MAnAGeMent Discussion AnD AnAlYsis 79 Business Environment 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations risk AnD opportunitY report AnD FinAnciAl control 123 Risk and Opportunity Report 144 Controls over Financial Reporting and Risk Capital
D Consolidated Financial Statements 150 Content 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of Changes in Equity 155 Consolidated Statements of Cash Flows 157 Notes to the Consolidated Financial Statements
thereof: Attributable to shareholders € Mn 6,221 3.8 % 5,996 5,231 2,591 5,053 4,207 (2,363) 84
7 Based on average shareholders’ equity. Average shareholders’ equity has been calculated based upon the average of the current and the preceding year’s shareholders’ equity as of 31 December.
11 Pro-forma after sale of Dresdner Bank completed. 12 For further information about insurer financial strength ratings of Allianz SE, please refer to page 125. 13 Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset
On pages 273 to 276, you will find a glossary of selected accounting, insurance and financial market terms used in this report.
The Allianz Group Sustainability Report covers our contribution to the environment, society and economy. It provides full details of our sustainability strategy, approach and progress as well as an outlook for 2015.
Whatever tricks nature plays, whichever trends the financial markets follow, whenever risks turn into an emergency or a loss, Allianz stands by its clients, protecting them and helping them to realize their goals in life – as it has done since its founding 125 YEARS AGO. Its CAPITAL STRENGTH and INNOVATIVE POWER as well as the DEDICATION of its 147,425 employees vouch for this.
Another of Allianz’s strengths is its five GLOBAL INSURANCE LINES. Not everyone is familiar with the highly specialized products and services of these units. But they have far-reaching implications for prosperous societies and thus for everyone. In this report, we present these business lines. With their profile. And their histories.
They include our international industrial insurance providers ALLIANZ GLOBAL CORPORATE & SPECIALTY and EULER HERMES GROUP, the world’s leading credit insurer. They also include ALLIANZ GLOBAL ASSISTANCE, ALLIANZ GLOBAL AUTOMOTIVE and ALLIANZ WORLDWIDE CARE, which started to collaborate closely as ALLIANZ WORLDWIDE PARTNERS in 2014, further boosting their reach and effectiveness.
More than 3,600 employees of over 70 nationalities. One global team of dedicated specialists with extensive multi-national experience.
In 2013, more than 64,000 cyber crimes were registered in Germany. The Ponemon Institute estimates that the annualized cyber crime cost is in average USD 7.6 MN per company each year. The increased frequency and severity of cyber crime in Asia’s tiger economies has also dominated headlines. Singapore suffered the highest cyber losses per capita worldwide in 2013, while financial losses from cyber crimes in Hong Kong have tripled in the last three years, driving demand for such coverage.
According to Allianz experts, the most heightened risk awareness in 2014 was around cyber and loss of reputation issues. Cyber was the biggest mover in the 2014 Allianz Risk Barometer, climbing from 15 to 8 in our global rankings.
If cyber criminals steal data, introduce malware into networks or cause servers to shut down because of denial of service attacks, businesses risk damage running into millions of Euros, as well as reputational damage. Allianz Cyber Protect insurance solution enables businesses to protect themselves comprehensively against online risks. It covers a variety of first and third-party damages sustained by businesses if they become victims of cyber crime or if their customers hold them liable.
In 2014, AGCS insured 21 space launches through its space underwriting team based in Paris, France. The launches covered eight different types of launch vehicles from around the world – the European Ariane V and Vega, the American Atlas V and Falcon 9, the Russian Proton, Soyuz and Zenith 3, and the Indian PSLV.
“Unfortunately, rain and frost resulted in a bad crop yield” and “power production from our wind park has been below our expectations due to a lack of wind” are typical statements blaming the weather for dashed hopes.
The ART Weather Team proactively tackles the challenges of climate change. We are not able to influence the weather, but we can protect our clients against its negative consequences.
Despite the prevailing low interest rates, our Life/Health business increased revenues by 18.6 % and operating profit by 22.8 %. Growth was particularly strong in the United States, Italy and Germany. This is confirmation from our customers that our product offerings meet their needs.
Two selected acquisitions in our property-casualty insurance business enabled us to strengthen our position in countries where we are able to manage a seamless integration into already well-established organizations. In Italy, we
In the United States, we have decided to reorganize our property-casualty insurance business. Since the results of our subsidiary Fireman’s Fund – which had regularly been discussed at our Annual General Meetings (AGM) – had shown no signs of sustainable improvement, we responded and agreed to sell the retail business, in which we did not have the necessary scale. The larger part of Fireman’s Fund is the commercial business, which we are integrating into Allianz Global Corporate & Specialty so that we achieve critical mass in this segment of the American market.
draws particular benefit from its strong balance sheet and brand. Doubledigit growth in developed markets such as Italy, Germany and the United States during 2014 is a clear sign of this.
– This brings me to the topic of digitalization, the greatest opportunity and at the same time greatest challenge for the insurance industry in the coming years. We have recently been able to bring some developments to the market. I refer to our Telematic Solutions and our Fast Quote technology that allow customers to receive a quotation on the internet in only a few short steps.
Digitalization is fundamentally changing the way in which we interact with customers, who today expect to always be able to choose the most convenient means of communication with their insurance company, be it by smartphone, by letter or in person in an agency. Switching between the different
7 Letter to the Investors 16 Supervisory Board Report 23 Supervisory Board 24 Board of Management 27 International Executive Committee 28 Allianz Share channels, therefore, needs to be as seamless as possible. We also have the opportunity to enter into much closer contact with our customers. If he or she wishes, we not only pay in case of a claim, but also offer supplementary assistance and services at all times.
Overall, we are expecting an operating profit in 2015 of € 10.4 bn, plus or minus € 0.4 bn, and in doing so are targeting profit at the same level as the previous year.
Dear investors, our 2015 anniversary year is a special one in the history of Allianz. I am confident that it will also be a good year for your Allianz in financial terms. I would like to thank you for the trust you have placed in Allianz and, over the last 12 years, in me personally. I would be pleased if you remain part of your Allianz in the future.
Overview Within the framework of our monitoring and advisory activities, the Board of Management informed us on a regular basis, and in a timely and comprehensive manner, both verbally and in writing, on the course of business, as well as on the economic and financial development of the Allianz Group and Allianz SE, including deviations in actual business developments from the planning. Further key areas the Board of Management reported on were business strategy, capital adequacy, the challenges facing the life insurance business due to persistently low interest rates and any potential regulatory effects of Allianz SE’s classification as a Global Systemically Important Insurer by the Financial Stability Board (FSB) and the International Association of Insurance Super­ visors (IAIS). In addition, we were extensively involved in the Board of Management’s planning for both the 2015 fiscal year and the three­year period from 2015 to 2017. We devoted particular atten­ tion in 2014 to personnel matters related to the Board of Management and ongoing developments
The Board of Management’s reports were supplemented by documents which each member of the Supervisory Board received in preparation for each meeting. Likewise, the annual financial statements of Allianz SE, the consolidated financial statements and the auditor’s reports were also made available to us in time for the relevant meeting. The half­yearly and quarterly financial reports and the results of the auditor’s review were provided in advance to members of the Audit Committee.
On 7 May 2014, just before the AGM, the Board of Management briefed us on the first quarter 2014 performance and on the Group’s current situation, particularly the capital adequacy. Directly after the AGM, we elected Mr. Jim Hagemann Snabe to the Audit Committee of the Supervisory Board by means of a written resolution.
On 2 October 2014, we appointed Mr. Oliver Bäte as successor to Mr. Diekmann as Chairman of the Board of Management with effect from 7 May 2015 and Dr. Axel Theis and Sergio Balbinot as new members of the Board of Management. Mr. Manuel Bauer’s Board of Management mandate was extended by one year until 31 December 2015 and Dr. Helga Jung was reappointed for another five years until 31 December 2019. In addition, the mandates of Dr. Dieter Wemmer and Dr. Werner Zedelius were both extended by three years until 31 December 2017. For all new appointments and reappointments, we passed resolutions on the corresponding service contracts. Furthermore, the Supervisory Board agreed to the early termination of Mr. Gary Bhojwani’s appointment and service contract with effect from the end of 2014. In connection with the report on the business performance to date, we devoted considerable attention to Mr. William Hunt Gross’s departure from PIMCO and the consequences thereof. The Board of Management also reported on the development of women in managerial positions at Allianz. Finally, we dealt extensively with the strategy of the
At the 11 December 2014 meeting, the Board of Management provided us with detailed information about the third­quarter results, further business developments, the situation of the Allianz Group and several other issues. We then discussed the planning for the 2015 fiscal year and the 2015 – 2017 three­year period, as well as the remuneration structures within the Allianz Group and the Declaration of Conformity with the German Corporate Governance Code. The Supervisory Board reviewed and approved the appropriateness of the remuneration of the Board of Manage­ ment by means of a vertical and horizontal comparison. The vertical comparison was based on the 2013 resolved definitions of the “upper management” and “relevant workforce” groups. On the recommendation of the Personnel Committee, the Supervisory Board adopted a resolution to adjust the contribution­based pension plan. In addition, the regular age limit for Board of Manage­ ment members born on or after 1 January 1958 was raised to 62. The annual premiums for pension schemes for members of the Board of Management were set – taking into account the members’ targeted pension levels – for the year 2015, as were their targets. Finally, we took a detailed look at the results of the Supervisory Board’s efficiency review and discussed potential improvements in the way the Supervisory Board operates.
declaratiOn Of cOnfOrmity with the German cOrpOrate GOvernance cOde On 11 December 2014, the Board of Management and the Supervisory Board issued the Declaration of Conformity in accordance with § 161 of the German Stock Corporation Act (“Aktiengesetz”). The Declaration was posted on the company website, where it is available to shareholders at all times. Allianz SE fully complies and will continue to fully comply with the recommendations of the German Corporate Governance Code Commission made in the Code’s version of 24 June 2014, with one exception. Deviating from Item 5.3.2 of the Code, the Supervisory Board’s Risk Committee – rather than the Audit Committee – will be responsible for monitoring the risk management system.
