NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 84 General Information 101 Notes to the Consolidated Balance Sheets 117 Notes to the Consolidated Income Statements 122 Other Information 145 Responsibility Statement 146 Auditor's Report
In last year’s letter to you I stated that your company was positioned well to deliver impressive results even in difficult times. This still holds true, as our results for 2016 demonstrate: our operating profit improved by 0.9 % to € 10.8 BN; our net income attributable to shareholders was € 6.9 BN. A very good result, considering the persistent low interest rate environment, as well as a fiscal period that has the entire business world holding its breath in the face of war, terror, and sudden political changes.
− A year after the introduction of the E.U. solvency guideline Solvency II, we can report a strong Solvency II capita lization ratio of 218 %.
− Our Property-Casualty segment – a business with relatively low capital requirements – achieved a strong per formance despite headwinds, with our units in Turkey and Germany particularly standing out in terms of top-line growth.
− In Asset Management, the new PIMCO management team (with Emmanuel Roman as CEO and Dan Ivascyn as CIO) produced excellent results: Despite the recent rise in U.S. Treasury interest rates, we registered third-party net inflows in the last two quarters of 2016 – for the first time since 2013. Furthermore, 88 % of PIMCO’s third-party assets under management exceeded their respective benchmarks. Allianz Global Investors continued on its road to success, achieving excellent results.
Well, the good results of 2016 are history now and it is time to look to the future. As stated before, we want to use our present financial strength and solid balance sheet to strengthen Allianz even further. When asked about the long-term growth prospects for your company, I usually point out three things: first, over seven billion people wake up every day, and for most of them it is a key concern to have their safety and well-being protected and be able to appropriately partake in global prosperity. Second, only about one percent of these people are our customers at present. Third, since we are one of the world’s leading financial services providers, we are in a better position than most to fulfil this basic need for financial security and a share in prosperity. In other words, there are basically no limits to our growth – all we need to do is tap these opportunities prudently and in sustainable ways.
All of these women and men work hard and successfully to provide you with both robust returns and superior capital efficiency, in keeping with our promise. And, as you may remember, there is another promise we have made: any capital we don’t use to expand our business will be returned to our investors. We have kept this promise as well. At the same time, we work to ensure we have the flexibility required to keep a sound balance between Allianz’s capital efficiency on the one hand and its balance sheet strength on the other.
In the fiscal year 2016, the Supervisory Board held six meetings. The meetings took place in February, March, May, August, October and December. The Board of Management’s verbal reports at the meetings were accompanied by written documents, which were sent to each member of the Supervisory Board in time for the relevant meeting. The Board of Management also informed us in writing of important events that occurred between meetings. The chairmen of the Supervisory and Management Boards also had regular discussions about major developments and decisions.
Details on each member’s participation at meetings of the Supervisory Board and its committees can be found in the Corporate Governance Report, starting on page 14. Members of the Supervisory Board who were unable to attend meetings of the Supervisory Board or its committees were excused and, as a rule, cast their votes in writing.
which individual members of the Board of Management had achieved their targets and set their variable remuneration for the fiscal year 2015 as well as the mid-term bonus for the fiscal years 2013 – 2015. In the course of the performance assessment, we also verified the fitness and propriety of the members of the Board of Management.
In the meeting of 4 August 2016, the Board of Management reported in depth on the half-yearly results and also dealt with the potential impact of Brexit as well as the failed coup attempt in Turkey, the situation in the Italian banking sector, the acquisition in Morocco, and planned issuance of shares to employees. We then dealt extensively with the implementation status of the Renewal Agenda, in particular in the main operating entities, regarding the topics True Customer Centricity, Digital by Default, Technical Excellence, Growth Engines, and Inclusive Meritocracy. The Board of Management also reported on the measures to promote women and to increase employee mobility. Finally, the Supervisory Board dealt with the audit reform legislation and the therefore required adjustments to the rules of procedure for the Supervisory Board and individual committees, as well as the objectives for the composition of the Supervisory Board. The meeting was preceded by a separate informational event for the members of the Supervisory Board on the Group’s digital strategy and its implementation.
At the 15 December 2016 meeting, the Board of Management provided us with information about the third-quarter results and further business developments as well as the current situation of the Allianz Group. It also briefed us on the status of the divestment process in South Korea and on the settlement of a SEC investigation at PIMCO. We also discussed the planning for the fiscal year 2017 and the 2017 – 2019 three-year period, as well as the Declaration of Conformity with the German Corporate Governance Code. The Supervisory Board reviewed the appropriateness of the remuneration of the Board of Management based on a vertical and horizontal comparison, set targets for the variable remuneration of the members of the Board of Management and discussed general succession planning with regard to the Board of Management. The new CEO of PIMCO also introduced himself with initial considerations regarding the future direction of PIMCO. Furthermore, we dealt extensively with the proposal made by the Audit Committee regarding the mandatory audit firm rotation. In addition, the Supervisory Board nominated the candidates for the 2017 Supervisory Board election in accordance with the proposal made by the Nomination Committee and considering the objectives for the composition of the Supervisory Board. The new regulatory requirements regarding the composition of the Supervisory Board were also discussed in this context. Finally, we took a detailed look at the results of the Supervisory Board’s efficiency review carried out with the support of an external advisor.
Further explanations on corporate governance in the Allianz Group can be found in the Corpo rate Governance Report starting on page 14 and the Statement on Corporate Management pursuant to § 315 (5) and § 289a HGB starting on page 19. The Allianz website also provides more details on corporate governance: www.allianz.com/corporate-governance.
The Standing Committee held two meetings and adopted one resolution by written procedure in 2016. These related primarily to corporate governance issues, in particular to the adjustments to the rules of procedure for the Supervisory Board and its committees as a result of the new auditing legislation, the preparation for the AGM, the Employee Stock Purchase Plan, and the external review of the Supervisory Board’s efficiency. During the fiscal year the committee also passed resolutions to approve loans to senior executives.
The Personnel Committee held three meetings, one of which was by conference call, in 2016. It dealt extensively with the successors to Mr. Ralph and Dr. Zimmerer. The committee also looked at other mandate matters for active and former members of the Board of Management. In addition to reviewing the target achievement among Board of Management members for 2015, the committee prepared the review of the remuneration system and the setting of targets for variable remuneration for 2017.
The Risk Committee held two meetings in 2016, during which it discussed the current risk situation of the Allianz Group with the Board of Management. The risk report and other riskrelated statements in the annual Allianz SE and consolidated financial statements as well as 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 and the result of further, voluntary risk assessments by the auditor were also discussed. The committee took a detailed look at the risk strategy and capital management, as well as the effectiveness of the risk management system, in particular the limit system for the Allianz Group and Allianz SE. The interest rate sensitivity in the life insurance business and 8 Annual Report 2016 Allianz Group
CHAIR AND COMMITTEES OF THE SUPERVISORY BOARD – as of 31 December 2016
Chairman: Dr. Helmut Perlet Vice Chairmen: Dr. Wulf H. Bernotat, Rolf Zimmermann Standing Committee: Dr. Helmut Perlet (Chairman), Dr. Wulf H. Bernotat, Gabriele Burkhardt-Berg, Prof. Dr. Renate Köcher, Rolf Zimmermann Personnel Committee: Dr. Helmut Perlet (Chairman), Christine Bosse, Rolf Zimmermann Audit Committee: Dr. Wulf H. Bernotat (Chairman), Jean-Jacques Cette, Martina Grundler, Dr. Helmut Perlet, Jim Hagemann Snabe Risk Committee: Dr. Helmut Perlet (Chairman), Dante Barban, Christine Bosse, Dr. Friedrich Eichiner, Jürgen Lawrenz Nomination Committee: Dr. Helmut Perlet (Chairman), Prof. Dr. Renate Köcher, Jim Hagemann Snabe
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 not the AGM. The Supervisory Board has appointed KPMG as statu tory 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 2016. 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 financial report. The third-quarter results were subject to a voluntary review by KPMG. In addition, KPMG was also mandated to perform an audit of the market value balance sheet according to Solvency II.
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. We agree with the Board of Management’s proposal on the appropriation of earnings.
For the Supervisory Board: Dr. Helmut Perlet Chairman 10 Annual Report 2016 Allianz Group
Mandates of the Members of the Supervisory Board DR. HELMUT PERLET Chairman Member of various Supervisory Boards Membership in other statutory supervisory boards and SE administrative boards in Germany Commerzbank AG GEA Group AG (Chairman since 20 April 2016)
CHRISTINE BOSSE Member of various Supervisory Boards Membership in comparable1 supervisory bodies P/F BankNordik (Chairwoman) TDC A/S
GABRIELE BURKHARDT-BERG Chairwoman of the Group Works Council of Allianz SE Membership in other statutory supervisory boards and SE administrative boards in Germany Allianz Deutschland AG since 1 September 2016
MARTINA GRUNDLER since 1 April 2016 National Representative Insurances, ver.di Berlin
JIM HAGEMANN SNABE Member of various Supervisory Boards Membership in other statutory supervisory boards and SE administrative boards in Germany SAP SE Siemens AG Membership in comparable1 supervisory bodies A.P. Møller-Mærsk A/S since 12 April 2016 Bang & Olufsen A/S Danske Bank A/S until 17 March 2016
PETER DENIS SUTHERLAND until 4 May 2016 Member of various Supervisory Boards Membership in comparable1 supervisory bodies BW Group Ltd.
Mandates of the Members of the Board of Management OLIVER BÄTE Chairman of the Board of Management Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Deutschland AG Membership in comparable1 supervisory bodies Membership in Group bodies Allianz France S.A.
since 9 June 2016 Membership in Group bodies Allianz France S.A.
DR. GÜNTHER THALLINGER since 1 January 2017 Investment Management Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Asset Management AG Allianz Investment Management SE (Chairman) Membership in comparable1 supervisory bodies Membership in Group bodies Allianz S.p.A.
Allianz Insurance plc (Chairman) Allianz Irish Life Holdings plc Euler Hermes Group S.A. (Chairman since 25 May 2016)
1 Generally, we regard memberships in other supervisory bodies as “comparable” if the company is listed on a stock exchange or has more than 500 employees.
Corporate Governance Report BOARD OF MANAGEMENT AND GROUP COMMITTEES In the financial year 2016, there were the following Board of Management committees: Board Committees
GrouP FINaNCE aNd rIsk CoMMITTEE Dr. Dieter Wemmer (Chairman), Sergio Balbinot, Dr. Helga Jung until 6 July 2016, Jay Ralph until 30 June 2016, Dr. Axel Theis, Dr. Maximilian Zimmerer.
GrouP IT CoMMITTEE Dr. Christof Mascher (Chairman), Jay Ralph until 30 June 2016, Jacqueline Hunt from 1 July 2016, Dr. Axel Theis, Dr. Dieter Wemmer, Dr. Werner Zedelius.
GrouP MErGErs aNd aCquIsITIoNs CoMMITTEE Dr. Helga Jung (Chairwoman), Oliver Bäte from 7 July 2016, Dr. Dieter Wemmer, Dr. Maximilian Zimmerer until 6 July 2016.
Managing and overseeing Group M & a transactions, including approval of individual transactions within certain thresholds.
Besides Board committees, there are also Group committees whose job it is to prepare decisions for the Board of Management of Allianz SE, submit proposals for resolutions, and ensure the smooth flow of information within the Group.
Good corporate governance is essential for sustainable business performance. 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 15 December 2016, and the company’s position regarding the Code’s suggestions can be found in the Statement on Corporate Management pursuant to § 315 (5) and § 289a of the HGB starting on page 19.
GrouP uNdErwrITING CoMMITTEE (continued as a functional committee within Dr. Theis’ area of responsibility effective as of 1 July 2016) Members of the Board of Management, executives below Allianz sE Board level and Chief Underwriting Officers of Group companies
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 on the Board of Management ’s reporting to the Supervisory Board are laid down in the reporting rules issued by the Supervisory Board.
Important decisions of the Board of Management require approval by the Supervisory Board. These requirements are stipulated by law, by the Statutes, or in individual cases by decisions of the Annual General Meeting (AGM). Supervisory Board approval is required, for example, for certain capital transactions, intercompany agreements and the launch of new business segments or the closure of existing ones. Approval is also required for acquisitions of companies and holdings in companies, as well as for divestments of Group companies which exceed certain threshold levels. The Agreement concerning the Participation of Employees in Allianz SE, in the version dated 3 July 2014 (hereinafter “SE Agreement”), requires the approval of the Supervisory Board for the appointment of the member of the Board of Management responsible for employment and social welfare.
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). Instead, the size and composition of the Supervisory Board are 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 Imple mentation 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.
The Supervisory Board oversees and advises the Board of Management on managing the business. It is also responsible for appointing the members of the Board of Management, determining their overall remuneration and reviewing Allianz SE’s and the Allianz Group’s annual financial statements. The Supervisory Board’s activities in the 2016 financial year are described in the Supervisory Board Report starting on page 5.
The Supervisory Board takes all decisions based on a simple majority. The special requirements for appointing members to the Board of Management, as stipulated in the German Co-Determination Act, and the requirement to have a Conciliation Committee do not apply to an SE. In the event of a tie, the casting vote lies with the Chairman of the Supervisory Board, who at Allianz SE must be a shareholder representative. If the Chairman is not present in the event of a tie, the casting vote lies with the vice chairperson from the shareholder side. A second vice chairperson is elected on the proposal of the employee representatives.
− Two employee represen tatives (Jean-Jacques Cette, Ira Gloe-Semler until 31 March 2016, Martina Grundler from 4 May 2016)
− Monitoring of the audit procedures, including the independence of the auditor and the services additionally rendered, awarding of the audit contract and determining the focal points of the audit rIsk CoMMITTEE 5 members
− Initial review of the Risk Report and other risk-related statements in the annual financial statements and management reports of Allianz sE and the Allianz Group, informing the Audit Committee of the results of such reviews
− Preparation of plenary session resolutions on the compensation system and the overall compen- sation of Board of Management members
− Selection of suitable candidates for election to the Supervisory Board as shareholder representatives
PErsoNNEL CoMMITTEE Dr. Helmut Perlet (Chairman) 3/3 100 Christine Bosse 3/3 100 Rolf Zimmermann 3/3 100 audIT CoMMITTEE Dr. Wulf H. Bernotat (Chairman) 7/7 100 Jean-Jacques Cette 5/7 71 Ira Gloe-Semler 2/2 2 100 Martina Grundler 4/5 3 80 Jim Hagemann Snabe 6/7 86 Dr. Helmut Perlet 7/7 100 rIsk CoMMITTEE Dr. Helmut Perlet (Chairman) 2/2 100 Dante Barban 2/2 100 Christine Bosse 2/2 100 Dr. Friedrich Eichiner 1/1 1 100 Jürgen Lawrenz 2/2 100 Peter Denis Sutherland 0/1 4 –
NoMINaTIoN CoMMITTEE Dr. Helmut Perlet (Chairman) 4/4 100 Prof. Dr. Renate Köcher 4/4 100 Peter Denis Sutherland 1/2 4 50 Jim Hagemann Snabe 2/2 5 100 1 Dr. Eichiner joined the Supervisory Board on 4 May 2016. 2 Ms. Gloe-Semler left the Supervisory Board on 31 March 2016. 3 Ms. Grundler joined the Supervisory Board on 1 April 2016. 4 Mr. Sutherland left the Supervisory Board on 4 May 2016. 5 Mr. Snabe joined the Nomination Committee on 4 May 2016.
OBJECTIVES OF THE SUPERVISORY BOARD REGARDING ITS COMPOSITION The objectives for the composition of the Supervisory Board (in the version from August 2016) to implement a recommendation by the Code, are as follows: oBjeCtives of allianz se’s supervisory Board regarding its Composition
– Compliance with the limitation on the number of mandates as recommended by the German Corporate Governance Code and required by § 24 (4) of the German Insurance Supervision Act 2016 (“Versicherungsaufsichtsgesetz – vaG”).
– At least one member must have expert knowledge of accounting and auditing as defined by § 100 (5) of the German Stock Corporation Act.
The Supervisory Board shall be composed of at least 30 % women and at least 30 % men. The representation of women is generally considered to be the joint responsibility of the shareholder and employee representatives.“
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 2016.
Annual General Meeting Shareholders exercise their rights at the Annual General Meeting. When adopting resolutions, each share carries one vote. Shareholders can follow the AGM’s proceedings on the internet and be represented by proxies. These proxies exercise voting rights exclusively on the basis of instructions given by the shareholder. Shareholders are also able to cast their votes via the internet in the form of online voting. Allianz SE regularly promotes the use of internet services.
Accounting and auditing The Allianz Group prepares its accounts according to § 315a of the German Commercial Code (“Handelsgesetzbuch – HGB”) on the basis of International Financial Reporting Standards (IFRS) as adopted within the European Union. The annual financial statements of Allianz SE are prepared in accordance with German law, in particular the HGB.
Declaration of Conformity with the German Corporate Governance Code On 15 December 2016, the Board of Management and the Supervisory Board issued the following Declaration of Conformity of Allianz SE with the German Corporate Governance Code (hereinafter the “Code”): deClaration of Conformity in aCCordanCe with § 161 of the german stoCk Corporation aCt
“Declaration of Conformity by the Management Board and the Supervisory Board of Allianz sE with the recommendations of the German Corporate Governance Code Commission in accordance with § 161 of the German Stock Corporation Act (AktG)
Since the last Declaration of Conformity as of December 10, 2015, Allianz sE has complied with all recommendations of the German Corporate Governance Code in the version of May 5, 2015 and will comply with them in the future.
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 for 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 62. For further information on the internal Controls over Financial Reporting, please refer to page 75.
German Act on Equal Participation of Women and Men in Executive Positions in the Private and the Public Sector To implement the German Act on Equal Participation of Women and Men in Executive Positions in the Private and the Public Sector, Allianz SE and the other German companies of the Allianz Group that are either listed or subject to co-determination have set the following targets for the percentage of women on the Board of Management and the two management levels below the Board of Management, which are to be achieved by 30 June 2017.
The boards of managements of Allianz SE and the other German Allianz companies that are either listed or subject to co-determination have set a target of at least 20 % regarding the percentage of women in the first and second management levels below the Board of Management. This target is applicable provided that a higher share has not already been reached in individual companies. Over the longer term, Allianz aims to fill with women at least 30 % of the positions at these two management levels.
