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E Further Information 245 Joint Advisory Council of the Allianz Companies 246 International Advisory Board 247 Mandates of the Members of the Supervisory Board 248 Mandates of the Members of the Board of Management 249 Glossary
3 Following the announcement of the sale on 31 August 2008, Dresdner Bank was classified as held for sale and discontinued operations. Therefore, all revenue and profit figures presented for our continuing business do not include the parts of Dresdner Bank that we sold to Commerzbank on 12 January 2009. The results from these operations are presented in a separate net income line “Net income (loss) from discontinued operations, net of income taxes”.
4 Proposal. 5 Total dividend reflects the treasury shares held at the time of the publication of the convocation of the
6 Based on average shareholders’ equity. Average shareholders’ equity has been calculated based upon the average of the current and the preceding year’s shareholders’ equity as of 31 December.
7 Based on net income from continuing operations after non-controlling interests. 8 Solvency according to the E.U. Financial Conglomerates Directive. Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the solvency ratio as of 31 December 2015 and 2014 would be 191 % and 172 %, respectively.
5 Letter to the Investors 12 Supervisory Board Report 19 Supervisory Board 20 Board of Management 23 Allianz Share oliver bäte Chairman of the Board of Management
In order for us to remain successful and strong in this constantly changing environment, we – the Board of Management, together with more than 200 colleagues in different countries and functions – have developed our Renewal Agenda. It was presented to you and the entire investor community at our Capital Markets Day in November 2015.
Your company has defined five fields of action to secure growth in revenues and profit­ ability.
True Customer Centricity: We aim for an outstanding customer experience by gaining a better understanding of our customers’ needs and tailoring our services so as to meet those needs. Our success is measured by our customers’ willingness to recommend Allianz, for which we use the Net Promoter Score (NPS). The results reveal the level of our customers’ satisfaction and loyalty and indicate how we can improve even more. Since a high NPS also means accelerated revenue growth, by 2018 we would like 75 % of our businesses (currently 50 %) to be loyalty leaders or at least above­market average in terms of NPS.
Digital by Default: Digitalization can suddenly threaten business models that have been successful in the past, as we have witnessed in other industries. But the good news for you as an Allianz investor is that digitalization also opens up major opportunities for your company. It allows us to transform Allianz and concentrate on the things that promote positive customer experience and customer growth, and at the same time to increase our productivity.
Technical Excellence: Our aim is to raise the quality of our insurance business to a level that generates superior margins and growth rates by leveraging the best analytical methods and our highly­talented experts and managers. The advantages offered by digitalization will be used to optimize our risk­adequate pricing and to streamline and speed up claims processing. We also seek to increase growth and effectiveness in our business with medium­sized enterprises and commercial firms. In the Property­Casualty segment, our goal is to achieve a combined ratio of 94 % or better by 2018, with the support of the best technical experts, and to receive consistently positive feedback from brokers and custom­ ers. In the Life/Health business segment we are targeting a return on equity of 10 % or higher and a new business margin of at least 3 %. This also requires us to selectively wind down unprofitable business.
Inclusive Meritocracy: Our corporate culture will be refined to make not only high per­ formance matter, but also the way in which our employees go about achieving it, for example by collaborating closely in cross­functional teams. The aim is to promote an entrepreneurial spirit that concentrates on finding the best ideas and implementing them productively together with others in the organization. For this to succeed, we are adjusting our remuneration and incentive systems. The Inclusive Meritocracy Index (IMIX), which is based on our annual employee surveys, shows the progress we have made towards renewing our management culture. It currently stands at 68 % throughout the Group, and we aim to increase it to 72 % by 2018.
Renewal Agenda in our operating businesses and to take concrete steps towards becoming an Allianz that is consistently customer­focused and digital throughout its business. I am encouraged by the strengths of our business, by the solidarity of our management, and by our employees, who know what is at stake.
It is clear to the employees of Allianz that both the future success of our company and your success as an investor depend, directly and entirely, on our ability to understand our customers and to tailor our products and services even more consistently to their require­ ments – or in other words, to provide simple, modern, and outstanding service quality at all times.
I would like to thank you for your support and the trust you have placed in us and would be delighted if you remain a part of Allianz in the future.
Ladies and Gentlemen, During the 2015 fiscal year, the Supervisory Board fulfilled all its duties and obligations as laid out in the company statutes and applicable law. It monitored the management of the company, advised the Board of Management regarding the conduct of business and dealt with personnel matters related to the Board of Management as well as to succession planning.
Overview Within the framework of our activities, the Board of Management informed us on a regular basis and in a timely and comprehensive manner, both verbally and in writing, on the course of business as well as on the development of the Allianz Group and Allianz SE, including deviations in actual business developments from the planning. The annual financial statements of Allianz SE and the consolidated financial statements with its respective auditor’s reports as well as the half-yearly and quarterly financial reports were thoroughly examined by the Supervisory Board and the Audit Committee.
issues discussed in the supervisOry BOard plenary sessiOns In all of the Supervisory Board’s 2015 meetings, the Board of Management reported on Group revenues and results by addressing the developments in individual business segments. Furthermore, we were regularly informed by the Board of Management about the capital, financial and risk situation, the impact of natural catastrophes, the status of major legal disputes and other essential developments.
On 6 May 2015, just before the AGM, the Board of Management briefed us on the first quarter 2015 performance and on the Allianz Group’s current situation, particularly on the capitalization, the share price development, and the impact of certain loss events.
In our meeting on 6 August 2015, the Board of Management reported in depth on the half-yearly results and also dealt with the issuance of Allianz shares to employees of the Allianz Group as well as the future Common European Sales Law. We then dealt extensively with the effects of the low interest rate environment on the life insurance sector and, in particular, the measures adopted by Allianz. The Supervisory Board agreed to the early termination of Mr. Manuel Bauer’s appointment as a member of the Board of Management of Allianz SE with effect from 31 August 2015. In the course of the subsequent re-alignment of the schedule of responsibilities of the Board of Management, it appointed Mr. Oliver Bäte as the member of the Board of Management responsible for “employment and social welfare”. The Supervisory Board also elected Mr. Jürgen Lawrenz to the Risk Committee as the successor of Mr. Franz Heiß, who stepped down from the Supervisory Board, and dealt extensively with the matter of implementing the German Act on Equal Participation of Women and Men in Executive Positions. The meeting was preceded by a separate information session for members of the Supervisory Board, at which Allianz managers gave presentations on current life insurance topics.
The main focus of the meeting on 1 October 2015 was the future strategy of the Allianz Group. Mr. Bäte and his colleagues from the Board of Management presented the Renewal Agenda and initial implementation measures regarding the strategic topics True Customer Centricity, Digital by Default, Technical Excellence, Growth Engines, and Inclusive Meritocracy. The Supervisory Board discussed in detail the key points and further steps toward implementing the new strategic initiatives.
cOmmittee activities The Supervisory Board has formed various committees in order to perform its duties efficiently: the Standing Committee, the Personnel Committee, the Audit Committee, the Risk Committee and the Nomination Committee. The committees prepare the discussion and adoption of resolutions in the plenary sessions. Furthermore, in appropriate cases, the authority to adopt resolutions has been delegated to the committees. There is no Conciliation Committee because the German Co-Determination Act (“Mitbestimmungsgesetz”), which provides for such a committee, does not apply to Allianz SE as a European Company (SE).
The Standing Committee held three meetings in 2015. These related primarily to corporate governance issues, the preparation for the AGM, the matter of implementing the German Act on Equal Participation of Women and Men in Executive Positions, and the internal review of the Supervisory Board’s efficiency. During the fiscal year the committee passed resolutions to approve loans to senior executives.
The Risk Committee held two meetings in 2015, at which it discussed the current risk situation of the Allianz Group with the Board of Management. The risk report and other risk-related statements in the annual Allianz SE and consolidated financial statements, as well as in management and group management reports, were reviewed with the auditor and the Audit Committee was informed of the result. The appropriateness of the early risk recognition system at Allianz was also discussed. The committee looked in detail at the effectiveness of the risk management system, in particular behavioral risk in property insurance. Other matters considered were the new supervisory regime according to Solvency II, the risk strategy of Allianz SE and of the Allianz Group, a MaRisk (Minimum Requirements for Risk Management) audit, the effects of the enduring low interest rate environment, and the Allianz SE’s classification as a Global Systemically Important Insurer (G-SII).
In November 2015, the Nomination Committee held a meeting by telephone conference to discuss the vacant position on the Supervisory Board that will materialise at the end of the AGM on 4 May 2016.
5 Letter to the Investors 12 Supervisory Board Report 19 Supervisory Board 20 Board of Management 23 Allianz Share
Chair and committees of the Supervisory Board – as of 31 December 2015 Chairman of the Supervisory Board: Dr. Helmut Perlet Deputy Chairmen: Dr. Wulf H. Bernotat, Rolf Zimmermann Standing Committee: Dr. Helmut Perlet (Chairman), Dr. Wulf H. Bernotat, Prof. Dr. Renate Köcher, Gabriele Burkhardt-Berg, Rolf Zimmermann Personnel Committee: Dr. Helmut Perlet (Chairman), Christine Bosse, Rolf Zimmermann Audit Committee: Dr. Wulf H. Bernotat (Chairman), Dr. Helmut Perlet, Jim Hagemann Snabe, Jean-Jacques Cette, Ira Gloe-Semler Risk Committee: Dr. Helmut Perlet (Chairman), Christine Bosse, Peter Denis Sutherland, Dante Barban, Jürgen Lawrenz Nomination Committee: Dr. Helmut Perlet (Chairman), Prof. Dr. Renate Köcher, Peter Denis Sutherland audit Of annual accOunts and cOnsOlidated financial statements In compliance with the special legal provisions applying to insurance companies, the statutory auditor and the auditor for the review of the half-yearly financial report are appointed by the Supervisory Board of Allianz SE and not by the AGM. The Supervisory Board has appointed KPMG as statutory auditor for the annual Allianz SE and consolidated financial statements, as well as for the review of the half-yearly financial report of the fiscal year 2015. KPMG audited the financial statements of Allianz SE and the Allianz Group as well as the respective management reports. They issued an auditor’s report without any reservations. The consolidated financial statements were prepared on the basis of the international financial reporting standards (IFRS), as adopted in the European Union. KPMG performed a review of the half-yearly and quarterly financial reports.
All Supervisory Board members received the documentation relating to the annual financial statements and the auditor’s reports from KPMG on schedule. The provisional financial statements and KPMG’s audit results were discussed in the Audit Committee on 17 February 2016 and in the plenary session of the Supervisory Board on 18 February 2016. The final financial statements and KPMG’s audit reports were reviewed on 10 March 2016 by the Audit Committee and in the Supervisory Board plenary session. The auditors participated in these discussions and presented the main results from the audit. No material weaknesses in the internal financial reporting control process were discovered. There were no circumstances that might give cause for concern about the auditor’s independence.
On the basis of our own reviews of the annual Allianz SE and consolidated financial statements, the management and group management reports and the recommendation for appropriation of earnings, we raised no objections and agreed with the results of the KPMG audit. We approved the Allianz SE and consolidated financial statements prepared by the Board of Management. The company’s financial statements are therefore adopted. We agree with the Board of Management’s proposal on the appropriation of earnings.
The fiscal year 2015 also saw personnel changes within Allianz SE’s Board of Management. Mr. Michael Diekmann left the Board of Management with effect from 6 May 2015. Mr. Oliver Bäte took over as Chairman of the Board of Management with effect from 7 May 2015. Mr. Manuel Bauer left the Board of Management with effect from 31 August 2015 and his areas of responsibility were allocated to other Board departments.
Dr. Helmut Perlet Chairman Former Member of the Board of Management of Allianz SE
rolf Zimmermann Vice Chairman Chairman of the (European) SE Works Council of Allianz SE
ira Gloe-semler Regional Representative Financial Services of ver.di Hamburg franZ Heiss until 31 July 2015 Employee of Allianz Beratungs- und Vertriebs-AG
JürGen laWrenZ since 1 August 2015 Employee of Allianz Managed Operations & Services SE
oliver Bäte Chairman of the Board of Management since 7 May 2015 Global Property-Casualty until 6 May 2015 miCHael Diekmann until 6 May 2015 Chairman of the Board of Management serGio BalBinot Insurance Western & Southern Europe Insurance Middle East, Africa, India since 1 September 2015 manuel Bauer until 31 August 2015 Insurance Growth Markets
Dr. HelGa JunG Insurance Iberia & Latin America, Legal & Compliance, Mergers & Acquisitions
Dr. Werner ZeDelius Insurance German Speaking Countries Insurance Central & Eastern Europe since 1 September 2015
Allianz (excl. dividends) 19.1 13.0 2.5 Allianz (incl. dividends) 24.6 18.1 6.7
Share price performance in the year % 19.1 5.4 24.4 41.8 (16.9)
Market capitalization as of 31 December € bn 74.7 62.8 59.5 47.8 33.7
WeighTing of AlliAnz shAres in mAjor inDices as of 31 December 2015 Weighting in % Ranking Index members msci World Financials 1.2 9 361
The Board of Management and the Supervisory Board of Allianz SE thus attach great importance to complying with the recommendations of the German Corporate Governance Code (referred to hereinafter as the “Code”). The Declaration of Conformity with the recommendations of the Code issued by the Board of Management and the Supervisory Board on 10 December 2015 and the company’s position regarding the Code’s suggestions can be found in the Statement on Corporate Management pursuant to § 289a of the HGB starting on page 32.
Corporate Constitution of the European Company (SE) As a European Company, Allianz SE is subject to special European SE regulations and the German SE Implementation Act (“SE-Ausführungsgesetz ”) in addition to German stock corporation Act. However, the main features of a German stock corporation – in particular the two-tier board system (Board of Management and Supervisory Board) and the principle of equal employee representation on the Supervisory Board – have been maintained by Allianz SE.
Function of the Board of Management The Board of Management of Allianz SE comprises nine members. It is responsible for setting business objectives and the strategic direction, coordinating and supervising the operating entities, as well as implementing and overseeing an efficient risk management system. The Board of Management also prepares the Group’s consolidated financial statements and the annual financial statements of Allianz SE, as well as interim reports.
Board of ManaGeMent and Group CoMMittees In the financial year 2015, there were the following Board of Management committees: Board CoMMittees
Proposals to the Board of Management concerning risk capital management, including Group-wide capital and liquidity planning, as well as investment strategy.
Monitoring of the underwriting business, of the related risk management and strategy as well as developing an underwriting policy.
The Board of Management reports regularly and comprehensively to the Supervisory Board on business development, the financial position and earnings, planning and achievement of objectives, business strategy and risk exposure. Details of the Board of Management’s reporting to the Supervisory Board are laid down in the reporting rules issued by the Supervisory Board.
Principles and function of the Supervisory Board The German Co-Determination Act (“Mitbestimmungsgesetz”) does not apply to Allianz SE because it has the legal form of a European Company (SE). The size and composition of the Supervisory Board are instead determined by general European SE regulations. These regulations are implemented in the Statutes and by the 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 Allianz employees in the different countries. The Supervisory Board currently in office comprises four employee representatives from Germany and one each from France and Italy. The last regular election of the Supervisory Board took place in May 2012 for a term lasting until the end of the ordinary AGM in 2017. According to § 17 (2) of the German SE Implementation Act (“SE-Ausführungsgesetz”) the Supervisory Board of Allianz SE shall be composed of at least 30 % women and at least 30 % men as of 1 January 2016.
supervisory Board CoMMittees supervisory Board CoMMittees responsiBiLities standinG CoMMittee 5 members − Chairman: Chairman of the Supervisory Board (Dr. Helmut Perlet)
− Approval of certain transactions which require the approval of the Supervisory Board, e.g. capital measures, acquisitions and disposals of participations
− Preparation of the efficiency review of the Supervisory Board audit CoMMittee 5 members − Chairman: appointed by the Supervisory Board (Dr. Wulf H. Bernotat)
− Three shareholder representatives (in addition to Dr. Wulf H. Bernotat: Dr. Helmut Perlet, Jim Hagemann Snabe)
− Initial review of the annual Allianz se and consolidated financial statements, management reports (incl. Risk Report) and the dividend proposal, review of half-yearly reports or, where applicable, quarterly financial reports or statements
− Three shareholder representatives (in addition to Dr. Helmut Perlet: Christine Bosse, Peter Denis Sutherland)
− Monitoring of the general risk situation and special risk developments in the Allianz Group
puBLiCation of detaiLs of MeMBers’ partiCipation in MeetinGs presenCe in perCent pLenary sessions of tHe supervisory Board Dr. Helmut Perlet (Chairman) 6/6 100 Dr. Wulf H. Bernotat (Vice Chairman) 5/6 83.33 Rolf Zimmermann (Vice Chairman) 6/6 100 Dante Barban 6/6 100 Christine Bosse 6/6 100 Gabriele Burkhardt-Berg 6/6 100 Jean-Jacques Cette 6/6 100 Ira Gloe-Semler 6/6 100 Franz Heiß 3/31 100 Prof. Dr. Renate Köcher 6/6 100 Jürgen Lawrenz 3/3 2 100 Jim Hagemann Snabe 6/6 100 Peter Denis Sutherland 5/6 83.33 standinG CoMMittee Dr. Helmut Perlet (Chairman) 3/3 100 Dr. Wulf H. Bernotat 1/3 33.33 Gabriele Burkhardt-Berg 3/3 100 Prof. Dr. Renate Köcher 2/3 66.67 Rolf Zimmermann 3/3 100 personneL CoMMittee Dr. Helmut Perlet (Chairman) 6/6 100 Christine Bosse 5/6 83.33 Rolf Zimmermann 6/6 100 audit CoMMittee Dr. Wulf H. Bernotat (Chairman) 4/5 80 Jean-Jacques Cette 5/5 100 Ira Gloe-Semler 5/5 100 Jim Hagemann Snabe 5/5 100 Dr. Helmut Perlet 5/5 100 risk CoMMittee Dr. Helmut Perlet (Chairman) 2/2 100 Dante Barban 2/2 100 Christine Bosse 2/2 100 Franz Heiß 1/11 100 Jürgen Lawrenz 1/12 100 Peter Denis Sutherland 1/2 50 noMination CoMMittee Dr. Helmut Perlet (Chairman) 1/1 100 Prof. Dr. Renate Köcher 1/1 100 Peter Denis Sutherland 1/1 100 1 Mr. Heiß left the Supervisory Board on 31 July 2015. 2 Mr. Lawrenz joined the Supervisory Board on 1 August 2015.
Employee representation within Allianz se, as provided for by the se Agreement concerning the Participation of Employees dated 3 July 2014, contributes to diversity of work experience and cultural background. Pursuant to § 6 (2) sentence 2 of the Act on the Participation of Employees in a European Company (seBG), the number of women and men appointed as German employee representatives should be proportional to the number of women and men working in the German companies. However, the Supervisory Board does not have the right to select the employee representatives.
The following requirements and objectives apply to the composition of Allianz se’s Supervisory Board:1
– depending on possible memberships in one or more of the currently five Supervisory Board committees, extra time planning to participate in the committee meetings and to prepare for such meetings is required; this applies in particular to the Audit and Risk Committees; – extraordinary meetings of the Supervisory Board or of a committee may be necessary to deal with special matters.
2. Independence At least eight members of the Supervisory Board should be independent as defined by No. 5.4.2 of the Corporate Governance Code, i.e. they may not have any business or personal relations with Allianz se or its Executive Bodies, a controlling shareholder or an enterprise associated with the latter, which may cause a substantial and not merely temporary conflict of interests. In case shareholder representatives and employee representatives are viewed separately, at least four members should be independent within the meaning of No. 5.4.2 of the Corporate Governance Code. Regarding employee representatives, however, the mere fact of employee representation and the existence of a working relationship with the company shall not itself affect independence.
