allianz Group operates, as well as with internal policies and guidelines, is key. The global compliance program coordinated by Allianz SE’s Group Compliance function supports our employees, managers and executive board members to act responsibly and with integrity in all situations. We participate in the United
(OECD Guidelines) for Multinational Enterprises in that we integrate sustainability and corporate responsibility into our business. By
STATEMENT ON CORPORATE MANAGEMENT PURSUANT TO § 315d AND § 289f OF THE HGB
18 Annual Report 2018 − Allianz Group accepting and complying with European and international standards and applicable laws related to relevant compliance risk areas, Allianz aims to avoid the risks that arise from non-compliance. To enhance our understanding of compliance issues and share best practices, we work with organizations such as the German Institute for Compliance
CODE OF CONDUCT Our Code of Conduct for Business Ethics and Compliance and the internal Compliance policies and guidelines derived from it provide all employees, managers, and executive board members with clear and practical guidance, enabling them to act in line with the values of the Allianz Group. The standards of conduct established by the Code of Conduct are binding for all employees worldwide and build the basis for our compliance programs. The Code of Conduct is available on our website at www.allianz.com/corporate-governance.
WHISTLEBLOWING A major component of the Allianz Group’s compliance program is a whistleblower system that allows employees and third parties to alert the relevant compliance department confidentially about irregularities. No employee voicing concerns about irregularities in good faith needs to fear retribution, even if the concerns later turn out to be unfounded. Third parties can contact the compliance department via an electronic mailbox on our website at: www.allianz.com/
An anti-corruption training is compulsory for all Allianz employees worldwide. Moreover, in 2018 we deployed a mandatory data privacy and protection training to all Allianz companies worldwide.
This training includes the topic of binding corporate rules, which are an E.U.-developed standard in data privacy and protection for international personal data transfers within corporate groups outside the
A description of the composition of the Board of Management can be found on page 10, while the composition of the Committees of the Board of Management is described in the Corporate Governance
Information in accordance with the German Act on Equal Participation of Women and Men in Executive Positions in the Private and the Public Sector This section outlines the targets set for Allianz SE and the other companies of the Allianz Group in Germany that are subject to co-determination (the “subsidiaries concerned”) for the Supervisory
Board, the Board of Management, and the two management levels below the Board of Management.
Article 17 (2) of the German SE Implementation Act stipulates that as of 1 January 2016, the share of women and men among the members of the Supervisory Board of Allianz SE must each total up to 30 % at least. The Supervisory Board currently in office fulfils this requirement as it includes four women (33 %) and eight men (67 %).
In August 2017, and based on a Management Board comprising nine members, the Supervisory Board resolved on a target for the percentage of women on Allianz SE’s Board of Management at 22 %
Management, the Board of Management of Allianz SE has set a target of 20 % and 25 %, respectively, to be met by 31 December 2018.
Directive, the diversity concepts for the Board of Management and the Supervisory Board, their objectives, implementation, and results achieved are to be reported for the 2018 financial year.
The Supervisory Board assesses the achievement of such target, inter alia, on the basis of the following specific indicators: − adequate proportion of women on the Management Board: at
Allianz Group is operating; − adequate diversity with regard to educational and professional background, taking into account the limitations for the Supervisory Board by regulatory requirements (fitness).”
Supervisory Board is currently composed in accordance with the diversity concept. For details please see the Corporate Governance
HGB”) and § 176 (1) of the German Stock Company Act (“Aktien gesetz – AktG”).
LEGAL AND STATUTORY PROVISIONS APPLICABLE TO THE APPOINTMENT AND REMOVAL OF MEMBERS OF THE BOARD OF MANAGEMENT AND TO AMENDMENTS OF THE STATUTES The Supervisory Board appoints the members of Allianz SE’s Board of Management for a maximum term of five years (Articles 9 (1), 39 (2) and 46 of the SE Regulation, §§ 84, 85 AktG and § 5 (3) of the
Statutes). Reappointments, for a maximum of five years each, are permitted. A simple majority of the votes cast in the Supervisory
Board is required to appoint members of the Board of Management. In the case of a tie vote, the Chairperson of the Supervisory
Chairperson shall have the casting vote, provided he or she is a shareholder representative. A Vice Chairperson who is an employee representative has no casting vote (§ 8 (3) of the Statutes). If one of the required members of the Board of Management is missing, the courts must appoint such member in urgent cases upon the application of an interested party (§ 85 AktG). The Supervisory Board may dismiss members of the Board of Management if there is an important
Board has appointed a Chairman of the Board of Management pursuant to § 84 (2) AktG.
Board of Management have the reliability and professional competence needed to manage an insurance company. A person cannot become a member of the Board of Management if he or she is already a manager of two other insurance undertakings, pension funds, insurance holding companies, or insurance special-purpose vehicles. However, the supervisory authority may permit more than two such mandates if they are held within the same group (§ 24 (3) of the German Insurance Supervision Act (“Versicherungsaufsichtsgesetz
(“Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin”) must be notified of the intention of appointing a Board of Management member pursuant to § 47 No. 1 VAG.
Meeting. § 13 (4) of the Statutes of Allianz SE stipulates that, unless this conflicts with mandatory law, changes to the Statutes require a two-thirds majority of the votes cast, or, if at least one half of the share capital is represented, a simple majority of the votes cast. The
(§ 51 SEAG). The Supervisory Board may alter the wording of the
Statutes (§ 179 (1) AktG and § 10 of the Statutes).
Management may exclude the shareholders’ subscription rights for these shares with the consent of the Supervisory Board (i) for fractional amounts, (ii) in order to safeguard the rights pertaining to holders of convertible bonds or bonds with warrants, including mandatory convertible bonds, and (iii) in the event of a capital increase of up to 10 %, if the issue price of the new shares is not
Repor t significantly below the stock market price. The Board of Management may furthermore exclude the shareholders’ subscription rights with the consent of the Supervisory Board in the event of a capital increase against contributions in kind.
The company’s share capital is conditionally increased by up to € 250,000,000 (Conditional Capital 2010/2018). This conditional capital increase will only be carried out to the extent that the holders of convertible bonds, bonds with warrants, convertible participation rights, participation rights, and subordinated financial instruments issued against cash by Allianz SE or its subsidiaries, based on the authorizations granted by the General Meeting on 5 May 2010 or 9 May 2018, exercise their conversion or option rights, or that conversion obligations from such bonds are fulfilled, and to such extent that treasury shares or shares from authorized capital are not used for such purpose.
The Board of Management may buy back and use Allianz shares for other purposes until 8 May 2023 as per authorization of the General Meeting of 9 May 2018 (§ 71 (1) No. 8 AktG). Together with other treasury shares that are held by Allianz SE, or which are attributable to it under §§ 71a et seq. AktG, such shares may not exceed 10 % of the share capital at any time. The shares acquired pursuant to this authorization may be used, under exclusion of the shareholders’ subscription rights, for any legally admissible purposes, 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.
Meeting valid until 8 May 2023. The total number of shares acquired thereunder, together with treasury shares held by Allianz SE or attributable to it under §§ 71a et seq. AktG, shall at no time exceed 10 % of the share capital of Allianz SE.
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, if and when the counterparty 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.
− Bilateral credit agreements in some cases provide for termination rights if there is a change of control, mostly defined as the acqui sition of at least 30 % of the voting rights within the meaning of
In light of the above, the Supervisory Board determines the structure, weighting, and level of each remuneration component. In addition, the Supervisory Board regularly deals with the appropriateness of the
Board of Management’s remuneration. For this purpose, we include, amongst others, remuneration survey data of DAX 30 companies and international competitors from external consultants. Compensation levels are oriented towards the third quartile of that peer group, given Allianz’s relative size, complexity, and sustained performance within that group. Furthermore, when reviewing the adequateness and appropriateness of the Board of Management’s remuneration, the Supervisory Board takes into account the development of the
Conduct or regulatory Solvency II policies or standards, including risk limits. Additionally, a reduction or cancellation of variable remuneration may occur if the supervisory authority (BaFin) requires this in accordance with its statutory powers.
As part of the assessment of the individual qualitative target achievement, the personal contribution to the Renewal Agenda is reviewed alongside behavioral aspects. The latter is framed in a common standard (“People Letter”) designed to drive necessary change across the Allianz Group, and comprises customer orientation, collaborative leadership, entrepreneurship, and trust (e.g. with regard to sustainability, corporate social responsibility, and diversity as well as integrity).
Based on the 2018 target achievement for the Group as a whole and for the respective business division(s) and/or corporate function(s)
as well as the qualitative performance achieved, total annual bonus awards range from 109 % to 124 % of the target bonus, while the average bonus award amounts to 118 % of the target.
ILLUSTRATION OF THE PROCESS AND THE UNDERLYING TIMELINE OF THE MTB CYCLE,
FROM TARGET SETTING TO FINAL PERFORMANCE ASSESSMENT1 € thou 1_Represents net income attributable to shareholder divided by the average shareholders’ equity excluding unrealized gains/losses on bonds (net of shadow accounting – see note 2 to the Consolidated Financial Statements) at the beginning and the end of the period.
The fair value is calculated based on the ten-trading-day average Xetra closing price of the Allianz stock for the ten days following the annual financial press conference. As RSUs are virtual stock without dividend payments during the vesting period, the average Xetra closing price is reduced1 by the net present value of the expected future dividend payments during the vesting period. The expected dividend stream is discounted with the swap rates as of the valuation day. Following the end of the four-year vesting period, the company makes a cash payment based on the number of RSUs granted, as well as on the ten-day average Xetra closing price of the Allianz stock following the annual financial press conference in the year of expiry of the respective RSU plan. To avoid extreme payouts, the RSU payout level is capped at 200 % of the grant price.2 Outstanding RSU
PENSIONS AND SIMILAR BENEFITS To provide competitive and cost-effective retirement and disability benefits, company contributions to the current pension plan “My
For rights accrued before 2015, the guaranteed minimum interest rate remains at 2.75 % and the retirement age is still 60.
From 1 January 2005 until 31 December 2014, most Board of
Management members participated in a contribution-based system which was frozen as of 31 December 2014, now only covering disability and death. Before 2005, a defined-benefit plan provided fixed benefits not linked to base salary increases. Benefits generated under this plan were frozen at the end of 2004. Additionally, most Board members participated in Allianz Versorgungskasse VVaG (AVK), a contributionbased pension plan, and in Allianz Pensionsverein e.V. (APV); both these plans were closed for new entries on 1 January 2015.
1_In addition, the fair value of the RSUs is subject to a small reduction of a few Euro cents due to the 200 % cap on the
2_The relevant share price used to determine the final number of RSUs granted and the 200 % cap is available only after sign-off by the external auditors.
REMUNERATION FOR 2018 The following remuneration disclosure, which is based on and compliant with the German Corporate Governance Code, shows the individual board members’ remuneration for 2017 and 2018 including fixed and variable remuneration and pension service cost. The
“Actual grant” includes the 2017 and 2018 fixed compensation, the annual bonus paid for 2017 and 2018, the MTB 2016 – 2018 tranche accrued for the performance year 2017 and 2018 and the fair value of the RSU grant value for the performance year 2017 and 2018. The 2018 payout is significantly higher than in 2017, due to the fact that the payout of the MTB 2016 – 2018 is disclosed. This comprises payments for three performance years in total.
All variable components are granted in accordance with the rules and conditions of the “Allianz Sustained Performance Plan” (ASPP).
2_The MTB figure included in the Actual Grant column shows the annual accrual before adjustment by the sustainability assessment. The payout 2018 figure includes the 2018 allocation and the accruals from the performance years 2016 and 2017, as adjusted by the sustainability assessment. The MTB 2016 – 2018 is paid out in spring 2019.
The remuneration system valid until December 2009 is disclosed in the Annual Report 2009 (starting on page 17). Whereas the 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 from 2009, the vesting period was 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).
6_Helga Jung received a payment of € 156 thou in 2018 for 25 years of service to Allianz.
RSU grant and the payout of the MTB 2016 – 2018. However, it excludes the pension service cost. The information on remuneration for 2017 (in parentheses) does not include the notional accruals for the MTB 2016 – 2018: Dr. Helga Jung € 5,500 (2,497) thou,
The sum of the total remuneration of the Board of Management for 2018, including the payments of the MTB 2016 – 2018 and excluding the pension service cost, amounts to € 51 mn (2017 excluding the notional accruals for the MTB 2016 – 2018: € 24 mn). The corresponding amount, including pension service cost, equals € 55 mn (2017 excluding the notional accruals for the MTB 2016 – 2018: € 28 mn).
EQUITY-RELATED REMUNERATION In accordance with the approach described earlier, in March 2019 a number of RSUs were granted to each member of the Board of
Iván de la Sota 4,366 12,679 505 1_The relevant share price used to determine the fair value, and hence the final number of RSUs granted, is only available after sign-off of the Annual Report by the external auditors, thus numbers are based on a best estimate. As disclosed in the Annual Report 2017, the equity-related grant in 2018 was made to participants as part of their 2017 remuneration. The disclosure in the Annual Report 2017 was based on a best estimate of the RSU grants. The actual grants deviated from the estimated values and have to be disclosed accordingly. The actual RSU grants as of 2 March 2018 under the Allianz Equity Incentive are as follows: Oliver Bäte: 8,887, Sergio Balbinot: 5,985, Jacqueline
Hunt: 5,924, Dr. Helga Jung: 5,563, Dr. Christof Mascher: 5,322, Dr. Günther Thallinger: 5,503, Dr. Axel Theis: 5,684.
Ex- pected annual pension payment4 SC5 DBO6 SC5 DBO6 SC5 DBO6 SC5 DBO6 SC5 DBO6 SC5 DBO6 1_The service cost of the frozen contribution-based pension plan reflects the continued death and disability cover.
In 2018, former members of the Board of Management and their dependents received remunerations and other benefits totaling € 8 mn (2017: € 8 mn), while reserves for current pension obligations and accrued pension rights totaled € 152 mn (2017: € 137 mn).
2. Severance payments made to board members in case of early termination comply with the German Corporate Governance
Payments for early termination to board members with a remaining term of contract of more than two years are capped at twice the annual compensation – whereby the annual compensation: 1. is determined based on the previous year’s annual base salary plus 50 % of the target variable remuneration (annual bonus, annualized MTB, and equity-related remuneration: For a board member with a fixed base salary of € 750 thou, the annual compensation would amount to € 1,875 thou. Hence, he/she would receive a maximum severance payment of € 3,750 thou) and 2. shall not exceed the latest year’s actual total compensation.
In case of early termination as a result of a change of control, severance payments made to board members generally amount to three times the annual compensation (as defined above) and shall not exceed 150 % of the severance payment cap. A board member with a base salary of € 750 thou would receive a maximum of € 5,625 thou.
INTERNAL AND EXTERNAL BOARD APPOINTMENTS When a member of the Board of Management simultaneously holds an appointment at another company within the Allianz Group, the full amount of the respective remuneration is transferred to Allianz SE.
Meeting in 2010. In anticipation of the upcoming new legislation resulting from Directive (EU) 2017/828 (Shareholder Rights Directive
II), the Supervisory Board of Allianz SE conducted a comprehensive review and comparison against compensation-related market trends.
Board of Management of Allianz SE. The new structure became effective on 1 January 2019 and will be put to vote in the Annual
The previous remuneration system supported sustainable performance and was aligned with the business strategy as well as shareholders’ interests and applicable laws. The new structure continues to follow these principles and additionally integrates further stakeholder demands which have emerged over time, such as reduced complexity, as well as increased shareholder alignment and pay for performance.
SIGNIFICANT CHANGES FROM 2018 TO 2019 1_The allocation value is used to determine the number of restricted stock units (RSU) and is described in detail in the LTI section Allianz share price performance on page 37.
Base salary + 3 variable components: • Short-term: annual bonus • Mid-term: mid-term bonus (MTB) • Long-term: equity-related compensation
Base salary: 25% • Short-term: 25% • Mid-term: 25% • Long-term: 25%
Base salary + 2 variable components: • Short-term: annual bonus • Long-term: equity-related compensation
• Individual contribution considered through a contribution factor with a range from 0.8 – 1.2
In order to foster market alignment and to simplify the remuneration structure, the mid-term bonus (MTB) is discontinued and variable compensation now consists of only two components. The weighting of the compensation components is therefore adjusted in order to allocate the discontinued MTB target amount, which had a weighting of 25 % of total target compensation (without pension) and in line with regulatory requirements for deferred variable compensation: − Base salary: increase by 5 percentage points from 25 % to 30 %
− Long-term incentive (LTI): increase of equity component by 20 percentage points from 25 % to 45 % based on target allocation value.
Performance Units, “RSU”) would be higher (assuming that the fair value is higher than the allocation value).
With the new annual bonus structure, the number of parameters driving the annual bonus have been reduced significantly, which supports simplicity and transparency. From 2019 onwards, the annual bonus is based on the achievement of Group financial targets, adjusted by the individual contribution factor, which takes into account business division and individual performance. The 2019 remuneration report will show the performance corridor for the Group financial target achievement as well as the overall individual target achievement per board member.