§ 17 (2) of the German SE Implementation Act stipulates that as of 1 January 2016, the share of women and men among the members of the Supervisory Board of Allianz SE must each total to at least 30 %. The Supervisory Board currently in office fulfills this requirement currently comprising four women (33 %). If the Annual General Meeting 2017 elects the Supervisory Board in accordance with the Supervisory Board’s nominations, this requirement will also remain fulfilled in the future. The listed Oldenburgische Landesbank AG also meets the statutory quota. The supervisory boards of the other, nonlisted German Allianz companies subject to co-determination have set an average minimum share of 29 % for the prescribed target quota by the middle of 2017.
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 9 and 11 of the Annual Report. A description of the composition of the Board of Management can be found on page 12, while the composition of the Committees of the Board of Management is described in the Corporate Governance Report starting on page 14. This information is also available on our website at www.allianz.com/corporate-governance.
A major component of the Allianz Group’s compliance program is a whistleblower system that allows employees to alert the rele - vant compliance department confidentially about irregularities. No employee voicing concerns about irregularities in good faith needs to fear retribution, even if the concerns turn out to be unfounded at a later date.
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) of the Statutes of Allianz SE stipulates that, unless this conflicts with mandatory law, changes to the Statutes require a twothirds 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 of the SE Implementation Act (“SE-Ausführungsgesetz – SEAG”), which is based upon Article 59 (1) and (2) of the SE Regulation. A larger majority is required, inter alia, for a change in the corporate object or the relocation of the registered office to another E.U. member state (§ 51 SEAG). The Supervisory Board may alter the wording of the Statutes (§ 179 (1) AktG and § 10 of the Statutes).
− Up to a total of € 13,720,000 (Authorized Capital 2014/II). The shareholders ’ subscription rights can be excluded in order to issue the new shares to employees of Allianz SE and its Group companies as well as for fractional amounts.
remuneration for the remaining term of the service contract, but limited, for the purpose hereof, to three years, in the form of a one-off payment. The one-off payment is based on the fixed remuneration plus 50 % of the variable remuneration, however, this basis being limited to the amount paid for the last fiscal year. To the extent that the remaining term of the service contract is less than three years, the one-off payment is generally increased in line with a term of three years. This applies accordingly if, within two years of a change of control, a mandate in the Board of Management comes to an end and is not extended; the one-off payment will then be granted for the period between the end of the mandate and the end of the three-year period after the change of control. For further details, please refer to the Remuneration Report starting on page 24.
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 changeof -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 equal to or above 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 of control.
The report has been prepared in accordance with the requirements of the German Commercial Code (HGB), The German Accounting Standard 17 and the International Financial Reporting Standards (IFRS). It also takes into account the relevant regulatory provisions and the recommendations of the German Corporate Governance Code.
− Alignment of pay and performance: The performance-based, variable component forms a significant portion of the overall remuneration.
The structure, weighting and level of the Allianz SE Board of Management remuneration is decided upon by the Supervisory Board. Remuneration survey data of DAX 30 companies and international insurance peers is provided by external consultants. Compensation levels are around the third quartile of this group, which we deem appropriate given the relative size, complexity and sustained performance of Allianz within that peer group. The structure of the remuneration is more strongly weighted towards variable, longer-term components than it is in most DAX 30 companies. Remuneration and benefit arrangements are also periodically compared with best practices. In addition, the Super visory Board takes into account remuneration levels within the Allianz Group when reviewing the adequateness and appropriateness of the Board of Management’s remuneration.
BASE SALARY The base salary is the fixed remuneration component, expressed as an annual cash sum and paid in twelve monthly installments.
− 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 three- year cycle is subject to a sustainability assessment for these three years. The 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 (Return on Equity excluding unrealized gains/losses on bonds net of shadow accounting),
− 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 – women in leadership).
PENSIONS AND SIMILAR BENEFITS To provide competitive and cost-effective retirement and disability benefits, company contributions to the current pension plan “My Allianz Pension” are invested in a fund with a guarantee for the contributions paid, but no further interest guarantee. On retirement, the accumulated capital is paid out as lump sum or can be converted into a lifetime annuity. Each year the Supervisory Board decides whether and to what extent a budget is provided, also taking into account the targeted pension level. This budget includes a risk premium paid to cover death and disability. The earliest age a pension can be drawn is 62, except for cases of occupational or general disability for medical reasons. In these cases, it may become payable earlier and an increase by projection may apply. In the case of death, a lump sum, which can be converted into an annuity, will be paid to dependents. Should Board membership cease before retirement age for other reasons, the accrued pension rights are maintained if vesting requirements are met.
PERQUISITES Perquisites mainly consist of contributions to accident and liability insurances and the provision of a company car. Perquisites are not linked to performance. Each member of the Board of Management is responsible for the income tax on these perquisites. The Supervisory Board regularly reviews the level of perquisites.
REMUNERATION FOR 2016 The following remuneration disclosure is based on and compliant with the German Corporate Governance Code and shows the individual Board members’ remuneration for 2015 and 2016, including fixed and variable remuneration and pension service cost. The “Grant” column below shows the remuneration at target and minimum and maximum levels. The “Payout” column discloses the 2015 and 2016 payments. The base salary, annual bonus and perquisites are linked to the reported performance years 2015 and 2016, whereas the Group Equity Incentive (GEI) and Allianz Equity Incentive (AEI) payouts result from grants related to the performance years 2008 – 2011. To enhance transparency remuneration related to the performance year 2016, the additional column “Actual grant” includes the 2016 fixed compensation, the annual bonus paid for 2016, the MTB 2016 – 2018 tranche accrued for the performance year 2016, and the fair value of the RSu grant in 2017 for the performance year 2016.
Oliver Bäte7 (Appointed: 01/2008; CEo since 05/2015) Sergio Balbinot8 (Appointed: 01/2015) Jacqueline Hunt9 (Appointed: 07/2016)
Target Target Min Max Target Target Min Max Target Target Min Max
1 In accordance with the German Corporate Governance Code, the annual bonus disclosed for performance year 2016 is paid in 2017 and for performance year 2015 in 2016. The payments for equity related deferred compensation (GEI and AEI), however, are disclosed for the year in which the actual payment was made.
2 The MTB figure included in the “Actual Grant” column shows the annual accrual. 3 The payout 2015 figure includes the 2015 allocation and the accruals from the performance years 2013 and 2014, as adjusted by the sustainability assessment. The MTB 2013 – 2015 was paid out in spring 2016. 4 Payout is capped at 200 % above grant price. The relevant share price used to determine the fair market value, and hence the final number of RSUs granted, and the 200 % cap are only available after sign-off by the external auditors.
7 For performance year 2015, Oliver Bäte’s base salary and his target for the annual bonus, the MTB tranche, and equity-related compensation are disclosed based on his pro-rated base salary of € 750 ThOU until 6 May 2015 and his pro-rated base salary of € 1,125 ThOU from 7 May 2015. The different pro-rated amounts for base salary and target amounts result from different pro-rating methodologies, which are generally applied.
9 Jacqueline Hunt joined Allianz on 1 July 2016. She received a pro-rated base salary, annual bonus, MTB tranche, and equity-related compensation. The different pro-rated amounts for base salary and target amounts result from different pro-rating methodologies, which are generally applied. In addition to the amounts disclosed in the table, Jacqueline Hunt received a buyout award of € 170 ThOU to compensate for forfeited grants from her previous employer.
AEI 2012/RSu4 – – – – – – – – – – – – – 1,155 – – – – – – 1,018 AEI 2011/RSu4 – – – – – – – – – – – – 1,584 – – – – – – 1,520 – GEI 2010/RSu4 – – – – – – – – – – – – 593 – – – – – – 876 – GEI 2010/SAR5 – – – – – – – – – – – – – – – – – – – 719 – GEI 2008/SAR5 – – – – – – – – – – – – – – – – – – – – –
Dr. Axel Theis (Appointed: 01/2015) Dr. Dieter Wemmer (Appointed: 01/2012) Dr. Werner Zedelius (Appointed: 01/2002)
Annual Report 2009 (starting on page 17). Whereas the GEI/RSU grants are automatically exercised at the vesting date, the GEI/SAR grants are exercised by the Board member within the exercise period following the vesting date. Hence, the total payout from SARs depends on the individual decision by the Board member. SARs are released to plan participants upon expiry of the vesting period, assuming all other exercise hurdles are met. For SARs granted until and including 2008, the vesting period was two years and the exercise period five years. SARs can be exercised on the condition that the price of the Allianz SE stock is at least 20 % above the strike price at the time of grant. During the term of the plan, at least once on five consecutive trading days the Allianz SE stock must relatively appreciate at least 0.01 percentage points ahead of the appreciation of the Dow Jones EURO STOXX Price Index (600).
AEI 2016/RSu4 750 – – – – – – AEI 2012/RSu4 – – – – – – – AEI 2011/RSu4 – – – – – – – GEI 2010/RSu4 – – – – – – – GEI 2010/SAR5 – – – – – – – GEI 2008/SAR5 – – – – – – –
1 Including the payout of Jay Ralph’s MTB tranche for 2016 of € 375 ThOU.
The sum of the total remuneration of the Board of Management for 2016, excluding the notional accruals of the MTB 2016 – 2018 and excluding the pension service cost, amounts to € 26 MN1 (2015, including the payout of the MTB 2013 – 2015: € 57 MN). The corresponding amount, including pension service cost, equals € 30 MN (2015, including the payout of the MTB 2013 – 2015: € 61 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 2017, which will vest and be settled in 2021.
Grants, outstandInG holdInGs, and equIty compensatIon expense under the allIanz equIty proGram
2 Grants of equity-related remuneration are accounted for as cash-settled awards. The fair market value of the granted RSUs and SARs is remeasured at each reporting date and accrued, as a compensation expense, proportionately over the vesting and service period. Upon vesting, any subsequent changes in the fair value of the unexercised SARs are also recognized as a compensation expense.
In 2016, remuneration and other benefits totaling € 7 MN (2015: € 7 MN)1 were paid to former members of the Board of Management and dependents, while reserves for current pension obligations and accrued pension rights totaled € 126 MN (2015: € 122 MN).
TERMINATION OF SERVICE Board of Management contracts are limited to a period of five years. For new appointments, in compliance with the German Corporate Governance Code, a shorter period is typical.
1 The 2015 amount includes bonus payments made to Clement Booth in 2015 which were already shown as variable compensation for 2014. The amount shown for 2016 excludes compensation that was paid for active Board membership and disclosed as compensation of the respective performance year.
7 As Jay Ralph left Allianz on 1 July 2016, his employer-financed DBO of € 2,437 ThOU (thereof € 1,755 ThOU for the frozen DB-Pension-Plan, € 636 ThOU for the contribution based pension plan and € 25 ThOU for the Current Pension Plan, AVK/APV) is covered under former Board members.
Transition payment (appointment before 1 January 2010) Board members receiving a transition payment are subject to a sixmonth non-compete clause.
The payment is calculated based on the last base salary (paid for a period of six months) and 25 % of the target variable remuneration at the date when notice is given. A Board member with a base salary of € 750 THou would receive a maximum of € 937.5 THou.
OUTLOOK FOR 2017 The remuneration of the new regular member of the Board of Management, Dr. Günther Thallinger, has been set at the same level as for the other regular members of the Board of Management.
− 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 STRUCTURE AND COMPONENTS The remuneration structure, which comprises fixed and committeerelated remuneration only, was approved by the Annual General Meeting 2011 and is laid down in the Statutes of Allianz SE.
FIXED ANNUAL REMUNERATION The remuneration of a Supervisory Board member consists of a fixed cash amount paid after the end of each business year for services rendered over that period. As in 2015, a regular Supervisory Board member receives a fixed remuneration of € 100 THou per year. Each Vice Chairperson receives € 150 THou and the Chairperson € 200 THou.
COMMITTEE-RELATED REMUNERATION The Chairperson and members of the Supervisory Board committees receive additional committee-related remuneration. The committeerelated remuneration is as follows: commIttee-related remuneratIon € Thou
his duties, the Chairman of the Supervisory Board is furthermore entitled to an office with secretarial support and use of the Allianz carpool service. In the financial year 2016, Allianz SE reimbursed expenses totaling € 51,935.
Dr. Wulf H. Bernotat C M 2016 150.0 100.0 4.5 254.5 (Vice Chairman) C M 2015 150.0 100.0 4.5 254.5 2015 – – – –
7 The total reflects the remuneration of the full Supervisory Board in the respective year.
Business Operations Asset Management Our two major investment management businesses, PIMCO and AllianzGI, operate under Allianz Asset Management (AAM). We are one of the largest asset managers in the world that actively manage assets. Our offerings cover a wide range of equity, fixed income, and alternative investment products and solutions. Our core markets here are the United States, Germany, France, Italy, the United Kingdom, and the Asia-Pacific region.
ALTERNATIVE INVESTMENTS Alternative Investments provides global alternative investment management services in the private equity, real estate, renewable energy, and infrastructure sectors, mostly on behalf of our insurance operations.
Insurance operations We offer a wide range of property-casualty and life/health insurance products to both retail and corporate customers. For the PropertyCasualty business segment, these include motor, accident, property, general liability, travel insurance and assistance services; the Life/ Health business segment offers savings and investment-oriented products in addition to life and health insurance. We are the leading property-casualty insurer worldwide and rank among the top five in the life/health insurance business. Our key markets (in terms of premiums ) are Germany, France, Italy, and the United States.
◼ Credit Insurance ◼ ◼ Reinsurance ◼ ◼ Russia ◼ Ukraine allianz WorldWide Partners
◼ Brunei3 ◼ ◼ China ◼ Hong Kong3 ◼ ◼ Indonesia ◼ Japan3 ◼ Laos ◼ ◼ Malaysia
North and Latin America ◼ ◼ United States ◼ ◼ Canada ◼ ◼ Brazil
Europe ◼ ◼ Germany ◼ ◼ France ◼ ◼ Italy ◼ ◼ Ireland ◼ ◼ Luxembourg ◼ ◼ Spain ◼ ◼ Switzerland ◼ ◼ Belgium ◼ ◼ The Netherlands ◼ ◼ United Kingdom ◼ ◼ Sweden
Asia Pacific ◼ ◼ Japan ◼ ◼ Hong Kong ◼ ◼ Taiwan ◼ ◼ Singapore ◼ ◼ South Korea4 ◼ ◼ China ◼ ◼ Australia mArket presence of our business operAtions1 insuranCe Western & soutHern euroPe, insuranCe Middle east, afriCa, india
Middle East and North Africa ◼ ◼ Egypt ◼ ◼ Lebanon ◼ ◼ Saudi Arabia
Latin America ◼ Argentina ◼ Brazil ◼ ◼ Colombia ◼ ◼ Mexico insuranCe gerMan sPeaking Countries, insuranCe Central & eastern euroPe
German Speaking Countries ◼ ◼ ◼ Germany2 ◼ ◼ Austria ◼ ◼ Switzerland
Central & Eastern Europe ◼ ◼ ◼ Bulgaria ◼ ◼ Croatia ◼ ◼ Czech Republic ◼ ◼ Hungary ◼ ◼ Poland ◼ ◼ Romania ◼ ◼ Slovakia
For further information on Board of Management members and their responsibilities, please refer to Mandates of the Members of the Board of Management starting on page 12.
TARGET SETTING AND MONITORING The Allianz Group steers its operating entities and business segments via an integrated management and control process. It begins with the definition of a business-specific strategy and goals, which are discussed and agreed upon between the Holding and operating entities. Based on this strategy, our operating entities prepare threeyear plans which are then aggregated to form the financial plans for the business divisions and for the Allianz Group as a whole. This plan also forms the basis for our capital management. The Supervisory Board 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-term, mid-term, and long-term targets to ensure effectiveness and emphasize sustainability. For further details about our remuneration structure, including target setting and performance assessment, please refer to the Remuneration Report starting on page 24.
Non-financial key performance indicators (KPIs) are mainly used for the sustainability assessment that we conduct when determining mid-term bonus levels. In line with our Renewal Agenda, KPIs mainly represent three key levers: True Customer Centricity, Digital by Default, and Inclusive Meritocracy. Examples include the Allianz Engagement Survey and Net Promoter Score (NPS2) results, diversity development, and the share of digital retail products/digital client communication.
Our Corporate Responsibility Strategy contributes to our Renewal Agenda and focuses on our most material sustainability issues: Low-carbon economy: supporting renewable energy and decarbonization through our investments; providing green insurance solutions; reducing our environmental footprint.
Business integrity: integrating environmental, social and governance (ESG) issues across our investment and insurance businesses; building trust through transparency, responsible sales, and data privacy.
In 2016, we surveyed over 6,000 stakeholders to identify our most material issues as well as the relative importance of the solutions we provide. The results show that the most important megatrends and risks Allianz faces across those target groups and countries surveyed are climate change & environment, personal customer safety, digitalization, societal change, and fiscal crisis. We will continue to integrate our stakeholders’ views in both our sustainability strategy and our reporting approach.
For reporting purposes, we organize our approach around Allianz’s five key roles as sustainable insurer, responsible investor, trusted company, attractive employer, and committed corporate citizen.
Please refer to our 2016 Group Sustainability Report (to be published on 5 April 2017) for full details of our corporate responsibility strategy, approach and performance: www.allianz.com/ sustainability.
had a difficult year: net non-resident capital inflows to bond and equity markets fell below USD 28 bN – the lowest annual inflow since 2008 –, which was mainly due to rising U.S. yields.
Business environment 2016 for the insurance industry 2016 was an eventful year for the insurance industry, with most of these events having more downsides than upsides. The macroeconomic environment presented significant headwinds: the recovery of the world economy continued, but with reduced momentum. 2016 also marked the end of a three-year streak of relatively low losses from natural catastrophes: Not only did the number of events increase further – among them an unusually high number of flood events – but losses jumped to levels more than 50 percent higher than the previous year’s. On the regulatory front, the industry as a whole managed to adjust smoothly to the new Solvency II regime which had come into force as of 2016. Regulatory pressure remained high, however, in particular with regard to reserve requirements, stress testing, or reporting.
And these are only the macroeconomic challenges. Even more daunting were events in the microeconomy, first and foremost the digital revolution. Not only will digitization, big data, and artificial intelligence fundamentally transform the industry – in addition, highly connected technologies have begun to cause a radical shift in the nature of risks faced by society. As a result, the industry is confronted with new demands: It has to find new solutions that allow people to take new risks – for example in the sharing economy – and also promote the use of new technologies. So, in the short term, the need to innovate and adjust its current business model will put additional pressure on the industry. In the longer run, however, the digital economy should offer plenty of opportunities to expand the business, as is already exemplified by the rapid rise in cyber-insurance (albeit from a very low base). Against this backdrop of macro- and microchallenges, the industry proved remarkably resilient in 2016. Premium income was more or less stable; profitability was under pressure but dropped just a notch or two.