Shares held by members of the Board of Management and the Supervisory Board The total holdings of members of the Board of Management and the Supervisory Board of Allianz SE amounted to less than 1 % of the company ’s issued shares as of 31 December 2015.
Statement on Corporate Manage ment pursuant to § 289a of the HGB
dations of the GcGc in the version of June 24, 2014 were complied with except for the following deviation: According to Item 5.3.2 GcGc, the Audit Committee of the Supervisory Board shall be responsible for the monitoring of the risk management system. The Supervisory Board of Allianz Se has additionally established a specific Risk Committee, which is responsible for the monitoring of the risk management system.
Corporate governance practices internal control SyStemS The Allianz Group has an effective internal control system for verifying and monitoring its operating activities and business processes, in particular the control of financial reporting. The requirements placed on the internal control systems are essential not only for the survival of the company, but also to maintain the confidence of the capital market, our customers and the public. A comprehensive risk management system regularly assesses the appropriateness of the internal control system, taking into account not only qualitative and quantitative guidelines, but also specific controls for individual business activities. For further information on the risk organization and risk principles, please refer to page 127. For further information on the internal Controls over Financial Reporting and Risk Capital, please refer to page 131.
34 Takeover­related Statements and Explanations 37 Remuneration Report compliance proGram The sustained success of the Allianz Group is based on the responsible behavior of all Group employees, who embody trust, respect and integrity. By means of the global compliance program coordinated by its central compliance function, Allianz supports and follows internationally and nationally recognized guidelines and standards for rules-compliant and value-based corporate governance. These include the principles of the United Nations (UN Global Compact), the Guidelines of the Organization for Economic Co-operation and Development (OECD guidelines) for Multinational Enterprises, and European and international standards on data and consumer protection, economic and financial sanctions and combating corruption, bribery, money laundering and terrorism financing. Through its support for and acceptance of these standards, Allianz aims to avoid the risks that might arise from non-compliance. The central compliance function is responsible – in close cooperation with local compliance departments – for ensuring the effective implementation and monitoring of the compliance program within the Allianz Group, as well as for investigating potential compliance infringements.
The Code of Conduct and the internal guidelines derived from it provide all employees with clear guidance on behavior that lives up to the values of the Allianz Group. In order to transmit the principles of the Code of Conduct and the internal compliance program based on these principles, Allianz has implemented interactive training programs around the world. These provide practical guidelines which enable employees to come to their own decisions. The Code of Conduct also forms the basis for guidelines and controls to ensure fair dealings with Allianz Group customers (sales compliance).
There are legal provisions against corruption and bribery in almost all countries in which Allianz has a presence. The global AntiCorruption Program of the Allianz Group ensures the continuous monitoring and improvement of the internal anti-corruption controls. More information on the Anti-Corruption Program can be found in the Sustainability Report on our website at www.allianz.com/ sustainability.
DeScription of tHe functionS of tHe BoarD of manaGement anD tHe SuperviSory BoarD anD of tHe compoSition anD functionS of tHeir committeeS A description of the composition of the Supervisory Board and its committees can be found on page 17 and 19 of the Annual Report. A description of the composition of the Board of Management can be found on page 20 to 22, while the composition of the Committees of the Board of Management is described in the Corporate Governance Report starting on page 27. This information is also available on our website at www.allianz.com/corporate-governance.
The objective for the proportion of women on Allianz SE’s Board of Management is 11 %. This figure is based on the status quo, as it is not easily possible to intervene in ongoing Board appointments and the first legal implementation period runs only until mid-2017. However, the Supervisory Board of Allianz SE has already declared its intention to increase the proportion of women on the Board of Management to at least 20 % by the end of 2018.
As regards the proportion of women on the first and the second management level below the Board of Management of Allianz SE, the Board of Management has set a target quota of at least 20 %. Over the longer term, Allianz is aiming for at least 30 % of positions on these two management levels to be held by women.
Takeover-related Statements and Explanations Statements pursuant to § 289 (4) and § 315 (4) of the German Commercial Code (“Handelsgesetzbuch – HGB”) and explanatory report.
Composition of share Capital As of 31 December 2015, the share capital of Allianz SE was € 1,169,920,000. It was divided into 457,000,000 registered and fully paid-up shares with no-par value and a corresponding share capital amount of € 2.56 per share. All shares carry the same rights and obligations. Each no-par value share carries one vote.
restriCtions on voting rights and share transfers; exerCise of voting rights in Case of employee equity partiCipations Shares may only be transferred with the consent of the company. The company may withhold a duly applied approval only if it deems this to be necessary in the interest of the company on exceptional grounds. The applicant will be informed of the reasons.
Shares acquired by employees of the Allianz Group as part of the Employee Stock Purchase Plan are in principle subject to a one-year lock-up period. Outside Germany, the lock-up period may in some cases be up to five years. In some countries, in order to ensure that the lock-up period is observed, the employee shares are held throughout that period by a bank, another natural person or a legal entity acting as a trustee. Nevertheless, employees may instruct the trustee to exercise voting rights or have power of attorney granted to them to exercise such voting rights. Lock-up periods contribute to the Employee Stock Purchase Plan’s aims of committing employees to the company and letting them benefit from the performance of the share price.
Amendments to the Statutes must be adopted by the General Meeting. § 13 (4) sentence 2 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 Statutes thereby make use of the option set out in § 51 sentence 1 of the SE Implementation Act (“SE-Ausführungsgesetz”) which is based upon Article 59 (1) and (2) of the SE Regulation. A larger majority is, inter alia, required for a change in the corporate object or the relocation of the registered office to another E.U. member state (§ 51 sentence 2 of the SE Implementation Act). The Supervisory Board may alter the wording of the Statutes (§ 179 (1) sentence 2 of the German Stock Corporation Act and § 10 of the Statutes).
authorization of the board of management to issue and repurChase shares The Board of Management is authorized to issue shares as well as to acquire and use treasury shares as follows: It may increase the company’s share capital, on or before 6 May 2019, with the approval of the Supervisory Board, by issuing new registered no-par value shares against contributions in cash and/or in kind, on one or more occasions: − Up to a total of € 550,000,000 (Authorized Capital 2014/I). In case of a capital increase against cash contribution, the Board of Management may exclude the shareholders’ subscription rights for these shares with the consent of the Supervisory Board, (i) for fractional amounts, (ii) in order to safeguard the rights pertaining to holders of convertible bonds or bonds with warrants, including mandatory convertible bonds, and (iii) in the event of a capital increase of up to 10 %, if the issue price of the new shares is not significantly less than 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 Board of Management may buy back and use Allianz shares for other purposes until 6 May 2019 on the basis of the authorization of the General Meeting of 7 May 2014 (§ 71 (1) No. 8 of the German Stock Corporation Act). Together with other treasury shares that are held by Allianz SE, or which are attributable to it under §§ 71a et seq. of the German Stock Corporation Act, such shares may not exceed 10 % of the share capital at any time. The shares acquired pursuant to this authorization may be used, under exclusion of the shareholders’ subscription rights, for any legally admissible purposes, and in particular those specified in the authorization. Furthermore, the acqui sition 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.
− The exclusive bancassurance distribution agreement between Allianz and HSBC for life insurance products in Asia (China, Indonesia, Malaysia, Australia, Sri Lanka, Taiwan, Brunei, Philippines) includes a clause under which both parties have an extraordinary termination right in case there is a change of control of the other party’s ultimate holding company.
Under the Allianz Sustained Performance Plan (ASPP), Restricted Stock Units (RSU) – i.e. virtual Allianz shares – are granted as a stockbased remuneration component to senior management of the Allianz Group worldwide. In addition, under the Group Equity Incentive (GEI) scheme, Stock Appreciation Rights (SAR) – i.e. virtual options on Allianz shares – were also granted until 2010. Some of these are still outstanding. The conditions for these RSU and SAR contain change of control clauses, which apply if a majority of the voting share capital in Allianz SE is acquired, directly or indirectly, by one or more third parties who do not belong to the Allianz Group and which provide for an exception from the usual vesting and exercise periods. The RSU will be released, in line with their general conditions, by the company for the relevant plan participants on the day of the change of control without observing any vesting period that would otherwise apply. The cash amount payable per RSU must equal the average market value of the Allianz share and be at least the price offered per Allianz share in a preceding tender offer. In case of a change of control as described above, SAR will be exercised, in line with their general conditions, by the company for the relevant plan participants on the day of the change of control without observing any vesting period. By providing for the non-application of the vesting period in the event of a change of control, the terms take into account the fact that the conditions under which the share price moves are very different when there is a change in control.
GOVERNANCE SYSTEM The remuneration of the Board of Management is decided upon by the entire Supervisory Board based on proposals prepared by the Personnel Committee. If required, outside advice is sought from independent external consultants. The Personnel Committee and the Supervisory Board consult with the Chairman of the Board of Management, as appropriate, in assessing the performance and remuneration of members of the Board of Management. The Chairman of the Board of Management is not present when his own remuneration is discussed. Regarding the activities and decisions taken by the Personnel Committee and the Supervisory Board, please refer to the Supervisory Board Report.
− Variable remuneration focused on sustainability: Two thirds of the variable remuneration reflect longer-term performance. One third is a deferred payout after three years, based on a sustainability assessment covering the three-year period. The other third rewards the sustained performance of the share price with a deferred payout four years after grant.
REMUNERATION STRUCTURE, COMPONENTS, AND TARGET SETTING PROCESS There are four main remuneration components. Each has the same weighting within annual target remuneration: base salary, annual bonus, annualized mid-term bonus (MTB), and equity-related remuneration. The target compensation of each variable component does not exceed the base salary, with the total target variable compensation not exceeding three times the base salary. In addition, Allianz offers pensions and similar benefits and perquisites.
Based on the 2015 target achievement for the Group, the business division/corporate functions, and the qualitative performance, the total annual bonus awards ranged between 101 % and 133 % of the target with an average bonus award of 121 % of the target.
ILLUSTRATION Of THE PROCESS AND THE UNDERLYING TIMELINE Of THE MTB CYCLE, fROM TARGET SETTING TO fINAL PERfORMANCE ASSESSMENT1 € THOU
Year 1 Year 2 Year 3 1 Example based on target values of a regular member of the Board of Management with an annual target of € 700 THOU for 2013 and € 750 THOU for the MTB in 2014 and 2015. Accrual is only a notional indication.
− MTB (mid-term): A deferred award which reflects the achievement of the annual targets by accruing an amount identical to the annual bonus. The payout of the award at the end of a threeyear cycle is subject to a sustainability assessment for these three years. The following criteria are considered: − adjusted capital growth vs. planned development in light of risk capital employed (adjusted capital essentially represents the fair value of shareholders’ equity),
Following the final performance and sustainability assessment of the MTB 2013 – 2015, a total payout of € 29,176 THOU was approved by the Supervisory Board. The Supervisory Board conducted the sustainability assessment in accordance with the agreed criteria. This analysis concluded that the years 2013 – 2015 represented a period of solid and sustainable performance for Allianz with overall positive development against the criteria – in particular with regard to balance sheet strength. The final distributions have been differentiated according to the assessments made across the business divisions with adjustments ranging from 0 % to + 10 % of the target value.
The fair market value is calculated based on the ten-day average Xetra closing price of the Allianz stock following the financial press conference on the annual results. As RSUs are virtual stocks without dividend payments, 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 respective swap rates as of the valuation day.
Variable remuneration components may not be paid, or payment may be restricted in the case of a breach of the Allianz Code of Conduct, risk limits, or compliance requirements. Additionally, a reduction or cancellation of variable remuneration may occur if the supervisory authority (BaFin) requires this in accordance with its statutory powers.
For members of the Allianz SE Board of Management who were born before 1 January 1958 and for rights accrued before 2015 the guaranteed minimum interest rate remains at 2.75 % and the retirement age is still 60.
To make the remuneration related to the performance year 2015 more transparent, the additional column “actual grant” includes the 2015 fixed compensation, the bonus paid for 2015, the MTB 2013 – 2015 tranche accrued for the performance year 2015, and the fair value of the RSU grant in 2016 for the performance year 2015.
Annual Variable Compensation – Annual Bonus 750 996 – 1,494 1,260 1,009 1,260 1,280 442 – 663 534 1,546 534 – 750 – 1,125 999 – 999
AEI 2015/RSU3 750 – – – – – – 1,280 – – – – – – – – – – – – – AEI 2011/RSU3 – – – – – – 1,704 – – – – – – 2,776 – – – – – – – GEI 2010/RSU3 – – – – – – 916 – – – – – – 1,569 – – – – – – – GEI 2009/RSU3 – – – – – 228 – – – – – – 376 – – – – – – – – GEI 2010/SAR4 – – – – – 438 – – – – – – 963 – – – – – – – – GEI 2008/SAR4 – – – – – – 263 – – – – – – 450 – – – – – – –
7 Michael Diekmann retired on 7 May 2015. He received a pro-rated base salary, annual bonus, and equityrelated compensation. The different pro-rated amounts for base salary and target amounts result from different pro-rating methodologies, which are generally applied. According to his service contract, he will receive his fixed salary of € 106.7 THOU per month for a period of 6 months from December 2015 as a transition payment, which will be set off against the regular pension payment. As part of the transition payment he will receive a payment of 25 % of the annual variable target compensation (€ 960 THOU) in spring 2017.
Annual Variable Compensation – Annual Bonus 750 561 – 842 629 778 629 750 750 – 1,125 758 763 758 750 750 – 1,125 859 907 859
AEI 2011/RSU3 – – – – – – – – – – – – – – – – – – – – 1,584 GEI 2010/RSU3 – – – – – – – – – – – – – – – – – – – – 593 GEI 2009/RSU3 – – – – – – – – – – – – – – – – – – – 1319 – GEI 2010/SAR4 – – – – – – – – – – – – – – – – – – – – – GEI 2008/SAR4 – – – – – – – – – – – – – – – – – – – –
€ THOU Jay Ralph (Appointed: 01/2010) Dr. Axel Theis (Appointed: 01/2015) Dr. Dieter Wemmer (Appointed: 01/2012)
Annual Variable Compensation – Annual Bonus 750 750 – 1,125 870 912 870 – 750 – 1,125 956 – 956 750 750 – 1,125 961 996 961
Annual Variable Compensation – Annual Bonus 750 750 – 1,125 959 1,032 959
Deferred Compensation aeI 2015/rSu3 750 – – – – – – aeI 2011/rSu3 – – – – – – 1,505 GeI 2010/rSu3 – – – – – – 1,225 GeI 2009/rSu3 – – – – – 1,048 – GeI 2010/Sar4 – – – – – 187 591 GeI 2008/Sar4 – – – – – – 328 € thou Dr. Maximilian Zimmerer (Appointed: 06/2012)
Annual Variable Compensation – Annual Bonus 750 750 – 1,125 940 909 940
GERMAN ACCOUNTING STANDARD 17 DISCLOSURE The total remuneration to be disclosed in accordance with German Accounting Standard 17 for 2015 is defined differently than in the German Corporate Governance Code and is composed of the base salary, perquisites, annual bonus, the fair value of the RSU grant and the payout of the MTB 2013 – 2015. However, it excludes the pension service cost. The information on remuneration for 2014 (in parentheses) does not disclose the notional accruals for the MTB 2013 – 2015: Oliver Bäte € 7,046 (2,774) THOU, Michael Diekmann € 5,479 (4,397) THOU, Sergio Balbinot € 3,780 (–) THOU, Manuel Bauer € 4,325 (2,322) THOU, Dr. Helga Jung € 4,813 (2,290) THOU, Dr. Christof Mascher € 5,356 (2,726) THOU, Jay Ralph € 5,293 (2,603) THOU, Dr. Axel Theis € 3,644 (–) THOU, Dr. Dieter Wemmer € 5,844 (2,760) THOU, Dr. Werner Zedelius € 5,753 (2,831) THOU, Dr. Maximilian Zimmerer € 5,638 (2,578) THOU.
Oliver Bäte (Chairman since 7/5/2015) 10,898 38,613 – – 2,363 Michael Diekmann (Chairman until 6/5/2015) 4,618 60,292 – – 3,493
Dr. Alex Theis 8,263 23,005 – – 1,442 Dr. Dieter Wemmer 8,311 28,740 – – 1,370 Dr. Werner Zedelius 8,291 35,513 – – 2,176 Dr. Maximilian Zimmerer 8,124 29,892 – – 1,718 1 The relevant share price used to determine the fair market 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 2014, the equity-related grant in 2015 was made to participants as part of their 2014 remuneration. The disclosure in the Annual Report 2014 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 12 March 2015 under the Allianz Equity Incentive are as follows: Oliver Bäte: 8,187, Michael Diekmann: 12,554, Manuel Bauer: 6,319, Dr. Helga Jung: 6,192, Dr. Christof Mascher: 7,364, Jay Ralph: 7,401, Dr. Dieter Wemmer: 8,088, Dr. Werner Zedelius: 8,379, Dr. Maximilian Zimmerer: 7,379.
3 24,820 RSUs granted in March 2015 include RSUs granted for his December 2014 employment contract.
The sum of the total remuneration of the Board of Management for 2015, including the payments of the MTB 2013 – 2015 and excluding the pension service cost, amounts to € 57 MN (2014 excluding the notional accruals for the MTB 2013 – 2015: € 30 MN). The corresponding amount, including pension service cost, equals € 61 MN (2014 excluding the notional accruals for the MTB 2013 – 2015: € 35 MN).
EqUITY-RELATED REMUNERATION In accordance with the approach described earlier, a number of RSUs were granted to each member of the Board of Management in March 2016, which will vest and be settled in 2020.
Defined benefit pension plan (frozen) Current pension plan AVK/APV1 Transition payment2 Total
3 Expected annual pension payment at assumed retirement age (age 60), excluding current pension plan. 4 SC = service cost. Service costs are calculatory costs for the DBO related to the reported business year.
6 As Michael Diekmann retired on 7 May 2015, his employer-financed DBO of € 17,277 THOU (thereof € 9,256 THOU for the frozen DB-Pension-Plan, € 6,416 THOU for the Current Pension Plan, € 303 THOU AVK/ APV and € 1,301 THOU for the transition payment) is covered with former Board members.
LOANS TO MEMBERS Of THE BOARD Of MANAGEMENT As of 31 December 2015, there were no outstanding loans granted by Allianz Group companies to members of the Board of Management.
Change of control In case of early termination as a result of a change of control, severance payments made to Board members generally amount to three years’ compensation (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).
The new MTB 2016 – 2018 comprises sustainability (performance and health) indicators, which are aligned with the Group’s external targets: − Performance indicators: − Sustainable improvement/stabilization of Return on Equity
(excluding unrealized gains/losses on bonds), − Compliance with economic capitalization guidance (capitalization level and volatility limit); − Health indicators (aligned with the Renewal Agenda): − True Customer Centricity, − Digital by Default, − Technical Excellence, − Growth Engines, − Inclusive Meritocracy (including gender diversity –
− Set a remuneration structure that takes into account the individual functions and responsibilities of Supervisory Board members, such as chair, vice-chair or committee mandates.
REMUNERATION fOR 2015 The total remuneration for all Supervisory Board members, including attendance fees, amounted to € 2,021 THOU in 2015 (€ 2,035 THOU in 2014). The following table shows the individual remuneration for 2015 and 2014:
Remuneration for mandates in other Allianz companies and for other functions All current employee representatives of the Supervisory Board except for Mrs. Ira Gloe-Semler are employed by Allianz Group companies and receive a market-aligned remuneration for their services.