Group financial performance targets are comprised of IFRS operating profit and IFRS net income attributable to shareholders, equally weighted. Operating profit and net income are the key performance indicators and steering parameters for the Allianz Group and of high relevance to investors and analysts. Operating profit is used to evaluate the performance of the reportable segments as well as of the
Allianz Group as a whole. It highlights the portion of income before income taxes that is attributable to the ongoing core operations of the Allianz Group. As net income is the basis of the dividend and return on equity, the two indicators reflect the overall financial performance appropriately.
The Group financial target achievement may be adjusted by the individual contribution factor (ICF). The ICF has a limited range of 0.8 to 1.2 and will be multiplied with the Group financial target achievement. It is an overall discretionary assessment by the Allianz SE
(e.g. expense ratio) indicators for the business division. For board members with functional focus, division-specific performance targets are determined based on their key responsibilities. Health targets take into account customer satisfaction (e.g. NPS), employee engagement (e.g. Allianz Engagement Survey) and leadership quality, including strategic priorities. The assessment of the individual leadership contributions also includes a review of behavioral aspects, comprising customer orientation, collaborative leadership, entrepreneurship, and trust (e.g. with regard to sustainability, corporate social responsibility, and diversity as well as integrity). To enhance transparency, the individual contribution factor assessment will be disclosed per board member.
The annual bonus is subject to a limit and capped at 150 % of the target amount.
To foster shareholder alignment, the proportion of the equity-related compensation component within the total target compensation is significantly increased to 45 %. Also, annual target amounts are increased to € 2,559 thou for the Chairman of the Allianz SE Board of Management and € 1,463 thou for a regular board member. The proportion and the respective target amounts are based on target allocation values as described below in the section “Allianz share price performance”.
RSUs, however, deviates from the allocation value, as it is based on the fair value concept, which is more complex, since it is based on an
CEO: 2,559 RBM: 1,463 4-year relative performance: • LTI payout subject to relative 4-year total shareholder return (TSR), benchmarked to peer group (index), capped at 200%
38 Annual Report 2018 − Allianz Group option pricing model and additional market parameters1. The proposed simplified allocation value concept aims to increase transparency and traceability of the number of RSU allocated to the beneficiaries.
The allocation value and the fair value of the RSUs at grant will be disclosed in the annual remuneration report.
To foster relative performance against peers, a relative performance measure, TSR, was introduced: − The Allianz TSR will be benchmarked to the TSR of the STOXX
Europe 600 insurance performance index, which represents a relevant peer group in the insurance industry.
TSR of the index is deducted from the TSR of the Allianz share; the result is multiplied by the factor 2 and, for calculation of the payout, applied as a factor to the RSU share price at vesting, e.g.
TSR performance factor is capped at 200 % which reflects 50 %
outperformance. In addition, the payout of the RSU is set to zero if the relative TSR underperformance is below 50 % after four years.
Following the end of the four-year vesting period, the company makes a cash payment based on the relevant share price of the RSUs at vesting, as adjusted by the relative TSR measure and sustainability check as described above. The relevant share price, which is capped at twice the share price at grant, is calculated based on the ten-day average Xetra closing price of the Allianz stock following the annual financial media conference in the year of expiry of the respective RSU
The LTI payout is subject to a limit and capped at 600 % of the target amount based on the allocation value as described in the LTI section
− Chairman of the Board: two times base salary, i.e. € 3,412 thou
MALUS/CLAWBACK (NEW) Variable remuneration components may not be paid, or payment may be restricted, in the case of a significant breach of the Allianz
TOTAL TARGET COMPENSATION AND OVERALL CAP (NEW) The review of the current remuneration system also revealed the need to adapt the compensation levels for the Board of Management of
The ratio of the Chairman of the Board’s compensation against regular board members’ compensation remained at 1.75.
The previous system did not include explicit overall payout caps. The calculatory overall payout caps that resulted from the individual caps of the compensations components amounted to € 11,800 thou for the
− Establish a remuneration structure that takes into account the individual functions and responsibilities of Supervisory Board members, such as chair, vice chair, or committee mandates.
FIXED ANNUAL REMUNERATION The remuneration of a Supervisory Board member consists of a fixed cash amount paid pro rata temporis after the end of the respective quarter of the business year for services rendered over that period.
1_Based on the allocation value as described in detail in the LTI section “Allianz share price performance” on page 37.
COMMITTEE-RELATED REMUNERATION The Chairperson and members of the Supervisory Board committees receive additional committee-related remuneration. The committeerelated remuneration is as follows: Committee-related remuneration € thou
Personnel Committee, Standing Committee, Risk Committee, Technology Committee 50 25 1_Members of the Nomination Committee do not receive an additional remuneration.
Individual remuneration: 2018 and 2017 € thou (total might not sum up due to rounding)
Legend: C = Chairperson of the respective committee, M = Member of the respective committee 1_Abbreviations: A - Audit, N - Nomination, P - Personnel, R - Risk, S - Standing, T - Technology 12_Since 1 August 2018.
Mr. Frank Kirsch received € 43.6 thou for the financial year 2018.
Mr. Jürgen Lawrenz did not receive any remuneration for his service on the Supervisory Board of Allianz Technology SE. All current employee representatives of the Supervisory Board, except for
Ms. Martina Grundler, are employed by Allianz Group companies and receive a market-based remuneration for their services.
This section has been compiled in accordance with the CSR Directive
(GHG) emissions per employee and % of green electricity). Based on our commitment to setting ourselves long-term climate targets, we are currently developing indicators and targets for the carbon performance of our proprietary investment portfolio for future reporting. For more information please see www.allianz.com/en/sustainability/lowcarbon -economy/decarbonization.
Reporting Standards when determining the scope of our reporting on behalf of our consolidated entities.
(PwC) has been engaged to perform a reasonable assurance engagement on the 2018 non-financial information, with limited assurance given to the environmental indicators (GHG emissions per employee, % of green electricity). All 2017 data included in this report has been assessed based on a limited assurance engagement in the previous year. For the “Independent Practitioner’s Report on a Limited and Reasonable Assurance Engagement on Non-Financial Reporting”
Corporate Responsibility Governance and Strategy At Allianz, we aim to create sustainable economic value by pursuing a long-term approach to corporate governance, social responsibility, and environmental stewardship. This is critical to our business success, as we are committed to delivering on our promises to customers, investors, and society as a whole. To deliver on our ambition of being one of the most trusted financial institutions and a global sustainability leader, we must continually adapt our business strategy to any issues that arise.
CORPORATE RESPONSIBILITY GOVERNANCE The highest governing body for sustainability-related issues at Allianz is the Group ESG Board (ESG = Environment, Social, and Governance).
In addition to the Group ESG Board, there are other committees under board member leadership which play an important role in our decision-making processes: − The Group Finance and Risk Committee oversees risk management and monitoring, including sustainability risk. The Committee is the point of escalation for ESG-related topics, based on analysis and deliberations within the ESG Board.
Group Communications and Corporate Responsibility at Allianz SE, who in turn reports directly to the CEO of Allianz SE. This ensures close alignment with the CEO’s agenda.
STAKEHOLDER ENGAGEMENT & MATERIALITY As we are a multinational business, the challenges we face are increasingly diverse and interconnected. Therefore we ensure our Corporate Responsibility Strategy takes into account our stakeholders'
Survey results showed that of the perceived megatrends and risks Allianz should be addressing through its solutions and Corporate Responsibility Strategy, the most important are these: − climate change/environment (e.g. climate-induced impacts, biodiversity loss, etc.),
responsible consumer / sales concepts” and digitalization / automation in “Social matters – emerging consumers concept and data privacy concepts”. We will further assess the topics of natural disasters and digitalization to ensure they are fully reflected in our strategy and reporting.
CORPORATE RESPONSIBILITY STRATEGY Within the three main themes of our Corporate Responsibility Strategy
Furthermore, as a global insurer, investor and asset manager, understanding ESG issues allows Allianz to reduce risks and capture opportunities in underwriting, claims, investment management, and asset management. We describe our ESG approach in the following section; our concepts for all other matters for which reporting is required will be addressed in the subsequent chapters. The ESG approach provides part of the foundation for these concepts.
ESG topics are integrated in our insurance, investment, and asset management business through multiple instruments including internal standards, guidelines, and processes, such as the Allianz Standard for Reputational Risk and Issue Management (AS RRIM), the
− In the field of underwriting and investments in non-listed asset classes, ESG risks have been managed through the ESG sensitive business guidelines outlined in the AS RRIM since 2014. For investments in listed asset classes, the Allianz ESG Scoring Approach (defined in EFRI) is applied to manage related risks. Since
− As far as investments are concerned, Allianz has excluded investments in companies involved in controversial weapons 1 since 2011, and in coal-based business models2 since November 2015.
− For its Property-Casualty insurance business, Allianz has decided to no longer cover single-site coal-fired power plants and coal mines that are being operated or planned as of 2018. Existing contracts with such facilities will not be renewed when the current contract expires.
− Further ESG-related measures include our systematic engagement with investee companies, launched in 2017 and rolled out in 2018, as well as ESG considerations in our selection and management of asset managers.
This section describes the impacts of environmental matters on our business activities and relationships, as well as the impact of Allianz’s activities and relationships on the environment. Furthermore, we describe our concepts for the management of these impacts and related achievements.
Carbon Economy” addresses climate change and environmental issues, which were identified as one of the four most material risks and megatrends. As a company dealing with risk, managing the impacts on environmental matters is an important part of our approach. Climate change remains a major risk for the societies in which we operate. It also directly affects our business, including everything from our in-house operations to our investments and our insurance products. We are committed to tackling the climate challenge by supporting the transition to a low-carbon economy through our investments and insurance solutions. In addition, we manage the emissions from our operations and strive to remain a carbon-neutral company.
integration approach for listed and non-listed assets. We systematically engage with investee companies exposed to high ESG risks.
We enable positive change as an insurer, developing and offering insurance solutions for renewables technologies and energy efficiency. For instance, we contribute to financing a low-carbon economy by making equity and debt investments in renewable energies. Allianz also offers a variety of funds for institutional investors who want to invest in low-carbon assets such as renewable energy or green bonds. For further information on renewable energy investments, please refer to note 6 to the Consolidated Financial Statements.
Climate-related Financial Disclosures (TCFD). The disclosure can be found in our Sustainability Report 2018 www.allianz.com/
− We have decided to no longer insure single-site coal-fired power plants and coal mines that are being operated or planned as of 2018.
− Fully phase out coal-based business models across our proprietary investments and property-casualty portfolios by 2040 at the latest.
ENVIRONMENTAL CONCEPT At Allianz, we are committed to effectively managing our most significant impacts on the environment, which includes prevention of pollution.
We work to continually improve the environmental performance of our operations. Specifically we seek to: − reduce the amount and carbon intensity of the energy consumed by our operations, for instance by ensuring an energy-efficient planning, construction, and operation of buildings,
− minimize the environmental impact of waste by avoiding, reducing, re-using, and recycling it as appropriate.
Further, we include various environmental factors in our sourcing and procurement processes. By doing that, we seek to raise suppliers’ and contractors’ awareness of our environmental commitment, and to encourage them to act accordingly.
− Status/progress: In 2018, our carbon footprint per employee was 2.7 tons. This represents a 27 % reduction through increase in the share of green electricity and higher energy efficiency, against a
− Status/progress: In 2018, our carbon footprint per employee was 3.5 tons. This represents a 6 % increase, against a 2016 baseline, due to expansion of our international business presence, involving more travel.
− Target: Reduce carbon emissions by 2 % per employee by 2020, against a 2016 baseline.
This section describes the impacts of social matters on our business activities and relationships as well as the impact of Allianz’s activities and relationships on society as a whole. In addition, we describe the concepts and achievements related to the management of these impacts with a focus on social inclusion, emerging consumers, responsible consumer/sales policies, and data privacy.
are assessed based on a limited assurance engagement, not on a reasonable assurance level.
2_The majority of the environmental impacts reported are in scope of an SE environmental management system certified to ISO14001, the scope currently excludes Allianz RE.
4_The SE target has been amended in 2018 in line with the Group target based on the recent RE100 commitment.
have made it one of the three top priorities for our Corporate
Responsibility Strategy in 2016. True to our role as Insurer, Employer, and Committed Corporate Citizen, we want to contribute to creating more inclusive societies. We are determined to expand our range of offerings to emerging consumers, in order to provide more people with access to low-cost financial services. Inside the company, we support social inclusion through our diversity and well-being programs, as well as by supporting specific groups such as women in management and people with disabilities. Our social contributions include time, skills, and money.
ENCOURAGING FUTURE GENERATIONS PROGRAM (CONCEPT) In 2016, we launched Encouraging Future Generations, our Social
Inclusion program. It is designed to empower young people to develop in self-confidence, and to shape inclusive, resilient societies. Building on successful projects carried out by our OEs, the program provides the global framework and focus to scale up Allianz’s social contribution.
Our group-wide initiatives are: − a partnership with SOS Children’s Villages (CV),
 Status/Progress:  Together with SOS CV and Volunteer Vision, in 2018 we launched the first online mentoring in which Allianz employees mentor young people.
 We also granted funds to 14 social projects globally through our Social Innovation Fund, and to impact-oriented ventures through the Allianz Future Generations Award.
 Target: To further improve our reach to children and youth, we will continue to support social projects through our Encouraging
America, where a majority of people are still severely underinsured. The responsibility for managing the emerging consumers business lies with the local Allianz OEs. In 2015, we managed to reach the 50million -customer benchmark in the expanding emerging-consumers market (with a potential of 3.7 billion customers at present, and of 5 billion in 20305). We are determined to further expand our range of offerings to emerging consumers, in order to continue closing the supply gap for people who need access to low-cost financial services tailored to their needs.
5_2017 World Bank and OECD figures. Total population is based on the de facto definition of population, which counts all residents regardless of legal status or citizenship. The values shown are midyear estimates.
As many of those markets lack an established financial-services infrastructure, our emerging-consumers segment places a key focus on digitalization. To make the most of existing opportunities, we are partnering with digital businesses to distribute and expand our reach in these markets, for example through mobile-phone-based insurance products.
− Status/progress: Allianz is expanding its access to emerging consumers with new digital offerings by collaborating with leading partners like BIMA and Go-Jek.
RESPONSIBLE CONSUMER / SALES CONCEPTS Our strong reputation is built on customers’, shareholders’, employees’
and the general public’s trust in our integrity. This trust depends on the quality of our products, the way we inform and advise our customers, and on the personal conduct and capability of our sales employees and representatives. Since 2011, we have a global Sales
Compliance Program in place, which describes standardized processes and controls for communication, monitoring, and audit. The program is managed by the Compliance team. Recent initiatives include an enhancement of product governance principles and new solutions to deal with the low-interest-rate environment in life insurance; in this context we have implemented the Allianz Standard for Retail Risk in
NPS methodology and established a group-wide standard for retail end customer NPS, which helps to rate Allianz businesses along key business drivers like brand, product, price and service. At the same time, we introduced our Customer Excellence Program to systematically measure customer experience, identify key areas for improvement, and holistically enhance the drivers of customer satisfaction along the entire customer journey, as opposed to at individual touch points.
Responsible sales: − Status/progress: The Allianz Standard for Retail Risk has been implemented in 2018 to ensure that all Allianz companies offer fair and transparent products.
Allianz Group’s entities scored above market or in a loyalty leader position in 2018.
Our Allianz Privacy Framework includes: a global standard for data privacy; a privacy impact assessment and risk management process; integration with information security core functions; and employee training on appropriate procedures for processing of the 1_Please note that the NPS data is delivered by an external service provider and that we did not evaluate the data collection process of the provider.
Established in 2013, it sets out six privacy principles that we expect all our employees to respect: due care, purpose specification, reasonable limitation, transparency and openness, choice and consent, and privacy by design. We also publish a Privacy Notice, which clearly states what information we collect and why.
As part of our Privacy Risk Management, we consider the identification and management of privacy risks an integral part of our operational processes, therefore we measure, monitor, and remediate risks across Allianz’s core businesses. So-called Privacy Impact
Assessments (PIAs) are undertaken for high exposure processes that use personal data, in order to allow an early identification of high-risk areas and ensure they are appropriately managed over the lifecycle of a project, including when changing an existing product or service.
In 2016, we began to fully automate the PIA process for all
Allianz Group companies. The PIA tool has been implemented across the entire Allianz Group, in conjunction with training sessions. Privacy risks are included in Allianz’s Integrated Risk and Control System
Within our robust Information Security Framework, we globally apply strict security processes, standards, and tools. The framework also defines minimum requirements based on the ISO 27001 standard for information security management. This standard specifies requirements regarding vulnerability assessment along the software development value chain (including penetration tests and security audits), the monitoring of systems via multi-level security systems, and effective IT
We keep abreast of regulatory and industry developments and aim to reflect these in our operational and governance processes and procedures. For example, in response to the changes in the E.U. General
This section describes the impacts of human rights matters on our business activities and relationships, as well as the impact of Allianz’s activities and relationships on human rights issues. Furthermore, we describe the concepts and achievements related to the management of these impacts. As a financial services provider those refer mainly to insurance transactions, direct investments and to our supply chain.