Further explanations of corporate governance in the Allianz Group can be found in the Corporate Governance Report starting on page 35 and the Statement on Corporate Management pursuant tO § 289a HGB starting on page 40. More information on corporate governance can also be found on the Allianz website at www.allianz.com/corporate-governance.
The Standing Committee held four meetings in 2014. These related primarily to corporate gover­ nance issues, the preparation for the AGM, the Employee Stock Purchase Plan and an internal review of the Supervisory Board’s efficiency. During the fiscal year the committee passed resolutions requiring approval on the use of Authorized Capital 2014/II for the issue of shares to employees and to approve loans to senior executives.
The Personnel Committee met four times in the 2014 fiscal year. One area of focus was the prepara­ tion of the plenary session’s decisions on expiring Board of Management mandates, including the appointment of a new Chairman. The committee dealt with other personnel matters for active and former members of the Board of Management. In addition to reviewing target achievement among Board of Management members for the 2013 fiscal year, the committee prepared the review of the remuneration system, including the setting of targets for variable remuneration in 2014. The committee also dealt with the mandates held by Board of Management members in the inter­ ests of the Allianz Group.
company’s financial statements are therefore adopted. We agree with the Board of Management’s proposal on the appropriation of earnings.
Mr. Michael Diekmann will step down from the Board of Management following the AGM on 6 May 2015. Mr. Oliver Bäte will take over as Chairman of the Board of Management with effect from 7 May 2015. Mr. Clement Booth and Mr. Gary Bhojwani left the Board of Management with effect from 31 December 2014. Dr. Axel Theis was appointed as Mr. Booth’s successor with effect from 1 January 2015. He is responsible for the insurance business in the Anglo Markets, with the exception of Australia, and for the global industrial insurance and reinsurance businesses. Another new appointment as of 1 January 2015 was Mr. Sergio Balbinot, who has taken over responsibility from Mr. Bäte for Insurance Western & Southern Europe.
Dr. Wulf H. Bernotat Vice Chairman Former Chairman of the Board of Management of E.ON AG
CHristine Bosse Former Group Chief Executive Officer of the Executive Management of Tryg
Jim HaGemann snaBe Chairman of Centre for Global Industries, World Economic Forum since 7 May 2014
Clement BootH Global Insurance Lines & Anglo Markets until 31 December 2014
Dr. HelGa JunG Insurance Iberia & Latin America, Legal & Compliance, Merger & Acquisitions
International Executive Committee miCHael Diekmann Chairman, Allianz SE Germany amer aHmeD Allianz Re Germany solmaZ altin Allianz Sigorta A.S. Turkey oliver Bäte Allianz SE Germany serGio BalBinot Allianz SE Germany manuel Bauer Allianz SE Germany
HelGa JunG Allianz SE Germany manfreD knof Allianz SE – CEE Germany
JaCques riCHier Allianz France France markus riess Allianz Deutschland AG Germany klaus-Peter röHler Allianz S.p.A. Italy
Allianz Share − Solid gains made by Allianz shares. − Dividend increases to € 6.85.
Despite the European Central Bank’s expansive monetary policy creating favorable conditions for stock markets in Europe, market appreciation in the region was modest, something that can be traced back to geopolitical crises and the Eurozone’s disappointing economic development. With these conditions in mind, the performance of Allianz’s share price was pleasing, rising by 5.4 % to € 137.35. Provided the dividend was reinvested in Allianz shares, investments in the company would have seen a double-digit value increase for the third time in a row, namely +10.0 % in this reporting year. This was stimulated by the strong performance of our business and the positive response to our new dividend policy. However, it was dampened by concerns over the potential ramifications of continually low interest rates and in particular the future performance of our asset manager PIMCO. As a result, the gains made by our shares fell short of those made by the STOXX Europe 600 Insurance (+9.8 %). They nonetheless significantly outclassed the value increase of cross-sector indices such as the EURO STOXX 50 (+1.2 %). Following the publication of the 2014 results on 26 February 2015, 49 % of analysts issued a “buy” recommendation for Allianz shares – with an average price target of € 152. You can find the current analyst recommendations and profit forecasts at www.allianz.com/analystrecommendations.
DevelopmenT of The AlliAnz shAre price versUs sToXX eUrope 600 insUrAnce AnD eUro sToXX 50 indexed on the Allianz share price in €
Source: Thomson Reuters Datastream shAre price DevelopmenT AgAinsT sToXX eUrope 600 insUrAnce €
Share price performance in the year % 5.4 24.4 41.8 (16.9) 2.0
Market capitalization as of 31 December € bn 62.8 59.5 47.8 33.7 40.4
How can we help? An international leader in assistance, travel insurance and health, life & home care services, today Allianz Global Assistance’s global family counts more than 13,700 employees who live to help. They speak 58 different languages and work throughout the world with a network of 400,000 service providers and 180 correspondents. 250 million people, or 4 % of the world’s total population, benefit from its services, which are provided on five continents.
250 million people, or 4 % of the world’s total population benefit from our services.
Australian residents Stephen and Joanne Connelly took their four-year-old daughter, Freya, on a dream vacation to Disneyland. They hadn’t had a holiday in three years so this was a very special trip for them. A few days into the vacation, Freya suddenly became ill and was taken to hospital where she was diagnosed with mycoplasma pneumonia and a collapsed lung. To get the right paediatric care, Freya needed to be evacuated by helicopter to another hospital that could offer specialist care. After one call to the family’s travel insurance provider, Allianz Global Assistance, the medical team arranged for Freya’s medical evacuation to another hospital and covered additional expenses including accommodation and medical coverage. Because of her condition, Freya had to remain in the United States for a further two months until her condition improved and she was deemed fit to return to Australia. “We got the best medical care possible and we couldn’t have done that without Allianz Global Assistance”, says Joanne Connelly.
With our international experience and expertise in creating services we design innovative and customized solutions.
An Italian customer was on vacation in Sicily when she received a call no one wants to receive when far from home – a pipe had burst in her flat in Milan. The burst pipe had severely damaged the walls, furniture, floors, electrical system and had even damaged the neighbor’s ceiling below. After calling her assistance provider, Allianz Global Assistance, an Assistance Coordinator (AC) quickly worked to provide emergency intervention. The AC had quickly dispatched a team of experts – plumbers, electricians, upholsterers, plaster craftsman, decorators, and floor layers to begin repairs immediately. Once back in Milan, Allianz Global Assistance arranged for the customer to stay in a hotel for a few days whilst the repairs were completed. The customer was delighted, “I could have spent a great deal of time trying to find the right experts and organising the repairs, but thanks to Allianz Global Assistance, the entire flat was perfectly restored in a matter of days, as was the neighbour’s ceiling! It looked as good as new.”
Telematics, the use of computer technology to make cars more navigable and drivers safer, is revolutionizing how we provide roadside assistance. For example, at 10 pm on March 15, 2014 the emergency alarm went off at Allianz Global Assistance’s call center. An Assistance Coordinator (AC) immediately answered the call, but all he could hear was faint breathing. Realizing the driver was injured, he used GPS to locate the position of the car in Henan Province. The AC then started calling the emergency services, notifying them of the serious accident and asking them to send an ambulance as soon as possible.
We are here to help people anytime, anywhere, around the corner or in their home.
35 Corporate Governance Report 40 Statement on Corporate Manage ment pursuant to § 289a of the HGB (part of the Group Management Report) 42 Takeover-related Statements and Explanations (part of the Group Management Report) 45 Remuneration Report (part of the Group Management Report)
Corporate Governance Report 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 11 December 2014 and the company’s position regarding the Code’s suggestions can be found in the Statement on Corporate Management pursuant to § 289a HGB starting on page 40.
The members of the Board of Management are jointly responsible for management. Notwithstanding this overall responsibility, the individual members of the Board head the departments they have been assigned independently. There are divisional responsibilities for business segments as well as functional responsibilities. The latter include the Chairman’s division, the Finance-, Risk Management- and Controlling-Function, Investments, Operations – including IT –, Human Resources, Legal and Compliance, and Mergers & Acquisitions. Business division – responsibilities focus on geographical regions or operating segments, such as Asset Management. Rules of procedure specify in more detail the work of the Board of Management and the responsibilities of the Board departments. Details of the Board of Management’s reporting to the Supervisory Board are laid down in the reporting rules issued by the Supervisory Board.