Loans to members of the Supervisory Board On 31 December 2015 there was one outstanding loan granted by Allianz Group companies to members of the Supervisory Board of Allianz SE. One member received a mortgage loan of € 80 THOU from Allianz Bank in 2010. The loan has a duration of ten years and was granted at a normal market interest rate.
58 Strategy and Steering 58 Operating environment 58 The Renewal Agenda 59 Ensuring successful execution 60 Our steering
69 Executive Summary of 2015 Results 69 Earnings summary 70 Total revenues 70 Operating profit 71 Non-operating result 71 Income taxes 71 Net income 71 Proposal for appropriation of net earnings 73 Events after the balance sheet date 73 Other information 73 Other parts of the Group Management Report
74 Property-Casualty Insurance Operations 74 Gross premiums written 75 Operating profit 77 Net income 78 Property-Casualty insurance operations by reportable segments
98 Balance Sheet Review 98 Shareholders’ equity 98 Regulatory capital adequacy 99 Total assets and total liabilities 104 Off-balance sheet arrangements 105 Liquidity and Funding Resources 105 Organization 105 Liquidity management of our operating entities 105 Liquidity management and funding of Allianz SE 109 Allianz Group consolidated cash flows 110 Reconciliations 110 Composition of total revenues 110 Composition of total revenue growth 111 Life/Health Insurance Operations risk AnD opportunitY report AnD FinAnciAl control 112 Risk and Opportunity Report 112 Allianz risk profile and management assessment 113 Capitalization 116 Internal risk capital framework 119 Internal risk assessment 127 Risk governance 129 Risk management priorities for 2016 130 Further future challenges and opportunities 131 Controls over Financial Reporting and Risk Capital 131 Internal controls over financial reporting 132 Risk capital controls
Insurance operations We offer a wide range of property-casualty and life/health insurance products to both retail and corporate customers. We are the leading property-casualty insurer globally and rank among the top five in the life/health insurance business. Our key markets, based on premiums, are Germany, France, Italy, and the United States.
– Iberia & Latin America – Global Insurance Lines & Anglo Markets – Asia Pacific – USA
– Motor (liability/own damage) – Liability – Property – Accident – Travel and assistance
Allianz Group structure Allianz SE and its subsidiaries (the Allianz Group) offer propertycasualty insurance, life/health insurance and asset management products and services in over 70 countries, with the largest of its operations in Europe. Allianz SE, the parent company of the Allianz Group, has its headquarters in Munich, Germany.
– Diversified income – High yield – Emerging markets – Convertible bonds
bAnkinG Our banking operations – with a primary focus on retail clients – support our insurance business and complement the products we offer in Germany, Italy, France, the Netherlands, and Bulgaria. As a division of Allianz Deutschland AG, Oldenburgische Landesbank AG (OLB) is Allianz’s main own banking product and service provider in Germany. OLB, Germany’s largest private regional bank, covers the northwest of Germany.
AlternAtiVe inVestments Alternative Investments provides global alternative investment management services in the private equity, real estate, renewable energy, and infrastructure sectors, mainly on behalf of our insurance operations. The Alternative Investments reportable segment also included a fully consolidated private equity investment, which was sold in December 2015.
Through Allianz Private Kranken (APKV) we provide a wide range of health insurance products, including full private health care coverage, supplementary health and long-term care insurance, as well as foreign travel medical insurance. In 2015, we expanded our product portfolio in comprehensive health insurance with the launch of a new tariff (AktiMed90P) and an additional module for fitness-oriented customers. Also, within the Allianz digitalization strategy, APKV established a number of digital services and processes, such as the photo app for claims, which enables customers to interact more easily and efficiently in all matters of health insurance.
In our property-casualty business, Allianz Italy again significantly outperformed the market in terms of premium growth and profitability, increased our market share for the fourth consecutive year, and maintained a superior profitability with a combined ratio about 10 percentage points better than the rest of the market.
In direct, Genialloyd premiums were up by 9.0 %, outperforming a contracting market. Property-casualty bancassurance premiums also grew strongly, especially thanks to retail motor products distributed through the Italian branches of UniCredit.
Our markets The following sections provide an overview of our business operations in our insurance core markets by business division.
Our life insurance business is active in retail and commercial markets and provides a comprehensive range of products. The main coverage offered includes annuity, endowment, term, disability, and long-term care insurance. In 2015, Komfort Dynamik – a new product that combines traditional guarantees with a stronger upside potential through a higher share of equity investment – was launched. More 1 The following sections do not cover our global insurance lines, e.g. Allianz Global Corporate & Specialty, our credit insurer Euler Hermes, or Allianz Worldwide Partners, even if those entities also operate in the respective market.
The corporate structure in Italy was also streamlined in 2015 through the following transactions: We acquired the outstanding 50 % stake of Antoniana Veneta Popolare Vita, the Life Bancassurance joint venture with Banca Monte Paschi di Siena, which had been held by the partner bank. We also merged ACIF S.p.A., the financial holding company, into Allianz S.p.A. to simplify corporate governance. At the same time we acquired the minority shareholdings of Allianz S.p.A. held by Allianz Subalpina Holding S.p.A. and Lloyd Adriatico Holding S.p.A. Allianz S.p.A. is thus now fully owned by the Allianz Group.
France Allianz France S.A. is a major provider of insurance and financial services in the French retail and commercial markets, offering a broad range of property-casualty and life/health products for individuals and corporate customers. We distribute these offerings mostly via agents, life and health consultants, brokers and independent financial advisors, as well as selected external partners. In addition, our customers can research and buy products online – either through ‘eAllianz’ or via our direct sales channel ‘AllSecur’. In 2015 a new strategic plan ‘Innovation & Trust’ was launched for 2020. Capitalizing on past successes such as the partnership with Drivy (car sharing), Allianz France has given priority to fostering innovation. Examples include a crowdfunding equity fund in partnership with SmartAngels, a Pay As You Drive offer with TomTom as the first insurer in the French market, as well as hackathons and a start-up accelerator.
Since local regulatory changes regarding cancellation rules were introduced in 2014, the French retail property-casualty market has seen higher customer churn. However, our constant focus on innovative solutions, such as fast quotes, has allowed us to grow our customer base, for example in motor insurance. Furthermore, we continue to be one of the leaders in the midcorp market (ranked as third in midcorp and second in commercial property-casualty insurance).
With regards to the life market in France, we have responded to the needs of our clients with a range of traditional and unit-linked products in both group and individual business, combining financial strength with the opportunity for more attractive yields. Evidence of the success of this strategy is the increase in the unit-linked proportion of our business mix from 39 % in 2014 to 48 % in 2015.
Our retail insurance activities are also complemented by Allianz ‘Patrimoine’, which allows us to offer one-stop solutions, in particular for our high-net-worth individual life customers.
United States Our property-casualty insurance business in the United States was primarily conducted through Fireman’s Fund Insurance Company (FFIC) until April 2015. In January 2015, our property-casualty insurance business in the United States was realigned. The reorganization comprised the integration of Fireman’s Fund Insurance Company’s commercial business into Allianz Global Corporate & Specialty North America (AGCS NA), the sale of the personal insurance business to the global insurance company ACE, as well as the internal transfer of the discontinued run-off business through a reinsurance agreement within the Allianz Group. The sale, which took place by means of a renewal rights arrangement, received regulatory approval from the California Department of Insurance in March 2015 and closed in April 2015. We therefore focus on the Life business within this section. Our life and annuity business is managed through Allianz Life Insurance Company of North America (Allianz Life).
Thriving in such an environment puts high demands on those aspiring to be tomorrow’s leading players, but it also holds huge opportunities for those that manage to truly adapt to these new realities. These leaders will adapt by: carefully balancing shock resilience with capital efficiency, establishing commanding market positions and realizing visible benefits from skills and scale, leveraging digital to become customer-centric and agile, and relentlessly lifting productivity reserves in the capital, cost, and revenue base.
Your Allianz 53 Business Operations and Markets 58 Strategy and Steering 61 Progress in Sustainable Development continue to capture economies of scale and skills, especially in assetliability management processes and by pooling our investment management infrastructure, and will broaden the alternative asset allocation.
Growth Engines: We systematically exploit new sources for profitable growth across regions, business segments, and sales channels. This means we will both consolidate existing leadership positions in mature markets and secure our future potential in growth markets with dedicated strategies, including new digital distribution models and regional partnerships. We will enhance our product range by replicating proven products, adding services, and driving innovations, for example in Health insurance.
Inclusive Meritocracy: We reinforce a corporate culture where both people and performance matter. The Renewal Agenda implies significant change for all our employees, including an increased degree of agility and flexibility. Consequently, collaborative leadership, excellence with customers and markets, entrepreneurship, and trust are the four cornerstones of our adjusted global management incentive model. We remain committed to further strengthen diversity at Allianz. We will measure progress in the company towards incorporating our renewed leadership principles by a newly defined Inclusive Meritocracy Index (IMIX), based on global employee feedback.
− To increase agility and market focus of the corporate center, we will bring top leaders from our strongest businesses into the Group center while bringing functional experts from the Holding into the markets. We will continue to streamline our holding functions to put more focus on customer and market success and the implementation of the Renewal Agenda.
TARGET SETTING AND MONITORING The Allianz Group steers its operating entities and business segments via an integrated management and control process. This starts with the definition of a business-specific strategy and goals, which are discussed and agreed upon between the Holding and operating entities. According to this strategy, a three-year plan is prepared by the operating entities and aggregated to form the financial plans for the business divisions and the Allianz Group. This plan also forms the basis for our capital management. The Supervisory Board then approves the plan and sets corresponding targets for the Board of Management. The performance-based remuneration of the Board of Management is linked to short-, mid-, and long-term targets to ensure effectiveness and emphasize sustainability. For further details about the remuneration structure, including target setting and performance assessment, please refer to the Remuneration Report starting on page 37.
Progress in Sustainable Development Sustainable development means creating long-term economic value with a forward-thinking approach to corporate governance, environmental stewardship, and social responsibility. This is fundamental to our day-to-day insurance and asset management business, as we have to deliver on our promises to customers not only today, but also in 20 or 30 years.
The highest governing body for sustainability-related issues is the environmental, social and governance (ESG) Board, which was established in 2012. It consists of three Allianz SE Board members who meet quarterly. The ESG Board is responsible for integrating ESG into all business lines and core processes that deal with insurance and investment decisions. It also leads associated stakeholder engagement.
Sustainable insurer ESG in undErWritinG As an insurer and risk consultant, we mostly face ESG risks indirectly due to the risks we accept for our insurance clients. Prudent management of ESG issues represents a major opportunity to reduce risks in underwriting for ourselves and our customers.
3 Increase due to greater awareness and integration of process from March 2015.
Euler Hermes supported a project with other insurance industry partners examining the need for ESG principles in surety bond underwriting of infrastructure.
As one of the world’s largest asset managers and as an institutional investor, we take environmental and social risks seriously and also seize investment opportunities arising in this area. Allianz SE, as an asset owner, and our third-party asset managers Allianz Global Investors (AllianzGI) and PIMCO are all individual signatories to the United Nations-supported Principles for Responsible Investment (PRI).
ESG in Our OWn invEStmEntS Allianz invests more than € 630 BN, mainly the premiums we collect from the customers we insure, in a wide range of asset classes. We are a signatory to the United Nations-supported PRI. Based on these principles we have implemented and are further developing a number of processes to systematically integrate ESG issues across different assets.
The ESG functional rule for investments is the foundation of our ESG integration into investments. It binds all asset managers acting on behalf of Allianz to integrate ESG into their investment process and is closely monitored by Allianz Investment Management.
In 2015, we launched a project to strengthen and systemize the integration of ESG into fixed-income securities and corporate equities, which represent over 90 % of our assets. We analyzed our portfolio along 37 key ESG issues – such as greenhouse gas emissions and labor management – based on the information provided by the rating agency MSCI ESG Research. This transparency on ESG across the entire investment portfolio enabled a more targeted management of risks and opportunities.
We exclude certain sectors from our investments. We apply exclusion criteria, restricting investments in companies producing or associated with banned weapons1 such as anti-personnel landmines, cluster munitions, and biological, chemical, and toxic weapons. Furthermore, in November 2015, we decided to stop financing coal-based business models. This means Allianz will no longer invest proprietary assets in companies that derive more than 30 % of revenue from coal mining or generate over 30 % of energy from burning coal. Equities amounting to € 225 MN will be divested by March 2016, while bonds amounting to € 3.9 BN will be maturing.
Your Allianz 53 Business Operations and Markets 58 Strategy and Steering 61 Progress in Sustainable Development
ESG in third-party aSSEt manaGEmEnt Allianz is one of the world’s largest asset managers. We run the asset management business out of two investment management entities: AllianzGI and PIMCO, which operate under the Allianz Asset Management holding (AAM). In addition to managing the majority of our proprietary assets, AllianzGI and PIMCO are responsible for our thirdparty asset management business.
Furthermore, they offer a range of Sustainable and Responsible Investment (SRI) products and services which provide customers with new choices that deliver financial, social, and environmental returns, using strategies such as the best-in-class approach, impact investing, or negative screening. At the end of 2015, total SRI managed by AAM amounted to € 103 BN (2014: € 117 BN), corresponding to 6 % of AAM’s total assets under management. The largest share of AAM’s total SRI assets under management is managed by PIMCO, which totaled € 82 BN (2014: € 95 BN). In addition, AllianzGI managed € 21 BN (2014: € 22 BN) of SRI investments.
Trusted company Our customers’ needs and how we meet them are central to our ambition to keep being part of the strongest financial community, and to our aim of being the most trusted partner within our core business of insurance and investments. As part of this, our customers rightly expect that their personal information will be treated with utmost care.
The next step is to scale up the combination of Fast Quote technology with modular offers like “Allianz1”: a product innovation launched in Italy in 2014, providing retail customers with a set of 13 optional modules for tailored insurance cover in line with personal needs and budgets. A modular offer for small and medium enterprises was launched at the end of 2015. Another approach to creating distinctive additional value and a caring customer experience is the integration of our global assistance services into our insurance products – for example, of roadside assistance into motor insurance.
To steadily improve the satisfaction of our customers, we additionally apply our “Customer Experience Management” methodology: This involves asking our customers for direct feedback regarding their experience with Allianz. Our methodology helps us to identify key areas for improvement and to improve customer satisfaction along the entire customer journey, for example in sales and claims handling.
As we see a clear correlation of NPS performance with sustainable growth, a superior customer experience is our top priority. We set clear customer-oriented targets, which are hardwired into our culture, planning, processes, and incentives.
allianz – OnE Of thE WOrld’S StrOnGESt BrandS The brand Allianz1 plays a key role in driving sustainable growth. It fosters close bonds with our customers, which are even more important in a digital context. In turn, this helps us to build sustainable relationships: Trust in the name Allianz helps us to attract new customers, engage with our products and services, and maintain customer loyalty in the long term.
Since over 98 % of our emissions comes from energy consumption, travel, and paper use, the focus of our carbon reduction activities is in these areas. We had set ourselves a target to reduce our carbon emissions per employee by 35 % by 2015 (against a 2006 baseline) and to reduce the energy consumption per employee by 10 % (against a 2010 baseline). We achieved both targets ahead of time and our final performance in the target year 2015 was at 43.3 % CO2 and 25.7 % energy reduction.
2 2013 and 2014 figures were adjusted for a material divestment in 2015.
cOmpliancE manaGEmEnt Our risk management framework includes compliance risks. A compliance management system helps us to ensure compliance with internationally recognized laws, rules, and regulations, while additional risk identification exercises help us to continually improve our approach. We take a proactive stance, working with organizations such as the German Institute for Compliance and the Global Insurance Chief Compliance Officers Forum to enhance understanding of compliance issues and share best practice.
Much of our time and skill is dedicated to empowering the next generation. That is why we have developed Future Generation, a frame work to support children, adolescents and young adults on a range of issues. This is also why we continue to fund SOS Children’s Villages, an organization that provides orphaned and abandoned children in 125 countries with loving family homes. We support shortterm emergency measures and long-term help for children through local activities as well as advocacy at a global level. In 2015, we established local partnerships with SOS villages in France, Romania, India, and Germany.
− Digitalization and data security: We support the European Commission ’s digital agenda to foster innovation, economic growth, and progress. We are actively contributing to public discussions on these issues, with a special focus on the practicability of regulation for the Group.
Attractive employer Globally, we employ 142,459 people in nearly 70 countries. Our business strategy requires us to have the best people in place in order to deliver success today and over the long term. We also apply a consistent approach to human resources (HR) management across the Group and we do this through strategic HR frameworks, principles, and tools. This includes globally consistent people attributes along the value chain – throughout an employee’s career at Allianz.
We actively support employee rights and strive to apply core human-rights principles based on the United Nations Declaration of Human Rights throughout our worldwide organization. We are a participant of the United Nations Global Compact and have integrated its ten principles into our globally binding Code of Conduct. We also respect the OECD Guidelines for Multinational Enterprises.
4 These figures do not represent the proportion of women in the two management levels below the Board of Management of Allianz SE.
− Align remuneration with the performance of the individual and the achievement of Allianz’s financial and strategic goal to “pay for performance”.
WEllBEinG and EmplOyEE EnGaGEmEnt We take an active role in promoting the physical and mental health of our employees, including a variety of stress management programs and measures. Our central Work Well program analyzes root causes of stress to find the most effective solutions.
Compared with 2014, economic growth in industrialized countries picked up slightly in 2015. Real gross domestic product rose by 1.8 % (2014: 1.7 %). The further stabilization in the Eurozone economy was among the positive aspects witnessed in 2015. The decline in commodity prices and the lower Euro, but also progress on the reform front in the former crisis countries bolstered this upward trend. As a result, real gross domestic product expanded by 1.5 %. With an increase of 1.7 % the German economy recorded a slightly higher growth rate than the Eurozone as a whole. In the United States the six-year-long upswing continued, but given the strength of the U.S. Dollar, growth was practically unchanged from the year before at 2.4 %. Broadly speaking, consumption was the driver of growth in industrialized countries with investment providing little impetus. Overall, the world economy grew by an estimated 2.4 %, slightly lower than in 2014, when global output rose by 2.7 %. Global merchandise trade, by contrast, expanded by only about 2 % in 2015. For a number of years now the old rule of thumb that global trade increases at twice the rate of global output has no longer applied. This shows that the pace of globalization in merchandise trade has clearly abated.
Financial market developments in 2015 continued to be characterized by extremely low interest rates, a strong U.S. Dollar and increasingly volatile equity markets. In the United States, the Federal Reserve ended its zero interest rate policy in December, lifting the target range for the federal funds rate to 0.25 to 0.5 %. By contrast, the European Central Bank continued to ease its monetary policy stance with a bundle of measures, for example an extension of its bond purchasing program and a further lowering of its deposit rate to (0.3) %. Yields on 10-year German government bonds ended 2015 at 0.6 %, a minor increase of 10 basis points compared with a year earlier. The performance of major stock market indices was mixed, with gains in the Eurozone and Japan and losses in emerging markets. The Euro fluctuated considerably against the U.S. Dollar, closing the year at a rate of 1.09 U.S. Dollar to Euro, well below the level seen at the beginning of 2015. The diverging monetary policies of the U.S. Federal Reserve and the European Central Bank were a key factor behind this downward correction. Financial markets in emerging markets had a difficult year – substantial capital outflows exerted a sharp downward pressure on both stock and currency markets.