CONCEPTS We are committed to apply key human rights principles, as described in the United Nations Universal Declaration of Human Rights, across our entire global organization. As a participant to the United Nations
Global Compact since 2002, we have integrated its 10 principles into our globally binding Code of Conduct. We annually communicate our progress, including both human rights and labor standards. Since 2015, we encourage our vendors to sign a Vendor Code of Conduct, which stipulates what our vendors must fulfill with regards to fair labor practices, including the prevention of modern slavery in the supply chain and human rights.
As part of our support and engagement for these human rights principles, we also take an active stance against modern slavery or human trafficking – within the boundaries of the risk-based approach we pursue – in all of the Allianz Group’s businesses and supply chains.
− Targets: − Continue to apply ESG Sector Guidelines and Human Rights
CONCEPTS Our employees are one of our most valuable assets and key to the success of our company. Without them, it would be impossible to deliver on our business strategy and achieve our goals. Therefore, the importance of retaining our best people and keeping them motivated and committed by managing and rewarding talent, promoting inclusivity and employee rights, and supporting employees’ wellbeing and engagement cannot be overstated.
Leadership, Entrepreneurship and Trust – along the entire people value chain: from recruiting and talent management to learning and performance management.
The Group Chief HR Officer is responsible for all people-related activities and reports directly to a member of the Board of
IMIX for Allianz Group: − Status/progress: 71 % IMIX score in 2018.
− New target: 73 % IMIX score in 2021. The new ambitious IMIX
target was set to further drive the change within the organization towards a culture of Inclusive Meritocracy.
As 2018 targets were not fully reached for the Allianz Group, the following initiatives will be implemented or continued to improve results in the mid-term: Inclusive Leadership Training, Inclusive
Learning) for all Allianz employees globally, and further specific local measures at OE level. The diversity concept for our Board of Management and Supervisory Board is published in our Statement on Corporate Management pursuant to § 315d and § 289f of the HGB starting on page 17.
Compliance Officers Forum (CCO Forum) to enhance our understanding of compliance issues and to share best practices.
Allianz’s Integrated Risk and Control System (IRCS). In 2018, all relevant entities conducted a compliance risk assessment based on the compliance-risk scenarios. The following top inherent compliance risk areas have been identified: − data privacy,
To ensure continuous improvement in how we address compliance risks, these risks are regularly assessed, monitored, and reported throughout the Group. Our Compliance Quality Assurance Program, rolled out in 2012, is comprised of self-assessments, independent onsite reviews, local spot checks, and testing of key controls. An online compliance issue management tool provides an overview over mitigating activities and key risk indicator tracking. In addition, our online compliance case management tool provides the consistent groupwide management of and authority over all cases. It also facilitates reporting to the Audit Committee and the Integrity Committee.
As part of our global compliance program, we follow international standards and applicable laws related to corruption and bribery, money laundering and terrorism financing, trade and financial sanctions, capital markets compliance, data privacy, sales compliance, antitrust, and other relevant compliance risk areas.
Business Ethics and Compliance and our risk assessment. They are detailed in various Allianz Standards and Programs – specifically, the
Economics Sanctions Program, the Anti-Money Laundering Program, the Antitrust Program, the Data Privacy Standard, Customer Protection, and the Anti-Corruption Program.
− Completion of the second cycle of the integrated compliance risk scoping and assessment activities as part of the company’s
− Review and simplify the current risk scoping and maturity assessment processes.
– Global Insurance Lines & Anglo Markets, Middle East and North Africa and Africa
– Iberia & Latin America – USA – Global Insurance Lines & Anglo Markets,
Life/Health business segment offers savings and investment-oriented products in addition to life and health insurance. We are the leading property-casualty insurer worldwide and rank among the top five in the life/health insurance business2. Our key markets (in terms of premiums) for both property-casualty and life/health insurance are
1_For further information on organizational changes, please refer to the Executive Summary of 2018 Results.
Most of our insurance markets are served by local Allianz companies. However, some business lines – such as Allianz Global
Italy, the United Kingdom, and the Asia-Pacific region. With the transfer of Allianz Capital Partners (ACP), our proprietary private equity, renewable energy and infrastructure manager, from Corporate and
Other to AllianzGI, we are expanding AllianzGI’s product offering range also for third-party alternative equity business.
BANKING Our banking operations, which place a primary focus on retail clients, support our insurance business and complement the products we offer in Italy, France, and Bulgaria. The sale of Oldenburgische
Landesbank AG was closed on 7 February 2018. Hence, we no longer have any banking operations in Germany.
BOARD OF MANAGEMENT AND ORGANIZATIONAL STRUCTURE Allianz SE has a divisional Board structure based on functional and business responsibilities. Business-related divisions reflect our business segments Property-Casualty, Life/Health, Asset Management, and
1_This member of the Board of Management also oversees Insurance Iberia & Latin America and Allianz Partners.
The Allianz Group uses operating profit and net income as key financial performance indicators across all its business segments.
Other indicators include segment-specific figures, such as the combined ratio for Property-Casualty, return on equity1 for Life/Health, and the cost-income ratio for Asset Management. To steer and control new business in our business segments Property-Casualty and Life/Health, we use Return on Risk Capital (RoRC)2. We also use new business margins for Life/Health. For a comprehensive view of our business segment performance, please refer to the chapters from page 53 onwards.
KPIs, please refer to the Combined Separate Non-Financial Report for the Allianz Group and Allianz SE (according to §§ 289b (3), 315b
(3), sentence 1, sentence 2 in conjunction with § 298 (2) of the HGB)
2_The return on risk capital is defined as the present value of future real world profits on the capital requirement (including buffer to regulatory requirements) held at local level.
while continuing its balance sheet normalization program. Yields on 10-year German government bonds closed the year at 0.25 %, 17 basis points below the level reached at the end of 2017. The
U.S. Dollar-to-Euro exchange rate was 1.15 at the end of 2018 (end
Business environment 2018 for the insurance industry 2018 proved to be a year of transition for the insurance industry. The contours of a new market order have become ever more visible as parameters of risk, competition, and legislation changed significantly.
Cyber and climate change have come to the fore in the risk landscape. 2018 saw a surge in data breaches and privacy scandals.
Environment was final. Also, please note that the information provided in this chapter is based on our estimates.
2018, these efforts were at least supported by economic tailwinds of premium growth.
Along with worldwide capital market development, we saw long-term net inflows during most of the year. Net flows turned around especially in the U.S. and Europe at year-end, as the strongly increased market volatility led to a de-risking of investment portfolios in almost all asset classes into money market and other lower-risk assets. Overall, 2018 long-term net flows remained positive, but on the lowest level since years. Net inflows were strongly driven by passive products, while actively managed vehicles recorded net outflows in almost all asset classes.
Key figures Allianz Group1 thereof: attributable to shareholders € mn 7,462 6,803 659
Property-Casualty business segment was driven by AGCS, Germany and Allianz Partners. An increase in assets under management
Our operating investment result decreased by € 4,634 mn to € 19,289 mn. This decrease was driven by a lower trading result, and higher equity impairments due to the downturn of major equity markets.
German and the U.S. businesses. The operating result in our Corporate and Other business segment declined as well, as the sale of
Our non-operating result decreased by € 163 mn, settling at a loss of € 1,113 mn. A negative impact from the sale of our traditional 1_For further information on Allianz Group figures, please refer to note 4 to the Consolidated Financial Statements.
5_Risk capital figures are group diversified at 99.5 % confidence level.
6_Represents the ratio of net income attributable to shareholders to the average shareholders’ equity excluding unrealized gains/losses on bonds, net of shadow accounting, at the beginning of the year and at the end of the year.
7_Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals.
Income taxes decreased by € 245 mn to € 2,696 mn, due to the
Net income increased, as operating profit growth and lower income taxes more than offset the decline in our non-operating result.
The Group Management Report also entails the following sections: − Statement on Corporate Management pursuant to § 315d and
− Takeover-Related Statements and Explanations starting on page 20, and the
8_For further information on shareholders‘ equity, please refer to the Balance Sheet Review.
9_For further information on the share buy-back program, please refer to note 19 to the Consolidated Financial
This includes unfavorable foreign currency translation effects of € 1,673 mn6 and positive (de)consolidation effects of € 61 mn. On an internal basis, our premiums went up 5.7 %, driven by a positive volume effect of 4.0 % and a positive price effect of 1.7 %.
The following operations contributed positively to internal growth: AGCS: Gross premiums went up to € 8,186 mn – an increase of 11.9 % on an internal basis. It was largely owed to positive volume effects at Allianz Risk Transfer.
One operation weighed on internal growth: Ireland: Gross premiums of € 568 mn, corresponding to a 6.7 %
2_Represents claims and insurance benefits incurred (net) divided by premiums earned (net).
3_Represents acquisition and administrative expenses (net) divided by premiums earned (net).
4_Represents the total of acquisition and administrative expenses (net) plus claims and insurance benefits incurred (net), divided by premiums earned (net).
Operating investment income (net) 3,017 2,905 112 1_Consists of fee and commission income/expenses and other income/expenses.
Our operating profit increased in 2018: We recorded a significant increase in underwriting result as well as an increase in operating investment income, supported by one-off effects.
Run-off remained at the previous year’s level, and our combined ratio improved by 1.2 percentage points to 94.0 %.
Change in reserves for insurance and investment contracts (net) (without expenses for premium refunds)1 (320) (270) (50)
1_Consists of the underwriting-related part (aggregate policy reserves and other insurance reserves) of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 26 to the
Our accident year loss ratio7 stood at 70.1 % – an improvement by 0.5 percentage points, compared to 2017. Much of this was due to a decrease in losses from natural catastrophes: As they fell from € 1,111 mn to € 934 mn, the impact on our combined ratio improved from the previous year’s 2.4 percentage points to 1.9 percentage points.
Excluding losses from natural catastrophes, our accident year loss ratio improved by 0.1 percentage points to 68.1 %. This is largely owed to profitability improvements across the Allianz Group, which were only partially offset by an increase in our large-loss exposure.
The following operations contributed positively to the development of our accident year loss ratio: Reinsurance: 0.4 percentage points. This was due to a lesser impact from natural catastrophes.
Australia: 0.1 percentage points. The improvement is attributable to a favorable underlying claims development and the fact that in 2017, losses from natural catastrophes had been higher.
One operation weighed on the development of our accident year loss ratio: France: 0.3 percentage points. The accident year loss ratio suffered from large claims on commercial property, as well as from natural catastrophes such as storms and floods throughout the year.
Our run-off ratio remained at 4.1 %; the main reserve releases stemmed from our operations in Italy, Australia, and Reinsurance.
Total expenses amounted to € 13,542 mn in 2018, compared to € 13,537 mn in the previous year. Our expense ratio improved by a healthy 0.6 percentage points to 28.0 %, benefiting from efficiency programs across the Group, changes in business mix, and premium growth. Both the acquisition and the administrative expense ratio contributed positively to this development.
Our other result remained relatively stable compared to the previous year.
Our net income increased by € 495 mn, mainly driven by a higher operating profit. The effect was only partially offset by a lower nonoperating result and higher income taxes.
On an internal basis, statutory premiums increased by € 4,322 mn –
Statutory premiums in the United States stood at € 10,832 mn, up 16.2 % on an internal basis. This was caused by an increase in sales of fixed index annuities due to favorable product changes coupled with sales initiatives.
In Italy, statutory premiums grew to € 11,588 mn – a 3.8 % increase on an internal basis. It was attributable to higher production volumes in all our lines of business except for unit-linked products without guarantee, with the largest part resulting from higher sales in capital-efficient products.
Our operating profit decreased, driven by a decline in our investment margin. This was largely due to higher impairments and decreased trading result mainly in our U.S. and German businesses – partly offset by higher income from unit-linked business in Italy and Taiwan.
6_The purpose of the analysis of Life/Health operating profit sources is to explain movements in IFRS results by analyzing underlying drivers of performance, consolidated for the Life/Health business segment.
Operating income from financial assets and liabilities carried at fair value through income (net) (3,351) (1,149) (2,202)
“Impact of change in DAC” into the “Investment margin” – for further information please refer to note 2 to the
The increase in acquisition expenses and commissions was driven by a growth in sales mainly of fixed index annuities in the United States and of capital-efficient products in our German life business. Other factors included higher production in Italy, especially in the bancassurance channel with unit-linked products. Administrative and other expenses decreased slightly, mainly due to lower legal accruals in the United States, and smaller one-off improvements in the German health business.
TECHNICAL MARGIN2 Our technical margin dropped slightly, driven predominantly by oneoff reserve adjustments in the United States, higher loss ratios due to higher claims in our protection & health business, and one-off effects in France. Positive effects from the Asia-Pacific region and from
2_The technical margin comprises the risk result (risk premiums less benefits in excess of reserves less policyholder participation), the lapse result (surrender charges and commission clawbacks) and the reinsurance result.
German life business, as well as by a reclassification of a unit-linked product component to the unit-linked without guarantee line of business in France. A decrease in operating profit in our protection & health line of business was mainly driven by lower technical margins in France, and in the United States. The higher operating profit in our unit-linked without guarantee line of business was primarily due to higher unit-linked management fees in Italy and Taiwan, with a reclassification of a unit-linked product component from the guaranteed savings & annuities line of business in France contributing to the positive effect. The operating profit in the capital-efficient products line of business went up. Much of this increase was contributed by our German life business.
Our net income decreased by € 131 mn. This was due to the lower operating profit as well as to the sale of our traditional life insurance portfolio in Taiwan. The latter had a negative net impact of € 218 mn, partly offset by lower income taxes.
Our return on equity decreased by 0.7 percentage points to 11.4 %, driven mainly by the decline in our net income.
Type of asset class as of 31 December as of 31 December 1_The term “multi-assets” refers to a combination of several asset classes (e.g. bonds, stocks, cash and real property)
2_”Other” is composed of asset classes other than equity, fixed income and multi-assets, e.g. money markets, commodities, real estate investment trusts, infrastructure investments, private equity investments, hedge funds, etc.
Positive effects from consolidation, deconsolidation, and other adjustments added € 24 bn to total AuM. This is mainly related to
As of 31 December 2018, the business units’ shares in thirdparty AuM remained stable: 77.8 % were attributable to PIMCO
(31 December 2017: 23.2 %). The slight shift towards PIMCO was due to positive foreign currency translation effects, overcompensating negative effects from “market and dividends” and net outflows.
At AllianzGI, positive foreign currency translation effects and net inflows could not outweigh negative effects from “market and dividends” that occurred mainly in the fourth quarter of 2018.
The share of fixed-income assets rose from 76.4 % at the beginning of the year to 77.9 %. This was mainly due to positive foreign currency translation effects and – to a lesser extent – to positive effects from consolidation, deconsolidation, and other adjustments.
Together, they outweighed the negative effects from “market and dividends” as well as the net outflows. The share of equities declined from 9.4 % to 8.3 %. This was driven by negative effects from “market and dividends”. The share of multi-assets was stable at 10.2 %
(31 December 2017: 59.4 %), while separate accounts5 were at 40.7 %
As for the regional allocation6 of third-party AuM, shares shifted towards America (56.3 %), while Europe’s share declined (32.2 %) and that of the Asia-Pacific region remained roughly stable (11.6 %)
1_For further information on our Asset Management figures, please refer to note 4 to the Consolidated Financial
AllianzGI’s three-year rolling investment performance, which went down from 75 % to 51 %. PIMCO’s three-year rolling investment performance also decreased slightly from 95 % to 93 %, but remained on a high level.
Korea at the end of the third quarter of 2017. On an internal basis2 operating revenues grew by 5.8 %.
AllianzGI’s performance fees increased, due to mostly operatingprofit -neutral carried interest from ACP.
Our operating profit increased by 3.7 % on a nominal basis and 6.9 %
In addition, non-personnel expenses increased, largely due to PIMCO: This was partly attributable to investments in business growth.
The increase in our net income of € 376 mn was due to a higher operating profit as well as to a lower effective tax rate, mostly due to the U.S. tax reform.
1_Three-year rolling investment performance reflects the mandate-based and volume-weighted three-year investment success of all third-party assets that are managed by Allianz Asset Management’s portfolio-management units. For separate accounts and mutual funds, the investment success (valued on the basis of the closing prices) is compared with the investment success prior to cost deduction of the respective benchmark, based on various metrics. For some mutual funds, the investment success, reduced by fees, is compared with the investment success of the median of the respective
Operating profit in the range of € 5.1 bn to € 5.7 bn. Operating profit of € 5.7 bn is at the upper end of our target range. Our underwriting result was positively impacted by improvements in our expense ratio.
Achievement of our combined-ratio target of 94 % or better. Combined ratio was at 94.0 %, meeting our target. The improvement in profitability was mainly driven by a decrease in our expense ratio, which benefited from efficiency programs carried out across the entire Allianz Group.
Operating profit between € 3.9 bn and € 4.5 bn. At € 4.2 bn, our operating profit was within the target range, driven by high unit-linked management fees and a solid investment and technical margin.
Pressure on investment income, due to low interest rates and continued capital market uncertainty.
Total AuM were stable, as the positive effects from foreign currency translation and the Allianz Capital Partners transfer were able to compensate for the negative effects from market returns and net outflows.