Group finanCe and risk CoMMittee Dr. Dieter Wemmer (Chairman), Dr. Helga Jung, Oliver Bäte (from 1 January 2015: Sergio Balbinot), Clement Booth (from 1 January 2015: Dr. Axel Theis), Jay Ralph, Dr. Maximilian Zimmerer
In the financial year 2014, there were the following Group committees: Group CoMMittees
Implementing Group investment strategy, including monitoring Group-wide investment activities as well as approving investment-related frameworks and guidelines and individual investments within certain thresholds.
Discussion of overall strategic issues for the Allianz Group (for composition, see page 27).
The Allianz Group runs its operating entities and business segments via an integrated management and control process. The Holding and the operating entities first define the business strategies and goals. On this basis, joint plans are then prepared for the Supervisory Board’s consideration when setting targets for performance-based remuneration of the members of the Board of Management (for details, see the Remuneration Report starting on page 45). When filling management positions, the Board of Management takes diversity into consideration, particularly to ensure that the percentage of women in management positions continues to increase.
The Supervisory Board comprises twelve members, whose six share holder representatives are 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 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.
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 2014 financial year are described in the Supervisory Board Report starting on page 16.
Annual Report 2014 Allianz Group 37 supervisory Board CoMMittees Part of the Supervisory Board’s work is carried out by its committees. The composition of committees and the tasks assigned to them are regulated by the Supervisory Board’s Rules of Procedure. The Supervisory Board receives regular reports on the activities of its committees.
− Three shareholder represen - tatives (in addition to Dr. Wulf H. Bernotat: Dr. Helmut Perlet, Jim Hagemann Snabe)
− Three shareholder representatives (in addition to Dr. Helmet Perlet: Christine Bosse, Peter Denis Sutherland)
− Selection of suitable candidates for election to the Supervisory Board as shareholder representatives puBLiCation of detaiLs of MeMBers’ partiCipation in MeetinGs The Supervisory Board considers it good corporate governance to publish the details of individual members’ participation in plenary sessions and committee meetings.
4 As Mr. Snabe joined the Supervisory Board during the year, only three meetings of the Audit Committee were relevant.
– Compliance with the limitation on the number of mandates as recommended by the German Corporate Governance Code and required by § 7a (4) of the German Insurance Supervision Act (“Versicherungsaufsichtsgesetz - vaG”).
1. Specialist knowledge – At least one member must have considerable experience in the insurance and financial-services fields – At least one member must have expert knowledge of accounting and auditing as defined by § 100 (5) of the German Stock Corporation Act (AktG). – Specialist knowledge of, or experience in, other economic sectors.
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 2014.
The AGM elects the shareholder representatives of the Supervisory Board and approves the actions taken by the Board of Management and the Supervisory Board. It decides on the use of profits, capital transactions and the approval of intercompany agreements, as well as the remuneration of the Supervisory Board and changes to the company’s Statutes. In accordance with European regulations and the Statutes, changes to the Statutes require a two-thirds majority of votes cast in case less than half of the share capital is represented in the AGM. Each year, an ordinary AGM takes place at which the Board of Management and Supervisory Board give an account of the preceding financial year. For special decisions, the German Stock Corporation Act provides for the convening of an extraordinary AGM.
The Allianz Group prepares its accounts according to § 315a of the German Commercial Code (“Handelsgesetzbuch – HGB”) on the basis of IFRS international accounting standards as adopted within the European Union. The annual financial statements of Allianz SE are prepared in accordance with German law, in particular the HGB.
You can find the 2015 financial calendar on our website at www.allianz.com/financialcalendar.
issued its own Declaration of Conformity in December 2014, which states that Oldenburgische Landesbank AG complies with all of the recommendations of the German Corporate Governance Code in the version of 24 June 2014 (as well as in the previous year’s version of 13 May 2013).
INTERNAL CONTROL SYSTEMS The Allianz Group has an effective internal control system for verifying and monitoring its operating activities and business processes, in particular the control of financial reporting. The requirements placed on the internal control systems are essential not only for the survival of the company, but also to maintain the confidence of the capital market, our customers and the public. A comprehensive risk management system regularly assesses the appropriateness of the internal control system, taking not only qualitative and quantitative guidelines into account, but also specific control instruments for individual business activities. For further information on the risk organization and risk principles, please refer to page 139. (For further information on the internal Controls over Financial Reporting and Risk Capital, please refer to page 144.)
In addition, the quality of the internal control system is assessed by the Allianz Group’s internal audit staff. Internal Audit conducts independent audit procedures, analyzing the structure and efficacy of the internal control systems as a whole. In addition, it also examines the potential for additional value and improvement of our organization ’s operations. Fully compliant with all international auditing principles and standards, Internal Audit contributes to the evaluation and improvement of the effectiveness of the risk management, control and governance processes. Therefore, internal audit activities are geared towards helping the company to mitigate risks and further assist in strengthening its governance processes and structures.
COMPLIANCE PROGRAM The sustained success of the Allianz Group is based on the responsible behavior of all Group employees, who embody trust, respect and integrity. By means of the global compliance program coordinated by its central compliance department, Allianz supports and follows internationally and nationally recognized guidelines and standards for rules-compliant and value-based corporate governance. These include the principles of the United Nations (UN Global Compact), the Guidelines of the Organization for Economic Co-operation and Development (OECD guidelines) for Multinational Enterprises and European and international standards on data and consumer protection, economic and financial sanctions and combating corruption, bribery, money laundering and terrorism financing. Through its support for and acceptance of these standards, Allianz aims to avoid the risks that might arise from non-compliance. The central compliance department is responsible – in close cooperation with local compliance departments – for ensuring the effective implementation and monitoring of the compliance program within the Allianz Group, as well as for investigating potential compliance infringements.
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 21 and 23 of the Annual Report. A description of the composition of the Board of Management can be found on page 24 and 25, while the composition of the Committees of the Board of Management is described in the Corporate Governance Report starting on page 35. This information is also available on our website at www.allianz.com/corporate-governance.
A general description of the functions of the Board of Management, the Supervisory Board and their committees can be found in the Corporate Governance Report starting on page 35, and on our website: www.allianz.com/corporate-governance.
Composition of share Capital As of 31 December 2014, the share capital of Allianz SE was € 1,169,920,000. It was divided into 457,000,000 registered and fully paid-up shares with no-par value and a corresponding share capital amount of € 2.56 per share. All shares carry the same rights and obligations. Each nopar -value share carries one vote.
35 Corporate Governance Report 40 Statement on Corporate Management pursuant to § 289a of the hgb 42 Takeover-related Statements and Explanations 45 Remuneration Report
authorization of the board of management to issue and repurChase shares The Board of Management is authorized to issue shares as well as to acquire and use treasury shares as follows: It may increase the company’s share capital, on or before 6 May 2019, with the approval of the Supervisory Board, by issuing new registered no-par-value shares against contributions in cash and/or in kind, on one or more occasions: − Up to a total of € 550,000,000 (Authorized Capital 2014/I). In case of a capital increase against cash contribution, the Board of Management may exclude the shareholders’ subscription rights for these shares with the consent of the Supervisory Board, (i) for fractional amounts, (ii) in order to safeguard the rights pertaining to holders of convertible bonds or bonds with warrants, including mandatory convertible bonds, and (iii) in the event of a capital increase of up to 10 % if the issue price of the new shares is not significantly less than the stock market price. The Board of Management may furthermore exclude the shareholders’ subscription rights with the consent of the Supervisory Board, in the event of a capital increase against contributions in kind.
− The exclusive bancassurance distribution agreement between Allianz SE and HSBC for life insurance products in Turkey includes a clause under which both parties have an extraordinary termination right in case there is a change of control of the other party’s ultimate holding company.
− The framework agreements between Allianz SE and the subsidiaries of various car manufacturers (FCE Bank plc, Volkswagen Financial Services AG, respectively) relating to the distribution of car insurance by the respective car manufacturers each include a clause under which each party has an extraordinary termination right in case there is a change of control of the other party.
The company has entered into the following compensation agreements with members of the Board of Management and employees providing for the event of a takeover bid: A change of control clause in the service contracts of the members of Allianz SE’s Board of Management provides that, if within twelve months after the acquisition of more than 50 % of the company ’s share capital by one shareholder or several shareholders acting in concert (change of control), the appointment as a member of the Board of Management is revoked unilaterally by the Supervisory Board, or if the mandate is ended by mutual agreement, or if the Management Board member resigns his or her office because the responsibilities as a Board member are significantly reduced through no fault of the Board member, he or she shall receive his or her contractual 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 is coming 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 45.
Under the Allianz Sustained Performance Plan (ASPP), Restricted Stock Units (RSU) – i.e. virtual Allianz shares – are granted as a stockbased remuneration component to senior management of the Allianz Group worldwide. In addition, under the Group Equity Incentive (GEI) scheme, Stock Appreciation Rights (SAR) – i.e. virtual options on Allianz shares – were also granted until 2010. Some of these are still outstanding. The conditions for these RSU and SAR contain change of control clauses which apply if a majority of the voting share capital in Allianz SE is acquired, directly or indirectly, by one or more third parties which do not belong to the Allianz Group and which provide for an exception from the usual exercise periods. The RSU 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 that would otherwise apply. The cash amount payable per RSU must be at least the price offered per Allianz share in a preceding tender offer. In case of a change of control as described above, SAR will be exercised, in line with their general conditions, by the company for the relevant plan participants on the day of the change of control without observing any vesting period. By providing for the non-application of the blocking period in the event of a change of control, the terms take into account the fact that the conditions under which the share price moves are very different when there is a change in control.