Underwriting profitability remained stable on average, with combined ratios in most markets clearly below 100 %, reflecting lower catastrophe losses. However, overall profitability remained under pressure as investment returns were challenged by very low interest rates.
During the year, bond markets were also impacted by uncertainty surrounding the timing of the increase in the U.S. federal funds rate. With the decision taken by the U.S. Federal Reserve in December 2015, yields rose across most U.S. bond classes, which led to a weak fourth quarter of 2015 in terms of strong net outflows from nearly all types of mutual funds and asset classes in the United States.
Throughout the year, yields on the short end of the yield curve grew at a faster pace than those at the long end, signaling falling expectations for future inflation. Overall, mutual funds in 2015 recorded continued net inflows. In the United States, passive mutual funds noted strong net inflows in 2015 driven by equities and bonds. Active U.S. mutual funds, in contrast, suffered notable net outflows in 2015 – mainly in U.S. equities and taxable bonds. Money market funds in the United States profited, especially in December 2015, from the interest rate uncertainties. German mutual equity funds recorded net inflows for the first time in years. Furthermore, net inflows in mutual funds in Germany were again dominated by multi-asset funds.
Executive Summary of 2015 Results − Total revenues increased to € 125.2 BN. − Operating profit grew 3.2 % to € 10,735 MN. − Net income rose to € 6,987 MN.
− Conglomerate solvency ratio up 19.6 percentage points to 200 %.1,2
Total revenues 125,190 122,253 Operating profit 10,735 10,402 Net income 6,987 6,603 Conglomerate solvency ratio1,2 in % 200 181
Earnings summary mAnAgement’s Assessment of 2015 results We recorded total revenues of € 125.2 BN, a growth of 2.4 %. On an internal basis3, revenues dropped by 2.1 %. In our Life/Health business segment, premiums decreased in particular in the United States and in Germany, where the strategic shift to capital-light products further contributed to the decline. In our Asset Management business segment, operating revenues were primarily burdened by lower average third-party assets under management (AuM), mainly driven by thirdparty net outflows, albeit continuously diminishing over the course of the year. These effects were partly compensated for by mainly volume driven premium growth in our Property-Casualty business segment and slightly increased revenues in our Corporate and Other business segment.
1 Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the conglomerate solvency ratios would be 191 % and 172 % as of 31 December 2015 and 31 December 2014, respectively.
Our operating profit rose 3.2 % to € 10,735 MN, which is in the upper end of our 2015 target range. Our Life/Health business segment showed a 14.1 % increase in operating profit, driven by a higher investment margin and favorable foreign currency translation effects. Our Property-Casualty business segment also contributed to the overall operating profit growth, in particular due to a net gain from the sale of Fireman’s Fund personal insurance business. These favorable developments were partly offset by a decrease in operating profit in our Asset Management business segment, mainly driven by the impact from lower average third-party AuM. Our Corporate and Other business segment was burdened by higher centralized pension costs – which resulted in an increased operating loss.
Our shareholders’ equity went up by € 2.4 BN to € 63.1 BN, compared to 31 December 2014. Over the same period, our conglomerate solvency ratio strengthened from 181 % to 200 %.1 From 1 January 2016 onwards, capitalization based on Solvency II will be utilized for regulatory purposes.
Property­Casualty gross premiums written grew 6.8 % and amounted to € 51.6 BN. On an internal basis2, we recorded an increase of 2.9 % mainly due to favorable volume effects. We registered strong internal growth – particularly at Allianz Worldwide Partners, in Turkey, and at AGCS excl. Fireman’s Fund.
Life/Health statutory premiums amounted to € 66.9 BN, a decrease of 4.9 % on an internal basis2. This was mainly due to a drop in fixed-indexed annuity business in the United States and reduced sales of traditional products in Germany and Italy. These effects outweighed the premium growth in the unit-linked business in Italy and Taiwan. As a result of implementing changes in our product strategy, premiums shifted more towards unit-linked and capital-efficient products.
1 Total revenues comprise statutory gross premiums written in Property-Casualty and in Life/Health, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking).
Property-Casualty Life/Health Asset Management Corporate and Other Growth 1 Total operating profit includes € (16) mn (2014: € (91) mn) from consolidation.
Asset Management operating profit went down by € 306 MN – or 11.8 % – to € 2,297 MN. On an internal basis3, the decrease was 23.5 %, mainly driven by lower third-party AuM-driven revenues, partly offset by higher performance fees and lower operating expenses.
Our operating loss in Corporate and Other grew by € 124 MN to € 945 MN. Increases in Banking and Alternative Investments’ operating profit were more than offset by a higher operating loss in Holding & Treasury due to higher centralized pension costs.
3 Operating profit adjusted for foreign currency translation and (de-)consolidation effects. In 2015, the average exchange rate of the U.S. Dollar to Euro was 1.11 (2014: 1.33)
Basic earnings per share increased from € 13.71 to € 14.56 in 2015 and diluted earnings per share rose from € 13.64 to € 14.55. For further information on earnings per share, please refer to note 51 to the consolidated financial statements.
Proposal for appropriation of net earnings The Board of Management and the Supervisory Board propose that the net earnings (“Bilanzgewinn”) of Allianz SE of € 4,228,626,130.21 for the 2015 fiscal year shall be appropriated as follows: − Distribution of a dividend of € 7.30 per no-par share entitled to a dividend: € 3,320,374,442.20
Income taxes Income taxes were up by € 964 MN to € 3,209 MN. The increase in income taxes was mostly due to the higher income before income taxes in 2015 and higher one-off tax benefits in 2014. In 2015, the effective tax rate was below our long-term average of approximately 33 % and amounted to 31.5 %. The effective tax rate in 2015, adjusted for non-tax deductible goodwill impairments and valuation allowances on deferred tax assets, would have been approximately 30.6 %. In 2014, our effective tax rate of 25.4 % benefited from extraordinary tax benefits from a favorable court decision, which amounted to € 1,120 MN. The policyholder share in tax benefits amounted to € 892 MN. Without policyholder participation, the Allianz Group’s 2014 effective tax rate attributable to the shareholders would have been approximately 32 %.
Income before income taxes 10,196 8,848 Income taxes (3,209) (2,245) Net income 6,987 6,603
Events after the balance sheet date The Allianz Group was not subject to any subsequent events that significantly impacted the Group’s financial results after the balance sheet date and before the financial statements were authorized for issue.
Other parts of the Group Management Report The following information also forms part of the Group Management Report: − Statement on Corporate Management pursuant to § 289a of the HGB starting on page 32,
Foreign currency translation effects amounted to € 1,529 MN, mainly due to the strong U.S. Dollar, British Pound and Swiss Franc against the Euro.2
Management Discussion and Analysis 67 Business Environment 69 Executive Summary of 2015 Results 74 Property-Casualty Insurance Operations 80 Life/Health Insurance Operations 86 Asset Management 90 Corporate and Other 98 Balance Sheet Review 105 Liquidity and Funding Resources 110 Reconciliations cluster 1 In France, gross premiums increased to € 4,330 MN. The internal growth of 1.8 % was mainly due to a positive price impact from our commercial and retail business.
In Australia, gross premiums grew 4.9 % to € 2,991 MN on an internal basis. This was driven by positive price and volume effects across most of our lines of business.
At AGCS incl. FFIC, gross premiums increased to € 8,107 MN. The internal growth of 1.0 % was mainly driven by favorable volume effects at Allianz Risk Transfer, while negative price impacts in our energy and aviation lines of business had some compensating effects.
In Credit Insurance, gross premiums decreased by 0.1 % and were at € 2,241 MN. Negative price effects after experiencing a low claims environment in some of our mature markets were largely offset by positive volume effects in Asia and Italy.
Despite higher losses from natural catastrophes and a negative motor driven impact from Argentina, our underwriting result went up by € 30 MN to € 2,281 MN, benefiting from a higher contribution from run-off. Our combined ratio worsened by 0.3 percentage points to 94.6 %.
The following operations contributed negatively to the development of our accident year loss ratio: United Kingdom: 0.5 percentage points. The accident year loss ratio was affected by severe storms and flooding in December, a higher impact of large losses compared to last year, and an adverse loss ratio development of our retail motor portfolio.
Australia: 0.3 percentage points. This stemmed from an increased impact of losses from natural catastrophes and weather-related events.
Interest and similar income (net of interest expenses) was stable at € 3,529 MN, whereby higher income from equities was broadly offset by a lower contribution from fixed income. The average asset base1 grew by 4.3 % from € 104.6 BN to € 109.2 BN compared to the previous year.
Operating realized gains (net) increased by € 66 MN to € 252 MN. This was driven by higher realizations in debt securities and was partially offset by lower realized gains on equities, both mainly in the APR business.
Operating impairments of investments (net) amounted to € 59 MN, up € 39 MN largely due to higher impairments on equities in our APR business.
Fee and commission income 1,474 1,260 Other income1 279 60 Fee and commission expenses (1,367) (1,180) Other expenses (34) (45) Restructuring charges (149) (30) Other result 202 66 1 We recorded a € 0.2 BN net gain from the sale of the Fireman’s Fund personal insurance business, which is reported as other income.
Loss ratio2 in % 66.2 66.0 Expense ratio3 in % 28.4 28.3 Combined ratio4 in % 94.6 94.3 1 For the Property-Casualty business segment, total revenues are measured based upon gross premiums written.
German Speaking Countries and Central & Eastern Europe 14,061 13,673 13,849 13,673 11,741 11,455 1,683 1,743
Reinsurance PC excl. San Francisco RE 4,841 3,738 4,799 3,738 4,078 3,118 584 464 San Francisco RE – – – – – – 41 –
3 Effective 1 July 2014, the Allianz Group acquired parts of the insurance business of UnipolSai Assicurazioni S.p.A., Bologna.
4 Includes € 4 MN and € 7 MN operating profit for 2015 and 2014, respectively, from a management holding located in Luxembourg. Includes € 21 MN operating profit for 2015 from an associated entity in Asia Pacific.
5 Effective 1 January 2015, Fireman’s Fund Insurance Company was integrated into AGCS Group. Previous period figures were not adjusted. The sale of the renewal rights for personal lines was effective 1 April 2015. 12M 2015 figures include the net gain on the sale of the personal insurance business to ACE Limited of € 0.2 BN.
6 The results from the run-off portfolio included in San Francisco Reinsurance Company Corp., a former subsidiary of Fireman’s Fund Insurance Company, have been reported within Reinsurance PC since 1 January 2015.
7 Previous period figures for the United States were not adjusted and include the prior year’s business of Fireman’s Fund Insurance Company.
Western & Southern Europe, Middle East, Africa and India4 90.9 91.1 63.3 63.1 27.6 28.0
Reinsurance PC excl. San Francisco RE 89.2 88.6 60.6 60.5 28.6 28.0 San Francisco RE – – – – – –
Global Insurance Lines & Anglo Markets9 96.5 96.5 67.0 66.8 29.5 29.7
9 Includes € 8 MN operating loss and € 3 MN operating profit for 2015 and 2014, respectively, from AGF UK. 10 The reportable segment Allianz Worldwide Partners includes the Global Assistance business as well as the business of Allianz Worldwide Care and the reinsurance business of Allianz Global Automotive, in addition to income and expenses from a management holding.
11 Represents elimination of transactions between Allianz Group companies in different geographic regions.
Life/Health Insurance Operations − Statutory premiums stable at € 66.9 BN: continued targeted shift towards unit-linked and capital-efficient products. − Operating profit increased 14.1 % to € 3,796 MN, driven by a higher investment margin.
Statutory premiums2,3 On a nominal basis, we recorded statutory premiums of € 66,903 MN, down by 0.6 %. This includes favorable foreign currency translation effects of € 2,848 MN.
1 Represents operating profit divided by the average of the current and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts, and financial liabilities for unit-linked contracts less reinsurance assets.
3 In the following section, we comment on the development of our statutory gross premiums written on an internal basis, i.e. adjusted for foreign currency translation and (de-)consolidation effects, in order to provide more comparable information.
In France, statutory premiums dropped to € 8,053 MN. The decrease of 2.3 % on an internal basis was mainly due to a decline in our traditional individual life and group pension business, with growth in our group protection and health business partly compensating for the negative development.
In Asia Pacific4, statutory premiums increased to € 6,769 MN, up 5.8 % on an internal basis. This was mainly because of higher sales of single premium unit-linked products distributed via bancassurance in Taiwan.
Statutory premiums 66,903 67,331 Operating profit 3,796 3,327 Net income 2,621 2,320 Margin on reserves (bps)1 67 65
Statutory premiums in Switzerland totaled € 1,842 MN. On an internal basis, this represented a decrease of 2.3 %, largely due to lower single premium business in group life.
In Benelux, statutory premiums stood at € 2,239 MN – a decline of 11.1 % on an internal basis. This mainly resulted from lower traditional life product sales and was partially offset by an increase in the sale of single premium unit-linked products.
Statutory premiums in Spain went up to € 1,375 MN. The increase of 9.2 % on an internal basis was mainly driven by traditional products distributed via the bancassurance channel.
Operating profit operating profit by profit sources2 The objective of the Life/Health operating profit sources analysis is to explain movements in IFRS results by analyzing underlying drivers of performance on a Life/Health business segment consolidated basis.
Our operating profit rose by € 468 MN to € 3,796 MN. This mainly resulted from a higher investment margin in Germany, positive foreign currency translation effects, a higher investment spread margin in the United States, and increased unit-linked management fees in Italy and France. It was partly offset by loss recognition in South Korea amounting to € 244 MN.
Loadings from premiums as % of statutory premiums 5.6 5.3 Loadings from reserves as % of average reserves1,2 0.2 0.2 Unit-linked management fees as % of average unit-linked reserves2,3 0.6 0.6 1 Aggregate policy reserves and unit-linked reserves. 2 Yields are pro-rata. 3 Unit-linked management fees, excluding asset management fees, divided by unit-linked reserves.
The increase in loadings from reserves of € 52 MN was mainly driven by a higher reserve volume, particularly in Asia Pacific.
The growth in unit-linked management fees of € 144 MN was largely due to higher assets under management in France and Italy as well as increased performance fees in Italy.
Interest and similar income 18,331 17,307 Operating income from financial assets and liabilities carried at fair value through income (net) (2,050) (1,367) Operating realized gains/losses (net) 6,459 3,204 Interest expenses (108) (107) Operating impairments of investments (net) (1,199) (677) Investment expenses (1,013) (903)
2 Investment margin divided by the average of current previous year-end aggregate policy reserves. 3 Yields are pro-rata.
Our investment margin rose by € 942 MN to € 3,915 MN, or by 18 basis points as a percentage of reserves. The increase was mainly driven by higher realizations on both debt and equity investments, predominantly in Germany. It was also supported by higher interest income largely from debt investments. As the volume effects of a higher asset base were mostly offset by lower yields, this higher interest was primarily due to favorable foreign currency translation effects, arising mainly in the United States. These increases were partially offset by a negative foreign currency result on partially hedged emerging markets bonds and unfavorable impacts from financial derivatives to lengthen duration. Higher impairments on equities – mainly in the German life business – as a result of volatile equity markets during the year also contributed negatively.
Expenses Expenses include acquisition expenses and commissions (excluding commission clawbacks, which are allocated to the technical margin) as well as administrative and other expenses.
1 PVNBP before non-controlling interests. 2 Aggregate policy reserves and unit-linked reserves. 3 Yields are pro-rata.
Our expenses were up by € 87 MN to € 6,610 MN. Acquisition expenses were flat, as lower acquisition expenses driven by reduced fixedindexed annuity sales in the United States and lower single premium business in Germany were offset by higher acquisition expenses mainly due to sales growth in Asia Pacific and Italy.
Our technical margin declined by € 47 MN to € 1,156 MN. This was driven by additional reserving for an annuity take-up option in Italy and increased provisions for unclaimed contracts in France. It was partly offset by a favorable disability result in Switzerland.
Management Discussion and Analysis 67 Business Environment 69 Executive Summary of 2015 Results 74 Property-Casualty Insurance Operations 80 Life/Health Insurance Operations 86 Asset Management 90 Corporate and Other 98 Balance Sheet Review 105 Liquidity and Funding Resources 110 Reconciliations impact of change in Dac € mn
operating profit by lines of business operating profit by lines of business € mn
margin on reserves In 2015, the margin on reserves was up from 65 to 67 basis points, driven mainly by the increased investment margin.
Net income Our net income rose by € 301 MN to € 2,621 MN, in line with our operating performance. We recorded higher non-operating income stemming primarily from increased realizations on equity investments in Italy. This was offset by the impairment of the goodwill allocated to the cash generating unit Asia Pacific, mainly driven by steadily decreasing and persisting low interest rates in South Korea. The slight increase in the effective tax rate contributed negatively.
Loadings and fees 5,667 5,285 Loadings from premiums 3,751 3,566 Loadings from reserves 1,143 1,091 Unit-linked management fees 772 628
3 Impact of change in DAC includes effects of change in DAC, URR, and VOBA. It represents the net impact of deferral and amortization of acquisition costs and front-end loadings on operating profit and therefore deviates from the financial statements.
Loadings from premiums 3,751 3,566 1,885 1,868 1,582 1,440 284 258 Loadings from reserves 1,143 1,091 976 958 100 86 66 47 Unit-linked management fees 772 628 326 266 – – 446 363 Loadings and fees 5,667 5,285 3,187 3,091 1,683 1,525 797 668
Investment margin (net of policyholder participation) 3,915 2,973 3,794 2,876 62 43 60 54
Western & Southern Europe, Middle East, Africa and India6 23,591 23,266 23,608 23,266 4,587 4,458 1,062 815 64 53
Asset Management − Operating profit down 11.8 % to € 2,297 mn. − Cost-income ratio rose to 64.5 %. − Third-party net outflows substantially reduced in 2015, amounting to € 107 bn. − Total assets under management at € 1,763 bn – a decline of € 38 bn.
Operating revenues 6,479 6,388 Operating profit 2,297 2,603 Cost-income ratio in % 64.5 59.2 Net income 1,449 1,621 Total assets under manage ment as of 31 December in € bn 1,763 1,801 thereof: Third-party assets under manage ment as of 31 December in € bn 1,276 1,313
Assets under management Total assets under management decreased by € 38 bn to € 1,763 bn, mainly driven by third-party assets under management (AuM) net outflows and negative effects from Market and Other, but largely offset by favorable effects from foreign currency translation. Of total AuM, € 1,276 bn related to third-party AuM and € 487 bn to Allianz Group assets.
Unfavorable effects from Market and Other, amounting to € 34 bn, also contributed to the decrease of total AuM. Negative effects of € 41 bn at PImCO – mainly from fixed income assets – were only partially offset by positive effects at AllianzGI of € 8 bn.
We recorded a decline in total AuM of € 13 bn, reported as consolidation, deconsolidation and other adjustments. This was mainly due to an adjustment of third-party AuM related to a joint venture and a correction in reporting of notional accounts.
Mainly as a result of the depreciation of the Euro against the U.S. Dollar, which declined from 1.21 at the beginning of the year to 1.09 on 31 December 2015, we recorded favorable foreign currency translation effects of € 125 bn.
1 Based on the location of the asset management company. 2 “America” consists of the United States, Canada and Brazil (€ 699 BN, € 14 BN and € 1 BN third-party AuM
Fixed income Equities Multi-assets Other Changes 1 Fixed income, equities and other definitions based on legal entity view as of 31 December 2014. Therefore, 2014 and 2015 figures are not comparable.