The current low-yield environment also presented the greatest challenge in the life sector, impairing the profitability of in-force business. Insurers responded by continuing to shift the product mix towards less capital-intensive products, for example by offering lower or more flexible guarantees. At the same time, the focus moved from traditional savings to protection business. To boost investment income, insurers increasingly turned to non-traditional investments such as infrastructure. These actions notwithstanding, overall profitability is likely to have drifted downward slightly.
Currencies proved highly volatile during the year, with the British Pound weakening significantly after the Brexit vote. The U.S. Dollar strengthened markedly after the U.S. election and a subsequent spike in yields.
Our operating profit was near the upper end of our 2016 target range and increased by 0.9 % compared to 2015. Our Life/Health business segment recorded an increase in operating profit, mainly due to a higher investment margin in the United States as well as favorable DAC unlocking effects in France. The operating result in our Corporate and Other business segment also improved, primarily as a result of lower pension costs. The operating profit generated by our PropertyCasualty business segment declined, reflecting the impact of lower interest yields on our investment result. In addition, 2015 included a € 0.1 BN net gain (net of related expenses and restructuring charges) from the sale of the Fireman’s Fund personal insurance business. The business segment’s underwriting result, however, improved. In our Asset Management business segment, a reduction in operating expenses could only partially compensate for lower operating revenues, resulting in a decline in operating profit.
Our non-operating result was stable at a loss of € 541 mN, with a number of offsetting effects. On the one hand we had significant impairments (net), partly due to the impairment losses on our South Korean Life/Health business as well as on the Oldenburgische Landesbank AG9 upon classification as held for sale at the beginning of the second quarter of 2016 and end of 2016, respectively. In addition, the negative result that the South Korean Life/Health business generated until its disposal in the fourth quarter of 2016 was considered as nonoperating, as it is no longer part of the ongoing core operations of the Allianz Group9. On the other hand, non-operating realized gains (net) increased following portfolio rebalancing. We also reported higher non-operating income from financial assets and liabilities carried at fair value through income (net), mainly due to favorable impacts from hedging-related activities.
Our operating investment result increased by € 692 mN to € 25,125 mN, mainly due to gains from the net of foreign currency translation effects and financial derivatives, with the latter being used to protect against equity and foreign currency fluctuations as well as to manage duration and other exposures related to interest rates. This was partly offset by lower interest and similar income, driven by the low interest rates.
1 For further information on Allianz Group figures, please refer to note 5 to the consolidated financial statements.
2 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking).
Diluted earnings per share € 15.00 14.55 0.45 41Annual Report 2016 Allianz Group
At the end of the fourth quarter of 2016, all requirements were fulfilled to present Oldenburgische Landesbank AG, Oldenburg, as a disposal group. Thus, the assets and liabilities of this consolidated entity, which are allocated to the reportable segment Banking (Corporate and Other), were classified as held for sale.
Credit Insurance: We recorded gross premiums of € 2,200 mN, a decline of 0.5 % on an internal basis. This decrease resulted from negative price and volume effects mainly in Germany and Asia.
Claims and insurance benefits incurred (net) (30,576) (30,721) 145 Acquisition and administrative expenses (net), excluding one-off effects from pension revaluation (13,352) (13,208) (144) Change in reserves for insurance and investment contracts (net) (without expenses for premium refunds)1 (306) (220) (86)
Gross premiums1234written5 On a nominal basis, gross premiums written were almost stable compared to 2015.
Unfavorable foreign currency translation effects amounted to € 1,138 mN, largely due to the depreciation of the British Pound, the Argentine Peso, and the Turkish Lira against the Euro.6
Consolidation/deconsolidation effects were negative, amounting to € 519 mN. This was largely attributable to the sale of the Fireman ’s Fund personal insurance business to ACE limited in 2015.
On an internal basis, our growth was strong at 3.1 % driven by a positive volume effect of 2.0 % and a positive price effect of 1.1 %.
Germany: We recorded gross premiums of € 9,902 mN, an increase of 2.8 % on an internal basis. This was mainly due to favorable price effects in our motor insurance business, and supported by favorable volume effects in our non-motor commercial insurance business.
AGCS: Gross premiums stood at € 7,592 mN. The internal growth of 0.5 % was largely generated by positive volume effects at Allianz Risk Transfer, much of which was offset by negative price impacts across both our corporate and specialty lines of business.
1 For further information on Allianz Property-Casualty figures, please refer to note 5 to the consolidated financial statements.
The following operations contributed positively to the development of our accident year loss ratio: United Kingdom: 0.2 percentage points. The accident year loss ratio benefited from a very low impact of natural catastrophes in 2016.
AGCS: 0.1 percentage points. The improvement stemmed from lower losses in the property and marine lines of business, while lower large losses were offset by higher natural catastrophes compared to 2015.
The following operation contributed negatively to the development of our accident year loss ratio: France: 0.2 percentage points. The deterioration was driven by a combination of higher large losses as well as higher losses from natural catastrophes compared to the previous year.
The higher run-off result led to an increased run-off ratio amounting to 4.5 % (2015: 4.1 %), driven by reserve releases across most of the portfolio. In particular France and Australia delivered more run-off compared to the prior year, due to a beneficial development in their long tail business.
The increase in our expense ratio was driven, in equal parts, by a higher acquisition ratio and a higher administrative expense ratio.
Interest and similar income (net of interest expenses) 3,391 3,576 (185) Operating income from financial assets and liabilities carried at fair value through income (net) (23) (25) 3 Operating realized gains/losses (net) 285 252 33 Operating impairments of investments (net) (51) (59) 8
Expenses for premium refunds (net)2 (255) (240) (15) Operating investment income (net) 2,971 3,138 (167)
2 Refers to policyholder participation, mainly from APR (accident insurance with premium refunds) business, and consists of the investment-related part of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 28 to the consolidated financial statements.
In the United States, statutory premiums increased to € 11,856 mN, or by 13.0 % on an internal basis. This was largely driven by higher fixed-indexed and non-traditional variable annuity sales, mainly as a result of our marketing activities in the first half of 2016.
In the Asia-Pacific region, statutory premiums stood at € 5,383 mN, a 19.2 % drop on an internal basis, its main cause being a decrease in unit-linked sales in Taiwan. Statutory premiums in South Korea decreased to € 1,307 mN, or by 21.4 % on an internal basis.
Premiums earned (net) Premiums earned (net) went down by € 446 mN to € 23,769 mN, resulting from a decline in our business with traditional life products in Germany.
Present value of new business premiums (PVNBP)6,7,8 PVNBP fell by € 1,976 mN to € 57,168 mN, largely due to lower sales in our business with unit-linked insurance products without guarantees in Italy and in Taiwan.
Similarly, the figures for present value of new business premiums are shown without effects from the South Korean business.
To ensure consistency with the group income statement, however, statutory premiums are presented including premiums collected from our South Korean business.
Statutory1234premiums5 On a nominal basis, statutory premiums went down by 3.4 %. This includes unfavorable foreign currency translation effects of € 347 mN and positive (de-)consolidation effects of € 138 mN.
On an internal basis5, statutory premiums dropped by € 2,058 mN – or 3.1 % – to € 64,947 mN, mainly due to lower unit-linked single premiums in Italy and Taiwan as well as declining traditional business both in Germany and Italy. The increase in our fixed-indexed and non-traditional variable annuity sales in the United States and the premium growth in capital-efficient products in Germany partly compensated for this development. In line with our changed product strategy, premiums continued to shift towards capital-efficient products.
2 Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction.
5 Our comments in the following section on the development of our statutory gross premiums written refer to figures determined “on an internal basis”, i.e. adjusted for foreign currency translation and (de-) consolidation effects, in order to provide more comparable information.
Operating profit OPERATING PROFIT BY PROFIT SOURCES1,2 operAting profit by profit sources € MN
The rise in loadings and fees was primarily due to the increased loadings from premiums and was driven by the higher single premium sales in the German life business as well as by higher production with a favorable business mix shift in Indonesia and Thailand.
Interest and similar income 17,749 18,030 (281) Operating income from financial assets and liabilities carried at fair value through income (net) (1,013) (2,049) 1,035 Operating realized gains/losses (net) 6,610 6,461 149 Interest expenses (105) (106) – Operating impairments of investments (net) (1,208) (1,199) (9)
Investment margin3,4 in basis points 107 104 3 1 Current and prior year figures are presented excluding effects from the South Korean business. 2 Other comprises the delta of out-of-scope entities, which are added here with their respective operating profit and different line item definitions compared to the financial statements, such as interest paid on deposits for reinsurance, fee and commission income, and expenses excluding unit-linked management fees.
Acquisition expenses and commissions as % of PVNBP2 (8.6) (8.0) (0.6) Administrative and other expenses as % of average reserves3,4 (0.3) (0.3) –
1 Current and prior year figures are presented excluding effects from the South Korean business. 2 PVNBP before non-controlling interests. 3 Aggregate policy reserves and unit-linked reserves. 4 Yields are pro rata.
Our acquisition expenses and commissions increased, predominantly due to higher sales in the United States and in our German life business.
5 Expenses include acquisition expenses and commissions (excluding commission clawbacks, which are allocated to the technical margin) as well as administrative and other expenses.
TECHNICAL MARGIN1 Our technical margin declined, driven by one-off reserve adjustments predominantly in the United States and increased claims in Switzerland.
Capitalization of DAC 1,868 1,721 147 Amortization, unlocking and true-up of DAC (1,916) (1,878) (38) Impact of change in dAc (48) (158) 110 1 Current and prior year figures are presented excluding effects from the South Korean business.
2 Impact of change in DAC includes effects of change in DAC, unearned revenue reserves (URR) and value of business acquired (VOBA). It represents the net impact of deferral and amortization of acquisition costs and front-end loadings on operating profit and therefore deviates from the IFRS financial statements.
Our return on equity decreased by 0.5 percentage points to 10.3 %, mainly resulting from the unfavorable net income development of the South Korean business.
Net income A slight decrease in our net income was largely driven by the negative net impact of our business in South Korea in 2016 as well as lower realizations compared to a high base in 2015, mainly in Italy.
An upswing of total AuM of € 31 bn from consolidation, deconsolidation and other adjustments was almost entirely driven by the acquisition of Rogge Global Partners (Rogge) by AllianzGI.
Favorable effects from foreign currency translation caused an increase of total AuM of € 29 bn. This was mainly due to the appreciation of the U.S. Dollar against the Euro.
As of 31 December 2016, the share of third-party AuM by business unit was 76.1 % (31 December 2015: 77.3 %) attributable to PIMCO and 23.9 % (31 December 2015: 22.7 %) attributable to AllianzGI.
The share of fixed income assets rose from 74.0 % at the beginning of the year to 75.5 %, mainly due to positive market effects and consolidation effects due to the Rogge acquisition. The share of equities declined from 11.8 % to 10.3 %, primarily driven by third-party AuM net outflows which were only partly offset by positive effects from equity markets. The shares of multi-assets and other were roughly stable at 10.0 % and 4.2 % (31 December 2015: 10.5 % and 3.7 %, respectively).
Type of asset class as of 31 December as of 31 December 2015 Delta 1 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.
2 Other is composed of asset classes other than equity, fixed income and multi-assets, e.g. money markets, commodities, real estate investment trusts, infrastructure investments, private equity investments, hedge funds, etc.
2 Represents operating expenses divided by operating revenues. 3 Net flows represent the sum of new client assets, additional contributions from existing clients – including dividend reinvestment – withdrawals of assets from, and termination of, client accounts and distributions to investors. Reinvested dividends amounted to € 10 bn.
Operating revenues Our operating revenues decreased by 7.1 %, which corresponds to a drop of 7.5 % on an internal basis1.
We recorded lower performance fees, mainly due to decreased carried interest from a large private fund at PIMCO.
Other net fee and commission income went down primarily because of lower third-party AuM-driven margins at both PIMCO and AllianzGI. The main cause for this were outflows from higher-margin assets at PIMCO. To a lesser extent, lower average third-party AuM contributed to the decrease in other net fee and commission income.
1 Operating revenues/operating profit adjusted for foreign currency translation and (de-)consolidation effects.
Administrative expenses could be lowered significantly, mainly due to decreased personnel expenses. The latter decreased primarily because of a 15.0 % drop in variable compensation, which strongly reflected the lower expenses associated with the Special Performance Award (SPA). The SPA was introduced in the fourth quarter of 2014 at PIMCO to secure performance and retain talent. The decrease in personnel expenses was supported by lower average full time equivalents. In addition, lower non-personnel expenses also contributed to the decrease in overall administrative expenses.
Other net fee and commission income 5,545 5,881 (336) Other operating revenues 3 (8) 12
Administrative expenses (net), excluding acquisition-related expenses (3,817) (4,141) 324 Other operating expenses (1) (41) 40
1 Consolidation included. For further information about our Corporate and Other business segment, please refer to note 5 to the consolidated financial statements.
Earnings summary Our operating result improved in 2016 due to the positive development in Holding & Treasury which by far overcompensated the decline in Banking.
Net income (loss) (994) (1,003) 9 key figures reportaBle segments € mN
Modestly rising yields on 10-year U.S. government bonds and higher inflation rates in the Eurozone will exert some upward pressure on European benchmark bond yields in 2017. However, with shortterm rates at zero, there are limited prospects of markedly higher yields on longer-term bonds. For 10-year German government bonds,
Following a slight acceleration in the final quarter of 2016, the world economy currently finds itself in fairly good shape and has made a positive start into the year 2017. In the industrialized countries, growth prospects are quite favorable overall. In the United States, despite the fact that there is still not much clarity about the specifics of economic policy under the new U.S. administration, a change in the policy mix is on the horizon: Monetary policy will provide somewhat less stimulus for the economic development, whereas fiscal policy will do more as the new U.S. administration is expected to deliver on the promise to cut taxes and launch investment initiatives. In the course of 2017, these measures are expected to buoy economic growth, despite some dampening effects such as higher inflation. All in all, the U.S. economy is likely to expand by 2.2 % this year. In the Eurozone, the economic recovery is likely to continue. We expect real gross domestic product to increase by 1.8 % (2016: 1.7 %). While the
Return on equity (RoE)1 amounted to 12.0 % (2015: 12.5 %). Proposed dividend at € 7.60 (2015: € 7.30) per share. Stable payout ratio of 50 %.
Selective profitable growth. Property-Casualty with continued sound risk selection and strong internal growth, Life/Health with growing asset base and solid new business margins, but Asset Management with net outflows.
Gross premiums slightly declined by 0.1 %, hence almost remained stable. A strong internal growth of 3.1 % was offset by negative foreign currency translation effects as well as by divestitures such as the sale of Fireman’s Fund personal insurance business.
Operating profit in the range of € 5.2 BN to € 5.8 BN. Operating profit of € 5.4 BN is slightly below the mid-point of our target range. A low impact of natural catastrophes was partially compensated by large losses. Although Argentina and Brazil improved during 2016, the delay of their turnaround impacted the underwriting result.
Progress towards our combined ratio ambition of 94 % or better by 2018.
asseT maNagemeNT Slight increase in total assets under management (AuM) due to positive market return, supported by a return to positive net flows at pimCo and continued solid net inflows at Allianzgi.
Total AuM grew by € 108 BN to € 1,871 BN as of 31 December 2016. The increase was driven by positive market returns and foreign currency translation effects. The consolidation of Rogge Global Partners in the second quarter of 2016 added € 32 BN of third-party AuM. In the course of 2016, our Asset Management business segment saw third-party AuM net outflows of € 20 BN coming from both entities. However, as expected, pimCo third-party net flows turned positive for the last two quarters of 2016.
we predict yields to climb modestly towards 1 % in the course of 2017; for 10-year U.S. government bonds, yields may end the year in a range between 2.5 % and 3 %. While the expected Federal Reserve rate hikes will weigh on the Euro, a number of other factors will support it; above all, the expected rise in the U.S. current-account deficit as well as the speculation – which is likely to increase towards year-end – about the timing and manner of the European Central Bank’s exit from its bond purchasing program. We expect the Dollar-to-Euro exchange rate to close the year at about 1.10 (2016: 1.05).
While the macroeconomic environment, despite all the uncertainties, offers some glimpses of hope, the challenges on the microeconomic front remain formidable: As technological progress and the digitization of our life gather speed, established business models get under enormous pressure. The industry has to adapt quickly to defend its franchise against new competitors. In combination with the new regulatory regime (Solvency II), which brings more clarity on capital positions, this restructuring process could act as a possible catalyst for more industry consolidation.
In the property-casualty sector, growth in advanced markets should remain rather stable: The ongoing recovery supports demand, but pricing is still a concern. For advanced markets, political instability could prove to be the biggest challenge in 2017, as growing protectionism and the looming Brexit drive structural changes in the industry. The outlook for emerging markets is much brighter: Asia is expected to roar ahead, Latin America will stabilize, and Eastern Europe will continue its recovery. Overall, we expect global premium revenue growth to range between 4.0 % and 5.0 % in 2017 (in nominal terms, adjusted for foreign currency translation effects). Given the still challenging pricing outlook and weak investment income, overall profitability might not improve but stay more or less flat.
In the life sector the overall picture is quite similar. Specifically, we expect advanced markets to maintain their (modest) growth as demand benefits from rising employment and new product offers. Emerging markets, on the other hand, will show stronger performance. Asia might shift down a little after the extraordinary growth spurt seen in 2016; on a general note, however, rising incomes, urbanization, and social security reforms should remain strong engines for growing insurance demand. All in all, we expect global premium revenue to increase by 4.0 % to 5.0 % in 2017 (in nominal terms, adjusted for foreign currency translation effects). To safeguard profitability, insurers will continue to review both their product mixes and their investment portfolios. As a result, overall profitability should not deteriorate any further.
Asset management industry outlook After a sometimes rocky but ultimately benign year for global equities in 2016, 2017 brings the prospect of increased volatility. This is due in particular to geopolitical uncertainty, as the new administration comes to power in the United States and elections are held across Europe.
2017 is expected to be another challenging and disruptive year for the asset management industry. Markets are volatile and there is some political uncertainty. In addition, industry profitability remains under pressure from both continuous flows into passive products and rising distribution costs. However, digital channels are expected to continue gaining prominence. Measures aimed at strengthening regulatory oversight and reporting could also affect profitability in the asset management sector. In order to continue growing, it is vital for asset managers to keep sufficient business volumes, ensure efficient operations, and maintain strong investment performance.
− A 10 % weakening or strengthening of the U.S. Dollar versus our planned exchange rate of 1.11 to the Euro would have a negative or positive impact on operating profits of approximately € 0.3 bn, respectively.