− Variable remuneration focused on sustainability: Two thirds of the variable remuneration reflect longer­term performance. One third is a deferred payout after three years based on a sus­ tainability assessment covering the three­year period. The other third rewards sustained performance through share price devel­ opment with a deferred payout after five years.
The structure, weighting and level of remuneration is decided by the Supervisory Board. Remuneration survey data is provided by external consultants. The peer group consists primarily of other DAX 30 com­ panies. Compensation levels are usually around the third quartile of this group. The structure of the Allianz Group’s total remuneration is more strongly weighted to variable, longer­term components than in other DAX 30 companies. Remuneration and benefit arrangements are also periodically compared with best practices. The Supervisory Board takes remuneration levels within the Group into account when assessing the appropriateness of the remuneration of the Board of Management.
Base salary Base salary is the fixed remuneration component, expressed as an annual cash sum and paid in twelve monthly installments. It has been harmonized for 2014 for all regular members of the Board of Management. Those base salaries at € 700 THOU for 2013 were adjusted to € 750 THOU.
All variable awards are made under the rules and conditions of the “Allianz Sustained Performance Plan” (ASPP). The grant of vari­ able remuneration components is related to performance and can vary between 0 % and 150 % of the respective target values with the cap having been reduced from 165 % to 150 % from 2014 onwards. If perfor­ mance was rated with 0 % no variable component is granted. Conse­ quently, the minimum total direct compensation for a regular
Details on the variable compensation components: − Annual bonus (short­term): A cash payment which rewards the achievement of quantitative and qualitative targets for the respective financial year and is paid the year following the per­ formance year. Quantitative targets represent 75 % and consist of 50 % Group targets (equally divided between annual operating profit and annual net income) and 25 % divisional targets. For members of the Board of Management with business division responsibilities, divisional targets are set with the application of the following split: 10 % annual operating profit, 10 % annual net income before minorities and 5 % dividend. For members of the Board of Management with a functional focus the divisional quantitative targets are determined based on their key respon­ sibilities. Qualitative targets represent 25 % and reflect the spe­ cific individual priorities for 2014 per member of the Board of Management.
Based on the 2014 target achievement for the Group, the business division/corporate functions and the qualitative per­ formance, the total annual bonus awards ranged between 96 % and 138 % of the target with an average bonus award of 121 % of the target.
− balance sheet strength, − comparison with peers, − “partner of choice” for stakeholders, − extraordinary events.
− Equity­related remuneration (long­term): A virtual share award, known as “Restricted Stock Units” (RSUs). The grant value of the RSUs allocated equals the annual bonus of the performance year. The number of RSUs allocated is derived from dividing the grant value by the fair market value of an RSU at the time of grant.
The fair market value is calculated based on the ten­day average Xetra closing price of the Allianz stock following the financial press conference on the annual results. As RSUs are virtual stocks without dividend payments, the average Xetra closing price is reduced1 by the net present value of the expected future dividend payments during the vesting period. The expected dividend stream is discounted with the respective swap rates as of the valuation day.
Following the end of the four year vesting period, the com­ pany makes a cash payment based on the number of RSUs granted and the ten­day average Xetra closing price of the Allianz stock following the annual financial press conference in the year of expiry of the respective RSU plan. The RSU payout is capped at 200 % above grant price to avoid extreme payouts2. Outstanding RSU holdings are forfeited should a Board member leave at his/ her own request or be terminated for cause.
Pensions and similar benefits To provide competitive and cost­effective retirement and disability benefits Board of Management members have participated in a con­ tribution­based system since 1 January 2005. Before this date, Board members participated in a defined benefit plan that provided fixed benefits not linked to base salary increases. Benefits generated under this plan were frozen at the end of 2004. Additionally, most Board members participate in the Allianz Versorgungskasse VVaG (AVK), a contribution­based pension plan, and the Allianz Pensionsverein e.V. (APV), which provide pension benefits for salaries up to the German social security ceiling.
Company contributions to the current pension plan depend on the years of service on the Board of Management. They are invested in a fund with a guaranteed minimum interest rate per year. On retirement, the accumulated capital is 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 tar­ geted pension level. This budget includes a risk premium paid to cover death and disability. The earliest age a pension can be drawn is 60, 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 pension may be paid to dependents. Surviving dependents normally receive 60 % (surviving partner) and 20 % (per child) of the original Board member’s pension, with the aggregate not to exceed 100 %. 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 reviews regularly the level of perquisites.
REMUNERATION fOR 2014 The following remuneration disclosure is based on and compliant with the German Corporate Governance Code and illustrates indi­ vidual remuneration for 2013 and 2014, including fixed and variable remuneration and pension service cost. The “grant” column below shows the remuneration at target, minimum and maximum levels. The “payout” column discloses the 2013 and 2014 payments. The base salary, annual bonus and perquisites are linked to the reported per­ formance years 2013 and 2014, whereas the Group Equity Incentive (GEI) payouts result from grants related to the performance years 2008 – 2010.
Annual Variable Compensation – Annual Bonus 1,180 1,280 – 1,920 1,546 1,581 1,546 700 750 – 1,125 1,009 1,003 1,009 700 750 – 1,125 778 927 778
4 Pension Service Cost in accordance with IAS 19: represents the company cost, not the actual entitlement or a payment. However, according to the German Corporate Governance Code, the Pension Service Cost is to be included in all columns.
INDIVIDUAL REMUNERATION: 2014 AND 2013 € THOU Gary Bhojwani5 (Appointed: 01/2012) Clement Booth6 (Appointed: 01/2006) Dr. Helga Jung (Appointed: 01/2012)
Annual Variable Compensation – Annual Bonus 700 750 – 1,125 907 899 907 700 750 – 1,125 912 948 912 700 750 – 1,125 996 978 996
Deferred Compensation MTB (2013 – 2015) 700 750 – 1,125 909 – – AEI 2015/RSU2 – 750 – 1,125 909 – – AEI 2014/RSU2 700 – – – – – – GEI 2010/SAR3 – – – – – – – GEI 2009/SAR3 – – – – – – – GEI 2009/RSU2,3 – – – – – – – GEI 2008/RSU2,3 – – – – – – –
5 Dr. Maximilian Zimmerer received a payment of € 146 THOU in 2013 for 25 years of service at Allianz.
GERMAN ACCOUNTING STANDARD 17 DISCLOSURE The total remuneration to be disclosed in accordance with German Accounting Standard 17 for 2014 and 2013 (in parentheses) is defined differently than in the German Corporate Governance Code and is composed of the base salary, perquisites, annual bonus and the fair value of the RSU grant, but excludes the notional annual accruals of the MTB 2013 – 2015 and the pension service cost: Michael Diekmann € 4,397 (4,734) THOU, Oliver Bäte € 2,774 (2,808) THOU, Manuel Bauer € 2,322 (2,570) THOU, Gary Bhojwani1 € 2,227 (2,655) THOU, Clement Booth € 2,878 (2,725) THOU, Dr. Helga Jung € 2,290 (2,522) THOU, Dr. Christof Mascher € 2,726 (2,524) THOU, Jay Ralph € 2,603 (2,623) THOU, Dr. Dieter Wemmer € 2,760 (2,671) THOU, Dr. Werner Zedelius € 2,831 (2,587) THOU, Dr. Maximilian Zimmerer € 2,578 (2,698) THOU.
1 Gary Bhojwani’s total remuneration is denominated in USD. The contractually agreed USD/€ exchange rate of 1.347910 (2011 fourth quarter average) was applied.
Dr. Dieter Wemmer 8,303 20,652 – – 746 1 The relevant share price used to determine the final number of RSUs granted is only available after sign-off of the Annual Report by the external auditors, thus numbers are based on a best estimate. As disclosed in the Annual Report 2013, the equity-related grant in 2014 was made to participants as part of their 2013 remuneration. The disclosure in the Annual Report 2013 was based on a best estimate of the RSU grants. The actual grants deviated from the estimated values and have to be disclosed accordingly. The actual RSU grants as of 13 March 2014 under the Allianz equity program are as follows: Michael Diekmann: 15,384, Oliver Bäte: 9,756, Manuel Bauer: 9,020, Gary Bhojwani: 9,079, Clement Booth: 9,194, Dr. Helga Jung: 8,794, Dr. Christof Mascher: 8,744, Jay Ralph: 9,220, Dr. Dieter Wemmer: 9,517, Dr. Werner Zedelius: 8,858, Dr. Maximilian Zimmerer: 8,993.
The sum of the total remuneration of the Board of Management for 2014, excluding the notional accruals of the MTB 2013 – 2015 and excluding the pension service cost, amounts to € 30 MN (2013: € 31 MN). The corresponding amount, including pension service cost, equals € 35 MN (2013: € 35 MN).
3 For details on the transition payment, see section termination of service. In any event a death benefit is included.
9 The DBO for the ARP is USD 58 THOU (2013: USD 54 THOU) and for the SRP USD 101 THOU (2013: USD 93 THOU). 10 The contribution for the DCP is USD 265 THOU (2013: USD 246 THOU) and to the 401(k) plan USD 18 THOU
(2013: USD 18 THOU). There is no DBO as both plans are DC plans.