4 Multi-assets is a combination of several asset classes (e.g. bonds, stocks, cash and real property) used as an investment. Multi-assets class investments increase the diversification of an overall portfolio by distributing investments throughout several asset classes.
5 Other is composed of other asset classes than equity, fixed income and multi-assets, e.g. money markets, commodities, real estate investment trusts, infrastructure investments, private equity investments, hedge funds, etc.
As of 31 December 2015, the share of third-party AuM by business unit was 77.3 % attributable to PImCO and 22.7 % attributable to AllianzGI.
Outperforming third-party assets under management Underperforming third-party assets under management 1 Three-year rolling investment performance reflects the mandate-based and volume-weighted threeyear 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 Morningstar peer group (a position in the first and second quartile is equivalent to outperformance).
Net fee and commission income went up 1.7 % to € 6,488 mn. However, excluding the positive effect from foreign currency translation, this was a decrease of 11.7 %. The decrease was mostly due to a drop of 16.3 % in our third-party AuM-driven revenues. This was mainly due to lower average third-party AuM, which declined by 15.9 % before foreign currency translation effects. The reduced third-party AuM primarily resulted from third-party net outflows at PImCO and a negative market return especially impacting fixed income assets. Moreover, third-party AuM-driven revenues were also impacted – albeit to a lesser extent – by a decline in our third-party AuM-driven margin. This was primarily driven by a lower share of mutual funds in our average third-party AuM. Our performance fees grew by € 331 mn to € 607 mn. The increase was € 253 mn before foreign currency translation effects and can mainly be attributed to carried interest from the redemption of a large private fund at PImCO. A strong growth in performance fees at AllianzGI in the United States and Europe also contributed to this development.
1 Operating revenues adjusted for foreign currency translation and (de-)consolidation effects. In 2015, the average exchange rate of the U.S. Dollar to Euro was 1.11 (2014: 1.33).
Administrative expenses rose 9.3 % to € 4,141 mn. However, adjusted for foreign currency translation effects, they went down by 5.3 %.This was mainly driven by lower personnel expenses – including a 11.2 % drop in variable compensation – and to a smaller proportion due to lower non-personnel expenses. Nevertheless, administrative expenses were impacted by several special items, in particular by the Special Performance Award (SPA), which was introduced in the fourth quarter of 2014 to secure performance and retain talent at PImCO.
Our cost-income ratio went up 5.3 percentage points to 64.5 %. The SPA contributed 2.0 percentage points2 and the restructuring program at AllianzGI contributed 0.6 percentage points of the upswing.
1 Operating profit adjusted for foreign currency translation and (de-)consolidation effects. In 2015, the average exchange rate of the U.S. Dollar to Euro was 1.11 (2014: 1.33).
Net income Our net income declined by € 172 mn – or 10.6 % – to € 1,449 mn. This represents a drop of 22.6 % before the effect from foreign currency translation and is largely consistent with our operating profit development.
Fee and commission expenses (1,523) (1,445) Net fee and commission income 6,488 6,380 Net interest income1 (5) (3) Income from financial assets and liabilities carried at fair value through income (net) (8) 5 Other income 4 6 Operating revenues 6,479 6,388
Cost-income ratio2 in % 64.5 59.2 1 Represents interest and similar income less interest expenses. 2 Represents operating expenses divided by operating revenues.
Corporate and Other Operating loss increased by € 124 mn to € 945 mn, due to higher centralized pension costs.
Business segment overview Corporate and Other encompasses the reportable segments Holding & Treasury, Banking, and Alternative Invest ments. Holding & Treasury includes the management of and support for the Allianz Group’s businesses through its strategy, risk, corporate finance, treasury, financial reporting, controlling, communication, legal, human resources, technology, and other functions. Our banking products offered in Germany, Italy, France, the Nether lands, and Bulgaria complement our insurance product port folio. We also provide global alternative investment management services in the private equity, real estate, renewable energy, and infrastructure sectors, mainly on behalf of the Allianz Group.
Key figures reportable segments € mn holding & treasury Operating revenues 562 469 Operating expenses (1,639) (1,386) Operating result (1,076) (917)
Operating earnings summaries by reportable segment holding & treasury Our operating loss increased by € 159 mn to € 1,076 mn. This was largely due to an € 181 mn increase in administrative expenses, mainly resulting from higher centralized pension expenses – partly offset by a related € 31 mn increase in other income.
Administrative expenses (net), excluding acquisition-related expenses, went up by € 181 mn to € 917 mn. Most of this increase was related to higher centralized pension costs, due to both the adapted cost allocation scheme1 for the pension provisions between German subsidiaries and Allianz SE and the net effect of decreased discount rates and other assumption changes. Various smaller effects, including higher IT expenses and the positive effect from recharging of expenses for the implementation of Solvency II to our operating business segments, almost offset each other.
1 For further information on the adapted cost allocation scheme for the pension provisions, please refer to note 6 to the consolidated financial statements.
2 Respective offsetting effects were recorded within our other business segments, mainly within PropertyCasualty. For further information on one-off effects from pension revaluation, please refer to note 6 to the consolidated financial statements.
banKing Our operating profit increased by € 28 mn to € 94 mn, with all Banking units contributing positive results. The increase was driven by both lower administrative expenses and higher net fee and commission result and was partly offset by higher loan loss provisions and restructuring charges.
We recorded restructuring charges of € 9 mn (2014: release of € 3 mn) mainly related to the modernization and digitalization program “OLB 2019” as announced by the Oldenburgische Landesbank in October 2015.
Our operating income from financial assets and liabilities carried at fair value through income (net), which includes trading income, was up by € 6 mn to € 16 mn. This was due primarily to a better trading result within our German banking business.
alternative investments Our operating profit increased by € 7 mn to € 37 mn. This was almost entirely driven by the net effect of € 35 mn higher fee and commission income and a € 28 mn increase in administrative expenses. Both developments were in line with the increased assets under management.
Outlook 2016 − Global recovery is set to continue – only moderate acceleration in emerging market growth. − Allianz Group operating profit outlook in the range of € 10.5 BN, plus or minus € 0.5 BN.
Return on equity (RoE) at 10.7 % (2014: 11.2 %). RoE excluding unrealized gains/losses on bonds, net of shadow deferred acquisition costs (DaC), amounted to 12.5 % (2014: 13.0 %). Proposed dividend at € 7.30 (2014: € 6.85) per share. Stable payout ratio of 50 %.
Operating profit in the range of € 5.2 Bn to € 5.8 Bn. Operating profit of € 5.6 Bn is above the mid-point of our target range, including a higher than expected investment income and a rather low impact from natural catastrophes, but worse than expected results in Argentina. The progress of our turn-around programs at Fireman’s Fund and in Brazil was slower than initially expected.
life/HealtH Prioritizing profitability over growth, taking further product and pricing actions to address the prolonged low yield environment. As a result, revenues are expected to be in the range of € 59.0 Bn to € 65.0 Bn.
Revenues at € 66.9 Bn – above target range – driven by significant growth in unit-linked premiums as a result of changes in our product strategy to shift towards unit-linked and capital-efficient products, as well as positive foreign currency effects. This more than offset the reduced sales of traditional products in major European countries.
Operating investment result increased 17 % to € 20.4 Bn, supported by high level of realized gains from our portfolio de-risking actions.
asset manaGement Slight decrease in total assets under management (AuM) due to continued, but receding, expected net outflows at pimCo.
1 For more detailed information on the previous year outlook for 2015, please see the Annual Report 2014 starting on page 104.
We expect the year-end U.S. Dollar to Euro exchange rate to be marginally above last year’s closing level of 1.09.
However, that does not mean 2016 will be identical to the previous year. For example, we expect to see interest rates starting to rise – but only slightly: overall, the interest rate environment will continue to present a headwind for the industry. Another important change is the implementation of Solvency II in Europe. This brings more clarity on capital positions, acting as a possible catalyst for more industry consolidation. High pent-up demand, accommodative government policies – in particular in the life sector – and general trends like urbanization continue to underpin relatively strong insurance premium growth in emerging markets. Therefore, we expect these markets to outgrow advanced markets in the foreseeable future, although our outlook has become more cautious.
In the property-casualty sector, we anticipate stable premium growth in advanced markets. While the ongoing recovery will support demand, pricing is becoming a growing concern. Despite the regionwide economic pickup, Western Europe is set to remain the laggard in terms of global premium growth. On the other hand – as in previous years – we expect very strong performances in emerging Asia. There, government efforts – particularly in China – to raise insurance penetration across the board are starting to pay off. Overall, we expect global premium revenue to rise between 4.0 % and 5.0 % in 2016 (in nominal terms, adjusted for foreign currency translation effects); a good one percentage point of this is attributable to China alone. Due to the challenging pricing outlook, underwriting profitability may come under pressure, especially if financial losses resulting from natural catastrophes return to historical averages. At the same time, investment returns will remain weak, despite the expected rise in interest rates.
Asset management industry outlook The markets widely expect the U.S. Federal Reserve to continue to increase interest rates slowly in 2016 and to potentially start selling the bonds accumulated in its post-crisis bond-buying program gradually throughout the year. However, these actions are dependent on the unemployment rate and inflation levels in the United States. In addition, the extension of the policy of low interest rates and quantitative easing programs in the Eurozone and Japan in 2016 is very likely. Thus, investors will continue to try to anticipate the central banks’ moves and measures and we expect volatility to persist or even increase in equity and fixed income markets in 2016. Global market volatility could also be fueled by ongoing concerns about the economic development in China, a further decrease in commodity prices (such as crude oil) and a potential unstable geopolitical situation in certain regions. We have seen many of these factors combine in the opening weeks of 2016 and the resulting impacts on financial markets and policymakers worldwide.
However, bonds should remain attractive if longer-term trends towards moderately higher interest rates – especially in the United States – are coupled with global demographic trends. For the growing number of retirees in developed countries looking for a stable stream of income, bonds are particularly interesting. This also holds true for liability-driven investors.
Outlook for the Allianz Group As discussed earlier, world economic growth is expected to be moderately higher in 2016. Growth dynamics, however, vary significantly across the globe and there are clear risks for 2016. Geopolitical tensions, a renewed flare-up of the European sovereign debt crisis and currency or trade wars could all jeopardize economic development. However, the outlook provided here assumes the absence of such shocks.
Overview: outlook and assumptions 2016 outlook 2016 allianz Group Operating profit of € 10.5 Bn, plus or minus € 0.5 Bn. Protection of shareholders’ investments, while continuing to provide attractive returns and dividends. Selective profitable growth.
property-Casualty Growth in gross premiums written of approximately 2 %. Operating profit in the range of € 5.2 Bn to € 5.8 Bn. Progress towards our combined ratio ambition of 94 % or better by 2018. Pressure on operating investment income (net) to continue due to reinvestments in a consistently low interest rate environment.
life/HealtH Prioritizing profitability over growth and continuing to shift new business mix towards unit-linked, capital efficient and protection products. Addressing customer needs in the prolonged low yield environ ment. Revenues are expected to be in the range of € 62.0 Bn to € 68.0 Bn. Operating profit between € 3.3 Bn and € 3.9 Bn.
asset manaGement Slight increase in total AuM due to positive market return, supported by a return to positive net flows at pimCo and continued solid net inflows at AllianzGi. Operating profit in the range of € 1.9 Bn to € 2.5 Bn. Cost-income ratio of well below 65 %.
Management Discussion and Analysis 67 Business Environment 69 Executive Summary of 2015 Results 74 Property-Casualty Insurance Operations 80 Life/Health Insurance Operations 86 Asset Management 90 Corporate and Other 98 Balance Sheet Review 105 Liquidity and Funding Resources 110 Reconciliations assumptions Our outlook assumes no significant deviations from the following underlying assumptions: − Global recovery to continue. − Subdued growth prospects for several major emerging markets. − Modest rise in interest rates expected.
− No major disruptions of capital markets. − No disruptive fiscal or regulatory interference. − Level of claims from natural catastrophes at expected average levels.
Although the global economy is showing signs of recovery, investment results are likely to remain under pressure due to low interest rates. This will be offset by an increase in our operating asset base.
In 2015, our operating profit was in the upper end of our target range, hitting € 10.7 BN. In 2016, we envisage an operating profit of € 10.5 BN, plus or minus € 0.5 BN, as we expect a slightly lower operating profit in the Property-Casualty, Life/Health and Asset Management business segments and a slight improvement in our Corporate and Other business segment.
Premium growth in 2016 is expected mainly from our European core markets, including the United Kingdom, Germany, and Italy. Top line development will be further supported by positive trends at Allianz Worldwide Partners, bundling our B2B2C business activities.
We believe the overall slow rise in prices we witnessed in a number of markets in 2015 will continue in 2016. However, as in previous years, we will keep our focus on achieving strong underwriting results by adhering to our strict underwriting discipline and will be willing to accept a lower top line if target margins cannot be achieved.
It must be noted, however, that market volatility, along with the level of net harvesting, can significantly affect the Life/Health business segment results and make precise predictions difficult.
In 2016, we expect a cost income ratio of well below 65 % (2015: 64.5 %), supported by our focus on expense discipline and operational excellence. Mid-term we expect our cost-income ratio to be at 60 %.
We expect to have steady access to financial markets at reason- able cost in order to maintain our strong financial flexibility. This is supported by prudent steering of our liquidity resources and a maturity profile focusing on a long-dated average remaining term. Based on current interest rate expectations, our average capital market financing costs in 2016 should be broadly in line with 2015.
We closely monitor the capital positions of the Group and at the operating entity level. Additionally, we will continue to optimize our interest rate and spread sensitivities through asset/liability management and life product design.
Expected dividend development2 In November 2014, the Board of Management and the Supervisory Board of Allianz SE decided on a new allocation of net income in its dividend policy. Starting with the financial year 2014, the proposed regular pay-out to Allianz shareholders has been 50 % of Allianz Group net income (attributable to shareholders).
In the interest of dividend continuity, the objective is to keep the dividend per share at least at the level paid in the previous year. The dividend policy of the Allianz Group continues to aim for a healthy balance between an attractive yield and investments in profitable growth. To assure capital discipline, management further intends to evaluate and pay out any unused capital budget earmarked for external growth every three years. The first evaluation will take place at the end of 2016. Out of a budget of € 2.4 BN for external growth (equals 20 % of the net income attributable to shareholders for the years 2013 and 2014), we have invested a total net amount (including risk capital requirements and net of divestments) of € 0.9 BN in 2014 and 2015. The dividend policy is subject to a sustainable Solvency II ratio above 160 %. This policy is reflected in our proposed dividend of € 7.30 per share.
2 This dividend policy represents the current intention of the Board of Management and the Supervisory Board and may be revised in the future. Also, the dividend payment in any given year is subject to specific dividend proposals by the Board of Management and the Supervisory Board, each of which may elect to deviate from this dividend policy if appropriate under the then prevailing circumstances, as well as to the decision of the Annual General Meeting.
Such deviations may arise due to, without limitation, (i) changes of the general economic conditions and competitive situation, particularly in the Allianz Group’s core business and core markets, (ii) performance of financial markets (particularly market volatility, liquidity and credit events), (iii) frequency and severity of insured loss events, including from natural catastrophes, and the development of loss expenses, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) particularly in the banking business, the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rates including the Euro/U.S. Dollar exchange rate, (ix) changes in laws and regulations, including tax regulations, (x) the impact of acquisitions, including related integration issues, and reorganization measures, and (xi) general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences.
Paid-in capital Retained earnings (includes foreign currency translation adjustments) Unrealized gains/losses (net)
In 2015, shareholders’ equity went up by € 2,397 mn to € 63,144 mn as of 31 December 2015. Unrealized gains in shareholders’ equity decreased by € 2,998 mn, mainly due to lower fair values of debt securities following a modest increase in interest rates. Realizations on both debt securities and equities also contributed to this reduction. In addition, shareholders’ equity was lowered by the € 3,112 mn dividend payout in May 2015. However, these effects were more than offset by our net income attributable to shareholders of € 6,616 mn and the € 1,050 mn positive foreign currency translation adjustments that predominantly resulted from the appreciation of the U.S. Dollar against the Euro. Furthermore, the recovery of actuarial losses on defined benefit plans contributed with € 465 mn to an increase in other comprehensive income.
Total assets and total liabilities As of 31 December 2015, total assets amounted to € 848.9 bn and total liabilities were € 782.8 bn. Compared to year-end 2014, total assets and total liabilities increased by € 43.2 bn and € 40.8 bn, respectively.
The following section mainly focuses on our financial investments in debt instruments, equities, real estate, and cash, since these reflect the major developments in our asset base.
StruCture of inveStmentS – portfolio overview The following portfolio overview covers the Allianz Group assets held for investment, which are mainly driven by our insurance businesses.
Our direct gross exposure to equities increased by € 4.5 bn to € 45.7 bn. The growth in this exposure was mainly driven by new investments. Our equity gearing1 remained almost unchanged at 24 % (31 December 2014: 25 %) as the increase in this exposure was accompanied by increases in shareholders’ equity and hedging of this additional exposure against share price declines.
Our cash and other investments increased by € 0.3 bn to € 12.5 bn. Our exposure to debt instruments grew by € 18.3 bn – mainly driven by new investments – and amounted to € 568.1 bn. This exposure still represented 89 % of our total investment portfolio.
The allocation of our well-diversified fixed income portfolio showed a slight increase in the share of corporate bonds and a minor reduction in the portion of covered bonds while the other components remained virtually unchanged. About 94 % of this portfolio of debt instruments was invested in investment-grade bonds and loans.2
2 Excluding self-originated German private retail mortgage loans. For 2 %, no ratings were available.
Our government bond exposure in Portugal remained limited, with small unrealized gains. We continued to have virtually no exposure to Greek or Ukrainian government bonds. The respective exposure to Russia was relatively small in the context of our overall portfolio and the greatest part of this exposure was denominated in U.S. Dollar.
Our covered bond exposure decreased by € 9.0 bn to € 98.7 bn, representing 17 % (31 December 2014: 20 %) of our fixed-income portfolio. This was mainly due to matured bonds which have not been reinvested within this asset class. 42 % (31 December 2014: 44 %) of this portfolio was German Pfandbriefe, backed by either public-sector loans or mortgage loans. Almost unchanged, another 16 %, 10 % and 8 % of the covered bonds were attributable to France, Spain and Italy, respectively. Covered bonds provide a cushion against real estate price deterioration and payment defaults through minimum required security buffers and overcollateralization.
Our exposure to asset-backed securities (AbS) decreased by € 1.3 bn to € 21.6 bn. This exposure still accounted for 4 % of our fixed income portfolio. The largest part of our AbS portfolio was related to mortgage-backed securities (mbS). mbS issued by U.S. agencies, which are backed by the U.S. government, accounted for 17 % of the AbS portfolio. Overall, 98 % of the AbS portfolio received an investment grade rating, with 88 % rated “AA” or better.
Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) (219) (303) 84 Non-operating realized gains/losses (net) 1,211 812 399 Non-operating impairments of investments (net) (268) (197) (72)
Operating investment result Our operating investment income (net) went up by € 3,045 mn to € 24,319 mn, as increases in realized gains as well as in interest and similar income (net)1 more than offset negative developments in its other components.
Our non-operating impairments of investments (net) increased by € 72 mn – largely driven by impairments of equities – to € 268 mn.
Loans and advances to banks and customers 13.8 15.0 Property-Casualty asset base 110.1 109.2 1 Loans and advances to banks and customers, held-to-maturity investments and real estate held for investment are stated at amortized cost. Investments in associates and joint ventures are stated at either amortized cost or equity, depending on – among other factors – our ownership percentage.