Management’s assessment of expected revenues and earnings for 2017 In 2016, our total revenues amounted to € 122.4 bn, a 2.2 % decrease on a nominal and a 0.8 % decrease on an internal basis compared to 2015. We expect a rather flat revenue development in 2017, with PropertyCasualty and Asset Management revenues advancing, while Life/ Health revenues are likely to be under pressure due to our selective focus on profitable growth.
Our operating profit was near the upper end of our target range in 2016, hitting € 10.8 bn. As of 2017, we will update our operating profit definition and exclude restructuring charges from the operating profit unless they are shared with policyholders. Under this updated definition, our operating profit for 2016 would have been € 10.9 bn, with the delta of € 0.1 bn essentially attributable to the Property -Casualty business segment. For 2017, we envisage an operating profit of € 10.8 bn, plus or minus € 0.5 bn, as we expect a slightly negative development in the Property-Casualty and Life/Health business segments and a slightly positive development in the Asset Management and Corporate and Other business segments – all based on the updated operating profit definition.
PROPERTY-CASUALTY INSURANCE We expect our revenues to increase by approximately 2 % in 2017 (2016: (0.1) %), supported by favorable volume effects and – to a lesser extent – price effects. This growth is supported by the acquisition of the commercial portfolio of Aegon in mid-2016, strengthening our position in the attractive Benelux property-casualty market.
Most of the premium growth in 2017 is expected to come from our European core markets, including the United Kingdom, Germany, and Spain. Top-line development will further be supported by positive trends at Allianz Worldwide Partners, where our B2B2C business activities are bundled.
In 2016, our combined ratio was 94.3 %. We expect to at least maintain it at this level in 2017, before reaching our 2018 ambition of 94 % or better. This rests on our expectation that the aggregate effect of improvements in pricing, claims management, and productivity will compensate for any underlying claims inflation. Despite the high volatility of natural catastrophes in recent years, we have assumed that impacts will be in line with our historic claims experience.
As the low-interest-rate environment is likely to persist, investment income will remain under pressure due to the rather short duration of investments in the Property-Casualty business segment. We will continue to take measures to adapt our investment strategy to ongoing market conditions.
Overall, we expect our 2017 operating profit to be in the range of € 5.0 bn to € 5.6 bn (2016: € 5.5 bn, based on the updated operating profit definition, i.e. excluding € 0.1 bn restructuring charges).
CORPORATE AND OTHER Our Corporate and Other business segment recorded an operating loss of € 0.9 bn in 2016. As we expect an improvement in the operating result of the Holding & Treasury reportable segment – mainly attributable to lower administrative expenses –, we predict an operating loss in the range of € 0.7 bn to € 0.9 bn for Corporate and Other (including consolidation) in 2017.
We expect to have steady access to financial markets at reasonable 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.
Expected dividend development1,2 For 2016, the Board of Management and the Supervisory Board of Allianz SE propose a dividend of € 7.60 per share.
In addition, Allianz SE has decided to launch a share buy-back program with a volume of up to € 3.0 bn as part of a previously announced plan to return unused capital from the Group’s external growth budget from the period 2014 to 2016. The buy-back program started in February 2017 and is envisaged to last no longer than 12 months. Allianz SE will cancel all repurchased shares.
All of the above remains subject to a sustainable Solvency II ratio above 160 %, which is substantially below our current level of 218 % and 20 percentage points lower than our day-to-day Solvency II ratio target range of 180 to 220 %.
Balance Sheet Review Shareholders’ equity 1 ShareholderS’ equity € mn as of 31 December as of 31 December 2015 Delta
The main driver for the increase in shareholders’ equity was the net income attributable to shareholders, amounting to € 6,883 mn. The increase was supported by an upswing in unrealized gains, primarily on debt securities, which resulted from a further drop in interest rates. It was partly offset, however, by the dividend payout in May 2016, which totaled € 3,320 mn.
Total assets and total liabilities As of 31 December 2016, total assets amounted to € 883.8 bn and total liabilities were at € 813.4 bn. Compared to year-end 2015, this represented an increase of € 34.9 bn for total assets and of € 30.6 bn for total liabilities.
The following section mainly focuses on our financial investments in debt instruments, equities, real estate, and cash, as 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.
aSSet allocation and fixed income portfolio overview as of 31 December as of 31 December 2015 Delta as of 31 December as of 31 December 2015 Delta
Our overall asset allocation remained almost unchanged, compared to 31 December 2015. The increase in assets was caused by unrealized gains in debt instruments and – to a lesser extent – in equities, mainly following general market developments in 2016.1
Our well-diversified exposure to debt instruments went up – mainly due to a further decrease in interest rates – from their already low level of year-end 2015. However, the increase was partly offset by realizations. About 94 % of this portfolio was invested in investmentgrade bonds and loans.2 Our government bonds portfolio contained – amongst others – bonds from Italy, Spain and the United Kingdom, representing shares of our debt instruments portfolio of 4.3 %, 2.0 %
LIFE/HEALTH LIABILITIES Life/Health reserves for insurance and investment contracts increased by € 18.9 bn to € 490.9 bn. The € 5.3 bn increase in aggregate policy reserves and other reserves before foreign currency translation effects was mainly driven by our operations in Germany (€ 7.5 bn) and the United States (€ 6.8 bn, before foreign currency translation effects) and partly offset by the sale of our South Korean business (€ (10.8) bn, before foreign currency translation effects). Reserves for premium refunds increased by € 10.7 bn, due to higher unrealized gains to be shared with policyholders. Favorable foreign currency translation effects mainly resulted from the stronger U.S. Dollar (€ 2.8 bn).
CORPORATE AND OTHER LIABILITIES In comparison to year-end 2015, we recorded a drop in liabilities to banks and customers amounting to € 13.4 bn, and an upswing in liabilities of disposal groups classified as held for sale of € 13.3 bn. This shift was primarily driven by the classification of the Oldenburgische Landesbank AG as held for sale. Other liabilities increased by € 1.0 bn, mainly due to higher liabilities from cash pooling. The € 1.3 bn increase in subordinated liabilities was mainly caused by the issuance of a subordinated bond. Certificated liabilities decreased by € 1.5 bn.
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 37 to the consolidated financial statements.
Regulatory capital adequacy For details on the regulatory capitalization of the Allianz Group, please refer to the Risk and Opportunity Report from page 62 onwards.
BANKING OPERATIONS The major sources of liquidity in our Banking operations include customer deposits, interbank loans, and interest and similar income from our lending transactions. The most important uses of funds are the issuance of new loans and investments in fixed income securities. The liquidity of our Banking operations is largely dependent on the ability of our private and corporate customers to meet their payment obligations arising from loans and other outstanding commitments. Our ability to retain our customers’ deposits is equally important to us.
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 cash 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 enables Allianz SE to achieve the desired liquidity and capitalization levels for the Group and its operating entities.
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 Property-Casualty 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.
EQUITY FUNDING As of 31 December 2016, the issued capital registered at the Commercial Register was € 1,169,920,000. This was divided into 457,000,000 registered shares with restricted transferability. As of 31 December 2016, the Allianz Group held 1,932,263 (2015: 2,176,362) own shares.
For further information on our share capital and regarding authorizations to issue and repurchase shares, please refer to the chapter Takeover-related Statements and Explanations (part of the Group Management Report) starting on page 21.
maturity Structure of allianz Se’S Senior and Subordinated bondS1 € mn
Subordinated bonds – – 11,962 1 Based on carrying value. 2 € 1.4 Bn subordinated bond called for redemption effective 17 February 2017.
1 For further information on Allianz SE debt (issued or guaranteed) as of 31 December 2016, please refer to note 19 to the consolidated financial statements.
Average interest rate as of 31 December € mn € mn %
The Group maintained its A-1+/Prime-1 ratings for short-term issuances. Thus we can continue funding our liquidity under the Euro Commercial Paper Program at an average rate for each tranche below Euribor, and under the U.S. Dollar Commercial Paper Program at an average rate for each tranche below U.S. Libor.
Allianz Group consolidated cash flows annual changeS in caSh and caSh equivalentS € mn
Net cash flow provided by operating activities 21,461 23,663 (2,202) Net cash flow used in investing activities (19,765) (20,394) 629 Net cash flow used in financing activities (1,732) (2,837) 1,105 Change in cash and cash equivalents1 16 979 (963)
Net cash outflow used in investing activities declined compared to the previous year. This was primarily a consequence of net cash inflows (after net cash outflows in 2015) from financial assets and liabilities designated at fair value through income, especially in our Life/Health business segment in Germany and France. Moreover, we recorded lower net cash outflows from our activities in real estate held for investment, in particular from our German Life/Health business segment. Lower net cash inflows from loans and advances to banks and customers partly compensated these effects.
Net cash outflow used in financing activities decreased, mainly due to higher net cash inflows from our refinancing activities1 as well as higher net cash inflows from liabilities to banks and customers, especially from our banking business. Higher dividend payments to our shareholders partly offset these effects.
Cash and cash equivalents, including cash and cash equivalents reclassified to assets of disposal groups held for sale, increased in 2016.
1 Refers to cash flows from certified liabilities and subordinated liabilities.
For further information, please refer to note 5 to the consolidated financial statements.
Composition of total revenues Total revenues comprise statutory gross premiums written in PropertyCasualty and Life/Health, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking).
Allianz Group total revenues 122,416 125,190 1 Represents interest and similar income less interest expenses. 2 Includes trading income.
Foreign currency translation Nominal growth 60 Annual Report 2016 Allianz Group
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 97.5 % of Life/Health total statutory premiums are in scope.
The delta shown as definitions in acquisition expenses and commissions represents commission clawbacks, which are allocated to the technical margin. The delta shown as definitions in administrative and other expenses mainly represents restructuring charges, which are stated in a separate line item in the group income statement.
IMPACT OF CHANGE IN DEFERRED ACQUISITION COSTS (DAC) Impact of change in DAC includes effects of change in DAC, unearned revenue reserves (URR), and value of business acquired (VObA), and is the net impact of the deferral and amortization of acquisition costs and front-end loadings on operating profit.
Commissions and profit received on reinsurance business ceded 77 115 Administrative expenses on reinsurance business ceded 4 4 Acquisition and administrative expenses (net)3 (6,612) (6,922) 4 1 Prior year figures changed in order to reflect the roll out of profit source reporting to China. 2 As per Group Management Report. 3 As per notes to the consolidated financial statements. 4 Excluding one-off effects from pension revaluation.
Risk reporting and monitoring: Our comprehensive qualitative and quantitative risk reporting and monitoring framework provides senior management with the transparency and risk indicators to help them decide on our overall risk profile and assess whether it falls within delegated limits and authorities. For example, risk dashboards, internal risk allocation, and limit consumption reports are regularly prepared, communicated and monitored.
These aspirations have been translated into clear ambitions for 2018. With regard to financial performance, we strive for a return on equity (excluding unrealized gains/losses on bonds net of shadow accounting ) of 13 %, while growing our earnings per share at a compound annual growth rate of 5 %. To ensure the sustainability of our performance, we have set ourselves health targets for customer loyalty and employee engagement: We expect at least 75 % of our businesses to be or become rated by their customers as Loyalty Leader or abovemarket in terms of Net Promoter Score (NPS). At the same time, we aim to increase our Inclusive Meritocracy Index to 72 % (2016: 70 %). We are making good progress in achieving these objectives.
Target and strategy of risk management For the benefit of shareholders and policyholders alike, Allianz’s aim is to ensure that the Group is adequately capitalized at all times and that all operating entities at least meet their respective regulatory capital requirements. Furthermore, risk capital – reflecting our risk profile – and cost of capital are important aspects taken into account in business decisions.
We closely monitor the capital position of the Group and its operating entities along each of these dimensions, and apply regular stress tests (standardized, historical, and reverse stress test scenarios as well as monthly stress scenarios focusing on current and possible future developments). This allows us to take appropriate measures to ensure our continued capital and solvency strength.
Risk governance RISK MANAGEMENT FRAMEWORK As a provider of financial services, we consider risk management to be one of our core competencies. It is therefore an integral part of our business process. Our risk management framework is risk-based and covers all operations including IT, processes, products, and departments as well as subsidiaries within the Group. The key elements of our risk management framework are: − Promotion of a strong risk management culture, supported by a robust risk governance structure.
− Consistent, proportional application of an integrated risk capital framework across the Group to protect our capital base and support effective capital management.
− Integration of risk considerations and capital needs into management and decision-making processes by attributing risk and allocating capital to the various business segments, products, and strategies.
OUR BUSINESS STRATEGY In order to achieve these aspirations the Board of Management of Allianz SE has defined a clear business strategy consisting of five pillars: 1. True Customer Centricity: making superior customer experience the top priority for all our actions, 2. Digital by Default: moving from selected leading assets to become “Digital by Default” everywhere, 3. Technical Excellence: creating superior margins, innovation, and growth through best talents and state-of-the-art skills, 4. Growth Engines: systematically exploiting new sources for profitable growth, 5. Inclusive Meritocracy: re-inforcing a culture where both people and performance matter.
The Board of Management of Allianz SE has also defined a strategy for the management of risks that the Allianz Group faces during the pursuit of its business strategy. This risk strategy places particular emphasis on protecting the Allianz brand and reputation, remaining solvent even in the event of extreme worst-case scenarios, maintaining sufficient liquidity to always meet financial obligations, and providing resilient profitability.
OVERALL RISK ORGANIZATION AND ROLES IN RISK MANAGEMENT A comprehensive system of risk governance is achieved by setting standards related to organizational structure, risk strategy and appetite, written policies, limit systems, documentation, and reporting. These standards ensure the accurate and timely flow of risk-related information and a disciplined approach towards decision-making and execution at both the global and local level.
As a general principle, the “first line of defense” rests with business managers in the local operating entities and Allianz Investment Management units. They are responsible, in the first instance, for both the risks of and returns on their decisions. Our “second line of defense” is made up of our independent, global oversight functions such as Risk, Actuarial, Compliance and Legal. Audit forms the “third line of defense”. On a periodic basis, Group Audit independently reviews risk governance implementation, as well as compliance with risk principles, performs quality reviews of risk processes, and tests adherence to business standards, including the internal control framework.
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 responsible for risk oversight through the analysis and communication of risk management-related information and by facilitating the communication and implementation of committee decisions. For example, Group Risk is operationally responsible for monitoring the limits for risks that accumulate, including natural disasters and exposures to financial markets and counterparties.
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.
In addition, a risk function which is independent from the business line management is established by each operating entity. This function operates under the direction of the operating entity’s Chief Risk Officer. In addition, a local Risk Committee supports both the operating entity’s Board of Management and the Chief Risk Officer by acting as the primary risk controlling body. Group Risk is also represented on the local Risk Committees to enhance the risk dialogue between the Group and the operating entities.
Other functions and bodies In addition to Group Risk and the operating entities’ risk functions, legal and compliance and actuarial functions have been established at both the Group and operating entity level, constituting additional components of the “second line of defense”.
As an integrated financial services provider, we consider diversification across different business segments and regions to be a key element in managing our risks efficiently by limiting the economic impact of any single event and by contributing to relatively stable 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.
results and risk profile in general. Therefore, our aim is to maintain a balanced risk profile without bearing any disproportionately large risk concentrations and accumulations.
Furthermore, we have put in place standards for hedging activities due to exposures to fair value options embedded in life insurance products.
The internal credit risk capital model considers the major drivers of credit risk for each instrument, such as exposure at default, ratings, seniority, collateral, and maturity. Additional parameters assigned to obligors are migration probabilities and obligor asset correlations reflecting dependencies within the portfolio. Ratings are assigned to single obligors via an internal rating approach which is based on long-term ratings from rating agencies. It is dynamically adjusted using market-implied ratings and the most recently available qualitative information.
to estimate the magnitude and frequency of potential losses. Where such stochastic models do not exist, we use deterministic, scenariobased approaches to estimate potential losses. Similar models and scenario-based approaches are used to evaluate risk concentrations and man-made catastrophes, including losses from terrorism and industrial concentrations, etc.
LIFE/HEALTH Underwriting risks in our Life/Health operations (biometric risks) include mortality, disability, morbidity, and longevity risks. Mortality, disability, and morbidity risks are associated with the unexpected increase in the occurrence of death, disability, or medical claims on our insurance products. Longevity risk is the risk that, due to changing biometric assumptions, the reserves covering life annuities and group pension products might not be sufficient.
3 For additional information regarding our internal controls over financial reporting, please refer to Controls over Financial Reporting from page 75 onward.
STRATEGIC RISK Strategic risks are evaluated and analyzed in the strategic and planning dialogue between the Allianz Group and its operating entities and controlled by monitoring the respective business goals. We also monitor market and competitive conditions, capital market requirements, regulatory conditions, etc., to decide whether to make strategic adjustments.
Our insurance operating entities manage liquidity risk locally, using asset/liability management systems designed to ensure that assets and liabilities are adequately matched. In the course of standard liquidity planning, we reconcile the cash flows from our investment portfolio – containing a significant portion of liquid assets (e.g. government bonds or mortgage bonds with a very good credit rating) – with the estimated liability cash flows. These analysis are performed at the operating entity level and aggregated at the Group level.
In 2016, we rolled out a newly developed group-wide liquidity risk framework in order to further strengthen the Allianz liquidity risk management within Allianz Group and the resilience to stress scenarios. This framework considers liquidity sources (e.g. cash flows from investments and premiums) and liquidity needs (e.g. payments due to insurance claims) and explicitly takes stress situations for liquidity sources and needs into account to assess the liquidity and allows for a group-wide consistent view on liquidity risks.
REPUTATIONAL RISK Allianz’s reputation as a well-respected and socially aware provider of financial services is influenced by our behavior in a range of areas such as product quality, corporate governance, financial performance, customer service, employee relations, intellectual capital, and corporate responsibility.
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 consistently aggregate internal risk capital across all business segments. We also project risk capital requirements on a bi-weekly basis during periods of financial market turbulence.
GENERAL APPROACH We utilize an approach for the management of our risk profile and solvency position that reflects the Solvency II rules. This comprises our approved partial internal model covering all major insurance operations.2 Other entities are reflected based on their standard model results as well as on sectoral or local requirements, in accordance with the Solvency II framework.