As we move into 2019, prospects for the world economy remain favorable overall. Nevertheless, political and economic risks remain sizable, in particular in relation to the trade dispute with the United
data analytics and AI – are key. Fourth, political risks remain elevated, and the fractures of the old world order may become irreconcilable.
In the life sector, premium growth is expected to accelerate. The main reason: a rebound in China where the regulatory shock of 2018 is seen as a one-off effect. As a consequence, emerging markets are likely to return to double-digit growth. On the other hand, premium growth in advanced economies should remain more or less stable, albeit at a much lower level. Overall, we expect global premium growth to increase by about 5 to 6 % in 2019 (in nominal terms and adjusted for foreign currency translation effects). Given the continued revamping of insurance and investment portfolios, global industry profitability could creep up, although the investment environment remains challenging.
Brexit as well as ongoing political uncertainties and trade tensions are weighing on the global economy. As a result, market volatility is presumed to remain high and many investors are likely to further de-risk their portfolios. We therefore expect only a modest capital market contribution to AuM growth.
The strengthening of regulatory oversight and reporting could also affect profitability in the asset management sector. Opportunities in the area of active management will continue to exist, particularly in alternative and solutions-oriented strategies, but also in equity and fixed-income. In order to continue growing, it is vital for asset managers to keep sufficient business volumes, ensure efficient operations, and maintain a strong investment performance.
For further information on our ambitions for the period 2019-2021, please refer to the section “Our business aspirations” in the Risk and
Partners, where we have pooled our B2B2C activities. Further growth can be expected in our core European markets, specifically Germany,
We believe the overall slow rise in prices seen in a number of markets in the past year will continue in 2019. Notwithstanding, we will maintain our focus on achieving strong underwriting results by adhering to our strict underwriting discipline, as we have in previous years, and we will be prepared to accept a lower top line if target margins cannot be achieved.
Our combined ratio was at 94 % in 2018, in line with our target, which we achieved by improving our expense levels. In 2019, we envisage a combined ratio of 94 % or better. The underlying assumption is that the aggregate effect of improvements in pricing, claims management, and productivity will compensate for any inflation in underlying claims. Despite the highly volatile nature of natural catastrophes in recent years, we assume impacts to remain at the historic claims experience going forward.
As the low-interest-rate environment is likely to change only slowly, investment income will remain under pressure due to the rather short duration of investments in the Property-Casualty business segment. Going forward, we will continue to take measures to adapt our investment strategy to changing market conditions.
One of the key performance indicators for the steering of our
Life/Health business segment is RoE. In 2019, we expect it to be
Going forward, we will remain focused on profitable growth and continue to develop capital-efficient products – always putting customer needs at the center of our efforts – while exploring new market opportunities and building on our strong track record of product innovation. In addition, we will continue to actively manage both our new and our in-force business through continuous repricing, expense management, asset/liability management, and crediting strategies. As before, this should allow us to mitigate the impacts of difficult market conditions – particularly low interest rates – and maintain our profitability targets.
Our cost-income ratio is expected to be below 64 % in 2019 (2018: 62.4 %), as we continue to invest in business growth. In the mid-term, we expect our cost-income ratio to reach 63 %.
CORPORATE AND OTHER (INCLUDING CONSOLIDATION) We recorded an operating loss of € 0.9 bn in 2018. For 2019, we envisage an operating loss in the same range: € 0.8 bn to € 1.0 bn for this business segment.
Financing, liquidity development, and capitalization The Allianz Group enjoys a very healthy liquidity position and excellent financial strength, with its capitalization well above regulatory requirements.
No duty to update The Allianz Group assumes no obligation to update any information or forward-looking statement contained herein, save for any information we are required to disclose by law.
Supervisory Boards, each of which may elect to deviate, if and as appropriate under the then prevailing circumstances, as well as to the approval of the Annual General Meeting.
The decrease in shareholders’ equity was largely due to the reduction in the unrealized gains and losses (net). The dividend payout in
STRUCTURE OF INVESTMENTS – PORTFOLIO OVERVIEW The following portfolio overview covers the Allianz Group’s assets held for investment, which are largely driven by our insurance businesses.
Compared to year-end 2017, our overall asset allocation remained almost unchanged, with slightly increased equities and debt instruments exposure.
Our well-diversified exposure to debt instruments remained stable compared to year-end 2017. About 94 % of this portfolio was invested in investment-grade bonds and loans.3 Our government bonds portfolio contained bonds from France, Germany, Italy, and Spain that represented 17.3 %, 14.2 %, 8.8 % and 5.6 % of our portfolio shares. Of our covered bonds portfolio, 40.3 % (31 December 2017: 41.6 %) were
2_For further information, please refer to note 19 to the Consolidated Financial Statements 3_Excluding self-originated German private retail mortgage loans. For 3 %, no ratings were available.
PROPERTY-CASUALTY LIABILITIES As of 31 December 2018, the business segment’s gross reserves for loss and loss adjustment expenses as well as discounted loss reserves amounted to € 65.6 bn, compared to € 66.2 bn at year-end 2017. On a net basis, our reserves, including discounted loss reserves, increased slightly from € 56.3 bn to € 56.4 bn.1
LIFE/HEALTH LIABILITIES Life/Health reserves for insurance and investment contracts increased by € 16.5 bn to € 515.5 bn. An € 20.2 bn increase (before foreign currency translation effects) in aggregate policy reserves was mainly driven by our operations in Germany (€ 13.2 bn) and the United
Allianz Group does not rely on off-balance sheet arrangements as a significant source of revenue or financing, our off-balance sheet exposure to loss is immaterial relative to our financial position.
Please refer to the Risk and Opportunity Report from page 74 onwards for a description of the main concentrations of risk and other relevant risk positions.
For details on the regulatory capitalization of the Allianz Group, please refer to the Risk and Opportunity Report from page 74 onwards.
provides central cash pooling for the Group. Capital allocation is managed by Allianz SE for the entire Group. This structure allows the efficient use of liquidity and capital resources and enables
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.
BANKING OPERATIONS Major sources of liquidity in our Banking operations include customer deposits, interbank loans, and interest and similar income from our lending transactions. The most important uses of funds are the issuance of new loans and investments in fixed-income securities. The liquidity of our Banking operations is largely dependent on the ability of our private and corporate customers to meet their payment obligations arising from loans and other outstanding commitments. Our ability to retain our customers’ deposits is equally important to us.
SHARE CAPITAL As of 31 December 2018, the issued share capital registered at the
Commercial Register was € 1,169,920,000. This was divided into 424,459,661 registered shares with restricted transferability. As of 31 December 2018, the Allianz Group held 961,636 (2017: 1,369,717)
Allianz SE’s capital authorizations as of 31 December 2018: Capital authorizations of Allianz SE
LONG-TERM DEBT FUNDING As of 31 December 2018, Allianz SE had senior and subordinated bonds with a variety of maturities outstanding, reflecting our focus on long-term financing. As the cost and availability of external funding may be negatively affected by general market conditions or by matters specific to the financial services industry or the Allianz Group, we seek to reduce refinancing risk by actively steering the maturity profile of our funding structure.
Senior and subordinated bonds 18,050 3,854 21,904 1_Based on nominal value.
Program and the Commercial Paper Program. Money market securities increased in the use of commercial paper, compared to the previous year-end. Interest expenses on money market securities increased mainly due to higher funding costs on average in 2018.
Program at an average rate for each tranche below U.S. Libor.
Reporting Standards (IFRS), the Allianz Group uses operating profit and internal growth to enhance the understanding of our results.
These additional measures should be viewed as complementary to, rather than a substitute for, our figures determined according to IFRS.
Income from financial assets and liabilities carried at fair value through income (net) 5 25
Income from financial assets and liabilities carried at fair value through income (net)1 3 20
OPERATING PROFIT The reconciling item scope comprises the effects from out-of-scope entities in the profit sources reporting compilation. Operating profit from operating entities that are not in-scope entities is included in the investment margin. Currently, 21 entities comprising 99.0 % of
EXPENSES Expenses comprise acquisition expenses and commissions as well as administrative and other expenses.
Administrative expenses on reinsurance business ceded 14 13 1_As per Group Management Report.
2_For German Speaking Countries, policyholder participation on revaluation of DAC/URR capitalization/amortization.
3_For further information on the FIA adjustment, please refer to note 2 to the Consolidated Financial Statements, chapter
We closely monitor the capital position and risk concentrations of the Group and its related undertakings and apply regular stress tests (including standardized, historical and reverse stress test scenarios as well as monthly stress scenarios focusing on current and possible future developments). This allows us to take appropriate measures to ensure our continued capital and solvency strength.
Furthermore, the risk capital reflecting the risk profile and the cost of capital is an important aspect considered in business decisions.
RISK MANAGEMENT FRAMEWORK As a provider of financial services, we consider risk management to be a core competency and an integral part of our business. Our risk management framework covers all operations and subsidiaries within the Group in proportion to the inherent risks of the activities, ensuring that risks across the Group are consistently identified, analyzed, assessed and managed. The primary goals of our risk management framework are: − Promotion of a strong risk management culture, supported by a robust risk governance structure.
− Consistent and proportional application of an integrated risk capital framework to protect our capital base and support effective capital management.
− Risk strategy and risk appetite: Our risk strategy defines our risk appetite consistent with our business strategy. It ensures that rewards are appropriate based on the risks taken and capital required and that delegated authorities are in line with our overall risk-bearing capacity and strategy.
− Risk reporting and monitoring: Our comprehensive qualitative and quantitative risk monitoring and reporting framework provides management with the transparency needed to assess whether our risk profile falls within delegated limits and to identify emerging issues and risks quickly. For example, risk dashboards and limit consumption reports as well as scenario analysis and stress tests are regularly prepared and communicated.
− Communication and transparency: Transparent risk disclosure provides the basis for communicating our strategy and performance to internal and external stakeholders, ensuring a sustainable positive impact on valuation and financing. It also strengthens the risk awareness and risk culture throughout the entire Group.
− Transform: we seek to become simpler and deeply digital, and to make our business more scalable
− Rebalance: we seek to build market-leading positions in large, profitable and fast-growing geographies as well as new areas of business
These objectives have been translated into clear ambitions for the period 2019-21. With regard to financial performance, we strive for a return on equity (excluding unrealized gains/losses on bonds) of at least 13 %, while growing our earnings per share at a compound annual growth rate of at least 5 % (baseline full year 2018).
To ensure the sustainability of our performance, we have set ourselves health targets for customer loyalty and employee engagement: Our ambition is for at least 75 % of the business segments of our entities to be or become rated by their customers as Loyalty Leader or above-market in terms of Net Promoter Score (NPS). At the same time, we aim to have our Inclusive Meritocracy Index at 73 % or above.
− Inclusive Meritocracy: we reinforce a culture where both people and performance matter.
− By combining close customer understanding and evolving data analytics techniques, we provide superior insurance products and extend tailor-made services offerings as well as raising productivity.
− As a diversified financial group that is active in over 70 countries, we can innovate locally, then spread ideas and best practice across the Group in order to exploit economies of scale.
− As the world’s population ages, we are expanding our offerings in the retirement savings markets.
In a continuously evolving market where the demands of customers also constantly change, our knowledge of the industry and competences in product development and risk management offer us great opportunities to create customer-focused solutions. For further details on opportunities envisaged by the Allianz Group in the various segments, please refer to Outlook 2019.
Allianz SE’s risk profiles as well as the availability of capital. The GFRC
also ensures that an adequate relationship between return and risk is maintained. Additionally, the GFRC defines risk standards, forms the limit-setting authority within the framework set by the Board of Management, and approves major financing and reinsurance transactions. Finally, the GFRC supports the Board of Management with recommendations regarding the capital structure, capital allocation, and investment strategy, including the strategic asset allocation.
A risk function, headed by a Chief Risk Officer which is independent from business line management, is established by each related undertaking. A local Risk Committee supports both the Board of Management and the Chief Risk Officer by acting as the primary risk controlling body.
Consistent implementation of the Group’s risk management framework in the related undertakings, including regular dialog between the Group and the entity, is ensured through, for example,
In addition to Group Risk and the local risk functions, legal, compliance, planning, and actuarial functions established at both the Group and the entity level constitute additional components of the “second line of defense”.
Group Legal and Group Compliance seek to mitigate legal risks with support from other departments. The objectives of both functions are to ensure that laws and regulations are observed, to react appropriately to all impending legislative changes or new court rulings, to attend to legal disputes and litigation, and to provide legally appropriate solutions for transactions and business processes.
Group since 1 January 2016, our risk profile is measured and steered based on our approved Solvency II internal model2. We have introduced a target solvency ratio in accordance with Solvency II, based on pre-defined shock scenarios at the level of both the Group and related undertakings, supplemented by ad-hoc scenarios, historical and reverse stress tests, and sensitivity analyses.
In addition, central elements of Allianz’s dividend policy are linked to Solvency II capitalization based on the internal model. By that we allow for a consistent view on risk steering and capitalization according to Solvency II framework.
Allianz steers its portfolio using a comprehensive view of risk and return based on the internal model and including scenario analysis: Risk and concentrations are actively restricted by limits based on our model and there is a comprehensive analysis of the return on risk capital3 (RoRC). RoRC allows us to identify profitable lines of business and products on a sustainable basis, reflecting the capital commitment over the life time of the products and is a key criterion for capital allocation decisions.
MARKET RISK As an inherent part of our insurance operations, we collect premiums from our policyholders and invest them in a wide variety of assets; the resulting investment portfolios back the future claims and benefits to our customers. In addition, we also invest shareholders’ capital, which is required to support the business. Finally, we use derivatives, mostly to hedge our portfolio against adverse market movements (for example, protective puts) or to reduce our reinvestment risk (for example, by using forwards, swaps or swaptions). Asset/liability management (ALM) decisions are taken based on the internal model, considering both the risks and the returns on the financial market.
As the fair values of our investment portfolios and liabilities depend on changes on the financial markets, we are exposed to the risk of adverse financial market developments. The long-dated liabilities in our Life/Health business segment contribute to interest rate risk, in 2_From a formalistic perspective, the German Supervisory Authority deems our model to be “partial” because not all our entities are using the internal model. Some of our smaller entities report under the standard formula and others under the deduction and aggregation approach. Without loss of generality, we might use the term internal model in the following chapters, e.g., in case descriptions also referring to entities that use the internal model, or descriptions focusing on processes with respect to the internal model components.
3_The return on risk capital is defined as the present value of future real world profits on the capital requirement (including buffer to regulatory requirements) held at local level.
Repor t particular if they cannot be matched by available investments due to long maturities. In addition, we are also exposed to adverse changes in equity and real estate prices, credit spread levels, inflation, implied volatilities and currencies which might impact the value of our portfolios.
To measure these market risks, real-world stochastic models for the relevant risk factors are calibrated using historical time series to generate possible future market developments. After the scenarios for all the risk factors are generated, the asset and liability positions are revalued under each scenario. The worst-case outcome of the sorted portfolio profit and loss distribution at a certain confidence level (99.5 %) defines the market Value at Risk (VaR). For entities modeled using the standard formula, the market risk is based on aggregating the losses under defined standard formula shocks.
INFLATION RISK As an insurance company, we are exposed to changing inflation rates, predominantly due to our Non-life insurance obligations but also due to inflation-indexed internal pension obligations. Inflation assumptions are taken into account in our product development and pricing. However, unexpected inflation increases both future claims and expenses, leading to greater liabilities; conversely, if future inflation rates were to be lower than assumed, liabilities would be lower than anticipated. The risk of changing inflation rates is incorporated in our internal model.
Risk and other Group center functions. In addition, all applicable limits must be met, in particular the limits set for the portfolio of an investing entity by the strategic asset allocation and its respective leeway as well as risk limits.
The Group’s credit risk profile comes from three sources: our investment portfolio, credit insurance business, and external reinsurance.
− Credit insurance: Credit risk arises from potential claim payments on limits granted by Euler Hermes to its policyholders. Euler Hermes insures its policyholders from credit risk associated with short-term trade credits advanced to clients of the policyholder. If the client of the policyholder is unable to meet its payment obligations, Euler Hermes indemnifies the loss to the policyholder.
Allianz Group’s portfolio size and structure as well as our overall risk strategy.
Premium risk is subdivided into three categories: natural catastrophe risk, terror risk, and non-catastrophe risk including man-made catastrophes.
Longevity risk is the risk that the reserves covering life annuities and group pension products might not be sufficient due to longer life expectancies of the insured.
We measure risks within our internal model, distinguishing, where appropriate, between risks affecting the absolute level and trend development of the actuarial assumptions as well as pandemic risk scenarios. Depending on the nature and complexity of the risk involved, our health business is represented in the internal model according to Property-Casualty or Life/Health calculation methods and is therefore included in the relevant Property-Casualty and
OPERATIONAL RISK Operational risks represent losses resulting from inadequate or failed internal processes, human errors, system failures, and external events, and can stem from a wide variety of sources, for example: − “Clients, Products & Business Practices”: potential losses due to a failure to meet the professional obligations or from the design of products. Examples include misselling, non-compliance with internal or external requirements related to products, anti-trust behavior, data protection, sanctions and embargoes, etc. These losses tend to be of a lower frequency but with a potentially high financial impact.