2 This comprises assets of € 0.1 bn and € 0.1 bn and liabilities of € (0.1) bn and € (0.1) bn as of 31 December 2015 and 31 December 2014, respectively.
4 Including cash and cash equivalents, as stated in our business segment balance sheet of € 3.6 bn and € 3.7 bn, and receivables from cash pooling amounting to € 3.5 bn and € 4.2 bn, net of liabilities from securities lending and derivatives of € (0.1) bn and € (0.1) bn, as well as liabilities from cash pooling of € (2.1) bn and € (2.1) bn as of 31 December 2015 and 31 December 2014, respectively.
AbS within the Property-Casualty business segment asset base decreased by € 0.7 bn to € 3.3 bn and represented 3.0 % (31 December 2014: 3.7 %) of the business segment’s asset base.
Loss and loss adjustment expenses paid in current year relating to previous years (15.1) 1.3 (13.7) Loss and loss adjustment expenses incurred in previous years (2.4) 0.5 (1.9) Foreign currency translation adjustments and other changes 1.8 (0.5) 1.2 Changes in reserves for loss and loss adjustment expenses in current year 18.3 (1.9) 16.4
2 Although discounted loss reserves have been reclassified to “Reserves for insurance and investment contracts” in the balance sheet in 2013, the underlying business development of these Property-Casualty reserves is still considered in the loss and loss adjustment expenses and in the loss ratio, and is therefore included in the development of the reserves above.
Life/Health assets The Life/Health business segment asset base increased by € 31.5 bn to € 596.9 bn. This was largely driven by a greater volume of debt securities and financial assets for unit-linked contracts and, to a lesser extent, higher equities.
2 These do not include affiliates of € 0.2 bn and € 0.2 bn as of 31 December 2015 and 31 December 2014, respectively.
3 Including cash and cash equivalents, as stated in our business segment balance sheet, of € 8.5 bn and € 7.6 bn and receivables from cash pooling amounting to € 2.5 bn and € 3.1 bn, net of liabilities from securities lending and derivatives of € (3.2) bn and € (2.6) bn as well as liabilities from cash pooling of € (0.0) bn and € (0.0) bn as of 31 December 2015 and 31 December 2014, respectively.
AbS within the Life/Health business segment asset base remained almost flat at € 16.5 bn (31 December 2014: € 16.9 bn) and represented a rather unchanged 2.8 % of the business segment’s asset base.
1 Financial assets for unit-linked contracts represent assets owned by, and managed on behalf of, policyholders of the Allianz Group, with all appreciation and depreciation in these assets accruing to the benefit of policyholders. As a result, the value of financial assets for unit-linked contracts in our balance sheet corresponds to the value of financial liabilities for unit-linked contracts. The International Financial Reporting Standards (IFRS) require the classification of any contract written by an insurance company either as an insurance contract or as an investment contract, depending on whether an insurance component is included. This requirement also applies to unit-linked products. In contrast to unit-linked investment contracts, unit-linked insurance contracts include coverage for significant mortality or morbidity risk.
Financial assets for unit-linked contracts increased by € 11.3 bn – or 12.0 % – to € 105.9 bn. Unit-linked insurance contracts were up by € 5.2 bn to € 67.9 bn, due to premium inflows exceeding outflows by € 4.4 bn and the stronger U.S. Dollar (€ 2.8 bn). This was partly offset by fund losses of € 0.6 bn in the U.S. as well as transfers to the general account in France (€ (0.9) bn) and the Netherlands (€ (0.5) bn). Unitlinked investment contracts increased by € 6.1 bn to € 38.0 bn, due to net premium inflows of € 5.9 bn and an € 0.3 bn increase in fund values. Negative foreign currency translation adjustments of € 0.2 bn were mainly attributable to the weaker Turkish Lira.1
Asset Management assets The Asset Management business segment’s results are derived primarily from asset management for third-party investors and the Allianz Group’s insurance operations.2 In this section, we refer only to the business segment’s own assets.
Corporate and Other assets The Corporate and Other asset base increased from € 44.7 bn to € 47.5 bn. A decrease in loans and advances to banks and customers was more than offset by an increase in debt securities and lower negative cash and cash pool asset positions.
Debt securities 31.7 28.4 Cash and cash pool assets3 (2.9) (4.1)
Off-balance sheet arrangements In the normal course of business, the Allianz Group may enter into arrangements that do not lead to the recognition of assets and liabilities in the consolidated financial statements under IFRS. Since the 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.
The Allianz Group has also entered into contractual relationships with various types of structured entities. They have been designed in such a way that their relevant activities are directed by means of contractual arrangements instead of voting or similar rights. Typically, structured entities have been set up in connection with asset-backed financings and certain investment fund products. For more details on our involvement with structured entities, please refer to note 45 to the consolidated financial statements.
Please refer to the Risk and Opportunity Report from page 112 onwards for a description of the main concentrations of risk and other relevant risk positions.
Asset mAnAgement operAtions Within our Asset Management operations, the most important sour­ ces of liquidity are fees generated from asset management activities. These are primarily used to cover operating expenses.
BAnking operAtions The major sources of liquidity in our Banking operations include cus­ tomer 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 obliga­ tions arising from loans and other outstanding commitments. Our ability to retain our customers’ deposits is equally important to us.
LiQUiDitY resoUrCes AnD Uses Allianz SE ensures adequate access to liquidity and capital for our operating subsidiaries. The main sources of liquidity available for Allianz SE are dividends received from subsidiaries and funding pro­ vided by capital markets. Liquidity resources are defined as readily available assets – specifically cash, money market investments, and highly liquid government bonds. Our funds are primarily used for paying interest expenses on our debt funding, operating costs, internal and external growth investments, and dividends to our shareholders.
Organization The Allianz Group’s liquidity management is based on policies and guidelines approved by the Allianz SE Board of Management. Allianz SE and each of the operating entities are responsible for managing their respective liquidity positions, while Allianz SE provides central liquid­ ity pooling for the Group. Capital allocation is steered by Allianz SE for the entire Group. This structure allows the efficient use of liquidity and capital resources and for Allianz SE to achieve the desired liquidity and capitalization levels for the Group and its operating units.
The overall liquidity of our insurance operations depends on capital market developments, interest rate levels, and our ability to realize the market value of our investment portfolio to meet insurance claims and policyholder benefits. Other factors affecting the liquidity of our Property­Casualty insurance operations include the timing, frequency, and severity of losses underlying our policies and policy renewal rates. In our Life operations, liquidity needs are generally influenced by trends in actual mortality rates compared to the assumptions underlying our life insurance reserves. Market returns, crediting rates and the behavior of our life insurance clients – for example regarding the level of surrenders and withdrawals – can also have significant impacts.
fUnDing soUrCes Allianz SE’s access to external funds depends on various factors such as capital market conditions, access to credit facilities, credit ratings and credit capacity. The financial resources available to Allianz SE in the capital markets for short­, mid­ and long­term funding needs are described below. In general, mid­ to long­term financing is covered by issuing senior or subordinated bonds or ordinary shares.
Equity funding As of 31 December 2015, the issued capital registered at the Commer­ cial Register was € 1,169,920,000. This was divided into 457,000,000 registered shares with restricted transferability. As of 31 December 2015, the Allianz Group held 2,176,362 (2014: 2,751,961) own shares.
ALLiAnz se BonDs1 oUtstAnDing As of 31 DeCemBer 2015 AnD interest expenses in 2015 1. senior BonDs2 4.0 % bond issued by Allianz Finance ii B.V., Amsterdam Volume € 1.5 Bn Year of issue 2006 Maturity date 23/11/2016
Net cash outflow used in financing activities amounted to € 2.8 BN (2014: € 3.2 BN) and was mainly driven by net cash inflows from liabil­ ities to banks and customers (after net cash outflows in 2014). This was, in particular, attributable to our Banking operations in Italy and our Life/Health business in the United States. Higher dividend pay­ ments to our shareholders and lower net cash inflows from our refi­ nancing activi ties1 partly offset these effects.
Balances with banks payable on demand 7,764 6,657 Balances with central banks 388 397 Cash on hand 225 184 Treasury bills, discounted treasury notes, similar treasury securities, bills of exchange and checks 6,465 6,625 Total cash and cash equivalents 14,842 13,863 1 Refers to cash flows from certified liabilities and subordinated liabilities.
Change in cash and cash equivalents1 1 Includes effects of exchange rate changes on cash and cash equivalents of € 548 Mn and € 541 Mn in 2015 and 2014, respectively.
Net cash flow provided by operating activities amounted to € 23.7 BN in 2015, down by € 8.6 BN compared to the previous year. This consists of net income plus adjustments for non­cash charges, credits and other items included in net earnings and cash flows related to the net change in operating assets and liabilities. Net income after adding back non­cash charges and similar items went down by € 0.4 BN to € 10.5 BN in 2015. Operating cash flows from net changes in operating assets and liabilities, including other items, fell by € 8.1 BN to € 13.2 BN. This was driven by lower reserves for insurance and investment con­ tracts in our Life/Health business segment, mainly in the United States, Germany, Italy, and France. We also recorded net cash outflows (after net cash inflows in 2014) from our financial assets and liabilities held for trading, stemming from our Life/Health business segment in Germany and in the United States. This was partially offset by higher net cash inflows from repurchase agreements and collateral received from securities lending transactions – in particular at Allianz SE – and by higher reserves for losses and loss adjustment expenses mainly in our Property­Casualty business segment at Allianz SE (Reinsurance), Italy and France.
Asset Management Operating revenues 6,479 6,388 consisting of: Net fee and commission income 6,488 6,380 Net interest income1 (5) (3) Income from financial assets and liabilities carried at fair value through income (net) (8) 5 Other income 4 6
Corporate and Other thereof: Total revenues (Banking) 577 556 consisting of: Interest and similar income 546 590 Income from financial assets and liabilities carried at fair value through income (net)2 16 10 Fee and commission income 565 513 Interest expenses, excluding interest expenses from external debt (212) (255) Fee and commission expenses (340) (305) Consolidation effects within Corporate and Other 2 3
Allianz Group total revenues 125,190 122,253 1 Represents interest and similar income less interest expenses. 2 Includes trading income.
Composition of total revenue growth We believe that an understanding of our total revenue performance is enhanced when the effects of foreign currency translation as well as acquisitions, disposals, and transfers (or “changes in scope of consolidation”) are analyzed separately. Accordingly, in addition to presenting nominal total revenue growth, we also present internal growth, which excludes these effects.
Life/Health Insurance Operations 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, 20 entities comprising 96.5 % of Life/Health total statutory premiums are in scope.
Expenses Expenses comprise acquisition expenses and commissions as well as administrative and other expenses.
Administrative and other expenses2 (1,695) (1,610) Definitions (134) (115) Scope 118 112 Administrative expenses on reinsurance business ceded 4 14 Administrative and other expenses (net)3,4 (1,707) (1,599)
URR capitalized: Capitalization amount of unearned revenue reserves (URR) and deferred profit liabilities (DPL) for FAS 97 LP.
Amortization, unlocking and true-up of daC2 (2,073) (1,516) Definition: urr amortized (249) (13) Definition: policyholder participation3 (1,006) (1,033) Scope (105) (86) Amortization, unlocking and true-up of DAC4 (3,432) (2,648)
1 Prior year figures changed in order to reflect the roll out of profit source reporting to Malaysia. 2 As per Group Management Report. 3 For German Speaking Countries, policyholder participation on revaluation of DAC/URR capitalization/
Risk and Opportunity Report − The Allianz risk management approach is designed to add value by focusing on both risk and return. − The Allianz Group is well capitalized and its solvency ratios are resilient.
Allianz’s risk profile is driven by our strategic risk appetite and steered by the risk management practices and limits which are described later in this report. The risk profile and relative contributions have changed in 2015, due to changes in the market environment, management actions, and model changes driven by regulatory developments and feedback Allianz received during the internal model approval process. These model changes are described in the section Model changes in 2015.
In the following paragraphs we provide an overview of major developments and risks that may affect Allianz’s portfolio.
The persisting geopolitical risks, including the conflicts in the Middle East, are manageable for the Allianz Group, since our direct exposure to the affected regions remains relatively small in the context of our overall investment portfolio. Nevertheless, we are monitoring these developments, since a significant deterioration may lead to spill-over effects on the global financial markets, triggering negative impacts on our business and risk profile.
Over the past years, Allianz Group and its operating entities have developed operational contingency plans for various crisis scenarios. We continue to conduct scenario analysis on a regular basis to bolster our financial and operational resilience to strong shock scenarios. In addition, we continue to optimize our product design and pricing in the Life/Health business segment with respect to guarantees and surrender conditions. Continuous monitoring as well as prudent risk positions and contingency planning remain priorities for our management.
In any case, the Solvency II regime will lead to higher volatility in solvency ratios compared to Solvency I, due to the market value balance sheet approach.
1 From a formalistic perspective, the German Supervisory Authority deems our model to be “partial” because it does not cover all of our operations: some of our smaller operations report under the standard model and others under the deduction and aggregation approach.
Risk and Opportunity Report and Financial Control 112 Risk and Opportunity Report 131 Controls over Financial Reporting and Risk Capital management assessment The Allianz Group’s management feels comfortable with the Group’s overall risk profile and has confidence in the effectiveness of its risk management framework to meet the challenges of a rapidly changing environment as well as day-to-day business needs. This confidence is based on several factors, which are outlined in more detail in the sections that follow and are summarized below: − Due to its effective capital management, the Allianz Group is well capitalized and met its internal-, rating agency- and regulatory -solvency targets as of 31 December 2015. Allianz is also confident that it will be able to meet the capital requirements under the new regulatory regimes. Allianz remains one of the highestrated insurance groups in the world, as reflected by our external rating agencies.
− The Group’s management also believes that Allianz is well positioned to deal with potential future adverse events, in part due to our strong internal limit framework defined by the Group’s risk appetite and risk management practices including our approved partial internal model.
Our risk capital reflecting our risk profile plays a significant role in the management of capital across the Group. In addition, we take into account the external requirements of regulators and rating agencies. While capital requirements imposed by regulators constitute a binding constraint, meeting rating agencies’ capital requirements and maintaining strong credit ratings are strategic business objectives of the Allianz Group.
We closely monitor the capital position of the Group and its operating entities along each of these dimensions, and apply regular stress tests based on standard adverse scenarios. This allows us to take appropriate measures to ensure our continued capital and solvency strength.
The conglomerate solvency ratio increased by 19.6 percentage points.1 exteRnal Rating agency capital adequacy Rating agencies apply their own methodology to evaluate the relationship between the required risk capital of a company and its available capital resources. An assessment of capital adequacy is usually an integral part of the rating process. Moody’s, Standard & Poor’s and A.M. Best affirmed their Allianz Group’s rating in 2015.
As part of the long-term financial strength rating, Standard & Poor’s has a rating for “Enterprise Risk Management” (ERM). Since 2013, Standard & Poor’s has assigned Allianz its highest possible rating – “very strong” – for the ERM capabilities of our insurance operations. This indicates that Standard & Poor’s regards it as “unlikely that Allianz Group will experience major losses outside its risk tolerance”. Standard & Poor’s stated that the assessment is based on Allianz’s strong risk management culture, strong controls for the majority of key risks, and strong strategic risk management. In addition, Standard & Poor’s reviewed our internal risk capital framework, for the first time in 2012 and since then on an annual basis. Based on this review, Standard & Poor’s has given further credit to the capital position of the Allianz Group since the fourth quarter of 2012 by taking into account the results based on our internal risk capital framework when determining the capital requirements to meet specific rating classes.
Compared to year-end 2014, our Solvency II capitalization increased 9 percentage points to 200 %, which was mainly driven by an increase in own funds only partly compensated for by an increase in risk capital. The change in own funds was driven by positive contributions of existing and new business as well as the issuance of a subordinated bond, partially offset by negative impacts from model changes and transferability restrictions. The change in risk capital was mainly driven by higher exposure due to business growth and model changes necessary in the context of our internal model application. Impacts of model changes on our risk profile are presented in the section Model changes in 2015. This increase in risk capital was also partially offset by actions to reduce our sensitivity to market movements, in particular our sensitivity to interest rates.
The following table summarizes our Solvency II regulatory capitalization ratios disclosed over the course of the year 2015.
2 Third-country equivalence treatment for AZ Life means that the entity is included at Group level with 150 % of the local statutory capital requirement for life insurance companies (“Company Action Level RBC”).
allianz gRoup: allocated Risk accoRding to the Risk pRofile (total poRtfolio BefoRe non-contRolling inteRests)
Detailed discussions of movements in respective risks are provided in the sections that follow.
Internal risk capital framework We define internal risk capital as the capital required to protect us against unexpected, extreme economic losses, which forms the basis for determining our Solvency II regulatory capitalization and the associated risk profile. On a quarterly basis, we calculate and aggregate internal risk capital across all business segments, based on a common standard for measuring and comparing risks across the wide range of different activities that we undertake as an integrated financial services provider.
The risk capital is defined as the difference between the current portfolio value and the portfolio value under adverse conditions dependent on the 99.5 % confidence level. Because we consider the impact of a negative or positive event on all sources of risks and covered businesses at the same time, diversification effects across products and regions are taken into account. The results of our Monte Carlo simulation allow us to analyze our exposure to each source of risk, both separately and in aggregate. In addition, in particular for market risks, we analyze several pre-defined stress scenarios, based either on historically observed market movements or on hypothetical market movement assumptions. This modeling approach, therefore, also enables us to identify scenarios that may have a positive impact on our solvency situation.
Yield curve and volatility adjustment assumptions When calculating the fair values of assets and liabilities, the assumptions regarding the underlying risk-free yield curve are crucial in determining and discounting future cash flows. We apply the methodology provided by the European Insurance and Occupational Pensions Authority (EIOPA) within the technical documentation (EIOPABoS -15/035) for the extension of the risk-free interest rate curves beyond the last liquid tenor2.
Diversification and correlation assumptions Our partial internal risk capital model considers concentration, accumulation, and correlation effects when aggregating results at Group level. This reflects the fact that not all potential worst-case losses are likely to materialize at the same time. This effect is known as diversification and forms a central element of our risk management framework.
We strive to diversify the risks we are exposed to in order to limit the impact of any single source of risk and help increase the chances that the positive developments outweigh the negative. The degree to which diversification can be realized depends in part on the level of relative concentration of those risks and the joint movement of sources of risk.
Where possible, we derive correlation parameters for each pair of market risks through statistical analysis of historical market data, considering quarterly observations over several years. In case historical market data or other portfolio-specific observations are insufficient or not available, correlations are set according to a well-defined 2 Due to late availability of the EIOPA publication, the risk-free interest rate term structure used might be slightly different from the one published by EIOPA.
Group-wide process. Correlations are determined by the Correlation Settings Committee, which combines the expertise of risk and business experts. In general, 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 approach, to determine the dependency structure of quantifiable sources of risk within the applied Monte Carlo simulation.
1 As mentioned under Solvency II capitalization, AZ Life is taken into account by means of third-country equivalence into the Group capitalization.
3 Under book value deduction, the book value of the respective entity is deducted from eligible own funds of the Group.
Risk capital related to our European banking operations is allocated to the Corporate and Other business segment, based on the approach applied by banks under the local requirements with respect to the Basel regulation (Basel standards). Capital requirements for banks represent an insignificant amount of approximately 1.5 % (2014: 1.3 %4) of our total pre-diversified risk. Therefore, risk management with respect to banking operations is not discussed in more detail.
4 2014 risk profile figures recalculated based on model changes in 2015, as described in Model changes in 2015 from page 118.