2 Allianz Life US included based on third country equivalence with 150 % of RBC CAL since 30 September 2015.
INTERNAL RISK CAPITAL MODEL Our partial internal risk capital model is based on a VaR approach using a Monte Carlo simulation. Following this approach, we determine the maximum loss in the portfolio value of our businesses in the scope of the model within a specified timeframe (“holding period”) and probability of occurrence (“confidence level”). We assume a confidence level of 99.5 % and apply a holding period of one year. In the risk simulation, we consider risk events from all modeled risk categories (“sources of risk”) and calculate the portfolio value based on the net fair value of assets and liabilities under potentially adverse conditions, including risk mitigating measures like reinsurance contracts or derivatives.
Furthermore, there are monthly stress test meetings where world-wide political and financial developments are examined in order to understand their potential effects on the Group and to provide appropriate actions or recommendations to management.
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 1.7 % (2015: 1.5 %) of our total pre-diversified risk. Therefore, risk management with respect to banking operations is not discussed in more detail.
For our Asset Management business segment, we assign internal risk capital requirements based on the sectorial regulatory capital requirements as defined under Solvency II. The Asset Management business is mainly affected by operational risks. However, since most of our Asset Management business is not located within the Eurozone, at the Group level it also bears foreign exchange rate risk. Our Asset Management business is covered by adequate risk controlling processes, including regular reporting and qualitative risk assessments (such as Top Risk Assessment) to the Group. However, since it is mainly affected by the two risk types previously mentioned (operational and foreign exchange rate), and due to the fact that the impact on total pre-diversified risk capital is minor, risk management with respect to Asset Management is not discussed in more detail.
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 tenor.4
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.
4 Due to late availability of the EIOPA publication, the risk-free interest rate term structure used might slightly differ from the one published by EIOPA.
ACTUARIAL ASSUMPTIONS Our partial internal risk capital model also includes assumptions on claims trends, liability inflation, mortality, longevity, morbidity, policy holder behavior, expense, etc. We use our own internal historical data for actuarial assumptions wherever possible, and also consider recommendations from the insurance industry, supervisory authorities, and actuarial associations. The derivation of our actuarial assumptions is based on generally accepted actuarial methods. Within our internal risk capital and financial reporting framework, comprehensive processes and controls exist for ensuring the reliability of these assumptions.
LIMITATIONS Because of the 99.5 % confidence level, there is a low statistical probability of 0.5 % that actual losses could exceed this threshold at Group level in the course of one year.
We use model and scenario parameters derived from historical data, where available, to characterize future possible risk events. If future market conditions differ substantially from the past, for example in an unprecedented crisis, our VaR approach may be too conservative or too liberal in ways that are difficult to predict. In order to mitigate reliance on historical data, we complement our VaR analysis with stress testing.
The construction and application of the mentioned replicating portfolios is subject to the set of available replicating instruments and might, therefore, be too simple or too restrictive to capture all factors affecting the change in value of liabilities. As with other model components, the replications are subject to independent validation and to suitability assessments as well as to stringent data and process quality controls. Therefore, we believe that the liabilities are adequately represented by the replicating portfolios.
Since the 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 either obtain a current market price or apply a meaningful mark-to-market approach. For such assets we apply a mark-to-model approach. For some of our liabilities, the accuracy of their values also depends on the quality of the actuarial cash flow estimates. Despite these limitations, we believe the estimated fair values are appropriately assessed.
MODEL CHANGES IN 2016 At the beginning of the year, a regulatory change in the tax treatment for the German life sector resulted in a decrease of the risk capital requirement of € 0.3 bN. There were no major model changes in 2016. Minor and immaterial model changes during the year slightly decreased the capital requirement by € 0.4 bN, leading to an overall negative impact of regulatory and model changes of € 0.7 bN.
REGULATORY DEVELOPMENTS Following the approval of our partial internal model in November 2015, the model has been fully applied since the beginning of 2016, starting with the Solvency II day one reporting. Nevertheless, some uncertainty about the future capitalization requirements of Allianz remains, since the future capital requirements applicable for Global Systemically Important Insurers (so-called G-SII) are still not final68 Annual Report 2016 Allianz Group
− The Group has a conservative investment profile and disciplined business practices in the Property-Casualty, Life/Health, and Asset Management business segments, leading to sustainable operating earnings with a well-balanced risk-return profile.
SOLVENCY II REGULATORY CAPITALIZATION The Allianz Group’s own funds and capital requirements are based on the market value balance sheet approach as the major economic principle of Solvency II rules.1 Our regulatory capitalization is shown in the following table.
Own funds € Bn 75.3 72.7 Capital requirement € Bn 34.6 36.4 1 Changed regulatory tax treatment of German life sector reduced our year-end Solvency II capitalization ratio from 200 % to 196 % on 1 January 2016.
Compared to year-end 2015, our Solvency II capitalization increased by 18 percentage points to 218 %. This was driven by an increase in own funds mainly due to strong Solvency II earnings and the sale of our South Korean life business. This was partly offset by market movements mainly due to decreased interest rates, as well as by dividend accrual and changes in transferable amount of own funds resulting from changed risk capital requirements. A decrease in risk capital also contributed to the overall increase in Solvency II capitalization. This was predominantly due to management actions like the disposal 1 Own funds and capital requirement are calculated under consideration of volatility adjustment and yield curve extension, as described in Yield curve and volatility adjustment assumptions on page 67.
On a pro-forma basis, the recognition of negative interest rates on solvency capital calculations would have had a negative impact on the Solvency ratio of around 3 percentage points as of 31 December 2016.
31 Decem- ber 2016 30 Septem- ber 2016 31 Decem- ber 2015
The Allianz Group is a financial conglomerate within the scope of the Financial Conglomerate Directive (FCD). The FCD does not impose a materially different capital requirement on Allianz Group compared to Solvency II.
The following sections outline the evolution of the risk profile per risk cate gory modeled. All risks are presented on a pre-diversified basis and concentrations of single sources of risk are discussed accordingly.
MARKET RISK As an inherent part of our insurance operations, we collect premiums from our customers and invest them in a wide variety of assets. The resulting investment portfolios back future claims and benefits to our customers. In addition, we invest shareholders’ capital, which is required to support the risks underwritten. As the fair values of our investment portfolios depend on financial markets, which may change over time, we are exposed to market risks. The following table presents our group-wide risk figures related to market risks by business segment and source of risk.
AlliAnz Group: riSk profile – MArket riSk by buSineSS SeGMent And Source of riSk (totAl portfolio before tAx And non-controllinG intereStS) pre-diversified, € mn
Property-Casualty 412 415 2,600 2,931 905 739 1,215 996 604 554 69 55 5,805 5,690 Life/Health 2,884 4,129 61 237 3,780 4,694 4,973 6,085 1,025 1,326 101 45 12,824 16,516 Asset Management 22 20 – – – – 22 20 22 20 96 86 163 146 Corporate and Other 557 643 364 451 796 541 680 977 95 86 261 224 2,753 2,922
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 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.
INFLATION RISK As an insurance company we are exposed to changing inflation rates, predominantly due to our non-life insurance obligations. In addition, internal pension obligations contribute to our exposure to inflation. Since inflation increases both claims and costs, higher inflation rates will lead to greater liabilities. Inflation assumptions are already taken into account in our product development and pricing, and the risk of changing inflation rates is incorporated in our partial internal model. In case future inflation rates (sustainably) fall short of assumptions, liabilities would be less than anticipated.
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 and volatility adjustment assumptions.
1 The stated market value includes all investments whose market value is sensitive to interest rate movements (excluding unit-linked business) in line with the Solvency II framework, and therefore is not based on classifications given by accounting principles.
Property-Casualty € mn 2,502 2,406 Life/Health € mn 5,550 6,141 Asset Management € mn 29 26 Corporate and Other € mn 683 667 Total Group € mn 8,763 9,240 Share of total Group pre-diversified risk % 16.8 16.3
Throughout 2016 the credit environment was mostly stable. Overall credit risk for the Group decreased compared to last year, primarily driven by the Life/Health business segment due to the disposal of our South Korean life business as well as an increased loss-absorbing capacity of technical provisions in the traditional life business, which decreased the credit risk after policyholder participation. Additionally, active de-risking measures were taken to reduce sovereign counter party exposure concentrations. Annual updates based on extended time series were performed for credit risk parameters like the transition matrix and asset correlations, which also had a slightly positive effect on credit risk. These effects were partially offset by the declining interest rate environment, which generally increased credit risk exposures and correspondingly credit risk.
CREDIT RISK – INVESTMENT We invest premiums from our customers into a variety of assets, which largely consist of fixed income instruments. As the portfolio value of our investments depends on the credit quality of the portfolio, we are exposed to credit risk. However, for certain life insurance products, losses due to credit events can be shared with the policyholder.
CREDIT RISK – CREDIT INSURANCE 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.
The counterparty credit risk arising from derivatives is low, since 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.
As of 31 December 2016, the rating distribution based on issue (instrument) ratings of our fixed income portfolio was as follows: rAtinG diStribution of AlliAnz Group’S fixed incoMe portfolio1 – fAir vAlue € Bn
CREDIT RISK – REINSURANCE Credit risk to external reinsurers arises when we transfer insurance risk exposures to external reinsurance companies to mitigate insurance risks. Potential losses can arise either due to non-recoverability of reinsurance receivables already present at the as-of date or due to default on benefits under in-force reinsurance treaties.
As of 31 December 2016, 0.5 % (2015: 0.4 %) of our total Group prediversified internal credit risk was allocated to reinsurance exposures – of which 46.8 % (2015: 52.0 %) was related to reinsurance counterparties in the United States and Germany.
The following table presents the pre-diversified risk calculated for underwriting risks stemming from our insurance business.
PROPERTY-CASUALTY Our Property-Casualty insurance businesses are exposed to premium risk related to the current year’s new and renewed business, as well as reserve risks related to the business in force.
Premium risk As part of our Property-Casualty business operations, we receive premiums from our customers and provide insurance protection in return. Changes in profitability over time are measured based on loss ratios and their fluctuations.
Loss ratio excluding natural catastrophes 64.2 64.6 65.1 63.0 66.6 65.5 65.9 68.4 66.3 64.1 1 Represents claims and insurance benefits incurred (net), divided by premiums earned (net).
Reserve risk We estimate and hold reserves for claims resulting from past events that have not yet been settled. If our reserves turn out not the be sufficient to cover claims to be settled in the future, due to unexpected changes, we will experience losses. Conversely, if reserves turn out to be too conservative there is a chance of positive returns. The volatility of past claims measured over a one-year time horizon defines our reserve risk.
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 2016.1 1 For further information about insurance risk in the Life/Health business segment, please refer to note 16 to the consolidated financial statements.
As for underwriting risks, a positive deviation from the underlying parameters will lead to additional returns. For example, lowerthan -expected expenses in our Property-Casualty business will lead to an improved combined ratio.
OPERATIONAL RISK Operational risks represent losses resulting from inadequate or failed internal processes, from personnel and systems, or from external events – including legal and compliance risk, but excluding losses from strategic and reputational risk. The operational risk capital is calculated on a scenario-based approach. Operational internal and external loss data is used, among others, for the selection of the risk driving scenarios and is applied for validation purposes.
As inferred from the section on management of liquidity risks and interest rate risks, they are properly managed and monitored but not quantified.
GOVERNANCE Responsibility for ensuring the completeness, accuracy, and reliability of our consolidated financial statements rests with the Chairman of the Allianz SE Board of Management, as well as the board member responsible for Finance, Controlling, and Risk, supported by Group Center functions, the Group Disclosure Committee, and operating entities.
In line with both our prudent approach to risk governance and compliance with regulatory requirements, we have created a structure to identify and mitigate the risk of material errors in our consolidated financial statements (this also includes market value balance sheet and risk capital controls). Our internal control system over financial reporting (ICOFR) is based on the revised framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and is regularly reviewed and updated. Our approach also includes the following five interrelated components: control environment, risk assessment, control activities, information and communication, and monitoring. These five components are covered by an Entity-Level Control Assessment Process (ELCA), IT General Controls (ITGC) and controls at process levels. The ELCA framework contains controls to monitor the system of governance effectiveness. In the ITGC framework we have implemented, for example, controls for access-right management and for project and change management.
INTERNAL CONTROL SYSTEM APPROACH Our approach can be summarized as follows: − We use a top-down, risk-based approach to determine the accounts and operating entities that should fall under the scope of our internal control system over financial reporting. The methodology is described in our ICOFR manual. During the scoping process, both materiality and susceptibility to a misstatement are considered simultaneously. The final results are documented in the list of operating entities under the scope of ICOFR as well as in the list of significant accounts. In addition to the quantitative ICOFR calculation, we also consider qualitative criteria – such as expected increase in business volume – which are provided by different Group Centers, Group Audit, and external Audit.
Liabilities of disposal groups classified as held for sale 4 13,290 18
Total liabilities and equity 883,809 848,942 1 Include mainly derivative financial instruments.
Gross premiums written 76,331 76,723 Ceded premiums written (4,901) (5,536) Change in unearned premiums (net) (1,073) (543) Premiums earned (net) 21 70,357 70,645 Interest and similar income 22 22,149 22,643 Income from financial assets and liabilities carried at fair value through income (net) 23 (999) (2,307) Realized gains/losses (net) 24 8,403 7,937 Fee and commission income 25 10,491 10,945
Claims and insurance benefits incurred (gross) (55,914) (54,472) Claims and insurance benefits incurred (ceded) 2,758 2,770 Claims and insurance benefits incurred (net) 27 (53,156) (51,702) Change in reserves for insurance and investment contracts (net) 28 (13,173) (14,065)
Acquisition and administrative expenses (net) 32 (25,301) (25,718) Fee and commission expenses 33 (3,734) (3,777) Amortization of intangible assets (154) (322) Restructuring charges (186) (231) Other expenses (5) (8) Expenses from fully consolidated private equity investments – (792) Total expenses (100,208) (100,640)
Available-for-sale investments Reclassifications to net income (1,678) (1,279) Changes arising during the year 2,552 (1,694)
Cash flow hedges Reclassifications to net income (17) (7) Changes arising during the year 74 (41)
Items that may never be reclassified to profit or loss Changes in actuarial gains and losses on defined benefit plans (335) 470 Total other comprehensive income 634 (1,370)
For further details on the income taxes associated with different components of other comprehensive income, please see note 34 Income taxes.
1 Total comprehensive income in shareholders’ equity for the year ended 31 December 2016 comprises net income attributable to shareholders of € 6,883 mn (2015: € 6,616 mn).
CASh fLow from opErATIng ACTIvITIES Net income 7,250 6,987 Adjustments to reconcile net income to net cash flow provided by operating activities
CASh fLow from InvESTIng ACTIvITIES Proceeds from the sale, maturity or repayment of: Financial assets designated at fair value through income 2,224 1,529 Available-for-sale investments 156,085 151,470 Held-to-maturity investments 466 3,218 Investments in associates and joint ventures 850 513 Non-current assets and disposal groups classified as held for sale 156 187 Real estate held for investment 407 522 Fixed assets of renewable energy investments 3 2 Loans and advances to banks and customers (purchased loans) 8,409 11,465 Property and equipment 128 126 82 Annual Report 2016 Allianz Group
Consolidated statements of Cash flows – Continued consolidated statements of cash flows € mn
Payments for the purchase or origination of: Financial assets designated at fair value through income (2,193) (2,300) Available-for-sale investments (174,302) (170,170) Held-to-maturity investments (151) (2,474) Investments in associates and joint ventures (1,557) (884) Non-current assets and disposal groups classified as held for sale (1) – Real estate held for investment (409) (1,273) Fixed assets of renewable energy investments (720) (622) Loans and advances to banks and customers (purchased loans) (3,007) (5,461) Property and equipment (1,335) (1,411)
CASh fLow from fInAnCIng ACTIvITIES Net change in liabilities to banks and customers 911 365 Proceeds from the issuance of certificated liabilities and subordinated liabilities 7,059 5,217 Repayments of certificated liabilities and subordinated liabilities (6,155) (5,044) Cash inflow from capital increases – – Transactions between equity holders 52 99 Dividends paid to shareholders (3,646) (3,382) Net cash from sale or purchase of treasury shares 44 64 Other (net) 4 (157) Net cash flow used in financing activities (1,732) (2,837)
cash and cash equivalents € mn as of 31 December 2016 2015
Notes to the Consolidated Financial Statements General InformatIon 1 – Nature of operations and basis of presentation The accompanying consolidated financial statements present the operations of Allianz SE with its registered office in Königinstrasse 28, 80802 Munich, Germany, and its subsidiaries (the Allianz Group). Allianz SE is recorded in the Commercial Register of the municipal court in Munich under the number HRB 164232.
They have been prepared in conformity with International Financial Reporting Standards (IFRS), as adopted under European Union (E.U.) regulations in accordance with § 315a (1) 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 2016.
In accordance with the provisions of IFRS 4 insurance contracts are recognized and measured on the basis of accounting principles generally accepted in the United States of America (US GAAP) as at first-time adoption of IFRS 4 on 1 January 2005.
The consolidated financial statements are prepared as of and for the year ended 31 December 2016. The Allianz Group’s presentation currency is the Euro (€). Amounts are rounded to the nearest million (€ MN) unless otherwise stated.
The consolidated financial statements were authorized for issue by the Board of Management on 14 February 2017.
The Allianz Group offers Property-Casualty insurance, Life/ Health insurance and Asset Management products and services in over 70 countries.
Scope of consolidation and consolidation procedures In accordance with IFRS 10, the consolidated financial statements of the Allianz Group include the financial statements of Allianz SE and its subsidiaries. The Allianz Group controls a subsidiary when it is exposed to, or has rights to, variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. Subsidiaries are usually entities where Allianz SE, directly or indirectly, owns more than half of the voting rights or similar rights with the ability to affect the returns of the subsidiaries for its own benefit. In order to determine whether entities qualify as subsidiaries, potential voting rights that are currently exercisable or convertible are taken into consideration. For certain entities, voting or similar rights are not the dominant factor of control, such as when any voting rights relate to administrative tasks only and returns are directed by means of contractual arrangements, as is the case mainly for investment funds managed by Allianz Group internal asset managers. In such cases, the investment fund qualifies as subsidiary if the Allianz Group is in a principal instead of an agent role with regard to the investment fund. This qualification takes into account, in particular, kick-out rights held by third-party investors as well as the aggregate economic interest of the Allianz Group in the investment funds.
Subsidiaries are consolidated as from the date on which control is obtained by the Allianz Group, up to the date on which the Allianz Group no longer maintains control. Accounting policies of subsidiaries are adjusted where necessary to ensure consistency with the accounting policies adopted by the Allianz Group. The effects of intraAllianz Group transactions are eliminated.
Business combinations and measurement of non-controlling interests Where newly acquired subsidiaries are subject to business combination accounting, the provisions of IFRS 3 are applied. Any non-controlling interests in the acquiree can be measured either at its fair value at the acquisition date or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. This option is exercised on a case-by-case basis.