− “Execution, Delivery and Process Management”: potential losses arising from transaction or process management failures. Examples include interest and penalties from non-payment or underpayment of taxes or losses associated with broker and agent distribution processes. These losses tend to be of a relatively higher frequency but with a low financial impact (although single large loss events can occur).
STRATEGIC RISK Strategic risk is the risk of a decrease in the company’s value arising from adverse management decisions on business strategies and their implementation.
Engines, and Inclusive Meritocracy. Progress on mitigating strategic risks and meeting the Renewal Agenda objectives is monitored and evaluated as part of the Strategic and Planning Dialogs between
Allianz SE over time horizons of twelve months and three years is reported to the Board of Management regularly and strives for the achievement of a target level for the strategic liquidity reserve.
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 assessed by external stakeholders.
As a subset of reputational risk, the management of Environmental, Social and Governance (ESG) risks is supported by a dedicated
Group ESG Board and Group ESG Office1, which help steer the integration of ESG aspects into core investment and insurance activities.
We define internal risk capital as the capital required to protect us against unexpected, extreme economic losses, and which forms the basis for determining our Solvency II regulatory capitalization. On a quarterly basis, we calculate and consistently aggregate internal risk capital across all business segments. We also project risk capital requirements on a bi-weekly basis during periods of financial market turbulence.
GENERAL APPROACH We utilize an approach for the management of our risk profile and solvency position that reflects the Solvency II rules, in that it comprises our approved internal model and covers all major insurance operations. Other entities are reflected based on standard formula results, others under the deduction and aggregation approach as well as on sectoral or local requirements for non-insurance operations, in accordance with the Solvency II framework.
INTERNAL MODEL Our internal model is based on a VaR approach using a Monte Carlo simulation. Following this approach, we determine the maximum loss in portfolio value in scope of the model within a specified timeframe 1_The Allianz Environmental, Social, Governance (ESG) Board and the 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 at the Allianz Group.
(“confidence level”, set at 99.5 %). We simulate risk events from all risk categories (“sources of risk”) modeled and calculate the portfolio value based on the net fair value of assets minus liabilities, including risk mitigating measures like reinsurance contracts or derivatives, under each scenario.
The required risk capital is defined as the difference between the current portfolio value and the portfolio value under adverse conditions at the 99.5 % confidence level. As we consider the impact of a negative or positive event on all risk sources 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. We also analyze several pre-defined stress scenarios representing historical events, reverse stress tests, and adverse scenarios relevant for our portfolio. Furthermore, we conduct ad-hoc stress tests monthly to reflect current political and financial developments and to analyze specific non-financial risks more closely.
COVERAGE OF THE RISK CAPITAL CALCULATIONS Allianz’s Group internal model to calculate the Solvency Capital
Smaller related undertakings within the European Economic Area which are not covered by the Group internal model are reflected with their standard formula results. At the Group level, the Solvency
Capital Requirement. Therefore, risk management with respect to banking operations is not discussed in more detail.
(EIOPA-BoS-15/035) for the extrapolation of the risk-free interest rate curves beyond the last liquid tenor.3
In addition, we adjust the risk-free yield curves by a volatility adjustment (VA) in most markets where a volatility adjustment is defined by EIOPA and approved by the local regulator. This is done to better reflect the underlying economics of our business, as the cash flows of our insurance liabilities are largely predictable. The advantage of being a long-term investor is the opportunity to invest in bonds yielding spreads over the risk-free return and earning this additional yield component over the duration of the bonds. Being a long-term investor mitigates much of the risk of forced selling of debt instruments at a loss prior to maturity.
Diversification typically occurs when looking at combined risks that are not, or only partly, interdependent. Important diversification factors include regions (for example, windstorm in Australia vs. windstorm in Germany), risk categories (for example, market risk vs. underwriting risk), and subcategories within the same risk category (for example commercial vs. personal lines of property and casualty risk).
Ultimately, diversification is driven by the specific features of the investment or insurance products in question and their respective risk exposures. For example, an operational risk event at an Australian entity can be considered to be highly independent of a change in credit spreads for a French government bond held by a German entity.
Where possible, we derive correlation parameters for each pair of market risks through statistical analysis of historical data, considering quarterly observations over more than a decade. In case historical data or other portfolio-specific observations are insufficient or unavailable, correlations are set by the Correlation Settings Committee, which combines the expertise of risk and business experts in a well-defined and controlled process. In general, when using expert judgment we set the correlation parameters to represent the joint movement of risks under adverse conditions. Based on these correlations, we use an industry-standard approach, the Gaussian copula, to determine the dependency structure of quantifiable sources of risk within the applied Monte Carlo simulation.
Furthermore, we validate the model and parameters through sensitivity analyses, independent internal peer reviews, and, where appropriate, independent external reviews, focusing on methods for selecting parameters and control processes. To ensure that the model is validated adequately, we established an Independent Validation
The construction and application of the replicating portfolios mentioned are subject to the set of available replicating instruments and might be too simple or restrictive to capture all factors affecting the change in value of liabilities. As with other model components, the replications are subject to independent validation and to suitability assessments as well as to stringent data and process quality controls.
Therefore, we believe that the liabilities are adequately represented by the replicating portfolios.
Since the internal model takes into account the change in the economic fair value of our assets and liabilities, it is crucial to estimate the market value of each item accurately. For some assets and liabilities it may be difficult, if not impossible – notably in distressed financial markets – to either obtain a current market price or apply a meaningful mark-to-market approach. For such assets we apply a mark-tomodel approach. For some of our liabilities, the accuracy of their values also depends on the quality of the actuarial cash flow estimates.
REGULATORY AND MODEL CHANGES IN 2018 In 2018, our internal model was adjusted based on regulatory developments, validation results for our model, and the feedback received during the ongoing consultations with regulators. For the sake of clarity, all model changes and resulting impacts are presented within this section, based on data as of 31 December 2017.
Solvency II risk capital of the Group in 2018 was € 0.8 bn. This is mainly driven by regulatory changes such as the reduction in the ultimate forward rate, the reduction in tax rate for Allianz Life US and the inclusion of Euler Re and Allianz Ayudhya Assurance (Thailand)
In all subsequent sections, the figures including model changes will form the basis for the movement analysis of our risk profile in 2018.
Allianz Group: Impact of regulatory and model changes – allocated risk according to the risk profile (total portfolio before non-controlling interests) € mn
In 2018, the impact of the model changes to our internal model focused on the following risk categories: MARKET RISK The impacts of minor, immaterial model and regulatory changes –
Other immaterial credit risk model changes in 2018 were related to changes to internal rating models for specific asset classes.
The decrease in underwriting risk in the Property-Casualty business segment was mainly driven by the central correlation matrix update and some immaterial local model changes.
(Zinszusatz Reserve, an additional required reserve built up to counteract the low interest rate environment) at Allianz Leben, the inclusion of Allianz Ayudhya Assurance (Thailand) into the standard formula, and the impact from introducing a regulatory required transferability restriction for the Own Funds of Allianz Life US.
− Property-Casualty premium and reserve risks resulting from natural and man-made catastrophes as well as from claims uncertainty.
POTENTIAL RISKS IN THE FINANCIAL MARKET AND IN OUR OPERATING ENVIRONMENT Financial markets are characterized by historically low interest rates and risk premiums, prompting some investors to look for higheryielding – and potentially higher-risk – investments. In addition to sustained low interest rates, the challenges of implementing longterm structural reforms in key Eurozone countries, the uncertainty about future monetary and fiscal policies, rising populism, and increased trade tension may lead to increasing market volatility. This could be accompanied by a flight to quality, combined with falling equity and bond prices due to rising spread levels, even in the face of potentially lower interest rates. We therefore continue to closely monitor political and financial developments – such as the Brexit in the United Kingdom and the potential rise of Euroscepticism, and the global trade situation – in order to manage our overall risk profile to specific event risks.
Political risk is the risk that returns could suffer as a result of political changes or instability in a country, region or globally, for example
Temporary Permission, Run off Regimes and/or Branch solutions depending on the respective business case.
− No issues are expected regarding derivatives, since all outstanding derivatives will be valid for at least one year post Brexit and new and rolled derivatives will be placed to minimize the implications.
In addition, future Solvency II capital requirements might change depending on the outcome of the 2020 review of the Solvency II
− Allianz is well positioned to deal with potentially adverse future events – due, in part, to our strong internal limit framework, stress testing, internal model, and risk management practices.
Management business segments, leading to sustainable operating earnings with a well-balanced risk-return profile.
SOLVENCY II REGULATORY CAPITALIZATION The Allianz Group’s Own Funds and capital requirements are based on the market value balance sheet approach consistent with the economic principles of Solvency II1. Our regulatory capitalization is shown in the following table.
Solvency II capitalization. However, this positive effect was partly offset by capital management activities such as the share buy-back program and the dividend accrual, as well as by management actions such as the buyout of the non-controlling interests of Euler Her1_Own Funds and capital requirement are calculated under consideration of volatility adjustment and yield curve extension, as described in section “Risk-free rate and volatility adjustment”.
Repor t mes, the sale of Oldenburgische Landesbank Aktiengesellschaft, the decrease in exposures to some government bonds, and the improvement of our interest rate risk profile. The regulatory and model changes and the unfavorable markets – characterized by higher credit spreads and lower equity prices – also contributed to this compensating effect, along with other impacts such as taxes, changes in transferability restrictions, and diversification effects.
Combined scenario: Equity prices down by 30 % Interest rate down by 0.5 %1 217 212 1_Non-parallel interest rate shifts due to extrapolation of the yield curve beyond the last liquid point in line with
At the Allianz Group, we measure and steer risk based on an approved internal model which measures the potential adverse developments of Own Funds. The results provide an overview of how our risk profile is distributed over different risk categories, and determines the regulatory capital requirements in accordance with Solvency II.
Market risk Credit risk Underwriting risk Business risk Operational risk Diversification Total 1_2017 risk profile figures recalculated based on model changes in 2018 and the impacts of minor and immaterial model changes were allocated proportionally. Tax estimated with year-end 2018 results.
The following sections explain the evolution of our risk profile per risk category modeled. All risks are presented on a pre-diversified basis and concentrations of single sources of risk are discussed accordingly.
As of 31 December 2018, the Group diversified risk capital reflecting our risk profile before considering non-controlling interests amounted to € 33.5 bn (2017: € 33.3 bn). This represents a slight reduction in the diversification benefit – before tax – of 1.6 % to 23.3 %.
The marginal increase in Solvency II capital requirement was mainly due to regulatory and model changes such as including Euler Re and
MARKET RISK The following table presents our group-wide risk figures related to market risks by business segment and source of risk.
Total Group 1,678 3,035 (2,200) (1,796) 10,174 9,641 9,544 9,535 2,942 1,961 (36) 124 22,102 22,499 Share of total Group pre-diversified risk 44.9 % 45.1 %
The Group’s total pre-diversified market risk decreased by € 0.4 bn, which was mainly driven by interest rate and inflation risk, especially in the Life/Health business segment, with increases in credit spread and real estate risk creating a dampening effect. The decrease in interest rate risk was driven by management actions – in particular duration management measures – that improved the interest rate risk profile. The impact of widening credit spreads observed in financial markets was compensated by decreasing rates and the corresponding changes in the fixed-income investment portfolio. Real estate risk increased due to higher exposure in real estate and infrastructure investments. The overall reduction in market risk was also supported by exposure changes due to ALM measures and the corresponding effects on the diversification between market risk factors.
3_The stated market value includes all assets whose market value is sensitive to equity movements (excluding unit-linked business) reflecting the Solvency II framework, and therefore is not based on classifications given by accounting principles. 4_The effect does not consider policyholder participation.
Share of total Group pre-diversified risk % 11.4 11.6 1_2017 risk profile figures recalculated based on model changes in 2018 and the impacts of minor and immaterial model changes were allocated proportionally.
Throughout 2018, the credit environment remained stable with regard to credit migration risk and default risk.
As of 31 December 2018, the rating distribution based on issue
(instrument) ratings of our fixed-income portfolio was as follows: Rating distribution of Allianz Group’s fixed-income portfolio1 – fair value € bn
CREDIT RISK – REINSURANCE As of 31 December 2018, 1.3 % (2017: 0.7 %) of our total Group prediversified internal credit risk was allocated to reinsurance exposures
UNDERWRITING RISK The following table presents the pre-diversified risk calculated for underwriting risks associated with our insurance business.
Total Group 827 814 64 29 5,087 4,939 5,196 4,997 597 863 11,771 11,641 Share of total Group pre-diversified risk 23.91 % 23.46 %
PROPERTY-CASUALTY During 2018, the total of the stand-alone underwriting risk capital on a Group diversified basis decreased by € 0.1 bn. This slight decrease was mainly driven by exposure and model updates as well as immaterial model changes at the local level. The remaining difference is due to diversification effects with other underwriting risk categories.
Overall, the underwriting risk profile for Allianz Group is not expected to change materially, as we do not plan to significantly change our underwriting standards (Allianz Standard for P&C Underwriting ), or our Group natural catastrophe, man-made or terror risk appetite and the associated retrocession reinsurance strategy.
LIFE/HEALTH The risk capital contribution of biometric risk decreased by € 0.3 bn compared to the previous year (after considering model changes).
OPERATIONAL RISK The slight decrease in risk capital for operational risks was driven by the annual regular update of local parameters. The majority of the different operational risk categories contributed to the decrease, however the main improvement was due to the category “capture, execution and maintenance of transactions” and the consideration of a cyber insurance policy purchased by the Group. Foreign currency exchange effects played a secondary role.
Financial Statements. As inferred from the section on the management of liquidity risks, they are quantified and monitored through regular stress test reporting and properly managed but are not quantified for risk capital purposes.
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
Process (ELCA), IT General Controls (ITGC) and controls at process levels. The ELCA framework contains controls to monitor the system of governance effectiveness. In the ITGC framework we have implemented, for example, controls for access right management and for project and change management. We are in the process of including the current ICOFR framework in an Integrated Risk and
ACCOUNTING AND CONSOLIDATION PROCESSES The accounting and consolidation processes we use to produce
The latter are largely harmonized throughout the Group, using standardized processes, master data, posting logics, and interfaces for data delivery to the Holding. Access rights to accounting systems are managed according to strict authorization procedures.
1_For further information on our risk management system, please refer to the Risk and Opportunity Report.
GOVERNANCE Responsibility for ensuring the completeness, accuracy, and reliability of our Consolidated Financial Statements rests with the Chairman of the Allianz SE Board of Management, as well as the board member responsible for Finance, Controlling, and Risk, supported by Group center functions, the Group Disclosure Committee, and operating entities.
Subsidiaries within the scope of our control system are individually responsible for adhering to the Group’s internal governance and control policy and for creating local Disclosure Committees that are similar to the Group-level committee. The entities’ CEOs and CFOs provide periodic sign-offs to the management of Allianz SE, certifying the effectiveness of their local systems of internal control as well as the completeness, accuracy, and reliability of financial data reported to the Holding.
Financial assets carried at fair value through income 5 7,611 8,177
Liabilities of disposal groups classified as held for sale 3 62 13,662
Income from financial assets and liabilities carried at fair value through income (net)1 22 (3,301) (1,204)
Change in reserves for insurance and investment contracts (net)1 26 (9,684) (14,427)
Net income attributable to: Non-controlling interests 241 404 1_For 2018, the amounts include the impact from changes related to fixed index annuities. For further information, please refer to note 2, chapter reserves for insurance and investment contracts, paragraph aggregate policy reserves.
Changes in actuarial gains and losses on defined benefit plans 326 100
4_In the second quarter of 2018, a dividend of € 8.00 (2017: € 7.60) per qualifying share was paid to the shareholders.
Cash and cash equivalents reclassified to assets of disposal groups held for sale and disposed of in 2018 531 -
Adjustments to reconcile net income to net cash flow provided by operating activities
Share of earnings from investments in associates and joint ventures (228) (506)
Proceeds from the sale, maturity or repayment of: Financial assets designated at fair value through income 2,956 2,079
Non-current assets and disposal groups classified as held for sale 357 420
Loans and advances to banks and customers (purchased loans) 5,867 6,333
Payments for the purchase or origination of: Financial assets designated at fair value through income (3,070) (1,931)
Business combinations (note 3): Proceeds from sale of subsidiaries, net of cash disposed (208) -
Proceeds from the issuance of certificated liabilities and subordinated liabilities 4,527 7,463
Union (E.U.) regulations in accordance with § 315e (1) of the German
The Allianz Group offers property-casualty insurance, life/health insurance, and asset management products and services in over 70 countries.
SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES AND ASSUMPTIONS The following paragraphs describe important accounting policies as well as significant estimates and assumptions which are relevant for the Allianz Group’s consolidated financial statements. Estimates and assumptions particularly influence the inclusion method as well as the accounting treatment of financial instruments and insurance contracts, goodwill, pension liabilities and similar obligations, and deferred taxes. The significant estimates and assumptions are explained in the respective paragraphs.