Since the partial internal risk capital 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 obtain either a current market price or to apply a meaningful mark-to-market approach. For such assets we apply a mark-to-model approach. Non-standardized derivative instruments – such as derivatives embedded in structured financial products – are represented by the most comparable standard derivative types or by means of sensitivities, because the volume of nonstandard instruments is not material at either the local or Group level. For some of our liabilities, the accuracy of their values depends on the quality of the actuarial cash flow estimates. Despite these limitations, we believe the estimated fair values are appropriately assessed.
Credit risk In 2015, no new model changes were implemented to the credit risk model. Only annual updates of rating transition matrices and asset correlations based on extended time series were introduced. Nevertheless, the model change related to modeling of the loss-absorbing capacity of technical provisions in the traditional life business had also an impact on credit risk, leading to a decrease of € 0.3 bn. In total, credit risk decreased on a pre-diversified basis by € 2.5 bn to € 8.5 bn, primarily driven by the changes in model scope.
With respect to investments, top-down indicators such as strategic asset allocations are defined and closely monitored to ensure balanced investment portfolios. Furthermore, we have a limit system in place which is defined at Group level separately for the Life/Health and the Property-Casualty business segments as well as at operating entity level. The limits comprise economic limits, in particular financial VaR and credit VaR as derived from the internal risk capital framework, complemented by stand-alone interest rate and equity sensitivity limits as well as by limits on foreign exchange exposures. In addition we introduced capitalization limits, defining target Solvency II capitalization ratios on Group as well as operating entity level after applying shock scenarios.
Our limit-setting process ensures that prevailing statutory restrictions regarding the composition of investments are taken into account. Most statutory restrictions apply at the local level, where the statutory restrictions as binding constraints enter the limit-setting processes. In addition, guidelines are derived by the Group center for certain investments, for example concerning the use of derivatives, and compliance with the guidelines is controlled by the respective risk and controlling functions.
In order to further limit the impact of any financial market changes and to ensure that assets adequately back policyholder liabilities, we have additional measures in place. One of these is asset/ liability management, linked to the internal risk capital framework, which incorporates risks as well as return aspects stemming from our insurance obligations. In addition, we are using derivatives mostly to either hedge our portfolio against adverse market movements or to reduce our reinvestment risk – for example by using forwards or swaptions.
We also closely monitor concentrations and accumulation of non-market risks on a stand-alone basis (i.e. before diversification effects) within a global limit framework in order to avoid substantial losses from single events such as natural catastrophes, terror or credit events.
In order to manage counterparty concentration risk, we run a Group-wide country and obligor group limit management framework (CRisP3), which covers credit and equity exposures and is based on data used by the investment and risk experts at the Group and operating entity levels. This limit framework forms the basis for discussions on credit actions and provides notification services with a quick and broad communication of credit-related decisions across the Group. Clearly defined processes ensure that exposure concentrations and limit utilizations are appropriately monitored and managed.
2 For further information on derivatives used for hedging, please refer to note 43 to the consolidated financial statements.
Group’s perspective (i.e. the maximum concentration limit) takes into account the Allianz Group’s portfolio size and structure as well as our overall risk strategy.
Risk Based steeRing Allianz steers its portfolio using a comprehensive view of risk and return, i.e. results based on the partial internal risk model including scenario-based analyses are used actively for decision making: on the one hand, economic risk and concentrations are actively restricted by means of limits as outlined above and on the other hand, there is a comprehensive analysis of the return on risk capital (RORC). The latter allows us to identify profitable lines of business and products on a sustainable basis, which provide reasonable profits on allocated risk capital over the life time of the products. Therefore, it is a key criterion for capital allocation decisions.
In the following sections we explain the evolution of the risk profile per modeled risk category. All risks are presented on a pre-diversified basis and concentrations of single sources of risk are discussed accordingly.
Property-Casualty 415 526 2,931 3,431 739 576 996 914 554 544 55 58 5,690 6,050 Life/Health 4,129 5,934 237 528 4,694 2,973 6,085 3,804 1,326 1,003 45 48 16,516 14,290 Asset Management 20 20 – – – – 20 20 20 20 86 86 146 146 Corporate and Other 643 452 451 221 541 408 977 1,272 86 96 224 213 2,922 2,663
Our total pre-diversified market risk showed an increase of € 2.1 bn mainly driven by equity and credit spread risk in the Life/Health segment. The increase in equity risk was mainly driven by higher exposure.
This, however, also contributed to some extent to the increase in credit spread risk, for example due to some duration extension on the asset side. The decrease in inflation risk was mainly driven by the hedging of inflation exposure and higher discount rates, resulting in lower market values of inflation-sensitive liabilities and internal pension liabilities. Real estate risk increased mainly due to higher exposure.
These risks are reflected in the risk profile and managed by interest rate sensitivity limits. A significant part of the Life/Health business segment’s pre-diversified interest rate risk lies in Western Europe – 76.5 % as of 31 December 2015 (2014: 83.4 %) –, mainly to cover traditional life insurance products with guarantees.
As of 31 December 2015, our interest-rate-sensitive investments excluding unit-linked business – amounting to a market value of € 419.3 bn1 – would have gained € 30.6 bn or lost € 32.8 bn in value in case of interest rates changing by (100) and +100 basis points, respectively.
As described above, the risk related to interest rates lies in the fact that, in the long run, yields that can be achieved by reinvesting may not be sufficient enough to cover the guaranteed rates. In contrast, opportunities may materialize when interest rates increase. This may result in higher returns from reinvestments than the guaranteed rates.
Equity risk The Allianz Group’s insurance operating entities usually hold equity investments to diversify their portfolios and take advantage of expected long-term returns. Strategic asset allocation benchmarks and investment limits are used to manage and monitor these exposures. In addition, equity investments fall within the scope of CRisP to avoid a disproportionately large concentration of risk.
As of 31 December 2015, our investments excluding unit-linked business that are sensitive to changing equity markets – amounting to a market value of € 44.2 bn2 – would have lost € 12.9 bn in value assuming equity markets declined by 30 %.
Credit spread risk Our internal risk capital framework fully acknowledges the risk of declining market values for our fixed-income assets, such as bonds, due to the widening of credit spreads. However, for our risk management and appetite we also take into account the underlying economics of our business model; for example, the application of the volatility adjustment in our internal risk capital framework to partially mitigate spread risk, as described in the section on yield curve assumptions.
Real estate risk Despite the risk of decreasing real estate values, real estate is a suitable addition to our investment portfolio, due to good diversification benefits as well as to the contribution of relatively predictable cashflows in the long term. As of 31 December 2015, about 3.5 % (2014: 3.1 %3) of the total pre-diversified risk was related to real estate exposures.
country risk. Counterparty risk arises from our fixed-income investments, cash positions, derivatives, structured transactions, receivables from Allianz agents and other debtors, as well as reinsurance recoverables and credit insurance. Country risk exposure is calculated as cross-border exposure to all obligors domiciled abroad from the respective operating entities’ perspective.
The internal credit risk capital model is a state-of-the-art tool which provides bottom-up analysis. The major drivers of credit risk for each instrument are exposure at default, ratings, seniority, collateral and maturity. Additional parameters assigned to obligors are migration probabilities and obligor asset correlations reflecting dependencies within the portfolio. Ratings are assigned to single obligors via an internal rating approach, which is based on long-term ratings from rating agencies. It is dynamically adjusted using marketimplied ratings and the most recently available information.
1 2014 risk profile figures recalculated based on model changes in 2015.
2 2014 risk profile figures recalculated based on model changes in 2015.
The different components of Allianz credit risk exposure are described in the table below: AlliAnz components of credit risk exposure investment portfolio Premiums collected from our customers and shareholders’ capital, which is required to support the risks underwritten, are invested to a great extent in fixed-income instruments. These investment portfolios ultimately cover the future claims to our customers. However, for certain life insurance products, losses due to credit events can be shared with the policyholder, as described in the context of market risks. reinsurAnce portfolio Credit risk to external reinsurers appears when insurance risk exposures are transferred by us to external reinsurance companies to mitigate insurance risk. Potential losses can arise either due to non-recoverability of reinsurance receivables already present at the as-of date or default on benefits that are under reinsurance treaties in-force. credit insurAnce portfolio Credit risk arises from potential claim payments on limits granted by Euler Hermes to its policyholders. Euler Hermes protects its policyholders (partially) 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 has a well-diversified portfolio of Exchange- and OTCtraded derivatives that are used as part of an efficient exposure management. The counterparty credit risk arising from derivatives is low, since the derivatives usage is governed by the Group-wide internal guidelines for collateralization of derivatives that stipulate master netting and collateral agreements with each counterparty and require high quality and liquid collateral. In addition, Allianz closely monitors the credit ratings of counterparties and exposure movements. Central clearing of certain classes of OTC derivatives as required by the European Market Infrastructure Regulation (EMIR) and additional reporting duties will contribute to further reducing counterparty credit risk and operational risk at Allianz.
As of 31 December 2015, 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 Type of issuer
Credit risk – credit insurance Our credit insurance portfolio is modeled by Euler Hermes based on a proprietary model component, which is a local adaptation of the central internal credit risk module and is reviewed by Group Risk. The result is integrated in the Group’s internal credit risk to capture the concentration and diversification effects. As of 31 December 2015, 6.5 % (2014: 4.5 %) of our total Group pre-diversified internal credit risk was allocated to Euler Hermes credit insurance exposures, for which the relative increase is primarily driven by the re-allocation of credit risk from the investment portfolio, where exposure size has decreased following the reduced scope of Allianz entities in the partial internal model.
Loss ratio excluding natural catastrophes 64.6 65.1 63.0 66.6 65.5 65.9 68.4 66.3 64.1 64.4 1 Represents claims and insurance benefits incurred (net), divided by premiums earned (net).
Assessing the risks as part of the underwriting process is a key element of our risk management framework. There are clear underwriting limits and restrictions, centrally defined and in place across the Group. In addition to the centrally-defined underwriting limits, the local operating entities have limits in place that take into account their business environments. Excessive risks are mitigated by external reinsurance agreements. All these measures contribute to a limitation on risk accumulation.
We measure these risks within our partial internal risk capital model by distinguishing between the different sub-components, whenever relevant or material: absolute level, trend, volatility around the best estimate assumptions, and pandemic risks. Depending on the nature and complexity of the risk involved, our health business is represented in the partial internal model, according to Property1 For further information, please refer to note 19 to the consolidated financial statements.
Casualty or Life/Health calculation methods, and is therefore included in the relevant Property-Casualty and Life/Health figures accordingly. However, most of our health business is attributable to the Life/ Health business segment. Due to effective product design and the diversity of our products, there were no significant concentrations of underwriting risks within our Life/Health business segment as of 31 December 2015.2
Life/Health underwriting risk arises from profitability being lower than expected due to changes in actuarial parameters. As profitability calculations are based on several parameters – such as historical loss information, assumptions on inflation or on mortality, and morbidity – the realized parameters may differ from the ones used for calculation. For example, higher inflation than that incorporated in the calculations may lead to a loss. However, deviations can also occur in the opposite direction and be beneficial and lead to additional profit. For example, a lower morbidity rate than expected will most likely result in lower claims.
Business risk Business risks include cost risks and policyholder behavior risks and are mostly driven by the Life/Health business segment and to a lesser extent by the Property-Casualty business segment. Cost risks are associated with the risk that expenses incurred in administering policies are higher than expected or that new business volume decreases to a level that does not allow Allianz to absorb its fixed costs.
In the Life/Health business segment, policyholder behavior risks are risks related to the unpredictability and adverse behavior of policyholders in exercising their different contractual options: early termination of contracts, surrenders, partial withdrawals, renewals, and annuity take-up options. Assumptions on policyholder behavior are set in line with accepted actuarial methods and are based on our own historical data, to the extent available. If data is not available, assumptions are based on industry data or expert judgment.
allianz gRoup: Risk pRofile – allocated Business Risk By Business segment (total poRtfolio BefoRe tax and non-contRolling inteRests)
For business risk in our Life/Health business segment there were only minor movements.
2 For further information about insurance risk in the Life/Health business segment, please refer to note 20 to the consolidated financial statements.
As for underwriting risks, a positive deviation from the under­ lying parameters will lead to additional returns. For example, lower­ than­expected expenses in our Property­Casualty business will lead to an improved combined ratio.
Allianz has developed a consistent Group­wide operational risk management framework that focuses on the early recognition and proactive management of operational risks in all “first line of defense”­ functions. The framework defines roles and responsibilities, risk pro­ cesses, and methods and has been implemented in our operating entities. Local risk managers as the “second line of defense” ensure this framework is implemented in their respective operating entity. They identify and evaluate relevant operational risks and control weaknesses via a dialogue between the “first line of defense” and the risk function. Furthermore, operational risk events are collected in a central risk event database. In 2015, Allianz also delivered internal loss data on an anonymized basis to the “Operational Riskdata eXchange Association (ORX)”, a global operational loss data insurance consor­ tium, to improve its internal control system and to validate opera­ tional risk parameters in the future. An analysis of the causes of inter­ nal and external losses exceeding € 1 mn is carried out to provide comprehensive and timely information to senior management and to share with operating entities, so they can implement measures aimed at avoiding or reducing future losses.
AlliAnz Group: risk profile – AllocAted operAtionAl risk by business seGment (totAl portfolio before tAx And non-controllinG interests)
Property-Casualty 2,274 2,166 Life/Health 2,019 2,090 Asset Management 686 686 Corporate and Other 580 707 Total Group 5,559 5,669 Share of total Group pre-diversified risk 9.8 % 10.6 %
The decrease shown in the operational risk is driven by the regular update of local parameters.
Strategic risk Strategic risk is the risk of an unexpected negative change in the company’s value arising from the adverse effect of management decisions on business strategies and their implementation.
Liquidity risk Liquidity risk is defined as the risk that requirements from current or future payment obligations cannot be met or can only be met on the basis of adversely altered conditions. Liquidity risk can arise primarily if there are mismatches in the timing of cash flows on the asset and liability side. Detailed information regarding the Allianz Group’s liquidity risk exposure, liquidity and funding – including changes in cash and cash equivalents – is provided in Liquidity and Funding Resources from page 105 onwards and notes 17, 23, 24 and 43 to the consolidated financial statements.
The main goal of planning and managing Allianz SE’s liquidity position is to ensure that we are always able to meet payment obligations. To comply with this objective, the liquidity position of Allianz SE is monitored and forecast on a daily basis. Strategic liquidity planning over time horizons of 12 months and three years is reported to the Board of Management regularly.
The accumulated short-term liquidity forecast is updated daily and is subject to an absolute minimum strategic cushion amount and an absolute minimum liquidity target. Both are defined for the Allianz SE cash pool in order to be protected against short-term liquidity crises. As part of our strategic planning, contingent liquidity requirements and sources of liquidity are taken into account to ensure that Allianz SE is able to meet any future payment obligations even under adverse conditions. Major contingent liquidity requirements include non-availability of external capital markets, combined market and catastrophe risk scenarios for subsidiaries, as well as lower-than-expected profits and dividends from subsidiaries.
In addition, we launched a project in 2015 to develop an enhanced liquidity risk framework taking stress situations into account and allowing for a group-wide consistent aggregation. The framework will be rolled out to the Group during 2016 and will further strengthen the Allianz liquidity position and resilience to stress scenarios.
With the support of Group Communications, Group Compliance and the ESG Office1, Group Risk defines sensitive business areas and applicable risk guidelines, which are mandatory for all operating entities in the Allianz Group. All affected Group and operating entity functions cooperate in the identification of reputational risk. Group Communications is responsible for the risk assessment, based on a Group-wide methodology. In 2015, Allianz has embedded conduct risk triggers for products and services into the reputational risk management process.
This comprehensive framework ensures that risks are identified, analyzed, assessed, and managed in a consistent manner across the Group. Our risk appetite is defined by a clear risk strategy and limit structure. Close risk monitoring and reporting allows us to detect potential deviations from our risk tolerance at an early stage at both the Group and operating entity levels.
Risk goveRnance stRuctuRe As a key element of our risk management framework, Allianz’s approach to risk governance enables an integrated management of local and global risks and ensures that our risk profile remains consistent with our risk strategy and our capacity to bear risks.
− The Group Capital Committee supports the Board of Management with recommendations regarding the capital structure, capital allocation, and investment strategy, including the strategic asset allocation.
Group Risk Group Risk is managed by the Group Chief Risk Officer, who reports to the Board member responsible for Finance, Controlling and Risk. Group Risk supports the aforementioned Allianz Group committees
In addition, Group Risk independently supports the adequacy of the operating entities’ risk management through the development of a common risk management framework and by monitoring adherence to Group minimum requirements for methods and processes. Group Risk strengthens the Group’s risk network through regular and close interaction with the operating entities’ management and with key areas such as the local finance, risk, actuarial and investment departments. A strong risk network across the Group allows us to identify risks early and bring them to the attention of management.
Group Actuarial contributes towards assessing and managing risks in line with regulatory requirements. These risks stem from the risk-taking/mitigating activities involving professional actuarial experience. The role includes, but is not limited to, the activities of: − calculation and oversight of technical reserves for accounting and regulatory purposes,
− pricing and profitability oversight, − technical actuarial support of business planning, reporting and result monitoring, − contribution to the effective implementation of the risk management system.
In order to adapt to a continually changing environment, the Global Issues Forum (GIF) supports the Group in the assessment of longterm trend changes in the risk landscape on a timely basis. As an active participant of the Emerging Risk Initiative of the Chief Risk Officer Forum, we monitor with other chief risk officers of major European insurance companies and financial conglomerates the industry- wide risk landscape and raise awareness of major risks for the insurance industry.
Risk management priorities for 2016 In addition to maintaining our high standards and practices in dayto -day risk management and controlling, Allianz has set the following priorities for 2016: Our first priority is to further embed our partial internal model into business steering, for example by providing sound information on potential impacts of management decisions on the Allianz risk profile.
Regarding regulatory developments, our second priority is to ensure that we meet the emerging requirements for G-SII (Global Systemically Important Insurers). Therefore, we will continue to participate in the capital field-testing exercise conducted by the IAIS (International Association of Insurance Supervisors). In addition, we will continue to further enhance and strengthen our liquidity risk management framework.
By consistently following our Group strategy, we are confident that the Allianz Group is in a privileged position to deal with the challenges and opportunities ahead. The most important of these are outlined below.
climate and demogRaphic challenges and oppoRtunities Global warming could alter our climate and such changes could result in a range of risks and opportunities that affect our entire business. We have a Group-wide strategy covering climate-related risks and opportunities for our business and our customers: we finance and insure low-carbon energy projects, such as wind and solar, offer customers a range of “green” solutions, and provide them with advice on weather-related risk reduction. As a company we continually reduce and offset our own carbon emissions. We also incorporate not only environmental, but also social and governance factors into our investment and underwriting processes as well as in asset management.
For more information, please refer to Progress in Sustainable Development from page 61.
Substantial opportunities arise from entering new digital businesses and making use of related new technologies. Our recentlylaunched partnership with the Chinese company Baidu, as well as rapidly developing relationships with sharing economy players like the mobility solution Drivy, prove that we can build strong alliances in these evolving markets. We are scaling up our expertise in fields such as telematics, robo advice, and the Internet of Things, while also reinforcing our presence in the “FinTech” and “InsurTech” spaces. These developments aim to make Allianz the leading digital insurer.