Associates and joint arrangements Associates are entities over which the Allianz Group can exercise significant influence. In general, if the Allianz Group holds 20 % or more of the voting power in an investee but does not control the investee, it is assumed to have significant influence, unless it can be clearly demonstrated that this is not the case. Investments in associates are generally accounted for using the equity method.
Translation from any foreign currency to the functional currency The individual financial statements of each of the Allianz Group’s subsidiaries are prepared in the currency prevailing in the primary economic environment where the subsidiary conducts its ordinary activities (its functional currency). Transactions recorded in currencies other than the functional currency (foreign currencies) are recorded at the exchange rate prevailing on the date of the transaction. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using the closing exchange rate. While non-monetary items 84 Annual Report 2016 Allianz Group
denominated in foreign currencies and measured at historical cost are translated at historical rates, non-monetary items measured at fair value are translated using the closing rate. Foreign currency gains and losses arising from foreign currency transactions are reported in income from financial assets and liabilities carried at fair value through income (net), except when the gain or loss on a non-monetary item measured at fair value is recognized in other comprehensive income. In this case, any foreign exchange component of that gain or loss is also recognized in other comprehensive income.
Recognition and Derecognition 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.
Securities lending and repurchase agreements The Allianz Group enters into securities lending transactions and repurchase agreements. Cash received in the course of those transactions is recognized together with a corresponding liability. Securities received as collateral under lending transactions are not recognized and securities sold under repurchase agreements are not derecognized if risks and rewards have not been transferred. Securities borrowing transactions generally require the Allianz Group to deposit cash with the security’s lender. Fees paid are reported as interest expenses.
Impairments The evaluation of whether a financial debt instrument is impaired requires analysis of the underlying credit risk/quality of the relevant issuer and involves significant management judgment. The presence of either a decline in fair value below amortized cost or the downgrade of an issuer’s credit rating does not by itself represent objective evidence of a loss event, but may represent objective evidence of a loss event when considered with other available information.
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 the impairment loss is reversed, the reversal is measured as the lesser of the full original impairment loss previously recognized in the income statement and the subsequent increase in fair value.
An available-for-sale equity security is considered to be impaired if there is objective evidence that the cost may not be recovered. The Allianz Group’s policy considers a decline to be significant if the fair value is below the weighted average cost by more than 20 %. A decline is considered to be prolonged if the fair value is below the weighted average cost for a period of more than nine consecutive months. If an available-for-sale equity security is impaired, any further declines in the fair value at subsequent reporting dates are recognized as impairments.
financial derivatives, the latter category is mainly designated at fair value to avoid accounting mismatches.
Available-for-sale investments Available-for-sale investments comprise debt and equity instruments that are designated as available for sale or do not fall into the other measurement categories. These investments are measured at fair value through other comprehensive income. When an investment is derecognized or determined to be impaired, the cumulative gain or loss previously recorded in other comprehensive income is transferred and recognized in the consolidated income statement. Realized gains and losses on those instruments are generally determined by applying the average cost method at the subsidiary level.
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. These assets are initially measured at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective interest rate method.
FINANCIAL ASSETS AND LIABILITIES FOR UNIT-LINKED CONTRACTS Financial assets for unit-linked contracts are recorded at fair value, with changes in fair value recognized in the income statement together with the offsetting changes in fair value of the corresponding financial liabilities for unit-linked contracts.
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.
Acquisition costs for unit-linked investment contracts are deferred in accordance with IAS 18 if the costs are incremental. For non-unit-linked investment contracts accounted for under IAS 39 at amortized cost, acquisition costs that meet the definition of transaction costs under IAS 39 are considered in the aggregate policy reserves.
Present value of future profits (PVFP) The value of an insurance business or an insurance portfolio acquired is measured by the PVFP, which is the present value of net cash flows anticipated in the future from insurance contracts in force at the date of acquisition. It is amortized over the life of the relevant contracts.
INTANGIBLE ASSETS AND GOODWILL Intangible assets with finite useful lives are measured at cost less accumulated amortization and impairments. Intangible assets with indefinite useful lives are tested annually for impairment and whenever there is a triggering event. They are also reviewed annually to determine whether the indefinite-life classification is still appropriate.
The table below summarizes estimated useful lives and the amortization methods for each class of intangible assets with finite useful lives.
Customer relationships 6 – 13 straight-line or in relation to customer churn rates
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 have been applied, 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.
Reinsurance contracts The Allianz Group’s consolidated financial statements reflect the effects of ceded and assumed reinsurance contracts. Assumed reinsurance premiums, commissions and claim settlements, as well as the reinsurance element of technical provisions are accounted for in accordance with the conditions of the reinsurance contracts, and in consideration of the original contracts for which the reinsurance was concluded. When the reinsurance contracts do not transfer significant insurance risk, deposit accounting is applied as required under the related reinsurance accounting provisions of US GAAP or under IAS 39.
UNEARNED PREMIUMS For short-duration insurance contracts, such as 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.
Amounts charged as consideration for origination of certain long-duration insurance contracts (i.e. initiation or front-end fees) are reported as unearned revenue which are included in unearned premiums. These fees are recognized using the same amortization methodology as DAC including shadow accounting.
Case reserves for reported claims are based on estimates of future payments that will be made with respect to claims, including LAE relating to such claims. The estimates reflect the informed judgment of claims personnel based on general insurance reserving practices and knowledge of the nature and value of a specific type of claim. These case reserves are regularly re-evaluated in the ordinary course of the settlement process and adjustments are made as new information becomes available.
IBNR reserves are estimates based on actuarial and statistical projections of the expected cost of the ultimate settlement and administration of claims. The analyses are based on facts and circumstances known at the time, predictions of future events, estimates of future inflation and other societal and economic factors. Trends in claim frequency, severity and time lag in reporting are examples of factors used in projecting the IBNR reserves. IBNR reserves 87Annual Report 2016 Allianz Group
are reviewed and revised periodically as additional information becomes available and actual claims are reported.
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 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 Pensions and similar obligations are usually measured at present value and presented net of plan assets by applying the provisions of IAS 19. This particularly requires calculating an interest income on plan assets with the same interest rate used to discount the defined benefit obligation. 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 on high-quality corporate bonds in the respective markets at the end of the reporting period. 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.
Revenues for universal life-type and investment contracts represent charges assessed against the policyholders’ account balances for 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).
INTEREST AND SIMILAR INCOME AND INTEREST EXPENSES Interest income and interest expenses are recognized on an accrual basis. Interest income is recognized using the effective interest method. This line item also includes dividends from available-forsale equity securities and income from investments in associates and joint ventures. Dividends are recognized in income when the right to receive the dividend is established. Share of earnings from investments in associates and joint ventures represents the share of net income from entities accounted for using the equity method.
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) are not recognized as revenue prior to the date of the official declaration of distribution by the fund.
INCOME TAXES Current income taxes are calculated based on the respective local taxable income and local tax rules for the period. In addition, current income taxes presented for the period include adjustments for uncertain tax payments or tax refunds for periods not yet finally assessed, including interest expenses and penalties on the underpayment of taxes. For the case that amounts included in the tax return are considered unlikely to be accepted by the tax authorities (uncertain tax positions), a provision for income taxes is recognized. The amount is based on the best possible assessment of the expected tax payment. Tax refund claims from uncertain tax positions are recognized when it is probable that they can be realized.
iFrs 9, Financial Instruments IFRS 9, Financial Instruments, was issued by the IASB in July 2014 and will fully replace IAS 39. IFRS 9 provides a new approach on how to classify financial instruments based on their cash flow characteristics and the business model under which they are managed. Furthermore, the standard introduces a new impairment model for debt instruments and provides new rules for hedge accounting. The effective date is 1 January 2018.
iFrs 16, Leases In January 2016, the IASB issued IFRS 16, Leases, which supersedes IAS 17. IFRS 16 eliminates the classification of leases as either operating or finance leases for a lessee. Instead, all leases are treated in a similar way to finance leases under IAS 17. IFRS 16 does not require a lessee to recognize assets and liabilities for short-term leases and leases of low-value assets.
Further amendments and interpretations In addition to the above-mentioned accounting pronouncements recently issued, the following amendments and revisions to standards and interpretations have been issued by the IASB but are not yet effective for or adopted early by the Allianz Group.
Life/Health reserves are dependent on estimates and assumptions, especially on the life expectancy and health of an insured individual (mortality, longevity and morbidity risk) and on the development of interest rates and investment returns (asset-liability mismatch risk). These assumptions also have an impact on the presentation of costs arising from the origination of insurance business (acquisition costs and sales inducements) and the value of acquired insurance business (PVFP). To ensure consistency in the application of actuarial methods and assumptions in the Life/Health reserving process, the Allianz Group has designed a two-stage reserving process: Stage one: Life/Health reserves are calculated by qualified local staff experienced in the subsidiaries’ business. Actuaries in the local entities also conduct tests of the adequacy of the premiums and reserves to cover future claims and expenses (liability adequacy tests). The process follows group-wide standards for applying consistent and plausible assumptions. The appropriateness of the reserves and their compliance with group-wide standards is confirmed by the local actuary.
Property-Casualty reserves are set by leveraging the use of actuarial techniques and educated judgment. A two-stage process exists for the setting of reserves in the Allianz Group: Stage one: Property-Casualty reserves are calculated by local reserving actuaries in the Allianz operating entities. Reserves are set based on a thorough analysis of historical data, enhanced by interactions with other business functions (e.g. Underwriting, Claims and Reinsurance). Actuarial judgment is applied where necessary, especially in cases where data is unreliable, scanty or unavailable. The judgment of Property-Casualty actuaries is based on past experience of the characteristics of each line of business, the current stage of the underwriting cycle and the external environment in which the subsidiary operates. The reserves are proposed to a local reserve committee, whereat the rationale of the selections are discussed and subsequently documented. A final decision on the reserve selection is made in the reserve committee. Local actuaries are responsible for their compliance with the Group Actuarial Standards and Guidelines.
FAIR VALUE AND IMPAIRMENTS OF FINANCIAL INSTRUMENTS1 The Allianz Group carries certain financial instruments at fair value and discloses the fair value of most other assets and liabilities. The fair value of an asset or liability is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.
Level 3 applies where not all input parameters are observable in the market. Accordingly, the fair value is based on valuation techniques using non-market observable inputs. Valuation techniques include the discounted cash flow method, comparison to similar instruments for which observable market prices exist and other valuation models. Appropriate adjustments are for example made for credit risks. In particular when observable market inputs are not available, the use of estimates and assumptions may have a strong impact on the valuation outcome.
1 For further details regarding financial instruments, please refer to note 36 Financial instruments and fair value measurement.
The evaluation of whether a financial debt instrument is impaired requires analysis of the underlying credit risk/quality of the relevant issuer and involves significant management judgment. In particular, current publicly available information with regard to the issuer and the particular security is considered relating to factors including, but not limited to, evidence of significant financial difficulty of the issuer and breach of contractual obligations of the security, such as a default or delinquency on interest or principal payments.
For certain investment funds managed by Allianz Group internal asset managers in which the Allianz Group holds a minority stake, management has assessed that the Allianz Group controls these investment funds because of its asset management role combined with its aggregate economic interest in these investment funds.
For further details, please refer to the explanations to note 45 List of participations of the Allianz Group as of 31 December 2016 according to § 313 (2) HGB.
GOODWILL AND OTHER INDEFINITE LIFE INTANGIBLE ASSETS The recoverable amounts of all cash generating units (CGUs) to test goodwill and other indefinite life intangible assets for impairment are typically determined on the basis of value in use calculations. The determination of a CGU’s recoverable amount requires significant judgment regarding the selection of appropriate valuation techniques and assumptions. These assumptions include for example the selection of input parameters for the projection of future earnings.
Assumptions may need to be changed as economic, market and business conditions change. As such, the Allianz Group continuously evaluates external conditions and the operating performances of the CGUs. Further explanations on the valuation techniques and significant assumptions are given in note 12 Intangible assets.
DEFERRED TAX ASSETS1 Deferred tax assets are determined based on tax loss carry-forwards, unused tax credits, and deductible temporary differences between the Allianz Group’s carrying amounts of assets and liabilities in its consolidated balance sheet and their tax bases. Deferred tax assets are recognized only to the extent it is probable that sufficient future taxable income will be available for their realization. Assessments as to the recoverability of deferred tax assets require the use of judgment regarding assumptions related to estimated future taxable profits. This includes the character and amounts of taxable future profits, the periods in which those profits are expected to occur, and the availability of tax planning opportunities.
Due to changing market and economic conditions, the underlying assumptions may differ from actual developments. Potential financial impacts from deviations in certain critical assumptions based on respective sensitivity analyses are disclosed in note 40 Pensions and similar obligations.
non-Current Assets AnD DisPosAl grouPs ClAssiFieD As helD For sAle € mn as of 31 December 2016 2015
Assets of disposal groups classified as held for sale Oldenburgische Landesbank AG, Oldenburg 13,915 – Other disposal groups 42 46
OLDENBURGISCHE LANDESBANK AG, OLDENBURG At the end of the fourth quarter of 2016, all requirements were fulfilled to present Oldenburgische Landesbank AG, Oldenburg, as a disposal group. Thus, the assets and liabilities of this consolidated entity, which is allocated to the reportable segment Banking (Corporate and Other), were classified as held for sale.
As of 31 December 2016, cumulative gains of € 60 MN were recorded in other comprehensive income relating to the disposal group classified as held for sale. The sale is expected to occur in 2017. Upon measurement of the disposal group at fair value less costs to sell, an impairment loss of € 87 MN before taxes was recognized for the year ended 31 December 2016.
SIGNIFICANT DISPOSALS During the year ended 31 December 2016, the Allianz Group disposed of Allianz Life Insurance Co. Ltd., Seoul, a 100 % owned subsidiary of the Allianz Group, allocated to the reportable segment Asia Pacific (Life/Health). The entity had been classified as held for sale since the beginning of the second quarter of 2016. The entity was deconsolidated on 30 December 2016. The Allianz Group received proceeds from the sale of € 2 MN and recognized a provision for obligations relating to the sales agreement of € 46 MN.
The impact of the disposal, net of cash disposed, on the consolidated statement of cash flows for the year ended 31 December 2016 was as follows: imPACt oF the DisPosAl € mn
Financial assets carried at fair value through income 4 Investments 9,506 Loans and advances to banks and customers 1,940 Financial assets for unit-linked contracts 1,502 Reinsurance assets 6 Deferred acquisition costs 429 Deferred tax assets 46 Other assets 397 Financial liabilities carried at fair value through income (20) Unearned premiums (79) Reserves for loss and loss adjustment expenses (434) Reserves for insurance and investments contracts (10,878) Financial liabilities for unit-linked contracts (1,502) Deferred tax liabilities (40) Other liabilities (including a provision for obligations relating to the sales agreement of € 46 mn) (109) Other comprehensive income (752) Realized loss from the disposal (25) Proceeds from sale of the subsidiary, net of cash disposed (8) 1 1 Includes cash and cash equivalents at an amount of € 9 mn which were disposed of with the entity.
The types of products and services from which the reportable segments derive revenues are described below.
GENERAL SEGMENT REPORTING INFORMATION Prices for transactions between reportable segments are set on an arm’s length basis in a manner similar to trans actions with third parties. Transactions between reportable segments are eliminated in the Consolidation. Financial infor mation is recorded based on reportable segments, cross-segmental country-specific information is not determined.
− For life/health insurance business and property-casualty insurance products with premium refunds, all items listed above are included in operating profit if the profit sources are shared with policyholders. This is also applicable to tax benefits, which are shared with policyholders. IFRS requires that the consolidated income statements present all tax benefits in the income taxes line item, even when they belong to policyholders. In the segment reporting, tax benefits are reclassified and shown within operating profit in order to adequately reflect the policyholder participation in tax benefits.
Loans and advances to banks and customers 11,508 13,781 93,142 95,138 65 99 6,081 15,591 (5,427) (6,980) 105,369 117,630 Financial assets for unit-linked contracts – – 111,325 105,873 – – – – – – 111,325 105,873
Liabilities of disposal groups classified as held for sale – 15 3 3 5 – 13,306 – (25) – 13,290 18
business segment information – total revenues and reconciliation of operating profit (loss) to net income (loss) € mn
Acquisition and administrative expenses (net), excluding acquisition-related expenses and one-off effects from pension revaluation (13,352) (13,208) (6,612) (6,922) (3,817) (4,141) (1,466) (1,489) (58) 30 (25,303) (25,729)
One-off effects from pension revaluation – (181) – (13) – (31) – 224 – – – – Non-operating amortization of intangible assets (60) (63) (52) (222) (12) (11) (11) (8) – – (135) (304)
Income (loss) before income taxes 5,835 5,784 3,707 3,790 2,194 2,266 (1,414) (1,377) (31) (267) 10,292 10,196
2 For the year ended 31 December 2016, includes expenses for premium refunds (net) in Property-Casualty of € (255) mn (2015: € (240) mn).
3 From the classification of the Korean life business as “held for sale” in the second quarter of 2016 until its disposal in the fourth quarter of 2016, the total result was considered as non-operating. Furthermore tax reclassifications are included in this line.
Total revenues1 Premiums earned (net) Operating profit (loss) Net income (loss)
Global Insurance Lines & Anglo Markets 587 634 390 494 30 47 25 36 1 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking).
2 From the classification of the Korean life business as “held for sale” in the second quarter of 2016 until its disposal in the fourth quarter of 2016, the total result was considered as non-operating.
Available-for-sale investments 512,268 488,365 Held-to-maturity investments 2,399 2,745 Funds held by others under reinsurance contracts assumed 912 1,349 Investments in associates and joint ventures 7,161 5,056 Real estate held for investment 11,732 11,977 Fixed assets of renewable energy investments 2,397 1,763 6 – Financial assets carried at fair value through income
FInancIal assets carrIed at FaIr value through Income € mn as of 31 December 2016 2015
Financial assets held for trading Debt securities 264 489 Equity securities 210 187 Derivative financial instruments 2,433 1,582
Government and government agency bonds1 173,456 27,121 (1,663) 198,914 177,087 26,398 (1,462) 202,023 1 As of 31 December 2016, fair value and amortized cost of bonds from countries with a rating below aa amount to € 73,519 mN (2015: € 73,968 mN) and € 67,571 mN (2015: € 67,028 mN), respectively.