PENSIONS Company contributions in the current plan remained unchanged from 2013 and are 27.98 % of base salary, increasing to 34.98 % after five years and to 41.98 % after ten years of service on the Board of Manage­ ment. These are invested in a fund and have a minimum guaranteed interest rate of 2.75 % each year. If the net annual return of the AVK exceeds 2.75 %, the full increase in value is credited in the same year. For members with pension rights in the frozen defined benefit plan, the above contribution rates are reduced by an amount equivalent to 19 % of the expected annual pension from that plan.
35 Corporate Governance Report 40 Statement on Corporate Management pursuant to § 289a of the HGB
3. Special terms, also compliant with the German Corporate Gover­ nance Code, apply if service is ended as a result of a “change of control”. This requires that a shareholder of Allianz SE, acting alone or together with other shareholders, holds more than 50 % of voting rights in Allianz SE. Termination as a result of a change of control occurs if within twelve months after a change of control a. the Management Board appointment is unilaterally revoked by the Supervisory Board, or b. the Board member resigns due to a substantial decrease in man­ agerial responsibilities and without giving cause for termination, or c. a Management Board appointment is terminated by mutual agreement, or if the mandate expires and is not renewed within two years of the change of control.
Whereby the annual compensation: 1. is calculated on the basis of the previous year’s annual base salary plus 50 % of the target variable remuneration (for a Board member with a fixed base salary of € 750 THOU, the annual com­ pensation would amount to € 1,875 THOU; hence, he/she would receive a maximum severance payment of € 3,750 THOU); and 2. shall not exceed the latest year’s actual total compensation.
Internal and external Board appointments When a member of the Board of Management holds an appointment in another company within the Allianz Group, the full remuneration amount is transferred to Allianz SE. In recognition of the benefits to the organization, Board of Management members are allowed to accept a limited number of non­executive supervisory roles in appro­ priate external organizations. In these cases, 50 % of the remunera­ tion received is paid to Allianz SE. A Board member retains the full remuneration only when the Supervisory Board qualifies the appoint­ ment as a personal one. Remuneration paid by external organizations is shown in the annual reports of the companies concerned. The remuneration relating to the external appointment is set by the gov­ erning body of the relevant organization.
− The base salary for Oliver Bäte continues to be € 750 THOU until and including 6 May 2015 and is set at € 1,125 from 7 May 2015, when he will become the new Chief Executive Officer of Allianz SE. The target amounts for each of the variable components are aligned with the base salary.
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 2013, a regular Supervisory Board member receives a fixed remuneration of € 100 THOU per year. Each deputy Chairperson receives € 150 THOU and the Chairperson € 200 THOU.
1 Abbreviations: A – Audit, N – Nomination, P – Personnel, R – Risk, S – Standing.
4 The total remuneration reflects the remuneration of the full Supervisory Board in the respective year.
Allianz Global Automotive is the leading strategic partner of automotive manufacturers in the provision of insurance and mobility services, currently working with over 40 car brands in more than 30 countries. Automotive manufacturers, finan­ cial services and car dealerships can choose from a portfolio of customized products and service solutions in the fields of motor insurance, warranty, assistance and ancillary products.
Allianz Global Automotive provides expertise and support along the entire automotive value chain: from research & development to sales and aftersales, thus enabling the devel­ op ment of globally applicable solutions for partners and customers. The rapidly growing global business unit is present in all major automotive markets.
The ambition of Allianz Global Automotive is to be recognized as the Tier­1 Partner to the automotive industry for insurance and mobility solutions, with a holistic business model as well as a deep understanding of the automotive industry.
Currently working with over 40 car brands in more than 30 countries.
In 2014, Allianz Global Automotive set up the Automotive Intelligence Center as an integral part of its value creation within the automotive industry. The aim is to boost inno­ vations and expertise along the entire automotive value chain, from vehicle development to connectivity services, dealership business, aftersales and mobility solutions. The Automotive Intelligence Center, which is based in Munich, consists of three key areas: Telematics, Engineering and Insights/Innovations. The experts are working globally with both in­house Allianz and external partners from the auto­ motive industry in interdisciplinary project teams.
With a “one size does not fit all” approach, Allianz Global Automotive has been able to effectively localize its global strategy in the Asian markets. The year 2014 saw the busi­ ness unit increase its footprint in South East Asia by com­ pleting market entries in Indonesia, Thailand and Singapore with the launch of several programs in partnership with automotive manufacturers and financial service units. With these successful developments and an ever evolving product and service basket, automotive partners are now able to rely on Allianz Global Automotive to provide them with inte­ grated solutions in most major markets in South East Asia. Furthermore, in China the business volume was expanded and the business model could be further developed by the set­up of a China­wide dealer distribution network through collaboration with Chinese insurance market leaders.
81 Earnings summary 82 Total revenues 82 Operating profit 83 Non-operating result 83 Income taxes 83 Net income 83 Proposal for appropriation of net earnings 84 Events after the balance sheet date 84 Other information 85 Other parts of the Group Management Report
Annual Report 2014 Allianz Group 63 managed: insurance activities, asset management activities and cor- porate and other activities. Due to differences in the nature of products, risks and capital allocation, insurance activities are further divided into property-casualty and life/health categories. In accordance with the responsibilities of the Board of Management, each of the insurance categories is grouped into regional reportable segments. Corporate and other activities are divided into three different reportable segments in order to differentiate between the respective products, risks and capital allocation. In 2014, the Allianz Group had 17 reportable segments.1
Business Operations and Markets Allianz offers a comprehensive range of insurance and asset management products and services and has now 85 million insured customers.
We offer a wide range of property-casualty and life/health insurance products to both retail and corporate customers. We are the leading property-casualty insurer globally and rank among the top five in the life/health insurance business. Our key markets based on premiums are Germany, France, Italy and the United States.
Most of our insurance markets are served by local Allianz companies. However, some business lines – such as Allianz Global Corpo- rate & Specialty (AGCS), Allianz Worldwide Partners (AWP) and Credit Insurance – are run globally. Based on premiums, the split between retail and corporate clients is approximately equal for our PropertyCasualty business segment. In Life/Health, the proportion of our business with retail clients is significantly higher than that with corporate clients.
AlliAnz Group structure – business seGments And reportAble seGments property-cAsuAlty life/HeAltH Asset mAnAGement corporAte And otHer
– German Speaking Countries – Western & Southern Europe – Iberia & Latin America – USA1 – Global Insurance Lines & Anglo Markets – Growth Markets – Allianz Worldwide Partners
– German Speaking Countries – Western & Southern Europe – Iberia & Latin America – USA – Global Insurance Lines & Anglo Markets – Growth Markets
Our two major investment management businesses, PIMCO and AllianzGI, operate under Allianz Asset Management (AAM). With € 1,801 BN total assets under management (AuM) (including those of the Allianz Group), we are one of the largest asset managers in the world actively managing assets. 64 % of third-party assets are from institutional investors, while 36 % are from retail clients. Our core markets are the United States, Germany, France, Italy, the United Kingdom and the Asia-Pacific region.
Fixed Income – Money market – Low duration – Real return – Global – Investment grade
Alternatives – Structured products – Commodity funds – Certificate funds – Currency funds
HoldinG & treAsury operAtions Holding & Treasury includes the management and support of the Group’s businesses through its strategy, risk, corporate finance, treasury, financial reporting, controlling, communication, legal, human resources, technology and other functions.
AlternAtiVe inVestments operAtions Alternative Investments provides global alternative investment man- agement services in the private equity, real estate, renewable energy and infrastructure sectors, mainly on behalf of our insurance opera- tions. The Alternative Investments reportable segment also includes a fully consolidated private equity investment.
Your Allianz 63 Business Operations and Markets 70 Strategy and Steering 73 Progress in Sustainable Development
◼ Property-Casualty ◼ Life/Health ◼ Banking ◼ Retail Asset Management ◼ Institutional Asset Management Insurance market position by gross premiums written: 4 I. Position 1 II. Position 2 to 5 III. Position 6 to 10 IV. Not in the top 10 1 This overview is based on our organizational structure in place as of 31 December 2014. For further information about changes effective 2015, please refer to the Executive Summary of 2014 Results starting on page 81.
Through Allianz Private Kranken, we provide a wide range of health insurance products, including full private health care coverage, supplementary health and long-term care insurance as well as foreign travel medical insurance. After satisfactory demand in 2014, we expect slightly higher demand for both full private health care coverage and supplementary insurance in the future. This should be supported by our financial strength and by the very good external ratings we received recently for both our full private health care coverage and our supplementary insurance.
Italy Our Italian insurance entity Allianz S.p.A. is strongly dedicated to the agent channel. We also offer our products through Genialloyd – the leading company in Italian direct business – the broker channel, Allianz Bank Financial Advisors S.p.A. and through bancassurance, with UniCredit as our main distribution partner.