Internally, we are investing substantially in our digital growth, with related investments into the digital transformation in 2015 of roughly € 650 Mn when excluding basic IT investments and maintenance. We project that our digital investments will continue at both the local and global level. With these investments we are also placing a strong emphasis on building capabilities to enable productivity gains. By harmonizing our technology and streamlining our operations, we expect to achieve recurring productivity gains of € 1 bn by 2018 throughout the Allianz Group.
Determination of significant accounts and operating entities to be covered by system of internal control
Implementation of key controls that prevent or detect errors or fraud resulting from risk scenarios
Risk capital controls Similar to our ICOFR framework, we have also established a robust and comprehensive control concept in the risk capital calculation and aggregation process, since our internal risk capital calculations incorporate economic factors that are not fully reflected in the accounting results. We have put in place additional controls within our management reporting processes to ensure that these additional estimates are adequately controlled and that the data quality is accurate, consistent and complete.
− Finally, we focus on ensuring that controls are appropriately designed and effectively executed to mitigate risk. We have set consistent documentation requirements across the Allianz Group for elements such as processes, related key controls and their execution. We conduct an annual assessment of our control system to maintain and continuously enhance its effectiveness. Group Audit and local internal audit functions ensure that the overall quality of our control system is subjected to regular control -testing, to assure reasonable design and operating effectiveness. Internal Audit does so through a comprehensive risk-based approach, which holistically assesses the key controls of the company’s internal procedures and processes, including local and Group internal controls over financial reporting.
The Group Disclosure Committee ensures that these board members are made aware of all material information that could affect our disclosures and assesses the completeness and accuracy of the information provided in the quarterly and annual financial reports. The committee met on a quarterly basis before the financial reports were issued.
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 system of internal controls as well as the completeness, accuracy and reliability of financial data reported to the Holding.
General Information 141 1 Nature of operations and basis of presentation 141 2 Summary of significant accounting policies 150 3 Use of estimates and assumptions 154 4 Recently adopted and issued accounting pronouncements and changes in the presentation of the consolidated financial statements 157 6 Segment reporting
Notes to the Consolidated Balance Sheets 172 7 Cash and cash equivalents 172 8 Financial assets carried at fair value through income 176 10 Loans and advances to banks and customers 176 11 Reinsurance assets 177 12 Deferred acquisition costs 178 13 Other assets 180 14 Non-current assets and disposal groups classified as held for sale 181 15 Intangible assets 185 16 Financial liabilities carried at fair value through income 185 17 Liabilities to banks and customers 186 18 Unearned premiums 186 19 Reserves for loss and loss adjustment expenses 190 20 Reserves for insurance and investment contracts 193 21 Financial liabilities for unit-linked contracts 194 22 Other liabilities 195 23 Certificated liabilities 196 24 Subordinated liabilities 135 Consolidated BalanCe sheets 136 Consolidated inCome statements 137 Consolidated statements of Comprehensive inCome 138 Consolidated statements of Changes in equity 139 Consolidated statements of Cash flows 141 notes to the Consolidated finanCial statements Notes to the Consolidated Income Statements 199 26 Premiums earned (net) 199 27 Interest and similar income 200 28 Income from financial assets and liabilities carried at fair value through income (net) 200 29 Realized gains/losses (net) 201 30 Fee and commission income 201 31 Other income 201 32 Income and expenses from fully consolidated private equity investments 202 33 Claims and insurance benefits incurred (net) 202 34 Change in reserves for insurance and investment contracts (net) 203 35 Interest expenses 203 36 Loan loss provisions 203 37 Impairments of investments (net) 203 38 Investment expenses 203 39 Acquisition and administrative expenses (net) 204 40 Fee and commission expenses 204 41 Other expenses 204 42 Income taxes
Other Information 207 43 Derivative financial instruments 209 44 Financial instruments and fair value measurement 218 45 Interests in unconsolidated structured entities 220 46 Related party transactions 220 47 Litigation, guarantees and other contingencies and commitments 223 48 Pensions and similar obligations 226 49 Share-based compensation plans 229 50 Restructuring plans 231 51 Earnings per share 231 52 Other information 233 53 Subsequent events 234 List of participations of the Allianz Group as of 31 December 2015 according to § 313 (2) HGB
Consolidated balanCe sheets consolidated balance sheets € mn as of 31 December note 2015 2014 assets Cash and cash equivalents 7 14,842 13,863 Financial assets carried at fair value through income 8 7,268 5,875
Total assets 848,942 805,787 liabilities and eQUitY Financial liabilities carried at fair value through income 16 9,207 8,496 Liabilities to banks and customers 17 25,531 23,015
Reserves for loss and loss adjustment expenses 19 72,003 68,989 Reserves for insurance and investment contracts 20 486,222 463,334 Financial liabilities for unit-linked contracts 21 105,873 94,564 Deferred tax liabilities 42 4,003 4,932
Income from fully consolidated private equity investments 32 732 696 Total income 110,836 103,161
Loan loss provisions 36 (60) (45) Impairments of investments (net) 37 (1,526) (894)
Acquisition and administrative expenses (net) 39 (25,718) (23,343) Fee and commission expenses 40 (3,777) (3,238) Amortization of intangible assets 15 (322) (123)
Expenses from fully consolidated private equity investments 32 (792) (720) Total expenses (100,640) (94,314)
Basic earnings per share (€) 51 14.56 13.71 Diluted earnings per share (€) 51 14.55 13.64
Available-for-sale investments Reclassifications to net income (1,279) (641) Changes arising during the year (1,694) 7,817
For further details concerning income taxes relating to components of the other comprehensive income, please see note 42 Income taxes.
Consolidated statements of Cash flows consolidated statements of cash flows € mn sUmmarY Net cash flow provided by operating activities 23,663 32,232 Net cash flow used in investing activities (20,394) (26,927) Net cash flow used in financing activities (2,837) (3,189) Effect of exchange rate changes on cash and cash equivalents 548 541 Change in cash and cash equivalents 979 2,656 Cash and cash equivalents at beginning of period 13,863 11,207 Cash and cash equivalents at end of period 14,842 13,863 cash flow from operating activities Net income 6,987 6,603 Adjustments to reconcile net income to net cash flow provided by operating activities
Share of earnings from investments in associates and joint ventures (290) (196) Realized gains/losses (net) and impairments of investments (net) of: Available-for-sale and held-to-maturity investments, investments in associates and joint ventures, real estate held for investment, loans and advances to banks and customers, non-current assets and disposal groups classified as held for sale (6,407) (3,105) Other investments, mainly financial assets held for trading and designated at fair value through income 3,460 2,537
Consolidated statements of Cash flows – Continued consolidated statements of cash flows € mn cash flow from investing activities Proceeds from the sale, maturity or repayment of: Financial assets designated at fair value through income 1,529 1,335 Available-for-sale investments 151,470 124,855 Held-to-maturity investments 3,218 579 Investments in associates and joint ventures 513 709 Non-current assets and disposal groups classified as held for sale 187 146 Real estate held for investment 522 329 Loans and advances to banks and customers (purchased loans) 11,465 8,345 Property and equipment 127 119
Payments for the purchase or origination of: Financial assets designated at fair value through income (2,300) (1,693) Available-for-sale investments (170,170) (149,120) Held-to-maturity investments (2,474) (331) Investments in associates and joint ventures (884) (1,271) Non-current assets and disposal groups classified as held for sale – – Real estate held for investment (1,273) (963) Loans and advances to banks and customers (purchased loans) (5,461) (5,005) Property and equipment (2,033) (1,692)
Business combinations (note 5): Proceeds from sale of subsidiaries, net of cash disposed 19 – Acquisitions of subsidiaries, net of cash acquired – (200)
cash flow from financing activities Net change in liabilities to banks and customers 365 (873) Proceeds from the issuance of certificated liabilities and subordinated liabilities 5,217 3,823 Repayments of certificated liabilities and subordinated liabilities (5,044) (3,435) Cash inflow from capital increases – 51 Transactions between equity holders 99 (78) Dividends paid to shareholders (3,382) (2,716) Net cash from sale or purchase of treasury shares 64 6 Other (net) (157) 35 Net cash flow used in financing activities (2,837) (3,189)
The consolidated financial statements of the Allianz Group for the year ended 31 December 2015 were authorized for issue by the Board of Management on 16 February 2016.
Basis of preseNtatioN The consolidated financial statements of the Allianz Group have been prepared in conformity with International Financial Reporting Standards (IFRS), as adopted under European Union (E.U.) regulations in accordance with § 315a of the German Commercial Code (HGB). Within these consolidated financial statements, the Allianz Group has applied all standards and interpretations issued by the IASB and endorsed by the E.U. that are compulsory as of 31 December 2015. IFRS comprise International Financial Reporting Standards (IFRS), International Accounting Standards (IAS) and interpretations developed by the IFRS Interpretations Committee (formerly called the IFRIC) or the former Standing Interpretations Committee (SIC).
The accounting policies adopted are consistent with those of the previous financial year, except for recently adopted IFRS effective 1 January 2015 and for the change in presentation as described in note 4 Recently adopted and issued accounting pronouncements and changes in the presentation of the consolidated financial statements.
The consolidated financial statements are prepared as of and for the year ended 31 December and presented in millions of Euro (€ mn), unless otherwise stated.
In some jurisdictions the ability of subsidiaries to transfer funds to the parent company in the form of dividends or to repay loans is subject to local corporate or insurance laws and regulations as well as solvency requirements.
At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using the closing exchange rate. Non-monetary assets and liabilities denominated in foreign currencies that are measured at historical cost are translated at historical rates and non-monetary items that are measured at fair value are translated using the closing rate. Foreign currency gains and losses arising from foreign currency transactions are reported in income from financial assets and liabilities carried at fair value through income (net), except when the gain or loss on a non-monetary item measured at fair value is recognized in other comprehensive income. In this case, any foreign exchange component of that gain or loss is also recognized in other comprehensive income.
Recognition and initial measurement Financial assets are generally recognized and derecognized on the trade date, i.e. when the Allianz Group commits to purchase or sell securities or incur a liability. Financial instruments are initially recognized at fair value plus, in the case of financial instruments not carried at fair value through income, directly attributable transaction costs.
Securities lending and repurchase agreements The Allianz Group enters into securities lending transactions and repurchase agreements. If all of the risks and rewards of the securities remain substantially with the Allianz Group these securities are not derecognized. Cash received as collateral in securities lending transactions is recognized together with a corresponding liability, whereas securities received as collateral are not recognized under the terms of the agreements if risks and rewards have not been transferred.
Impairments A held-to-maturity or available-for-sale debt security, as well as a loan, is impaired if there is objective evidence that a loss event has occurred after initial recognition and up to the relevant date of the Allianz Group’s consolidated balance sheet, and that loss event has negatively affected the estimated future cash flows, i.e. amounts due according to the contractual terms of the security are not considered collectible. Once impairment is triggered for an available-for-sale debt instrument, the cumulative loss recognized in the 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 objective evidence results in a fair value increase after the impairment loss was recognized, the impairment loss is reversed through the income statement. 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. For held-to-maturity investments and loans, the impairment loss is measured as the difference between the amortized cost and the expected future cash flows using the original effective interest rate. If the amount of the impairment of a held-tomaturity debt security or a loan subsequently increases or decreases due to an event occurring after the initial measurement of impairment, the change is recorded in the income statement.
For banking entities, valuation allowances of their loan book are reported as loan loss allowances. For all non-banking entities, loans to banks and customers have an investment character and valuation allowances are reported as ‘impairments of investments’.
Cash flow hedges offset the exposure to variability in expected future cash flows that is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction. Changes in the fair value of a derivative financial instrument that represent an effective hedge are recorded in unrealized gains and losses (net) in equity and are transferred to the consolidated income statement when the offsetting gain or loss associated with the hedged item is recognized. Any ineffectiveness of the cash flow hedge is recognized directly in income from financial assets and liabilities carried at fair value through income (net).
proportion of gains or losses arising from the measurement of the derivative financial instrument is recognized in foreign currency translation adjustments in equity, while any ineffectiveness is recognized directly in income from financial assets and liabilities carried at fair value through income (net).
Disclosures relating to financial instruments The following table summarizes the relationship between balance sheet positions and classes of financial instruments according to IFRS 7. The balance sheet positions are the same as the IAS 39 categories except when noted in parentheses.
BaLaNCe sheet LiNe iteMs, ias 39 CateGories aND ifrs 7 CLasses of fiNaNCiaL iNstruMeNts
Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments Fair value Financial liabilities for puttable equity instruments Redemption amount
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. Financial assets and liabilities held for trading consist of debt and equity securities that have been principally acquired for the purpose of generating a profit from short-term fluctuations in price or for the purpose of selling in the near future as well as of derivative financial instruments, which include bifurcated embedded derivatives of hybrid financial instruments and of insurance contracts.
LoaNs aND aDVaNCes to BaNks aND CustoMers Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and which are not classified as financial assets held for trading, designated at fair value through income, or designated as available for sale. Loans and advances are initially recognized at fair value. Subsequently, they are measured at amortized cost using the effective interest method. Interest income is accrued on the outstanding carrying amount, net of impairments. Using the effective interest method, net deferred fees and premiums or discounts are recorded as an adjustment of other interest income yield over the lives of the related loans.
reiNsuraNCe assets Assets and liabilities related to reinsurance are reported on a gross basis. Reinsurance assets include balances expected to be recovered from reinsurance companies. The amount of reserves ceded to reinsurers is estimated in a manner consistent with the claim liability associated with the reinsured risks. To the extent that the assuming reinsurers are unable to meet their obligations, the respective ceding insurers of the Allianz Group remain liable to its policyholders for the portion reinsured. Consequently, allowances are made for receivables on reinsurance contracts which are deemed uncollectible.
Deferred acquisition costs (DaC) Costs that vary with and are directly related to the acquisition and renewal of insurance contracts and investment contracts with discretionary participation features are deferred by recognizing a DAC asset. DAC generally consists of commissions, underwriting expenses, and policy issuance costs. At inception, DAC is tested to ensure that it is recoverable over the life of the contracts. Subsequently, loss recognition tests at the end of each reporting period ensure that only the amount of DAC that is covered by future profits is carried on the consolidated balance sheet. Please refer to the section reserves for insurance and investment contracts, where details on the corresponding liability adequacy test are explained.
For short-duration, traditional long-duration, and limited-payment insurance contracts, DAC is amortized in proportion to premium revenue recognized. For universal life-type and participating life insurance contracts as well as investment contracts with discretionary participation features, DAC is generally amortized over the life of a book of contracts based on estimated gross profits (EGP) or estimated gross margins (EGm), respectively. EGP and EGm are based on best estimate assumptions which are reviewed at the end of each reporting period; the effect of changes is recognized in the reporting period’s income statement.
Deferred sales inducements Sales inducements on insurance contracts are deferred and amortized using the same methodology and assumptions as for deferred acquisition costs when they meet the following criteria: the sales inducements are recognized as part of the reserves, explicitly identified in the contract at inception and incremental to amounts credited on similar contracts without sales inducements, and higher than the contract’s expected ongoing crediting rates for periods after the inducement.
Shadow accounting For insurance contracts and investment contracts with discretionary participation features, shadow accounting is applied to DAC, PVFP and deferred sales inducements in order to include the effect of unrealized gains or losses in the measurement of these assets in the same way as it is done for realized gains or losses. Accordingly, the assets are adjusted with corresponding charges or credits recognized directly in other comprehensive income as a component of the related unrealized gain or loss. When the gains or losses are realized they are recognized in the income statement through recycling and prior adjustments due to shadow accounting are reversed.
other assets Other assets primarily consist of receivables, accrued dividends, interest and rent as well as own-used property and equipment.
Fixed assets of alternative investments 4 – 25 iNtaNGiBLe assets aND GooDWiLL The Allianz Group distinguishes between intangible assets with finite and with indefinite useful lives. Intangible assets with finite useful lives are measured at cost less accumulated amortization. If necessary, impairment losses are recognized. Intangible assets with indefinite useful lives are reviewed annually to determine whether the indefinite-life classification is still appropriate. If not, the intangible asset is reclassified from indefinite to finite on a prospective basis.
Goodwill is recognized for business combinations in the amount of the consideration transferred in excess of the fair values assigned to the identifiable assets acquired and liabilities assumed. Goodwill is accounted for at the acquiree in the acquiree’s functional currency. Goodwill is not amortized. It is evaluated at least annually whether the goodwill is deemed recoverable.
Insurance and investment contracts Insurance contracts and investment contracts with discretionary participating features are accounted for under the insurance accounting provisions of US GAAP, as at first-time adoption of IFRS 4 on 1 January 2005, where IFRS 4 does not provide specific guidance. Investment contracts without discretionary participation features are accounted for as financial instruments in accordance with IAS 39.
For traditional long-duration contracts and limited-payment contracts, if actual experience regarding investment yields, mortality, morbidity, terminations or expense indicates that existing contract liabilities, along with the present value of future gross premiums, will not be sufficient to cover the present value of future benefits and to recover DAC, a premium deficiency is recognized.
For other long-duration contracts, if the present value of estimated gross profits or margins plus unearned revenue liability, if applicable, will not be sufficient to recover DAC, a premium deficiency is recognized.
UNEARNED PREMIUMS For short-duration insurance contracts like most of the property and casualty contracts, premiums to be earned in future years are recorded as unearned premiums. These premiums are earned in subsequent periods in relation to the insurance coverage provided.
For traditional long-duration insurance contracts, such as traditional life and health products, aggregate policy reserves are computed using the net level premium method based on best estimate assumptions adjusted for a provision for adverse deviation for mortality, morbidity, expected investment yields, surrenders, and expenses at the policy inception date, which remain locked in thereafter unless a premium deficiency occurs.
The assumptions used for aggregate policy reserves are determined using current and historical client data, industry data, and in the case of assumptions for interest reflect expected earnings on assets, which back the future policyholder benefits. The information used by the Allianz Group’s actuaries in setting such assumptions includes, but is not limited to, pricing assumptions, available experience studies, and profitability analyses. The interest rate assumptions used in the calculation of deferred acquisition costs and aggregate policy reserves are as follows: iNterest rate assuMptioNs
Pensions and similar obligations For defined benefit plans, the Allianz Group uses the projected unit credit method to determine the present value of its defined benefit obligations and the related service cost and, where applicable, past service cost. The interest rate used to discount the defined benefit obligation is also used to calculate the interest income on plan assets. The resulting net interest expense or income is recognized in profit or loss under administrative expenses in the consolidated income statement. The interest rates for discounting are determined by reference to market yields at the end of the reporting period on highquality corporate bonds in the respective markets. For maturities where no high-quality corporate bonds are available as a benchmark, discount factors are estimated by extrapolating current market rates along the yield curve.
Retained earnings comprise the net income of the current year, earnings not yet distributed from prior years, treasury shares, and any amounts directly recognized in equity according to IFRS. Treasury shares are deducted from shareholders’ equity. No gain or loss is recognized on the sale, issuance, acquisition or cancellation of these shares. Any consideration paid or received is recorded directly in shareholders’ equity.
Revenues for universal life-type and investment contracts represent charges assessed against the policyholders’ account balances for the front-end loads, net of the change in unearned revenue liabilities, cost of insurance, surrenders and policy administration, and are included within premiums earned (net).
fee aND CoMMissioN iNCoMe Fee and commission income primarily consists of asset management fees that are recognized when the service is provided. Performance fees may not be recognized as fee income before the respective benchmark period is completed, because, before its completion, the obligation to pay the fee is conditional, the fund performance is regularly not reliably estimable, and related service is not fully performed. In any case, performance-related fees from alternative investment products (‘carried interest’) should not be recognized as revenue prior to the date of the official declaration of distribution by the fund.