Government and government agency bonds 2,001 342 – 2,343 2,184 363 (2) 2,544 1 Also include corporate mortgage-backed securities. 2 As of 31 December 2016, fair value and amortized cost of debt securities with a contractual maturity of less than 12 months amount to € 294 mN (2015: € 397 mN) and € 287 mN (2015: € 365 mN), respectively.
INVESTMENTS IN ASSOCIATES AND JOINT VENTURES As of 31 December 2016, loans to associates and joint ventures as well as available-for-sale debt securities issued by associates and joint ventures held by the Allianz Group amounted to € 1,381 mn (2015: € 2,195 mn).
Share of earnings 290 292 Share of other comprehensive income 9 80 Share of total comprehensive income 299 371
Changes in the consolidated subsidiaries of the Allianz Group (1) 247 Disposals and reclassifications into non-current assets and assets of disposal groups classified as held for sale (425) (330)
Reversals of impairments 59 40 Carrying amount as of 31 December 11,732 11,977 Accumulated depreciation as of 31 December 2,959 3,136 Cost as of 31 December 14,691 15,113
Cost as of 1 January 2,151 2,284 Accumulated depreciation as of 1 January (387) (819) Carrying amount as of 1 January 1,763 1,465
Changes in the consolidated subsidiaries of the Allianz Group 2 (197)
Unearned premiums 1,543 1,655 Reserves for loss and loss adjustment expenses 8,685 7,712 Aggregate policy reserves 5,211 5,366 Other insurance reserves 124 110
Carrying amount as of 1 January 5,366 4,998 Foreign currency translation adjustments 92 397 Changes recorded in the consolidated income statements 175 183 Other changes (422) (212) Carrying amount as of 31 December 5,211 5,366
The reserves for loss and loss adjustment expenses ceded to reinsurers in the business segment Property-Casualty amounted as of 31 December 2016 to € 8,119 mn (2015: € 7,228 mn). Their change is shown in the respective table in note 15 Reserves for loss and loss adjustment expenses.
Reinsurance involves credit risk and is subject to aggregate loss limits. Reinsurance does not legally discharge the respective Allianz company from primary liability under the reinsured policies. Although the reinsurer is liable to this company to the extent of the business ceded, the Allianz company remains primarily liable as the direct insurer on all the risks it underwrites, including the share that is reinsured. The Allianz Group monitors the financial condition of its reinsurers on a regular basis and reviews its reinsurance arrangements periodically in order to evaluate the reinsurer’s ability to fulfill its obligations to the Allianz Group companies under existing and planned reinsurance contracts. The Allianz Group’s evaluation criteria, which include the degree of creditworthiness, capital levels and marketplace reputation of its reinsurers, are such that the Allianz Group believes that its reinsurance credit risk is not significant, and historically has not experienced noteworthy difficulty in collecting claims from its reinsurers. Additionally, and as appropriate, the Allianz Group may also require letters of credit, deposits, or other financial guarantees to further minimize its exposure to credit risk. In certain cases, however, the Allianz Group does establish an allowance for doubtful amounts related to reinsurance as appropriate, although this amount was not significant as of 31 December 2016 and 2015. The Allianz Group primarily maintains business relations with highly rated reinsurers.
Other assets 1,756 1,664 1 Includes other assets due within one year of € 32,767 mN (2015: € 31,068 mN).
Accumulated depreciation as of 1 January (1,084) (4,310) (2,828) (1,071) (4,218) (2,576) Carrying amount as of 1 January 3,261 2,361 1,426 2,566 2,142 1,291
Changes in the consolidated subsidiaries of the Allianz Group (56) (31) 15 84 (15) 63 Disposals and reclassifications into non-current assets and assets of disposal groups classified as held for sale (152) (35) (129) (110) (102) (94)
Reversals of impairments 13 – – 4 – – Carrying amount as of 31 December 3,024 1 2,640 2 1,477 3,261 2,361 1,426 Accumulated depreciation as of 31 December 971 4,643 2,904 1,084 4,310 2,828 1 As of 31 December 2016, assets pledged as security and other restrictions on title were € 121 mN (2015: € 121 mN).
12 – Intangible assets IntangIble assets € mn as of 31 December 2016 2015
2 Primarily includes the acquired business portfolio of Allianz Yasam ve Emeklilik a.s. of € 98 mN (2015: € 120 mN).
3 Primarily includes heritable building rights, land use rights, lease rights and brand names.
Cost as of 1 January 13,077 13,156 Accumulated impairments as of 1 January (976) (990) Carrying amount as of 1 January 12,101 12,166
Additions are mainly related to goodwill arising from the acquisition of the Property-Casualty insurance business of the Territory Insurance Office, Darwin, effective 1 January 2015, as well as from the acquisition of several windparks.
Allocation principles For the purpose of impairment testing, the Allianz Group has allocated goodwill to CGUs1. These CGUs represent the lowest level at which goodwill is monitored for internal management purposes.
CGUs in the Property-Casualty business segment are: − Insurance German Speaking Countries, − Insurance Western & Southern Europe, Middle East and Africa, including Belgium, France, Greece, Italy, Luxembourg, the Netherlands, Turkey, Middle East and Africa,
Specialty and Credit Insurance, and − Specialty Lines II, including Allianz Worldwide Partners.
− Insurance Central and Eastern Europe, including Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania and Slovakia, and
1 The following paragraphs only include the cGUs that contain goodwill.
ProPerty-CASUAlty Insurance German Speaking Countries 285 281 Insurance Western & Southern Europe, Middle East and Africa 1,418 1,327 Insurance Iberia & Latin America 21 21 Insurance Asia Pacific 101 81 Insurance Central and Eastern Europe 292 292 Global Insurance Lines & Anglo Markets 376 386 Specialty Lines I 39 39 Specialty Lines II 21 21 lIfe/HeAltH Insurance German Speaking Countries 629 611 Health Germany 330 327 Insurance Western & Southern Europe, Middle East and Africa 655 654 Insurance Central and Eastern Europe 23 23 Insurance USA 481 471
Euro swap curve minus 10 bps credit risk adjustment plus 13 bps volatility adjustment CHf swap curve minus 10 bps credit risk adjustment plus 5 bps volatility adjustment
Health Germany Euro swap curve minus 10 bps credit risk adjustment plus 13 bps volatility adjustment
Euro swap curve minus 10 bps credit risk adjustment plus 13 bps volatility adjustment
Insurance USA Local swap curve minus 15 bps credit risk adjustment plus 52 bps volatility adjustment
Property-Casualty 17,276 17,071 Life/Health 4,108 3,605 15 – Reserves for loss and loss adjustment expenses As of 31 December 2016, the reserves for loss and loss adjustment expenses of the Allianz Group amounted in total to € 72,373 mn (2015: € 72,003 mn). The following table reconciles the beginning and ending reserves for the Property-Casualty business segment for the years ended 31 December 2016 and 2015.
ChaNge iN the ReseRves fOR LOss aND LOss aDjUstMeNt expeNses iN the pROpeRty-CasUaLty bUsiNess segMeNt € mn
Balance carry forward of discounted loss reserves 3,882 (332) 3,550 3,597 (326) 3,271
Foreign currency trans lation adjustments and other changes1 407 (84) 323 1,755 (534) 1,221 Changes in the consolidated subsidiaries of the Allianz Group 272 (7) 265 (39) 1 (38)
Ending balance of discounted loss reserves (4,055) 298 (3,757) (3,882) 332 (3,550)
1 Include effects of foreign currency translation adjustments for prior years’ claims of gross € 116 MN (2015: € 1,423 MN) and of net € (41) MN (2015: € 1,272 MN) and for current year claims of gross € (55) MN (2015: € (234) MN) and of net € (68) MN (2015: € (195) MN).
CHANGES IN HISTORICAL RESERVES FOR LOSS AND LOSS ADJUSTMENT EXPENSES (LAE) The analysis of loss and LAE reserves by actuaries and management is conducted by line of business and separately for specific claim types such as asbestos and environmental claims. The origin year of losses is taken into consideration by analyzing each line of business by accident year. While this determines the estimates of reserves for loss and LAE by accident year, the effect in the consolidated income statement in the respective calendar year combines the accident year loss ratio for the current year with the favorable or adverse development from prior years (run-off).
CALENDAR YEAR PREMIUMS EARNED AND ULTIMATE LOSS RATIO FOR THE INDIVIDUAL ACCIDENT YEARS AT THE RESPECTIVE REPORTING DATE (NET)
The ultimate loss of an accident year comprises all payments made for that accident year up to the reporting date, plus the loss reserve at the reporting date. Given complete information regarding all losses incurred up to the reporting date, the ultimate loss for each accidentyear period would remain unchanged. In practice, however, the ultimate loss (based on estimates) is exposed to fluctuations that reflect the increase in knowledge regarding the loss cases. The loss ratio presented above deviates from the reported loss ratio because the ultimate loss in the table above is based on the sum of the payments plus the loss reserve, not the incurred loss from the consolidated income statement. This means that effects like changes in consolidated subsidiaries, foreign currency translation and reclassification of unwinding of discounted loss reserves are presented differently.
As of 1 January 425,312 399,227 Balance carry forward of discounted loss reserves (3,882) (3,597)
Foreign currency translation adjustments 2,820 9,358 Changes in the consolidated subsidiaries of the Allianz Group (10,287) – Changes recorded in the consolidated income statement 196 2,546 Premiums collected 25,945 24,076 Separation of embedded derivatives (555) 90 Interest credited 4,535 5,319 Dividends allocated to policyholders 1,224 1,368 Releases upon death, surrender and withdrawal (15,719) (16,145) Policyholder charges (1,643) (1,652) Portfolio acquisitions and disposals (9) (270) Other changes1 1,757 1,108
Amounts already allocated under local statutory or contractual regulations As of 1 January 15,400 15,020 Foreign currency translation adjustments 7 29 Changes in the consolidated subsidiaries of the Allianz Group (36) –
CONCENTRATION OF INSURANCE RISK IN THE LIFE/HEALTH BUSINESS SEGMENT The Allianz Group’s Life/Health business segment provides a wide variety of insurance and investment contracts to individuals and groups in over 30 countries around the world. Individual contracts include both traditional contracts and unit-linked contracts. Without taking policyholder participation into account, traditional contracts generally incorporate significant investment risk for the Allianz Group, while unit-linked contracts generally result in the contract holder assuming the investment risk. Traditional contracts include life, endowment, annuity and health contracts. Traditional annuity contracts are issued in both deferred and immediate types. In addition, the Allianz Group’s life insurance operations in the United States issue a significant amount of equity-indexed deferred annuities. In certain markets, the Allianz Group also issues group life, group health and group pension contracts.
The majority of the Allianz Group’s Life/Health business segment operations are conducted in Western Europe. Insurance laws and regulations in Europe have historically been characterized by legal or contractual minimum participation of contract holders in the profits of the insurance company issuing the contract. In particular, life insurance business in Germany, Switzerland and Austria, which comprises approximately 49 % (2015: 47 %) of the Allianz Group’s reserves for insurance and investment contracts as of 31 December 2016, includes a substantial level of policyholder participation in all sources of profit, including mortality/morbidity, investment and expense. As a result of this policyholder participation, the Allianz Group’s exposure to insurance, investment and expense risk is mitigated.
Furthermore, all of the Allianz Group’s annuity policies issued in the United States meet the criteria for classification as insurance contracts under IFRS 4, because they include options for contract holders to elect a life-contingent annuity. These contracts currently do not expose the Allianz Group to significant longevity risk, nor are they expected to do so in the future, as the projected and observed annuitization rates are very low. Additionally, many of the Allianz Group’s traditional contracts issued in France and Italy do not incorporate significant insurance risk, although they are accounted for as insurance contracts because of their discretionary participation features. Similarly, a significant portion of the Allianz Group’s unit-linked contracts in France and Italy do not incorporate significant insurance risk.
% of total reserves1 1 Total reserves are the sum of aggregate policy reserves and financial liabilities for unit-linked contracts.
ChaNges iN fiNaNCiaL LiabiLities fOR UNit-LiNKeD iNsURaNCe CONtRaCts aND UNit-LiNKeD iNvestMeNt CONtRaCts € mn
2 Consists of € 71,706 MN (2015: € 67,894 MN) unit-linked insurance contracts and € 39,620 MN (2015: € 37,979 MN) unit-linked investment contracts.
Pensions and similar obligations 9,401 9,149 Employee related 2,551 2,599 Share-based compensation plans 431 527 Restructuring plans 95 112 Other provisions 2,121 1,840
Contractual maturity date as of as of 31 December 2015Up to 1 year > 1 year up to 5 years Over 5 years
Certificated liabilities Allianz Finance II b.V., Amsterdam DE000A1HG1J8 2013 EUR 500 1.375 13 March 2018
DE000A1YCQ29 2013 EUR 1,500 4.750 Perpetual CH0234833371 2014 CHF 500 3.250 Perpetual DE000A13R7Z7 2014 EUR 1,500 3.375 Perpetual XS1485742438 2016 USD 1,500 3.875 Perpetual
DE000A0GNPZ3 2006 EUR 800 5.375 Perpetual 114 Annual Report 2016 Allianz Group
20 – Equity eqUity € mn as of 31 December 2016 2015
Shareholders’ equity Issued capital 1,170 1,170 Additional paid-in capital 27,758 27,758 Retained earnings1 27,336 24,222 Foreign currency translation adjustments (754) (926) Unrealized gains and losses (net)2,3 11,830 10,920
AUTHORIZED CAPITAL As of 31 December 2016, Allianz SE had authorized capital for the issuance of 214,843,750 shares until 6 May 2019, with a notional amount of € 550 mn (Authorized Capital 2014/I). The shareholders’ subscription rights can be excluded for capital increases against contribution in kind. For a capital increase against contributions in cash, the shareholders ’ subscription rights can be excluded: (i) for fractional amounts, (ii) if the issue price is not significantly below the market price and the shares issued under exclusion of the subscription rights pursuant to § 186 (3) sentence 4 of the German Stock Corporation Act (Aktiengesetz) do not exceed 10 % of the share capital, and (iii) to the extent necessary to grant a subscription right for new shares to the holders of bonds that carry conversion or option rights or provide for mandatory conversion. The subscription rights for new shares from the Authorized Capital 2014/I and the Conditional Capital 2010/2014 may only be excluded for the proportionate amount of the share capital of up to € 234 mn (corresponding to 20 % of the share capital at year-end 2013).
Convertible subordinated notes totaling € 500 mn, which may be converted into Allianz shares, were issued against cash in July 2011. Within 10 years after the issuance a mandatory conversion of the notes into Allianz shares at the then prevailing share price may apply if certain events occur, subject to a floor price of at least € 74.90 per share. Within the same period, the investors have the right to convert the notes into Allianz shares at a price of € 187.26 per share. Both conversion prices are subject to anti-dilution provisions. The subscription rights of shareholders for these convertible notes have been excluded with the consent of the Supervisory Board and pursuant to the authorization of the AGm on 5 May 2010. The granting of new shares to persons entitled under such convertible notes is secured by the Conditional Capital 2010/2014. On or before 31 December 2016, there was no conversion of any such notes into new shares.
The proposal for appropriation of net earnings reflects the 1,932,203 treasury shares held directly and indirectly by the company at the time of the preparation (“Aufstellung”) of the annual financial statements by the Board of Management on 14 February 2017. Such treasury shares are not entitled to the dividend pursuant to § 71b of the German Stock Corporation Act (AktG). Should there be any change in the number of shares en titled to the dividend by the date of the Annual General Meeting, the above proposal will be amended accordingly and presented for resolution on the appropriation of net earnings at the Annual General Meeting, with an unchanged dividend of € 7.60 per each share entitled to dividend.
In the year ending 31 December 2016, 617,084 (2015: 575,584) shares were sold to employees of Allianz SE, as well its subsidiaries in Germany and abroad in the context of the Employee Stock Purchase Plan. These shares were taken from the stock of treasury shares dedicated to this purpose. In 2016, as in the previous year, no capital increase for the purpose of Employee Stock Purchase Plans was undertaken. Employees of the Allianz Group purchased shares at prices ranging from € 94.54 (2015: € 98.42) to € 121.84 (2015: € 125.84) per share. As of 31 December 2016, the remaining treasury shares of Allianz SE held for covering subscriptions by employees in the context of the Employee Stock Purchase Plan of Allianz SE and its subsidiaries in Germany and abroad amounted to 905,648 shares.
In the year ending 31 December 2016, the total number of treasury shares of Allianz SE decreased by 244,099 (2015: decrease of 575,584) shares, which corresponds to € 624,893 (2015: € 1,473,495) or 0.05 % (2015: 0.126 %) of issued capital.
The treasury shares of Allianz SE and its subsidiaries represent € 5 mn (2015: € 6 mn) or 0.42 % (2015: 0.48 %) of the issued capital.
Unrealized gains and losses (net) 174 162 Share of earnings 367 371 Other equity components 2,510 2,422
Insurance subsidiaries of the Allianz Group including Allianz SE prepare individual financial statements based on local laws and regulations. Local regulations establish additional restrictions on the minimum level of capital and the amount of dividends that may be paid to shareholders. The respective local minimum capital requirements are based on various criteria including, but not limited to, the volume of premiums written or claims paid, amount of insurance reserves, investment risks, mortality risks, credit risks, and underwriting risks.
As of 31 December 2016, the Allianz Group believes that there are no outstanding regulatory capital or compliance matters that would have a material adverse effect on the financial position or the results of operations of the Allianz Group.
Some insurance subsidiaries are subject to regulatory restrictions on the amount of dividends which can be remitted to Allianz SE without prior approval by the appropriate regulatory body. Such restrictions require that a company may only pay dividends up to an amount in excess of certain regulatory capital levels, or based on the levels of undistributed earned surplus or current year income or a percentage thereof. The Allianz Group believes that these restrictions will not affect the ability of Allianz SE to pay dividends to its shareholders in the future.
2 Own funds and capital requirement are calculated under consideration of volatility adjustment and yield curve extension, as described in Yield curve and volatility adjustment assumptions on page 67.
Income from financial assets and liabilities held for trading (net) (2,416) (3,936) Income from financial assets and liabilities designated at fair value through income (net) 139 12 Income from financial liabilities for puttable equity instruments (net) 6 13 Foreign currency gains and losses (net)1 1,272 1,604 1 These foreign currency gains and losses arise subsequent to initial recognition on all assets and liabilities denominated in a foreign currency that are monetary items and not measured at fair value through income.