In our property-casualty business, Allianz Italy significantly outperformed its market in terms of premium growth and profitability. In a market that experienced an estimated contraction of approximately 3 %, Allianz premium volume grew by 4.1 % in 2014 (including gross premiums written from acquired parts of the insurance business of UnipolSai Assicurazioni S.p.A., Bologna)2, which allowed us to increase our market share for a third consecutive year. In terms of 2 Excluding these premiums, we recorded a contraction of 1.2 % in gross premiums written. However, this represents a gain in our market share even organically.
The following sections provide an overview of our business operations in certain insurance markets by business division and of our Asset Management business. We focus on our activities in core insurance markets and comment on material developments in selected insurance markets and our asset management market, since these account for the major developments in our operating results.
France II. III. 12,489 883 5.8 Italy II. II. 15,528 1,105 6.7 United States IV. III. 13,798 504 1.2
Germany We provide our customers in Germany with a full range of insurance and financial services through Allianz Deutschland AG. Our products are mainly provided by Allianz Versicherungs-AG (Allianz Sach), Allianz Lebensversicherungs-AG (Allianz Leben) and Allianz Private Krankenversicherungs-AG (Allianz Private Kranken). They are mostly distributed through a network of full-time tied agents. Allianz Beratungs - und Vertriebs-AG serves as our distribution company.
In the next years, we aim to accelerate our digital transformation and to reap economies of scale from our increased business volumes. In our life business, we strive to further rebalance our portfolio by improving our business mix and to optimize returns on capital.
The French retail property-casualty market has seen limited growth of below 3 % in recent years and remains highly competitive. Competition is likely to remain tough, with expected higher customer churn due to local regulatory changes regarding cancellation rules. In this context, we have decided to become an innovation and techoriented company leaning on five major pillars: digital development, implementation of a multi-access strategy, personalized offers, competitive rates and brand promotion.
In addition, we concentrate on increasing the efficiency of our company structures, enhancing our technical excellence, simplifying our product range and processes and rebuilding our IT platform, with a view to delivering state-of-the-art digital solutions and high-quality claims services. This constant focus allows us to grow our customer base, for example in motor insurance. Thanks to the full integration of Gan Eurocourtage, which specializes in distributing its products via brokers, we are now one of the leaders in the midcorp market (ranked as third in midcorp and second in commercial propertycasualty insurance).
Concerning the life market in France, we anticipate a continued period of low interest rates, reinforcing the need to focus on technical margins and cost optimization to maintain the attractiveness of our offer. We have responded to the needs of our clients with a range of traditional and unit-linked products in both group and individual business, combining financial strength with the opportunity for more attractive yields. Evidence of the success of this strategy is the increase in the unit-linked proportion of our business mix from 34 % in 2013 to 39 % in 2014.
Our retail insurance activities are complemented by Allianz ‘Patrimoine ’, which allows us to offer one-stop solutions, in particular for our high-net-worth individual life customers.
United States Our property-casualty insurance business in the United States was conducted through Fireman’s Fund Insurance Company (FFIC). Our life and annuity business is managed through Allianz Life Insurance Company of North America (Allianz Life).
In 2014, we saw a continued stabilization of the U.S. propertycasualty insurance market, leading to an estimated market revenue growth of 4.2 %.
At the end of the financial year 2014, Allianz announced its decision to realign its property-casualty insurance business in the United States. The reorganization comprises the integration of Fireman’s Fund Insurance Company’s (FFIC) commercial business into Allianz Global Corporate & Specialty North America (AGCS NA), the sale of the personal insurance business to the global insurance company ACE, as well as the internal transfer of the discontinued run-off business through a reinsurance agreement within the Allianz Group. The realignment and sale are expected to be executed in 2015 and to have a negative impact of approximately USD 0.2 BN on the Allianz Group’s financial statements. Expenses in the context of the restructuring will comprise expenses for human resources-related items, office buildings and IT infrastructure. The sale, which will take place by means of a renewal rights arrangement, is still subject to regulatory approval of the California Department of Insurance. These steps enable us to operate under the Allianz brand only as well as allow a strengthening of our property-casualty business in the United States
Allianz Australia also operates in certain niche markets, which include premium financing, agriculture, heavy motor and pleasure craft insurance. The company is one of Australia’s leading Workers’ Compensation insurers, serving approximately one in five Australian employees.
By leveraging its multi-distribution approach as well as exploiting new business opportunities, Allianz Australia grew the number of insured risks by 5.8 % in 2014. A continuation of this distributionfocused strategy will enable Allianz Australia to remain well placed for further profitable growth despite considerable rate pressure in commercial lines and increasing competition from new market entrants.
With 110 years of history in Brazil and a strong reputation as a top insurer, Allianz represents a very strong brand in the insurance market, reinforced in 2014 with the sponsorship of Allianz Parque Arena. At the beginning of 2014, the IT platform (which already operates successfully in our Spanish, Portuguese and Colombian subsidiaries ) was launched in Allianz Brazil as a key part of our overall strategy in the region. Unfortunately, operational issues arose during the implementation and start-up phase, leading to temporarily diminished levels of customer service. As a result, Allianz’s market share shrank by about one percentage point in the property-casualty insurance business in 2014. In response, we have implemented various initiatives targeting a recovery.
The Brazilian insurance market has been continuously growing over the last decade, from 1.8 % of GDP in 2003 to 3.0 % in 2013 (with Brazilian GDP also rising considerably during the same period). However, the more recent deceleration of the local economy represents further headwind for our growth in this region. Despite this, we believe that insurance penetration will continue to increase in the Brazilian market.
In the long term, Allianz Brazil aims to take advantage of the local market growth, leveraging the new IT platform to integrate all processes under one single system, and improve service levels to agents, insureds and providers.
AllianzGI recorded strong net inflows in fixed income and multiasset. PIMCO suffered net outflows throughout 2014 with a receding trend until nearly the end of September 2014. With the departure of PIMCO’s Chief Investment Officer (CIO) on 26 September 2014, the net outflows spiked in the last quarter of 2014, but came down to the end of the fourth quarter of 2014. Immediately after the resignation of the CIO, the new PIMCO investment management leadership was appointed following the orderly succession protocol.
In an uncertain and volatile business environment, we will protect the pillars of our business strategy – our integrity, financial strength, operational excellence and talent base – and continue to leverage our size to offer outstanding products and services to our customers and business partners.
Life/Health We aim to be one of the three most profitable life and health insurers among our global peer group. Our 2014 business segment operating result increased and puts the Group in the top-4 among our global peers in terms of operating profit. Still, we recognize that capital returns in the business segment will continue to be under pressure as interest rates remain close to zero in our major markets.
To protect and increase the segment’s profitability in this environment, we are working to improve returns both in the new and in-force business. We will continue to grow the share of our health and protection business and of non-traditional, capital-efficient savings products, supported by innovations such as the “Perspektive” product in the German market. In addition, we have launched in-force management programs across our major Life companies, aiming to realize the profit potential in our existing books of business and explore ways to optimize the capital tied up there.
We have since confirmed a broader investment leadership team at PIMCO. Meanwhile Allianz Global Investors has had its best year since the implementation of our two-pillar asset management strategy at the beginning of 2012, consolidating its position in the top of the European rankings by assets under management, driven by thirdparty net inflows and market returns.
In order to maintain growth in the segment we are constantly extending our product offering across asset classes (for example solution business, global strategies such as emerging market debt & equity and alternative investments like infrastructure). Besides, we are working on strengthening our global footprint and testing novel distribution models that will make it easier for our institutional and retail customers to access our products.
our operating environment and focus going forward In 2014, our operating environment was characterized by relative macro stability, thanks to the ongoing support of sovereign debt markets and financial markets overall by the central banks. Major stock markets reported gains, while spreads in selected fixed income markets tightened even further. In consequence, the related risks have been growing (please refer to the Risk and Opportunity Report starting on page 123). In particular, we monitor the risk to Allianz from: − Consequences of the current ultra-low interest rate environment, in particular the risk-return profile of financial assets; − Worsening financial strength of sovereign borrowers and the market volatility and central bank interference related to it; − Ongoing regulatory uncertainty both at the level of local supervision and macro-regulation (e.g. Solvency II, additional requirements for global systemically important insurers and European consumer regulation).
As we prepare to celebrate 125 years of Allianz with our customers and employees this year, we look ahead with confidence – confident that we will progress ever closer towards our vision: to be the world’s strongest financial community.
Michael Diekmann (until 6 May 2015) Chairman of the Board of Management (until 6 May 2015) Oliver Bäte Insurance Western & Southern Europe (until 31 December 2014), Global Property-Casualty (until 6 May 2015)
indicators across all business segments for the Allianz Group. In addition, we also use segment-specific figures such as the combined ratio for Property-Casualty, in-force and new business margins and margin on reserves for Life/Health and the cost-income ratio for Asset Management. Furthermore, we use Return on Risk Capital (RoRC) for new business steering purposes in the Property-Casualty and Life/ Health business segments. For a comprehensive view of our segment performance, please refer to the Management Discussion and Analysis starting on page 79.
Progress in Sustainable Development Allianz continues to build on its 125-year-old foundations that support us in doing business in a sustainable way. To us, sustainable development means combining long-term economic value creation with a forward-thinking approach to corporate governance, environmental stewardship and social responsibility.
Our sustainability activities focus on material issues relevant to our business and stakeholders. We have many different stakeholder groups, and engaging with them has enabled us to gather specific opinions, expectations and ideas, and consider these in relation to our business operations. It also helps provide a better understanding of the impacts of current or future global challenges on stakeholders, and how we can manage these by finding and developing effective solutions.