The Allianz Group’s consolidated balance sheets are not presented using a current/non-current classification. The following balances are generally considered to be current: cash and cash equivalents, deferred acquisition costs on property & casualty contracts, noncurrent assets and assets of disposal groups classified as held for sale, and liabilities of disposal groups classified as held for sale.
In accordance with IFRS 10, the Allianz Group’s consolidated financial statements include the financial statements of Allianz SE and its subsidiaries. The Allianz Group controls a subsidiary when it is exposed to, or has rights to, variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. Subsidiaries are usually entities where
For certain entities, voting or similar rights are not the dominant factor of control, such as when voting rights relate to administrative tasks only and returns are directed by means of contractual arrangements, as is the case mainly for investment funds managed by Allianz Group internal asset managers. In such cases, the investment fund qualifies as subsidiary if the Allianz Group is in a principal instead of an agent role with regard to the investment fund. Above all, this qualification takes into account kick-out rights held by thirdparty investors as well as the aggregate economic interest of the
Where newly acquired subsidiaries are subject to business combination accounting, the provisions of IFRS 3 are applied. Non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the acquiree's net assets in the event of liquidation can be measured either at their fair value at the acquisition date or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. This option is exercised on a case-by-case basis.
For certain investment funds in which the Allianz Group holds a stake of above 20 %, management has assessed that the
Allianz Group has no significant influence because it is not represented in the governing bodies of these investment funds or the investment activities are largely predetermined.
Allianz Group has assessed the nature of all its joint arrangements and determined them to be joint ventures. Those are generally accounted for using the equity method.
The individual financial statements of each of the Allianz Group’s subsidiaries are prepared in the currency prevailing in the primary economic environment where the subsidiary conducts its ordinary activities (its functional currency). Transactions recorded in currencies other than the functional currency (foreign currencies) are recorded at the exchange rate prevailing on the date of the transaction. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using the closing exchange rate. While non-monetary items denominated in foreign currencies and measured at historical cost are translated at historical rates, non-monetary items measured at fair value are translated using the closing rate. Foreign currency gains and losses arising from foreign currency transactions are reported in income from financial assets and liabilities carried at fair value through income (net), except when the gain or loss on a non-monetary item measured at fair value is recognized in other comprehensive income. In this case, any foreign exchange component of that gain or loss is also recognized in other comprehensive income.
The level 1 inputs of financial instruments traded in active markets are based on unadjusted quoted market prices or dealer price quotations for identical assets or liabilities on the last exchange trading day prior to or at the reporting date, if the latter is a trading day.
Level 2 applies if the market for a financial instrument is not active or when the fair value is determined by using valuation techniques based on observable input parameters. Such market inputs are observable substantially over the full term of the asset or liability and include references to formerly quoted prices for identical instruments from an active market, quoted prices for identical instruments from an inactive market, quoted prices for similar instruments from active markets, and quoted prices for similar instruments from inactive markets. Market observable inputs also include interest rate yield curves, volatilities, and foreign currency exchange rates.
For fair value measurements categorized as level 2 and level 3, the Allianz Group uses valuation techniques consistent with the three widely used valuation techniques listed in IFRS 13: − Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
Once impairment is triggered for an available-for-sale debt instrument, the cumulative loss recognized in other comprehensive income is reclassified to profit or loss. The cumulative loss corresponds to the difference between amortized cost and the current fair value of the investment. Further declines in fair value are recognized in other comprehensive income unless there is further objective evidence that such declines are due to a credit-related loss event. If in subsequent periods the impairment loss is reversed, the reversal is measured as the lesser of the full original impairment loss previously recognized in the income statement and the subsequent increase in fair value.
A decline is considered to be prolonged if the fair value is below the weighted average cost for a period of more than nine consecutive months. If an available-for-sale equity security is impaired, any further declines in the fair value at subsequent reporting dates are recognized as impairments.
Reversals of impairments of available-for-sale equity securities are not recorded in the income statement but in other comprehensive income and recycled upon derecognition.
For derivative financial instruments used in hedge transactions that meet the criteria for hedge accounting, the Allianz Group designates the derivative as a hedging instrument in a fair value hedge, cash flow hedge, or hedge of a net investment in a foreign operation. The
Derivative financial instruments designated in hedge accounting relationships are included in the line items Other assets and Other
FINANCIAL ASSETS AND LIABILITIES CARRIED AT FAIR VALUE THROUGH INCOME Financial assets and liabilities carried at fair value through income include financial assets and liabilities held for trading as well as financial assets and liabilities designated at fair value through income. While the former category includes trading instruments and financial derivatives, the latter category is mainly designated at fair value to avoid accounting mismatches.
Allianz Group. The cash deposits are recorded at the amount due on repayment, less any impairment for balances that are deemed not to be recoverable.
Acquisition costs for unit-linked investment contracts are deferred in accordance with IFRS 15 if the costs are incremental. For non-unit-linked investment contracts accounted for under IAS 39 at amortized cost, acquisition costs that meet the definition of transaction costs under IAS 39 are considered in the aggregate policy reserves.
The value of an insurance business or an insurance portfolio acquired is measured by the PVFP, which is the present value of net cash flows anticipated in the future from insurance contracts in force at the date of acquisition. It is amortized over the life of the relevant contracts.
Sales inducements on non-traditional insurance contracts are deferred and amortized using the same methodology and assumptions as for deferred acquisition costs.
OTHER ASSETS Other assets primarily consist of receivables, accrued dividends, interest, rent and deferred compensation amounts as well as real estate held for own use, software and equipment. Depreciation is generally computed using the straight-line method over the estimated useful lives of the assets.
The table below summarizes estimated useful lives for real estate held for own use, software and equipment.
Further explanations on the impairment test for goodwill and its significant assumptions as well as respective sensitivity analyses are given in note 11.
Insurance contracts and investment contracts with discretionary participation features are accounted for under the insurance accounting provisions of US GAAP, as have been applied at first-time adoption of IFRS 4 on 1 January 2005, wherever IFRS 4 does not provide specific guidance. Investment contracts without discretionary participation features are accounted for as financial instruments in accordance with IAS 39.
Liability adequacy tests are performed for each insurance portfolio, based on estimates of future claims, costs, premiums earned, and proportionate expected investment income. For short-duration contracts, a premium deficiency is recognized if the sum of expected claim costs and claim adjustment expenses, expected dividends to policyholders, DAC, and maintenance expenses exceeds related unearned premiums while considering anticipated investment income.
LAE relating to such claims. These estimates reflect the informed judgment of claims personnel based on general insurance reserving practices and knowledge of the nature and value of a specific type of claim. These case reserves are regularly re-evaluated in the ordinary course of the settlement process and adjustments are made as new information becomes available.
IBNR reserves are estimates based on actuarial and statistical projections of the expected cost of the ultimate settlement and administration of claims. The analyses are based on facts and circumstances known at the time, predictions of future events, estimates of future inflation, and other societal and economic factors. Trends in claim frequency, severity, and time lag in reporting are examples of factors used in projecting the IBNR reserves. IBNR reserves are reviewed and revised periodically, as additional information becomes available and actual claims are reported.
RESERVES FOR INSURANCE AND INVESTMENT CONTRACTS Reserves for insurance and investment contracts include aggregate policy reserves, reserves for premium refunds and other insurance reserves.
Insurance contract features not closely related to the underlying insurance contracts are bifurcated from the insurance contracts and accounted for as derivatives in line with IFRS 4 and IAS 39. The embedded derivatives separated from certain life insurance and annuity contracts are recognized as financial liabilities held for trading.
Reserves for premium refunds include the amounts allocated under the relevant local statutory/contractual regulations or, at the entity’s discretion, to the accounts of the policyholders and the amounts resulting from the differences between these IFRS-based financial statements and the local financial statements (latent reserves for premium refunds), which will reverse and enter into future profit participation calculations. Unrealized gains and losses recognized for available-for-sale investments are recognized in the latent reserves for premium refunds to the extent that policyholders will participate in such gains and losses on the basis of statutory or contractual regulations when they are realized, based on and similar to shadow accounting. The profit participation allocated to participating policyholders or disbursed to them reduces the reserves for premium refunds.
The oversight and monitoring of the Allianz Group’s reserves culminate in quarterly meetings of the Allianz Group Reserve
(PVFP). To ensure consistency in the application of actuarial methods and assumptions in the Life/Health reserving process, the
Stage two: The Allianz Group Actuarial function regularly reviews the local reserving processes, including the appropriateness and consistency of the assumptions, and analyzes the movements of the reserves. Any adjustments to the reserves and other insurancerelated reporting items are reported to and analyzed together with the Allianz Group Reserve Committee.
These valuations rely on extensive assumptions. Key assumptions such as discount rates, inflation rates, compensation increases, pension increases, and rates of medical cost trends are defined centrally at the Allianz Group level, considering the circumstances in the indi-
Repor t vidual countries. In order to ensure their thorough and consistent determination, all input parameters are discussed and defined taking into consideration economic developments, peer reviews, and currently available market and industry data.
Unrealized gains and losses (net) include unrealized gains and losses from available-for-sale investments and from derivative financial instruments that meet the criteria for cash flow hedge accounting.
INTEREST AND SIMILAR INCOME AND INTEREST EXPENSES Interest income and interest expenses are recognized on an accrual basis using the effective interest method. This line item also includes dividends from available-for-sale equity securities as well as income from investments in associates and joint ventures. Dividends are recognized in income when the right to receive the dividend is established. The share of earnings from investments in associates and joint ventures represents the share of net income from entities accounted for using the equity method.
INCOME FROM FINANCIAL ASSETS AND LIABILITIES CARRIED AT FAIR VALUE THROUGH INCOME (NET) Income from financial assets and liabilities carried at fair value through income (net) includes all investment income as well as realized and unrealized gains and losses from financial assets and liabilities carried at fair value through income. In addition, commissions attributable to trading operations and related interest expenses as well as refinancing and transaction costs are included in this line item.
Foreign currency gains and losses on monetary items are also reported within income from financial assets and liabilities carried at fair value through income (net).
Tax refund claims from uncertain tax positions are recognized when it is probable that they can be realized.
Customers. IFRS 15 supersedes IAS 18, IAS 11 and a number of revenue -related interpretations. The Allianz Group adopted IFRS 15 using the cumulative effect method on the required effective date. As a result, the Allianz Group did not apply the requirements of IFRS 15 to the comparative period presented.
Allianz Group satisfies a performance obligation by transferring a service to a customer. Furthermore, revenue is recognized for these contracts to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue will not occur. The guidance also changes the accounting for certain contract costs and revises the criteria for determining if an entity is acting as a principal or agent in certain arrangements.
tentatively decided to defer the mandatory effective date of IFRS 17 by one year in their November 2018 Board meeting, so that IFRS 17 should be applied after 1 January 2022 (retrospective application).
Repor t tion features. For non-life insurance contracts, IFRS 17 introduces mandatory discounting of loss reserves as well as a risk adjustment for non-financial risk. Further, IFRS 17 will change the presentation of insurance contract revenue, a gross written premium will no longer be presented in the statement of comprehensive income.
The following table provides an overview of the fair values as of 31 December 2018 and the amounts of change in the fair values during the reporting period separately for financial assets that meet the SPPI criterion (i.e. financial assets with contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding, excluding any financial asset that meets the definition of held for trading in IFRS 9, or that is managed and whose performance is evaluated on a fair value basis) and all other financial assets: Financial assets under IFRS 9 classification rules € mn
The fair values of financial assets included in the table above that are non-investment grade, and thus do not have low credit risk as of 31 December 2018, approximately equal the respective carrying amounts. The same also applies to non-rated financial assets.
IAS 17, IFRIC 4, SIC-15, and SIC-27. IFRS 16 introduces a single, onbalance sheet lease accounting model for lessees. A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance or operating leases.
IAS 17 and IFRIC 4 were not reassessed for being or containing a lease. Therefore, the definition of a lease under IFRS 16 will be applied only to contracts entered into or modified on or after
As a lessee, the Allianz Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Allianz Group. Under
IFRS 16, the Allianz Group will recognize right-of-use assets and lease liabilities for most of their leases with the following exceptions: The
Right-of-use assets will be measured at an amount equal to the lease liability adjusted by the amount of any prepaid or accrued lease payments. In addition to the short-term as well as low-value lease expedients, the Allianz Group uses the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17: − Apply a single discount rate to a portfolio of leases with similar characteristics
− Exclude initial direct costs from measuring the right-of-use asset at the date of initial application
The Allianz Group adopted IFRS 16 using the modified retrospective approach on the required effective date (i.e.
1 January 2019). As a result, the Allianz Group will not apply the
Repor t requirements of IFRS 16 to the comparative period presented. The impact on retained earnings as of 1 January 2019 is not significant.
IAS 19, Plan Amendments, Curtailment or Settlement Annual periods beginning on or after 1 January 2019
The amendments and interpretations are not expected to have a material impact on the financial position and financial results of the
Allianz Group. Early adoption is generally allowed but not intended by the Allianz Group.
From January through April 2018, the Allianz Group acquired the remaining 20.9 % of Euler Hermes’s outstanding shares in consideration for a total of € 1,073 mn in cash, equivalent to € 122 per share. The buyout of the outstanding shares of Euler Hermes reduced the shareholders ’ equity of the Allianz Group by € 513 mn.
OLDENBURGISCHE LANDESBANK AG, OLDENBURG In 2018, the Allianz Group disposed of Oldenburgische Landesbank
The impact of the disposal, net of cash disposed, on the consolidated statement of cash flows for the year 2018 was as follows: Impact of the disposal € mn
Impairment loss on measurement of disposal group at fair value less costs to sell (49)
Management, each of the insurance business segments is grouped into the following reportable segments: − German Speaking Countries and Central & Eastern Europe,
Asset management activities represent a separate reportable segment. Due to differences in the nature of products, risks, and capital allocation, corporate and other activities are divided into three reportable segments: Holding & Treasury, Banking, and Alternative
ASSET MANAGEMENT The reportable segment Asset Management operates as a global provider of institutional and retail asset management products and services to third-party investors. It also provides investment management services to the Allianz Group’s insurance operations. The products for retail and institutional customers include equity and fixedincome funds as well as alternative products. The United States,
Investments provides global alternative investment management services in the real estate sector, mainly on behalf of the Allianz Group’s insurance operations.
Operating profit highlights the portion of income before income taxes that is attributable to the ongoing core operations of the
Anglo Markets, Middle East and Africa. In the Property-Casualty business segment, the reportable segment Iberia & Latin America was combined with the reportable segment Allianz Partners to form the reportable segment Iberia & Latin America and Allianz Partners.
Previously reported information has been adjusted to reflect this change in the composition of the Allianz Group’s reportable segments.
Business segment information – total revenues and reconciliation of operating profit (loss) to net income (loss) € mn
Operating income from financial assets and liabilities carried at fair value through income (net) (49) (78) (3,351) (1,149)
Interest expenses, excluding interest expenses from external debt (97) (94) (104) (102)
Acquisition and administrative expenses (net), excluding acquisition-related expenses (13,542) (13,537) (5,635) (6,565)
Western & Southern Europe and Asia Pacific 12,476 12,348 10,837 11,233 1,776 1,924 1,339 1,309
Iberia & Latin America and Allianz Partners 9,457 9,525 8,121 7,932 498 452 320 237
Global Insurance Lines & Anglo Markets, Middle East and Africa 23,371 22,092 16,428 15,592 1,826 1,288 1,448 1,073
German Speaking Countries and Central & Eastern Europe 28,758 27,359 14,073 15,177 1,620 1,644 1,097 1,084
Western & Southern Europe and Asia Pacific 29,335 28,554 6,987 6,840 1,359 1,326 823 954
In general, the credit risk of government and government agency bonds is rather moderate since they are backed by the fiscal capacity of the issuers who typically hold an investment-grade countryand /or issue-rating. During 2018, interest rates of government and government agency bonds increased in some countries, while decreasing in others. This development, supported by purchases and realizations, led to an increase in unrealized losses on government and government agency bonds of € 870 mn.
Allianz Group’s impairment policy for equity instruments as described in note 2. The major part of these unrealized losses has been in a continuous loss position of less than 6 months.
Cost as of 31 December 3,240 3,086 1_Include fixed assets of wind parks and solar parks.
Reinsurance involves credit risk and is subject to aggregate loss limits. Reinsurance does not legally discharge the respective Allianz company from primary liability under the reinsured policies. Although the reinsurer is liable to this company to the extent of the business ceded, the Allianz company remains primarily liable as the direct insurer for all the risks it underwrites, including the share that is reinsured. The Allianz Group monitors the financial condition of its reinsurers on a regular basis and reviews its reinsurance arrangements periodically in order to evaluate the reinsurer’s ability to fulfill its obligations to the Allianz Group companies under existing and planned reinsurance contracts. The Allianz Group’s evaluation criteria, which include the degree of creditworthiness, capital levels, and marketplace reputation of its reinsurers, are such that the Allianz Group believes that its reinsurance credit risk is not significant, and historically has not experienced noteworthy difficulty in collecting claims from its reinsurers. Additionally, and as appropriate, the Allianz Group may also require letters of credit, deposits, or other financial guarantees to further minimize its exposure to credit risk. In certain cases, however, the Allianz Group does establish an allowance for doubtful amounts related to reinsurance as appropriate, although this amount was not significant as of 31 December 2018 and 2017. The Allianz Group primarily maintains business relations with highly rated reinsurers.