Consoli- dation Group 28 – Change in reserves for insurance and investment contracts (net)
Consoli- dation Group 29 – Interest expenses interest exPenses € mn
25 – Fee and commission income fee and commission income € mn
CoRPoRate and otHeR Service agreements 330 234 Investment advisory and banking activities 735 741 118 Annual Report 2016 Allianz Group
33 – Fee and commission expenses fee and commission exPenses € mn
Of the deferred income taxes for the year ended 31 December 2016, expenses of € 322 mn (2015: € 309 mn) are attributable to the recognition of deferred taxes on temporary differences, and expenses of € 41 mn (2015: € 12 mn) are attributable to tax losses carried forward. Changes of applicable tax rates due to changes in tax law produced deferred tax expenses of € 13 mn (2015: tax income of € 1 mn).
Non-current assets and assets of disposal groups classified as held for sale (315) –
Reversals of impairments 103 48 31 – Investment expenses investment exPenses € mn
For the years ended 31 December 2016 and 2015, the income taxes relating to components of other comprehensive income consist of the following: income taxes relating to comPonents of other comPrehensive income € mn
The recognized income taxes for the year ended 31 December 2016 are € 32 mn below (2015: € 155 mn above) the calculated income taxes, which are determined by multiplying the respective income before income taxes with the applicable country-specific tax rates. The following table shows the reconciliation from the calculated income taxes to the effectively recognized income taxes of the Allianz Group. The Allianz Group’s reconciliation is a summary of the individual company-related reconciliations, which are based on the respective country-specific tax rates taking into consideration consolidation effects with an impact on the Group result. The applicable tax rate used in the reconciliation for domestic Allianz Group companies includes corporate tax, trade tax and the solidarity surcharge, and amounted to 31.0 % (2015: 31.0 %).
Income before income taxes 10,292 10,196 Applied weighted income tax rate 29.9 % 30.0 % Calculated income taxes 3,074 3,054 Trade tax and similar taxes 193 184 Net tax exempt income (309) (108) Effects of tax losses 61 82 Other effects 23 (3) Effective income taxes 3,042 3,209
The tax rates used in the calculation of the Allianz Group’s deferred taxes are the applicable national rates, which in 2016 ranged from 10.0 % to 45.0 %, with changes to tax rates that had already been adopted in France, Hungary, Luxembourg, Slovakia and the United Kingdom until 31 December 2016 taken into account.
Deferred tax assets on losses carried forward are recognized to the extent to which it is more likely than not that sufficient future taxable profits will be available for realization. Entities which suffered a tax loss in either the current or the preceding period recognized deferred tax assets in excess of deferred tax liabilities amounting to € 334 mn (2015: € 466 mn), as there was convincing other evidence that sufficient taxable profit will be available.
deferred tax assets and liabilities € mn as of 31 December 2016 2015 defeRRed tax assets Financial assets carried at fair value through income 80 136
Taxable temporary differences associated with investments in Allianz Group companies for which no deferred tax liabilities are recognized, as the Allianz Group is able to control the timing of their reversal, and which will not reverse in the foreseeable future, amounted to € 1,150 mn (2015: € 585 mn). Deductible temporary differences arising from investments in Allianz Group companies for which no deferred tax assets are recognized, as it is not probable that they will reverse in the foreseeable future, amounted to € 97 mn (2015: € 98 mn).
Tax losses carried forward are scheduled according to their expiry periods as follows: tax losses carried forward € mn >10 years 175 Unlimited 9,139 Total 9,697 121Annual Report 2016 Allianz Group
35 – Derivative financial instruments Derivative financial instruments € mn as of 31 December 2016 2015
Negative fair valuesUp to 1 year 1 – 5 years Over 5 years
Additionally, the Allianz Group uses fair value hedges to hedge its equity portfolio against equity market risk. As of 31 December 2016, the derivatives used as hedging instruments in the related fair value hedges had a total positive fair value of € 11 mn (2015: € 84 mn).
CASH FLOW HEDGES During the year ended 31 December 2016, cash flow hedges were used to hedge the exposure to the variability of cash flows arising from interest rate or exchange rate fluctuations as well as inflation. As of 31 December 2016, the derivative instruments utilized had a total positive fair value of € 540 mn (2015: € 177 mn). Unrealized gains and losses (net) in shareholders’ equity increased by € 58 mn (2015: decreased by € 49 mn). Amounts accumulated in the other comprehensive income are reclassified to profit or loss in the periods when the hedged item affects profit or loss. This is the case when the forecast transactions that are hedged take place.
fair values anD carrying amounts of financial instruments € mn as of 31 December 2016 2015
The following table presents the fair value hierarchy for financial instruments carried at fair value in the consolidated balance sheets as of 31 December 2016 and 2015: fair value hierarchy (items carrieD at fair value) € mn as of 31 December 2016 2015
Financial assets held for trading 447 2,451 9 2,907 192 2,018 47 2,258 Financial assets designated at fair value through income 4,205 1,043 178 5,426 3,836 1,037 137 5,010
Financial assets for unit-linked contracts 91,071 19,877 377 111,325 102,954 2,755 164 105,873 Derivative financial instruments and firm commitments included in other assets – 677 – 677 – 565 – 565
Financial assets held for trading – Derivative financial instruments The fair value is mainly determined based on the income approach, using present value techniques and the Black-Scholes-Merton model. Primary inputs for the valuation include volatilities, interest rates, yield curves, and foreign exchange rates observable at commonly quoted intervals.
For level 3, the fair value is mainly determined based on the net asset value.
FINANCIAL LIABILITIES HELD FOR TRADING – DERIVATIVE FINANCIAL INSTRUMENTS For level 2, the fair value is mainly determined using the income approach. Valuation techniques applied for the income approach mainly include discounted cash flow models as well as the BlackScholes -Merton model. Main observable input parameters include volatilities, yield curves observable at commonly quoted intervals, and credit spreads observable in the market.
SIGNIFICANT TRANSFERS OF FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE In general, financial assets and liabilities are transferred from level 1 to level 2 when liquidity, trade frequency, and activity are no longer indicative of an active market. The same policy applies for transfers from level 2 to level 1.
certain investments, the capital invested is considered to be a reasonable proxy for the fair value. In these cases, sensitivity analyses are also not applicable.
Available-for-sale investments – Corporate bonds Corporate bonds within available-for-sale investments classified as level 3 are mainly priced based on the income approach. The primary non-market observable input used in the discounted cash flow method is an option-adjusted spread taken from a benchmark security (€ 7.3 bn). A significant yield increase of the benchmark securities in isolation could result in a decreased fair value, while a significant yield decrease could result in an increased fair value. However, a 10 % stress of the main non-market observable inputs has only immaterial impact on fair value.
Fixed-indexed annuities 6,668 Discounted cash flow method Annuitizations 0 % – 25 %
Volatility n/a Variable annuities 2,275 Discounted cash flow method Surrenders 0.5 % – 35 %
If financial assets are measured at fair value on a non-recurring basis at the time of impairment, or if fair value less cost to sell is used as the measurement basis under IFRS 5, corresponding disclosures can be found in note 30 Impairments of investments (net).
FAIR VALUE INFORMATION ABOUT FINANCIAL ASSETS AND LIABILITIES NOT CARRIED AT FAIR VALUE
Investments in associates and joint ventures 99 148 8,784 9,031 362 40 5,806 6,207 Real estate held for investment – – 18,380 18,380 – – 17,810 17,810 Loans and advances to banks and customers 5,913 80,130 38,378 124,422 4,978 82,913 48,505 136,397
LOANS AND ADVANCES TO BANKS AND CUSTOMERS For loans and advances to banks and customers, quoted market prices are rarely available. Level 1 mainly consists of highly liquid advances, e.g. short-term investments. The fair value for these assets in level 2 and level 3 is mainly derived based on the income approach using deterministic discounted cash flow models.
ASSETS PLEDGED AND COLLATERAL The carrying amounts of the assets pledged as collateral are displayed in the following table: assets pleDgeD as collateral € mn as of 31 December 2016 2015
As of 31 December 2016, the Allianz Group has received collateral, consisting of fixed income and equity securities, with a fair value of € 3,799 mn (2015: € 2,349 mn), which the Allianz Group has the right to sell or repledge. For the years ended 31 December 2016 and 2015, no pre viously received collateral was sold or repledged by the Allianz Group.
As of 31 December 2016, the Allianz Group received cash collateral with a carrying amount of € 163 mn (2015: € 212 mn).
FUND MANAGEMENT ACTIVITIES Within the asset management business, investment funds are established and managed to accommodate retail and institutional clients’ requirements to hold investments in specific assets, market segments or regions. Within the insurance business, policyholder money is partly invested in investment funds, which include funds managed by Allianz Group internal asset managers as well as funds set up and managed by third parties. Investment funds managed or invested in by Allianz Group may include mutual funds, special funds and other funds.
INTERESTS IN ASSET-BACKED SECURITIES (ABS) AND MORTGAGE- BACKED SECURITIES (MBS) ISSUED BY SECURITIZATION VEHICLES
carrying amounts of abs anD mbs investments by type of category € mn as of 31 December
The carrying amounts in the tables listed above correspond to an aggregated amortized cost amount of € 21,425 mn (2015: € 21,244 mn). This amortized cost amount represents the maximum exposure to loss for the Allianz Group from these investments. In the reporting period, the Allianz Group has not provided any financial or other support to these entities, nor does it have the intention to provide such support in the future.
Out of the total investment fund exposure, investments of € 10.2 bn (2015: € 10.1 bn) relate to listed investment funds, whereas investments of € 11.6 bn (2015: € 9.2 bn) relate to unlisted investment funds.
The carrying amounts in the tables listed above correspond to an aggregated amortized cost amount of € 18,279 mn (2015: € 16,196 mn). This amortized cost amount represents the maximum exposure to loss for the Allianz Group from these investments. In the reporting period, the Allianz Group has not provided any financial or other support to these entities, nor does it have the intention to provide such support in the future.
Besides the above-mentioned investments in investment funds, the Allianz Group also holds investment funds to fund unit-linked insurance contracts. However, these holdings are held on behalf and for the benefit of unit-linked policyholders only. For that reason, these holdings are not included in the above-mentioned table. As of 31 December 2016, the volume of unit-linked assets amounted to € 111,325 mn (2015: € 105,873 mn). The maximum exposure to loss on these investments is covered by liabilities recorded for unit-linked contracts.
38 – Related party transactions Information on the remuneration of Board members and transactions with these persons can be found in the Remuneration Report, starting on page 24.
On 24 May 2002, pursuant to a statutory squeeze-out procedure, the general meeting of Dresdner Bank AG resolved to transfer shares from its minority shareholders to Allianz as principal shareholder in return for payment of a cash settlement amounting to € 51.50 per share. Allianz established the amount of the cash settlement on the basis of an expert opinion, and its adequacy was confirmed by a court appointed auditor. Some of the former minority shareholders applied 130 Annual Report 2016 Allianz Group
for a court review of the appropriate amount of the cash settlement in a mediation procedure (“Spruchverfahren”). In September 2013, the district court (“Landgericht”) of Frankfurt dismissed the minority shareholders’ claims in their entirety. This decision has been appealed to the higher regional court (“Oberlandesgericht”) of Frankfurt. In the event that a final decision were to determine a higher amount as an appropriate cash settlement, this would affect all of the approximately 16 mn shares that were transferred to Allianz.
FINANCIAL GUARANTEES The majority of the Allianz Group’s financial guarantees are issued to customers through the normal course of banking business in return for fee and commission income, which is generally determined based on rates subject to the nominal amount of the guarantees and inherent credit risks. Once a guarantee has been drawn upon, any amount paid by the Allianz Group to third parties is treated as a loan to the customer and is, therefore, basically subject to the credit risk of the customer or the collateral pledged, respectively.
As of 31 December 2016, the indemnification contracts amount to € 29 mn (2015: € 89 mn). This amount is almost entirely due after five years. The collateral held amounts to € 5 mn (2015: € - mn). Nearly all customers of the indemnification contracts have an external credit rating of bb.
PERFORMANCE GUARANTEES Performance guarantees are given by the Allianz Group to ensure third-party entitlements if certain performance obligations of the guarantee recipient are not fulfilled.
LEASING COMMITMENTS The Allianz Group occupies property in many locations under various long-term operating leases as well as one long-term finance lease and has entered into various operating leases covering the long-term use of data processing equipment and other office equipment.
As of 31 December 2016, the future minimum lease payments under non-cancelable operating and finance leases were as follows: Operating leases future minimum lease payments – operating leases € mn
Due in 1 year or less 403 Due after 1 year and up to 5 years 1,322 Due after 5 years 1,465 Subtotal 3,190 Subleases 333 Total 2,857
The insurance guarantee scheme for life insurers levies annual contributions and, under certain circumstances, special contributions. As of 31 December 2016, the future liabilities of Allianz Lebensversicherungs -AG and its subsidiaries to the insurance guarantee scheme pursuant to the SichLVFinV amount to annual contributions of € 11.2 mn (2015: € 11.9 mn) and potential special contributions of, in principle, € 194 mn (2015: € 157 mn) per year. In addition, Allianz Lebensversicherungs-AG and some of its subsidiaries have assumed a contractual obligation to provide, if required, further funds to Protektor Lebensversicherungs-AG (“Protektor”), a life insurance company that has assumed the task of the mandatory insurance guarantee scheme for life insurers. Such obligation is, in principle, based on a maximum of 1 % of the sum of the net underwriting reserves with deduction of payments already provided to the insurance guarantee scheme. As of 31 December 2016, and under inclusion of the contributions to the mandatory insurance scheme mentioned above for a limited period of time, and assuming that no other life insurer is exempted from payments, the aggregate out standing commitment of Allianz Lebensversicherungs-AG and its subsidiaries to the insurance guarantee scheme and to Protektor is € 1,755 mn (2015: € 1,424 mn).
The mandatory insurance guarantee scheme (Sicherungsfonds) for health insurers levies only special contributions following the take-over of insurance contracts. Up until the reporting date, no contributions have been requested. As of 31 December 2016, the potential liabilities of Allianz Private Krankenversicherungs-AG for special contributions to the insurance guarantee scheme amount to € 54 mn (2015: € 52 mn).
40 – Pensions and similar obligations OVERVIEW Retirement benefits in the Allianz Group, which are granted to employees and in Germany also to agents, are either in the form of defined benefit or defined contribution plans. For defined benefit plans, the beneficiary is granted a defined benefit by the employer or via an external entity. In contrast to defined contribution arrangements, the future cost to the employer of a defined benefit plan is not known with certainty in advance.
In the Pension Task Force, the heads of Group HR, Group Accounting and Reporting, Group Treasury and Corporate Finance, Group Planning and Controlling, Group Risk and AIM met four times to provide global governance and pre-align pension-related topics such as risk management and Solvency II prior to relevant Group Committee meetings.
Disability benefits are granted until retirement pension is paid. In the case of death in the previous plans, surviving dependents normally receive 60 % (widow/widower) and 20 % (per child) of the original employee’s pension, in total not to exceed 100 %. In “My Allianz Pension” the surviving dependents gain the accrued capital.
The plans are contribution-based and cover the risks of longevity, disability and death. Employees contribute only a small amount whereas the employer contributes for the complete risk coverage and a large part of the savings components. The interest rate is decided annually by the board of the pension funds. For the mandatory part, the minimum interest rate is regulated by law and reviewed annually (1.25 % in 2016, 1.00 % in 2017). At retirement, beneficiaries can choose between a lump sum payment, an annuity or a combination of both where the part which is not granted as a lump sum is converted to a fixed annuity according to the rules of the pension fund, taking into account legal requirements.
Expenses recognized in the consolidated income statements 857 986 313 302 1 1 545 686 Actuarial (gains)/losses due to
Settlement payments/Assets distributed on settlement4 (50) (229) (50) (229) – – – –
Enhanced Value Transfer program, excluding the additional contribution of € 35 mn for the new contri­ bution based plan which is shown under Defined contribution plans.
5 For 2015, these include € 204 mn (defined benefit obligation) and € 183 mn (fair value of plan assets) for the deconsolidated subsidiary Selecta.
As of 31 December 2016, post-retirement health benefits included in the defined benefit obligation and in the net amount recognized amounted to € 10 Mn (2015: € 11 Mn) and € 10 Mn (2015: € 11 Mn), respectively.
ASSUMPTIONS The assumptions for the actuarial computation of the defined benefit obligation and the recognized expense depend on the circumstances in the particular country where the plan has been established.
The weighted average values of the assumptions for the Allianz Group’s defined benefit plans used to determine the defined benefit obligation and the recognized expense are as follows: assumPtions foR DefineD Benefit Plans %
An increase (or decrease) in the discount rate by 50 basis points would lead to a decrease of € 1.7 bn (or increase of € 1.9 bn) in the defined benefit obligation.
A change in the medical cost trend rate by 100 basis points would have an effect of € 1 Mn on the defined benefit obligation and no material effect on the defined benefit costs.
PLAN ASSETS/ASSET LIABILITY MANAGEMENT (ALM) Based on the estimated future cash flows of € 711 Mn for 2017, € 745 Mn for 2018, € 770 Mn for 2019, € 789 Mn for 2020, € 842 Mn for 2021 and € 4,448 Mn for 2022 – 2026, the weighted duration of the defined benefit obligation is 15.5 years. The Allianz Group uses, based on the liability profiles of the defined benefit obligation and on the regulatory funding requirements, stochastic asset liability models to optimize the asset allocation from a risk-return perspective.
In addition to the plan assets of € 14.0 bn, the Allianz Group has ded icated assets at Group level amounting to € 7.4 bn as of 31 December 2016, which are likewise managed according to Allianz ALM standards.
The SARs granted to a plan participant obligate the Allianz Group to pay in cash the excess of the market price of an Allianz SE share over the reference price on the exercise date for each right granted. The excess is capped at 150 % of the reference price. The reference price represents the average of the closing prices of an Allianz SE share for the ten trading days following the Financial Press Conference of Allianz SE in the year of issue. SAR which were granted up to 2008 vest after two years and expire after seven years. From the 2009 grant onwards, SARs vest after four years and also expire after seven years.
Upon vesting, SARs may be exercised by the plan participant if the following market conditions are attained: − During their contractual term, the market price of the Allianz SE share has outperformed the Dow Jones EURO STOXX Price Index at least once for a period of five consecutive trading days; and
In addition, upon the death of a plan participant, a change of control, or notice for operational reasons, the SARs vest immediately and will be exercised by the company provided the above market conditions have been attained.
ALLIANZ EQUITY INCENTIVE PLAN Since the 2011 grant year, the Allianz Equity Incentive plan (AEI plan) has replaced the GEI plans. The AEI plan is granted in the form of restricted stock units (RSUs) and is part of a new variable compensation component for the plan beneficiaries.