In our role as a company, we aim for transparency in business activities and treat customers, employees and partners with integrity and honesty. We are committed to minimizing our environmental impact and are constantly working to achieve low-carbon operations.
2 For more information on risk management, please refer to page 123.
cuStomEr rELationSHip manaGEmEnt Digital technology has completely changed the way consumers make purchasing decisions and buy insurance or investment products. We seek to provide our customers with convenient access to Allianz, making it easy for them to shift seamlessly between physical and digital interaction and with the required flexibility in adapting our products and services to their changing needs.
Meeting our customers’ needs through relevant products and services and earning their loyalty is vital for our sustainable growth. The Net Promoter Score (NPS) is our measurement of customers’ willingness to recommend Allianz. It has been established as our key global metric for customer loyalty in about 40 Allianz companies worldwide, representing around 90 % of gross premiums written. Topdown NPS is measured annually according to global cross-industry standards and allows benchmarking against competitors in respective markets.
To steadily improve our customer service, we apply bottom-up NPS: asking our customers for direct feedback after key interactions with Allianz – such as sales and claims handling. This helps us to identify areas for improvement and continuously monitor the impact of measures taken.
cuStomEr BaSE Overall, the number of customers insured by Allianz worldwide grew from more than 83 million in 2013 to 85 million in 2014. Organic growth contributed with 1 million customers.
cuStomErS By rEGion/country1 as of 31 December 2014 [31 December 2013] in %
1 Customer figures exclude clients in microinsurance, pension funds and all Global Lines.
aLLianZ Brand1 Our brand plays a key role in driving the growth of our business in the long term. It fosters close bonds with our customers – even more so in the digital context – and consequently helps us to build sustainable relationships. In many countries around the globe our brand is well-established: Allianz stands for a trusted partner in peoples’ lives, helping them to make the right decisions and gain confidence to achieve their goals. In 2014, our Allianz-branded revenues stood at 83 % (2013: 82 %) of total revenues. Our “One-Brand” strategy leaves room for our renowned specialty brands such as PIMCO and Euler Hermes that use Allianz as their reference.
As part of our global brand management process, we use a standardized market research design to monitor and benchmark the performance of the Allianz brand regularly against local competitors. This research covers over 38,000 consumers in 26 countries. Our brand performance was again acknowledged in 2014: In the annual 100 Best Global Brands Ranking from Interbrand, Allianz remains one of the strongest growing financial services brands, with our brand value increasing by 15 % to approximately USD 7.7 BN (2013: USD 6.7 BN).
In 2014, we continued to invest in our brand. Building on our successful global brand communication framework “ONE”, which has been rolled out in over 30 countries to date, we also launched a dedicated brand campaign in Asia to strengthen Allianz as the trusted 1 Our Allianz trademark is registered and protected worldwide, as are our domain names. Furthermore, we have registered our corporate design and brand claim “Allianz. With you from A-Z.” in relevant countries worldwide. In order to maintain the distinctiveness and strength of our Allianz brand, we continuously monitor possible infringements of our trademark applications and registrations by third parties.
Annual Report 2014 Allianz Group 75 insurance and investment partner in the region. The global campaign was extended with local brand activities in Indonesia, Malaysia, Thailand and Taiwan. Through our strong presence in digital platforms, including social media, we achieved high consumer engagement overall with our brand and business.
We continued to reduce the carbon footprint of our business in 2014. Our overall CO2 reduction since 2006 now stands at 41.3 % per employee and energy reduction since 2010 is now 27.2 % per employee. As part of our overarching Climate Change Strategy, and in addition to our carbon reduction target, we have been a carbon-neutral business since 2012 by offsetting our remaining emissions through direct investments in carbon projects.
Total travel – plane, train, car in tkm 963,958 967,210 931,356 Total paper consumption in metric 1 KPMG Wirtschaftsprüfungsgesellschaft AG has provided limited assurance on the 2014 environmental performance information. For further information, please refer to www.allianz.com/sustainability.
A high level of data privacy has been established throughout the Group. During 2014, the Allianz Group Data Protection function supported subsidiaries in implementing the Allianz Standard for Data Protection and Privacy and establishing appropriate data privacy management systems by providing, for example, awareness materials or risk assessment templates. The most important step is the assessment of all the processes that collect and manage personal data, in order to check their legal feasibility as well as the necessity for specific privacy controls.
1 For further information on our compliance program, please refer to the Statement on Corporate Management pursuant to § 289a of the HGB on page 41.
Allianz aspires to be a committed corporate citizen by contributing to the communities in which we operate. We strive to advance local social well-being and support informed decision-making at a governmental level as part of our vision to build the strongest financial community.
community EnGaGEmEnt In 2014, we donated € 21 MN (2013: € 19 MN) to assist local communities and offered further support through our international network of 14 Allianz-affiliated corporate foundations. We also offer a number of employee volunteering opportunities in local communities. For example, My Finance Coach fosters financial literacy among young people, and reached more than 219,000 students in Germany alone in 2014. The leadership development program Social OPEX saw 48 employees from 12 Allianz subsidiaries share their expertise with 21 socially-committed organizations.
1 For more information on HR management, read the chapters in our Sustainability Report 2014 (www. allianz.com/sustainability) as well as the HR fact book 2014 (www.allianz.com/hrfactbook).
Share of women in overall workforce 52.9 52.8 52.5 1 Figures based on the number of employees in Allianz’s core business. Excluded are fully consolidated companies which are considered as pure financial investments, non-profit organizations e.g. foundations and companies classified as held for sale.
We continue to help the integration of employees with disabilities into the workplace. Group-wide guidelines ensure that buildings, workstations and websites are accessible to wheelchair users, the blind and visually impaired. A number of our subsidiaries actively recruit graduates with disabilities for underwriter positions, for example, and others hire visually impaired call-center operators.
SuStainaBLE vaLuE approacH to rEmunEration Our remuneration and incentive structures are designed to encourage sustainable value creation and are guided by clear frameworks that promote strong governance. We use an appropriate mix of monetary and non-monetary rewards for our workforce, taking into account the particular role of an employee, business activities and local remuneration and regulatory environments.
The Allianz Group paid a total of € 9.0 BN (2013: € 9.1 BN) to its employees worldwide in 2014. Of this, approximately 29 % was for performance-related (variable) remuneration elements. € 2.5 BN (2013: € 2.4 BN) was spent on social security contributions, pensions and other social benefits.
GrEEn SoLutionS As part of our Climate Change Strategy, we continue to offer more
“green” solutions to our customers worldwide that support the transition to a low-carbon economy, protect the environment and help customers prepare for the negative effects of climate change and mitigate associated risks. In 2014, we offered 156 such solutions, with revenues of € 1.3 BN (2013: € 1.2 BN)1, reaching more than 4.7 MN customers (2013: 4.3 MN).
In our real estate investment, Allianz Real Estate has a comprehensive sustainability program. We apply specific sustainability metrics in investment and property management processes and actively engage with tenants. In 2014, we started a pilot project to track sustainability indicators in order to evaluate the progress of our sustainability program.
Management Discussion and Analysis 79 Business Environment 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations
ANOTHER YEAR WITH ONLY MODERATE ECONOMIC GROWTH Global economic performance in 2014 can be described as overall moderate expansion, with rather divergent developments in the individual countries and regions. Economic output also varied widely between the respective quarters. In the United States, for example, the exceptionally cold winter put such a damper on domestic demand that overall output contracted in the first quarter. As a result, catch-up effects contributed to a significant rebound in the second quarter. In Central and Eastern Europe many countries benefitted from the modest recovery in the Eurozone. Countries like Hungary and Poland registered average growth of more than 3 % in 2014. By contrast, Russia’s economy suffered severely from structural problems, economic sanctions linked to the Ukraine conflict and the collapse in oil prices. As a result, the country slipped into recession in late 2014. All in all, global economic output is likely to have grown by 2.5 % in 2014, marginally higher than in 2013 when output increased by 2.3 %.
In the property-casualty sector, premium growth in advanced markets was basically unchanged from the previous year. Slightly lower growth in the United States was compensated by some strengthening in Europe, although some markets in southern Europe such as Spain, Italy and Greece remained in the doldrums. In emerging markets, weaker economic activity took its toll on premium growth too: many markets, first and foremost in Eastern Europe, showed significantly slower growth than in the previous year. The notable exception was the Chinese market, which was buoyed by a strong motor business. Overall, according to our own estimates and based on preliminary figures, global premiums grew by around 4 % in 2014 (in nominal terms and adjusted for foreign currency translation effects).
Underwriting profitability remained on average stable, with combined ratios in most markets clearly below 100 %, reflecting a general positive rate development and a benign claims environment: global catastrophe losses remained low for a third year in a row. However, overall profitability was restrained by the challenging investment environment. Hopes for rising yields were dashed again in 2014 as interest rates fell even further, driving investment returns lower.