Derivative financial instruments used for hedging that meet the criteria for hedge accounting, and firm commitments1 489 538
Real estate held for own use 2,856 2,941 1_Mainly level 2 for fair value measurement.
2_Includes other assets due within one year of € 32,802 mn (2017: € 32,008 mn).
Changes in the consolidated subsidiaries of the Allianz Group - 6 18 - (12) -
Disposals and reclassifications into non-current assets and assets of disposal groups classified as held for sale (14) (56) (61) (46) (10) (82)
Carrying amount as of 31 December 2,8561 2,9342 1,378 2,941 2,786 1,432
Intangible assets € mn 1_Primarily include the long-term distribution agreements with Commerzbank AG and Banco Popular S.A.
2_Primarily include acquired business portfolios, customer relationships, heritable building rights, land use rights, lease rights, renewal rights, and brand names.
Additions are mainly related to goodwill arising from the acquisition of Sound Harbor Partners, a New York based private credit manager.
CGUs in the Life/Health business segment are: − Insurance German Speaking Countries, including Germany and
VALUATION TECHNIQUES The recoverable amounts for all CGUs are determined on the basis of value in use calculations. The Allianz Group applies generally acknowledged valuation principles to determine the value in use.
For all CGUs in the Property-Casualty business segment and for the CGU Asset Management, the Allianz Group mainly uses the discounted earnings method to derive the value in use. Generally, the basis for the determination of the discounted earnings value is the business plan (“detailed planning period”) as well as the estimate of the sustainable returns and eternal growth rates, which can be assumed to be realistic on a long-term basis (“terminal value”) for the operating entities included in the CGU. The discounted earnings value is calculated by discounting the future earnings using an appropriate discount rate. The business plans applied in the value in use calculations are the results of the structured management dialogues between the Board of Management of Allianz SE and the operating entities in connection with a reporting process integrated into these dialogues. Generally, the business plans comprise a planning horizon of three years and are based on the current market environment.
SIGNIFICANT ASSUMPTIONS In determining the business plans, certain key assumptions were made in order to project future earnings.
(CAPM) and appropriate eternal growth rates. The assumptions, including the risk-free interest rate, market risk premium, segment beta, and leverage ratio used to calculate the discount rates, are generally consistent with the parameters used in the Allianz Group’s planning and controlling process. The discount rates and eternal growth rates for the CGUs in the Property-Casualty business segment are as follows: Discount rates and eternal growth rates for the CGUs in the Property-Casualty business segment1 %
Global Insurance Lines & Anglo Markets, Middle East and Africa 9.0 1.6
The best estimate corresponds to the probability-weighted average of future cash flows considering the time value of money, using the relevant risk-free interest rate term structure. The calculation of the best estimate is based on assumptions made for demographic factors
Repor t strategy and asset allocation of the entity. The risk margin ensures that the value of the technical provisions is equivalent to the amount that the entity would be expected to require in order to take on and meet the insurance and reinsurance obligations.
Euro swap curve minus 10 bps credit risk adjustment plus 24 bps volatility adjustment CHF swap curve minus 10 bps credit risk adjustment plus 4 bps volatility adjustment
Euro swap curve minus 10 bps credit risk adjustment plus 24 bps volatility adjustment
For those entities reporting in Euro: Euro swap curve minus 10 bps credit risk adjustment plus 24 bps volatility adjustment For other entities: Local swap curve minus 10 bps credit risk adjustment plus volatility adjustment for the following currencies only (HRK: 12 bps, CZK: 17 bps, PLN: 9 bps)
For those entities reporting in Euro: Euro swap curve minus 10 bps credit risk adjustment plus 24 bps volatility adjustment
The new business multiple accounts for the risk and the growth associated with future new business in analogy to the discount rate and the growth rate in a discounted earnings method. For all CGUs in the Life/Health business segment, a multiple of not more than ten times the value of new business is applied.
For entities included in the CGU of the Asset Management business segment, key assumptions include assets under management growth, cost-income ratio, and risk capital. The key assumptions are based on the current market environment. The discount rate for the CGU Asset
The following table reconciles the beginning and ending reserves for the Property-Casualty business segment for the years ended
Foreign currency translation adjustments and other changes1 567 (125) 442 (2,232) 646 (1,586)
Ending balance of discounted loss reserves (4,157) 274 (3,883) (4,096) 287 (3,809)
Run-off triangles – as the basis for measuring loss reserves – express how the loss reserves change over the course of time due to payments made and new estimates of the expected ultimate loss at the respective reporting date.
The data is only presented on a net basis, as this is considered to be more meaningful in order to represent the retained impact on Group results. The run-off triangles are not prepared on a currency-adjusted basis. This means all figures are translated from the respective local currency into the Allianz Group presentation currency (Euro), consistently using the exchange rates applicable at the respective reporting date. This ensures that the reserves reconcile with reserves in the consolidated balance sheet.
RESERVES FOR LOSS AND LOSS ADJUSTMENT EXPENSES FOR THE INDIVIDUAL ACCIDENT YEARS AT THE RESPECTIVE REPORTING DATE (NET)
Ultimate loss for the individual accident years at the respective reporting date (net) € mn
CONTRACTUAL CASH FLOWS As of 31 December 2018, the reserves for loss and loss adjustment expenses which are expected to be due in 2019 amounted to € 17,841 mn, while those expected to be due between 2020 and
Repor t 2023 amounted to € 20,347 mn and those expected to be due after 15 _ Reserves for insurance and investment contracts
CONCENTRATION OF INSURANCE RISK IN THE LIFE/HEALTH BUSINESS SEGMENT The Allianz Group’s Life/Health business segment provides a wide variety of insurance and investment contracts to individuals and groups in over 30 countries around the world. Individual contracts include both traditional contracts and unit-linked contracts. Without taking policyholder participation into account, traditional contracts generally incorporate significant investment risk for the Allianz Group, while unit-linked contracts generally result in the contract holder assuming the investment risk. Traditional contracts include life, endowment, annuity and health contracts. Traditional annuity contracts are issued in both deferred and immediate types. In addition, the
As of 31 December 2018 and 2017, the Allianz Group’s reserves for insurance and investment contracts for the business segment
Western & Southern Europe and Asia Pacific 118,101 83,904 202,005 119,745 84,418 204,163
Global Insurance Lines & Anglo Markets, Middle East and Africa 1,560 284 1,844 1,583 127 1,710
As a result of the considerable diversity in types of contracts issued, including the offsetting effects of mortality risk and longevity risk inherent in a combined portfolio of life insurance and annuity products, the geographic diversity of the Allianz Group’s Life/Health business segment and the substantial level of policyholder participation in mortality/morbidity risk in certain countries in Western Europe, the Allianz Group does not believe its Life/Health segment has any significant concentrations of insurance risk, nor does it believe its net income or shareholders’ equity is highly sensitive to insurance risk.
Life/Health, comprising 86 % (2017: 86 %) of the aggregate policy reserves in this business segment in 2018, can be summarized by country as follows: Weighted average guaranteed minimum interest rates of life insurance entities
Allianz Group’s Life/Health operations in Switzerland and Belgium have high guaranteed minimum interest rates on older contracts in their portfolios and, as a result, may be sensitive to declines in investment rates or a prolonged low interest rate environment.
1_These reclassifications mainly relate to insurance contracts when policyholders change their contracts from an unitlinked to an universal life-type contract.
2_Includes other liabilities due within one year of € 27,001 mn (2017: € 25,987 mn).
130 Annual Report 2018 − Allianz Group 18 _ Certificated and subordinated liabilities
Up to 1 year 1 - 5 years Over 5 years As of 31 December 2018 As of
Allianz Finance II B.V., Amsterdam DE000A1AKHB8 2009 EUR 1,500 4.750 22 July 2019
Allianz Finance II B.V., Amsterdam DE000A1GNAH1 2011 EUR 2,000 5.750 8 July 2041
ISSUED CAPITAL Issued capital as of 31 December 2018 amounted to € 1,170 mn, divided into 424,459,661 fully paid registered shares. The shares have no-par value but a mathematical per-share value as a proportion of the issued capital.
§ 186 (3) sentence 4 of the German Stock Corporation Act (Aktiengesetz)
do not exceed 10 % of the share capital, and (iii) to the extent necessary to grant a subscription right for new shares to the holders of bonds that carry conversion or option rights or provide for mandatory conversion. The subscription rights for new shares from the Authorized
Capital 2018/I and the Conditional Capital 2010/2018 may only be excluded for the proportionate amount of the share capital of up to € 117 mn (corresponding to 10 % of the share capital at year-end
and its Group companies. As of 31 December 2018, the Authorized
Convertible subordinated notes totaling € 500 mn, which may be converted into Allianz shares, were issued against cash in July 2011.
The granting of new shares to persons entitled under such convertible notes is secured by the Conditional Capital 2010/2018. On or before 31 December 2018, there was no conversion of any such notes into new shares.
Total number of issued shares 424,459,661 440,249,646 1_Thereof 961,636 (2017: 1,369,131) own shares held by Allianz SE.
The proposal for appropriation of net earnings reflects the 961,636 treasury shares held directly and indirectly by the company as of 31 December 2018. 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 € 9.00 per each share entitled to dividend.
treasury shares. Of these, 761,636 (2017: 343,102) were held for covering future subscriptions by employees in Germany and abroad in the context of Employee Stock Purchase Plans, whereas
132 Annual Report 2018 − Allianz Group 200,000 (2017: 1,026,029) were held as a hedge for obligations from the Allianz Equity Incentive Program.
As of 31 December 2018, the remaining treasury shares of Allianz SE
In the year ending 31 December 2018, the total number of treasury shares of Allianz SE decreased by 407,495 (2017: decrease of or 0.10 % (2017: 0.13 %) of issued capital as of 31 December 2018.
The treasury shares of Allianz SE and its subsidiaries represented € 2.7 mn (2017: € 3.6 mn) or 0.23 % (2017: 0.31 %) of the issued capital as of 31 December 2018.
SHARE BUY-BACK PROGRAM 2018/II In its meeting on 2 July 2018, the Board of Management of Allianz SE
resolved to carry out a share buy-back program in an amount of up to € 1 bn within a period between 4 July 2018 and 30 September 2018
(Share Buy-Back Program 2018/II) based on the authorization granted by the Annual General Meeting on 9 May 2018. In the period between 4 July 2018 and 4 September 2018, a total of 5,416,122 treasury shares with a market value of € 999,999,881.83 were acquired for an average price of € 184.63.
All of the treasury shares acquired within the Share Buy-Back Program 2018/I and within the Share Buy-Back Program 2018/II have been redeemed according to the simplified procedure without reduction of the share capital.
Group since 1 January 2016, the risk profile is measured and steered based on the approved Solvency II internal model1. A target solvency ratio has been introduced in accordance with Solvency II, based on pre-defined shock scenarios at the level of both the Group and related undertakings, supplemented by ad-hoc scenarios, historical and reverse stress tests, and sensitivity analyses. The Solvency II capital requirement is defined as the difference between the current portfolio value and the portfolio value under adverse conditions at the 99.5 %
Own Funds relating to the Group of internal model and standard formula entities, the sectoral Own Funds of entities from other financial sectors, as well as the equivalent Own Funds of entities included via the deduction and aggregation (D&A) method. The eligible Own
Compared to year-end 2017, the Solvency II capitalization ratio remained stable at 229 % as the increase in Own Funds was completely offset by a corresponding increase in the Solvency II capital requirement. This was due to compensating effects. Over the course of the year, strong Solvency II earnings had a positive impact on the Solvency II
The Allianz Group is a financial conglomerate within the scope of the Financial Conglomerates Directive (FCD). The FCD does not impose a materially different capital requirement on Allianz Group compared to Solvency II.
Some insurance subsidiaries of the Allianz Group are subject to regulatory restrictions on the amount of dividends that can be remitted to Allianz SE without prior approval by the appropriate regulatory body. Such restrictions require that a company may only pay dividends up to an amount in excess of certain regulatory capital levels, or based on the levels of undistributed earned surplus or current year income or a percentage thereof. The Board of Management of the
134 Annual Report 2018 − Allianz Group 20 _ Premiums earned (net)
Income from financial assets and liabilities held for trading (net) (4,372) 2,436
1_These foreign currency gains and losses arise subsequent to initial recognition on all assets and liabilities denominated in a foreign currency that are monetary items and not measured at fair value through income.
Investment advisory and banking activities 691 916 1_Includes effects from the application of IFRS 15 as described in note 2.
Consoli- dation Group 26 _ Change in reserves for insurance and investment contracts (net)
Non-current assets and assets of disposal groups classified as held for sale (12) (233)
1_Includes effects from the application of IFRS 15 as described in note 2.
During the year ended 31 December 2018, current income taxes included income of € 329 mn (2017: € 160 mn) related to prior years, deferred income taxes included expenses of € 239 mn (2017: € 43 mn) related to prior years.
Of the deferred income taxes for the year ended 31 December 2018, expenses of € 566 mn (2017: € 581 mn) are attributable to the recognition of deferred taxes on temporary differences, and expenses of € 145 mn (2017: € 183 mn) are attributable to tax losses carried forward. Changes of applicable tax rates due to changes in tax law produced deferred tax income of € 8 mn (2017: expenses of € 48 mn).
For the year ended 31 December 2018, the write-down of deferred taxes on tax losses increased the tax expenses by € 14 mn (2017: € 52 mn). The reversal of write-down of deferred tax assets on tax losses carried forward resulted in deferred tax income of € 4 mn
(2017: € 49 mn). Due to the use of tax losses carried forward, for which deferred tax assets had previously been written off, the current income tax expenses decreased by € 1 mn (2017: € 3 mn). Deferred tax income increased by € 9 mn (2017: € 10 mn) due to the use of tax losses carried forward, for which deferred tax assets had previously been written off. The above-mentioned effects are shown in the reconciliation statement as “effects of tax losses”.
Deferred tax assets on losses carried forward are recognized to the extent to which it is more likely than not that sufficient future taxable profits will be available for realization. Entities which suffered a tax loss in either the current or the preceding period recognized deferred tax assets in excess of deferred tax liabilities amounting to € 525 mn (2017: € 351 mn), as there was convincing other evidence that sufficient taxable profit will be available.
Non-recognition or valuation allowance for deferred tax assets on tax losses carried forward (720) (737)
In 2018, the posting of deferred taxes in France was changed due to a refined calculation methodology, which led to a decrease in deferred tax assets and liabilities before netting, particularly for investments and insurance reserves. The comparative amounts for 2017 were adjusted accordingly by € (10.1) bn.
138 Annual Report 2018 − Allianz Group they will reverse in the foreseeable future, amounted to € 92 mn
TAX LOSSES CARRIED FORWARD Tax losses carried forward at 31 December 2018 of € 7,531 mn (2017: € 8,395 mn) resulted in the recognition of deferred tax assets to the extent that there is sufficient certainty that the unused tax losses will be utilized. At the reporting date, this prerequisite was not fulfilled for a partial amount of € 2,737 mn (2017: € 2,684 mn). According to tax legislation as of 31 December 2018, an amount of € 2,514 mn (2017: € 2,353 mn) of these tax losses may be carried forward indefinitely and in unlimited amounts, whereas an amount of € 224 mn (2017: € 331 mn) of these tax losses carried forward will expire over the next 20 years if not utilized.
The notional principal amounts indicated in the table are cumulative, as they include the absolute value of the notional principal amounts of derivatives with positive and negative fair values. Although these notional principal amounts reflect the degree of the Allianz Group’s involvement in derivative transactions, they do not represent amounts exposed to risk. Further information on the use of derivatives to hedge risk can be found in the sections on market and credit risk of the Risk and Opportunity Report, which forms part of the Group Management
FREESTANDING DERIVATIVE FINANCIAL INSTRUMENTS As of 31 December 2018, freestanding derivatives, included in the line item financial assets and liabilities held for trading, had a notional principal amount of € 398.0 bn (2017: € 439.6 bn) as well as a positive fair value of € 2.7 bn (2017: € 2.5 bn) and a negative fair value of € 11.6 bn (2017: € 11.3 bn). Out of the total allocated to the freestanding derivatives, € 114.1 bn (2017: € 103.0 bn) of the notional principal relate to annuity products. Annuity products are equityindexed or contain certain embedded options or guarantees which are considered embedded derivatives under IAS 39. For these embedded derivatives, the notional principal amounts included in the table refer to the account value of the related insurance contracts.
These hedging instruments mainly include interest rate forwards with a total positive fair value of € 193 mn (2017: € 216 mn).
HEDGE OF NET INVESTMENT IN FOREIGN OPERATIONS As of 31 December 2018, the Allianz Group hedges part of its foreign currency net investments through the issuance of several foreign currency denominated liabilities and the use of forward sales. The total negative fair value in 2018 was € 191 mn (2017: total positive fair value of € 149 mn).
Certain risk disclosure requirements of IFRS 7 are reflected in the following sections of the Risk and Opportunity Report within the
− Market risk, credit risk, and liquidity risk in the section Quantifiable risks and opportunities by risk category.
Financial assets designated at fair value through income 4,258 4,258 5,101 5,101
Loans and advances to banks and customers 108,270 121,839 104,224 119,934
As of 31 December 2018, fair values could not be reliably measured for equity investments with carrying amounts totaling € 61 mn (2017: € 73 mn). These investments are primarily investments in privately held corporations and partnerships. During the year ended 31 December 2018, such investments with carrying amounts of € 119 mn (2017: € 39 mn) were sold. The gains and losses from these disposals were immaterial.
Financial assets held for trading 1,341 1,888 123 3,353 347 2,716 13 3,076
Financial assets designated at fair value through income 3,112 985 161 4,258 3,876 1,076 150 5,101
Government and government agency bonds 18,234 178,530 766 197,531 30,884 167,449 578 198,911
Financial assets for unit-linked contracts 90,856 23,676 829 115,361 95,224 23,324 592 119,141
Financial liabilities held for trading 36 1,568 10,023 11,626 34 1,139 10,118 11,291
The fair value is mainly determined based on net asset values for funds and using the market approach.
Debt securities include corporate and government and government agency bonds, MBS/ABS, and other debt securities.
significant yield increased of the benchmark securities in isolation could result in a decreased fair value, while a significant yield decrease could result in an increased fair value. However, a 10 %
stress of the main non-market observable inputs has only immaterial impact on fair value.
Level 3 mainly comprise private equity fund investments as well as alternative investments of the Allianz Group, and in most cases are delivered as net asset values by the fund managers. The net asset values are calculated using material, non-public information about the respective private equity companies. The Allianz Group has only limited insight into the specific inputs used by the fund managers hence a narrative sensitivity analysis is not applicable. The fund’s asset manager generally prices the underlying single portfolio companies in line with the International Private Equity and Venture
Capital Valuation (IPEV) guidelines using discounted cash flow (income approach) or multiple methods (market approach). For certain investments, the capital invested is considered to be a reasonable proxy for the fair value. In the cases, sensitivity analyses are also not applicable.
Transfers into/out of level 3 may occur due to a reassessment of the input parameters.
Carrying value (fair value) as of 1 January 2018 162 20,539 10,122 592 31,416
Net transfers into (out of) level 3 2 136 28 57 223
Net gains (losses) recognized in consolidated income statement (137) 25 (151) 12 (250)
Carrying value (fair value) as of 31 December 2018 284 25,399 13,595 829 40,107
Net gains (losses) in profit or loss attributable to a change in unrealized gains or losses for financial assets held at the reporting date 110 64 (229) 12 (43)
Net transfers into (out of) level 3 - 57 - 57
Net losses (gains) in profit or loss attributable to a change in unrealized gains or losses for financial liabilities held at the reporting date (1,022) 12 - (1,010)
Loans and advances to banks and customers 6,333 66,911 48,595 121,839 5,668 72,371 41,895 119,934
INVESTMENTS IN ASSOCIATES AND JOINT VENTURES For level 2 and level 3, fair values are mainly based on an income approach using a discounted cash flow method or net asset values as provided by third-party vendors.
(amortized cost) is considered to be a reasonable estimate of the fair value.
There have not been any transfers of financial assets that were derecognized in full or partly, in which Allianz continues to control the transferred assets. Transfers of financial assets mainly relate to securities lending and repurchase agreement transactions. Financial assets transferred in the context of repurchase agreement and securities lending transactions are mainly available-for-sale debt and equity securities for which substantially all of the risks and rewards are retained. As of 31 December 2018, the carrying amount of the assets transferred for securities lending transactions amounted to € 9,570 mn (2017: € 6,424 mn). For repurchase agreements, the carrying amount of the assets transferred amounted to € 857 mn
(2017: € 566 mn) and the carrying amount of the associated liabilities
Financial assets are pledged as collateral as part of sales and repurchases, securities borrowing, and transactions with derivatives, under terms that are usual and customary for such activities.
As of 31 December 2018, the Allianz Group received cash collateral with a carrying amount of € 225 mn (2017: € 243 mn).
In the following sections, the business activities involving unconsolidated structured entities are described.
Within the asset management business, the Allianz Group acts as asset manager for some securitization vehicles. The assets under management of these vehicles amounted to € 1,137 mn as of 31 December 2018 (2017: € 1,462 mn). Some of the affected vehicles have been set up by the Allianz Group whereas others have been set up by third parties. In this respect, the role of the Allianz Group is limited to asset management. The Allianz Group has not invested in these vehicles being managed.
146 Annual Report 2018 − Allianz Group investment funds is usually either precluded by legal or regulatory provisions or not deemed substantial.
Information on the management fees generated in the asset management business are disclosed in note 24.
2_Thereof rated AAA or AA € 22,121 mn (2017: € 19,849 mn).
Of the total investment fund exposure, investments of € 11.6 bn
The carrying amounts in the tables listed above correspond to an aggregated amortized cost amount of € 26,493 mn (2017: € 21,731 mn). This amortized cost amount represents the maximum exposure to loss for the Allianz Group from these investments. In the reporting period, the Allianz Group has not provided any financial or other support to these entities, nor does it have the intention to provide such support in the future.
Besides the above-mentioned investments in investment funds, the Allianz Group also holds investment funds to fund unit-linked insurance contracts. However, these holdings are held on behalf and for the benefit of unit-linked policyholders only. For that reason, these holdings are not included in the above-mentioned table. As of 31 December 2018, the volume of unit-linked assets amounted to € 115,361 mn (2017: € 119,141 mn). The maximum exposure to loss on these investments is covered by liabilities recorded for unit-linked contracts.
Information on the remuneration of board members and transactions with these persons can be found in the Remuneration Report, starting on page 23.
For the year ended 31 December 2018, rental expenses totaled € 281 mn (2017: € 333 mn), net of sublease rental income received of
Commitments to acquire interests in associates and availablefor -sale investments 17,199 16,001
OTHER COMMITMENTS AND CONTINGENCIES Allianz and HT1 Funding GmbH have signed a Contingent Indemnity
Agreement in July 2006, pursuant to which Allianz may, in certain circumstances, be obliged to make payments to HT1 Funding GmbH.
The contingent payment obligation of Allianz relates to the coupon payments of the Tier 1 Capital Securities issued by HT1 Funding
June 2017, the annual coupon is the 12-month Euribor plus a margin of 2.0 % p.a., the coupon payable on 30 June 2019 is 1.819 % p.a. The securities have no scheduled maturity and the security holders have no right to call for their redemption. Since June 2017, the securities may be redeemed annually on 30 June at the option of the issuer.
As of 31 December 2018, the future liabilities of Allianz Lebensversicherungs -AG and its subsidiaries to the insurance guarantee scheme pursuant to the SichLVFinV amount to annual contributions of € 22.7 mn (2017: € 12.9 mn) and potential special contributions of, in principle, € 203 mn (2017: € 170 mn) per year. In addition, Allianz
Lebensversicherungs-AG and some of its subsidiaries have assumed a contractual obligation to provide, if required, further funds to
The plans may vary from country to country due to the different legal, fiscal and economic environment.
Benefits Fund in the U.K. closed from 1 July 2015 to future accrual and the plans in Switzerland are nearly negligible from a risk perspective, except a minor liquidity risk due to the “Freizügigkeitsleistung”, only the defined benefit plans in Germany are described in more detail regarding key risks and regulatory environment.
Most active German employees participate in contributionbased plans using different vehicles to cover the base salary both below and above the German social security ceiling (GSSC). Since 1 January 2015, the Allianz Group contributes for new entrants and for the majority of contribution-based pension plan beneficiaries above the GSSC to the low-risk pension plan “My Allianz Pension”, where only contributions are preserved. For salaries above the GSSC, the Allianz Group decides each year whether and to which extent a budget for the contribution-based pension plans is provided. Independently of this decision, an additional risk premium is paid to cover death and disability. Generally the accruals of the contribution-based pension plans are wholly funded, whereas the grandfathered plans are funded to a minor extent. On retirement, the accumulated capital is paid as a lump sum or converted to a lifetime annuity.
There is also a partly funded defined benefit pension plan for agents (VertreterVersorgungsWerk, VVW), which has been closed for new entrants as of 31 December 2011. A part of the pension plan serves as a replacement for the compensatory claim of agents according to German Commercial Code (§ 89b). VVW is close to a final salary benefit plan and pension increases are broadly linked to inflation.
DEFINED BENEFIT PLANS The following table sets out the changes in the defined benefit obligation, in the fair value of plan assets, in the effect of the asset ceiling as well as in the net defined benefit balance for the various
Changes in the consolidated subsidiaries of the Allianz Group (4) 34 (2) 42 - - (2) (8)
3_As of 31 December 2018, € 5,406 mn (2017: € 5,527 mn) of the defined benefit obligation are wholly unfunded, while € 18,030 mn (2017: € 18,071 mn) are wholly or partly funded.
An increase of pre-retirement benefit assumptions (e.g. salary increase ) of 25 basis points would have an effect of € 62 mn (2017: € 68 mn) on the defined benefit obligation. However, the increase of post-retirement assumptions (e.g. inflation-linked increases of pension payments) of 25 basis points would increase the defined benefit
An increase in the medical cost trend rate by 100 basis points would have an effect of € 1 mn (2017: € 1 mn) on the defined benefit obligation and like last year no material effect on the defined benefit costs.
PLAN ASSETS/ASSET LIABILITY MANAGEMENT (ALM) Based on the estimated future cash flows of € 789 mn for 2019, € 795 mn for 2020, € 846 mn for 2021, € 907 mn for 2022, € 912 mn for 2023, and € 4,664 mn for 2024 – 2028, the weighted duration of the defined benefit obligation is 17.2 (2017: 15.7) years. Based on the liability profiles of the defined benefit obligation and on the regulatory funding requirements, the Allianz Group uses stochastic asset liability models to optimize the asset allocation from a risk-return perspective.
VVaG, Munich, which is not part of the Allianz Group. Plan assets do not include any real estate used by the Allianz Group and include only € 39.1 mn (2017: 40.4 mn) of own transferable financial instruments.
Allianz Group has dedicated assets at Group level amounting to € 8.6 bn as of 31 December 2018 (2017: € 8.4 bn), which are likewise managed according to Allianz ALM standards.
During the year ended 31 December 2018, the Allianz Group recognized expenses for defined contribution plans of € 257 mn
(2017: € 267 mn). Additionally, the Allianz Group paid contributions for state pension schemes of € 329 mn (2017: € 331 mn).
ALLIANZ EQUITY INCENTIVE PLAN (AEI) The AEI plan is granted in the form of restricted stock units (RSUs) and is part of a new variable compensation component for the plan beneficiaries.
The payout is capped at a 200 % share price growth above the grant price.
As of 31 December 2018, the Allianz Group recorded provisions of € 383 mn (2017: € 472 mn) for these RSUs in Other liabilities.
M-unit Deferral Plan until termination of their service at the latest.
The number and weighted-average exercise price of the M-unit options outstanding and exercisable are as follows: Reconciliation of outstanding M-unit options
During the year ended 31 December 2018, the Allianz Group recorded compensation expenses of € 14 mn (2017: € 16 mn) related to these share options.
Earnings per share are calculated by dividing net income attributable to shareholders by the weighted-average number of common shares outstanding. For the calculation of diluted earnings per share, the nominator and denominator are adjusted for the effects of potentially dilutive common shares. These effects arise from various share-based compensation plans of the Allianz Group.
Tax services primarily refer to tax compliance and personal tax compliance services.
REMUNERATION FOR THE BOARD OF MANAGEMENT AND THE SUPERVISORY BOARD As of 31 December 2018, the Board of Management is comprised of ten members. The following values reflect the full Board of Management active in the respective year.
Management for 2018, excluding the notional accruals and payments of the MTB 2016 – 2018 as well as the pension service cost, amounts
RSUs with a total fair value of € 9.4 mn (2017: € 8.4 mn) were granted to the Board of Management for the year ended
In 2018, remuneration and other benefits totaling € 8 mn (2017: € 8 mn) were paid to former members of the Board of Management and dependents, while reserves for current pension obligations and accrued pension rights totaled € 152 mn (2017: € 137 mn).
The total remuneration for all Supervisory Board members, including attendance fees, amounted to € 2.7 mn (2017: € 2.2 mn).
In March 2019, Allianz SE has started a new share buy-back program with a volume of up to € 1.5 bn. For further information, please refer to the section “Expected dividend development” of the chapter
154 Annual Report 2018 − Allianz Group 43 _ List of participations of the Allianz Group as of 31 December 2018 according to § 313 (2) HGB
IDS GmbH - Analysis and Reporting Services, Munich 100.0 inSphere GmbH, Munich 100.0
Consolidated affiliates 35° East SAS, Paris la Défense 100.0 490 Fulton JV LP, Wilmington, DE 96.5 490 Fulton REIT LP, Wilmington, DE 100.0 490 Lower Unit GP LLC, Wilmington, DE 100.0 490 Lower Unit LP, Wilmington, DE 100.0
Allianz Tiriac Pensii Private Societate de administrare a fondurilor de pensii private S.A., Bucharest 100.0
AWP Ticket Guard Small Amount & Short Term Insurance Co. Ltd., Tokyo 100.0
PIMCO Cayman Japan CorePLUS Strategy Segregated Portfolio, George Town 42.2 2,3
PIMCO RAE Fundamental Global Equities Plus Fundo de Investimento Multimercado Investimento no Exterior, Rio de Janeiro 100.0 3
Wildlife Works Carbon LLC, San Francisco, CA 10.0 8 1_Percentage includes equity participations held by dependent entities in full, even if the Allianz Group's share in the dependent entity is 2_Controlled by the Allianz Group.
Munich, and its subsidiaries (the Group), which comprise the consolidated balance sheet as at 31 December 2018, and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the financial year from 1 January to 31 December 2018, and notes to the consolidated financial statements, including a summary of significant accounting policies. In addition, we have audited the group management report of Allianz SE, for the financial year from 1 January to 31 December 2018. In accordance with the German legal requirements, we have not audited the content of those parts of the group management report listed in the “Other Information” section of our auditor’s report.
KEY AUDIT MATTERS IN THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements for the financial year from 1 January to 31 December 2018. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our audit opinion thereon; we do not provide a separate audit opinion on these matters.
In our view, the matters of most significance in our audit were as follows: − Measurement of certain financial instruments (Level 3) at fair value,
Our presentation of these key audit matters has been structured in each case as follows: − Matter and issue,
Matter and issue In the consolidated financial statements of the Company fair value measured financial instruments amounting to € 51,180 mn (5.7 % of consolidated total assets) are reported that are classified as Level 3 of the fair value hierarchy according to the requirements of IFRS 13.
Of this amount, € 40,107 mn is attributable to financial assets and € 11,073 mn to financial liabilities. These financial instruments are assigned to Level 3 of the fair value hierarchy as for the measurement in the underlying valuation models sufficient observable market data was not available and therefore unobservable inputs had to be used instead. These inputs may include data derived from approximations using, inter alia, historical data.
Based on our audit procedures, we were able to satisfy ourselves that the methods and assumptions used by the executive directors are appropriate overall for measuring certain financial instruments
Based on our audit procedures, we were able to satisfy ourselves that the methods and assumptions used by the executive directors are appropriate overall for measuring certain technical life and health insurance assets and liabilities.
(8.1 % of consolidated total assets) are reported under the Reserves for loss and loss adjustment expenses balance sheet item. Of this amount, € 61,442 mn is attributable to the Property-Casualty Insurance business segment.
Reserves for loss and loss adjustment expenses in propertycasualty insurance represent the Company's expectations regarding future payments for known and unknown claims including associated expenses. The Company uses various methods to estimate these obligations. Furthermore, the measurement of these provisions requires a significant degree of judgment by the executive directors of the
As part of our audit, we evaluated the appropriateness of selected controls established by the Company for the purpose of selecting actuarial methods, determining assumptions and making estimates for the measurement of certain technical provisions in propertycasualty insurance.
With the support of our property-casualty insurance valuation specialists, we have compared the respective actuarial methods applied and the material assumptions with generally recognized actuarial practices and industry standards and examined to what extent these are appropriate for the valuation. Our audit also included an evaluation of the plausibility and integrity of the data and assumptions used in the valuation and a reconstruction of the claims settlement processes. Furthermore, we recalculated the amount of the provisions for selected lines of products, in particular lines of products with large reserves or increased estimation uncertainties.
Based on our audit procedures, we were able to satisfy ourselves that the estimates and assumptions made by the executive directors are appropriate overall for measuring the technical provisions in property-casualty insurance.
− the separate non-financial report pursuant to § 289b Abs. 3 HGB
RESPONSIBILITIES OF THE EXECUTIVE DIRECTORS AND THE SUPERVISORY BOARD FOR THE CONSOLIDATED FINANCIAL STATEMENTS AND THE GROUP MANAGEMENT REPORT The executive directors are responsible for the preparation of the consolidated financial statements that comply, in all material respects, with IFRSs as adopted by the EU and the additional requirements of