In the life sector, premium income growth in advanced markets was markedly higher than in the previous year. The main drivers were the rebound of the U.S. market from its dip in 2013 and the strong performance of some European markets, notably Italy and France. Premium growth in emerging markets remained on average strong. In particular, the Chinese and Indian markets returned to form, putting some weaker years firmly behind them. However, markets in Latin America and Eastern Europe grew rather below their trend growth of recent years. In total, according to our own estimates and based on preliminary figures, global premiums grew by around 5 % in 2014 (in nominal terms and adjusted for foreign currency translation effects).
The prevailing low yield environment posed the greatest challenge for profitability in the life sector as it caused the spread between returns on assets and guaranteed rates to shrink. Life insurers reacted to this spread compression by enhancing asset-liability management, increasing reserves and shifting the portfolio mix toward less liquid assets such as infrastructure. Moreover, many insurers started to de-risk their product design by restructuring their business towards less interest-sensitive products with reduced or flexible guarantees. All in all, life insurers managed to maintain their relatively high profitability and keep their robust capital position.
General economic growth in 2014 again lagged behind the long-term trend in OECD countries, with correspondingly subdued growth prospects for the asset management industry. For the asset management industry as a whole, it was a year of surprises, varying from falling long-term interest rates, a rising U.S. Dollar, political instability in various regions of the world and a sharp decline in oil prices in the last quarter. In addition, as for most of the past six years, capital markets were also driven by the actions of central banks.
Persistently low interest rates are having a major impact on interest-bearing investments. Contrary to the expectations of many market participants, 2014 did not see a broad rise in interest rates. On the one hand, yields on maturities of 10 years and longer were down, especially in the United States and in Europe. The yield on 10-year U.S. government bonds, for instance, fell from 3 % at the beginning of the year to around 2 % at the end of December. On the other hand, yields on shorter maturities continued to rise during the last months of 2014.
Our shareholders’ equity increased by € 10.7 BN to € 60.7 BN. Our conglomerate solvency ratio remained strong at 181 %1.
2 Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. Please refer to page 121 for a reconciliation of nominal total revenue growth to internal total revenue growth for each of our segments and the Allianz Group as a whole.
3 In the fourth quarter of 2014, our French International Health business was transferred from France (Life/ Health) to the reportable segment Allianz Worldwide Partners effective 1 January 2014.
Our Property-Casualty operating profit amounted to € 5,382 MN – up by € 115 MN or 2.2 % – driven by strong premium growth and a stable combined ratio. The underwriting result grew by € 80 MN to € 2,251 MN due to significantly lower losses from natural catastrophe events.
The Life/Health operating profit increased by € 618 MN to € 3,327 MN3, mainly driven by an improved investment margin due to gains from using derivatives to lengthen duration and a recovery in the foreign currency result after the losses in 2013 on partially hedged emerging markets bonds. The allocation of certain entities previously reflected in the business segment Asset Management to the business segment Life/Health contributed € 113 MN to this development.
Our operating result in Corporate and Other improved by € 183 MN to a loss of € 820 MN. This was mainly because of the costs related to the closure of the Allianz Bank’s business operations in mid-2013.
5 Operating profit adjusted for foreign currency translation and (de-)consolidation effects.
Our non-operating result decreased by € 1,131 MN to a loss of € 1,554 MN, mainly driven by a € 901 MN reclassification of tax benefits attributable to policyholders, but also by a decreased non-operating investment result.
Our non-operating investment result declined by € 350 MN to € 312 MN, mainly due to a decrease in income from financial assets and liabilities carried at fair value through income.
Non-operating income from financial assets and liabilities carried at fair value through income (net) decreased by € 326 MN to a loss of € 303 MN mainly due to unfavorable hedging results.
Income taxes decreased by € 1,055 MN to € 2,245 MN. The effective tax rate decreased to 25.4 % (2013: 34.2 %). The decrease in income taxes and effective tax rate was in particular due to the extraordinary tax benefits for current and previous years from the previously-mentioned favorable court decision amounting to € 1,120 MN. The policyholder share in the tax benefits amounted to € 892 MN. Without policy holder participation1, the Allianz Group’s effective tax rate attributable to the shareholders would be approximately 32 %.
1 Tax benefits for prior years allocated to policyholders of € 627 mn.
Basic earnings per share rose from € 13.23 to € 13.71 in 2014 and diluted earnings per share increased from € 13.05 to € 13.64. For further information on earnings per share, please refer to note 51 to the consolidated financial statements.
The Board of Management and the Supervisory Board propose that the net earnings (“Bilanzgewinn”) of Allianz SE of € 3,786,745,743.20 for the 2014 fiscal year shall be appropriated as follows: − Distribution of a dividend of € 6.85 per no-par share entitled to a dividend: € 3,111,752,678.40
In the fourth quarter of 2014, the French International Health business was transferred from the reportable segment Western & Southern Europe (Life/Health) to the reportable segment Allianz Worldwide Partners effective 1 January 2014 to reflect the change in management responsibility and to bundle the international health business to provide a comprehensive product range to the customers.
Fee and commission income 10,119 10,492 Other income 216 209 Claims and insurance benefits incurred (net) (49,650) (47,802) Change in reserves for insurance and investment contracts (net)2 (13,929) (13,990) Loan loss provisions (45) (86) Acquisition and administrative expenses (net), excluding acquisition-related expenses (23,351) (22,831) Fee and commission expenses (3,238) (3,038) Operating amortization of intangible assets (19) – Restructuring charges (16) (170) Other expenses (135) (106) Reclassification of tax benefits 901 – Operating profit (loss) 10,402 10,066
Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) (303) 23 Non-operating realized gains/losses (net) 812 952 Non-operating impairments of investments (net) (197) (313)
Income from fully consolidated private equity investments (net) (23) (15) Interest expenses from external debt (846) (901) Acquisition-related expenses 7 (34) Non-operating amortization of intangible assets (104) (136) Reclassification of tax benefits (901) – Non-operating items (1,554) (423)
Basic earnings per share in € 13.71 13.23 Diluted earnings per share in € 13.64 13.05 1 Total revenues comprise statutory gross premiums written in Property-Casualty and in Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking).
Annual Report 2014 Allianz Group 85 business in Ireland and Great Britain. Starting 7 May 2015 he will also take over responsibility for Global Property and Casualty from Oliver Bäte. Manuel Bauer’s appointment has been extended for another year until the end of 2015. The appointments of Dr. Dieter Wemmer and Dr. Werner Zedelius have been extended by three years and the appointment of Dr. Helga Jung by five years. At 1 January 2015 Manuel Bauer also took over responsibility for the insurance business in Australia and as of the same date Jay Ralph took over responsibility for the life insurance business in the United States in addition to prior responsibilities.
For further information on the current composition of the Board of Management, please refer to Strategy and Steering starting on page 70.
Property-Casualty Insurance Operations − Gross premiums written grew 3.7 % reaching € 48.3 BN. − Operating profit increased 2.2 % to € 5,382 MN benefiting from strong premium growth and a stable combined ratio of 94.3 %.
Business segment overview Our Property-Casualty business offers a wide range of products and services for both private and corporate clients. Our offerings cover many insurance classes such as motor, accident/disability, property and general liability. We conduct business worldwide in more than 70 countries. We are also a global leader in travel insurance, assistance services and credit insurance. We distribute our products via a broad network of agents, brokers, banks and other strategic partners, as well as through direct channels.
Gross premiums written 48,322 46,579 Operating profit 5,382 5,267 Net income 3,448 3,817 Loss ratio in % 66.0 65.9 Expense ratio in % 28.3 28.4 Combined ratio in % 94.3 94.3
1 After elimination of transactions between Allianz Group companies in different countries and different reportable segments. Gross premiums written from our specialty lines have been allocated to the respective geographic regions.
cluster 2 In Asia-Pacific we recorded a 13.1 % increase in gross premiums to € 722 MN. The internal growth was mainly due to higher volumes in our motor and health business.
In our Credit Insurance business, gross premiums rose to € 2,158 MN. The internal growth of 2.7 % stemmed from higher volumes in our growth markets primarily in the Americas, Asia and the Middle East.
In Latin America gross premiums were € 2,101 MN. The internal growth of 2.3 % was driven by growth in Argentina across all lines of business. However, this was partly offset by negative volume effects in Brazil.
In France gross premiums went up 0.7 % on an internal basis and reached € 4,248 MN driven by tariff increases.
cluster 3 In the United States gross premiums were € 1,958 MN. The decrease of 4.6 % on an internal basis was largely driven by adverse volume effects in our commercial lines and lower commodity prices for crop.
cluster 4 In Central and Eastern Europe gross premiums were down 5.2 % on an internal basis to € 2,227 MN. This was largely due to negative volume effects from the downscaling of our retail business – in particular our motor business – in Russia. Favorable volume effects in our motor business in the Czech Republic and Romania partly offset the overall negative impact from Russia.
Our underwriting result grew by € 80 MN to € 2,251 MN. Significantly lower losses from natural catastrophe events were partially offset by a higher impact from single large claims and a lower run-off contribution compared to last year. Overall, the combined ratio was unchanged at 94.3 %.
Premiums earned (net) 43,759 42,047 Accident year claims (30,263) (29,402) Previous year claims (run-off) 1,385 1,689
Our accident year loss ratio stood at 69.2 % – a 0.8 percentage point improvement compared to the previous year’s figure. This was predominantly the result of lower losses from natural catastrophes from € 1,218 MN to € 400 MN, a decrease of 2.0 percentage points to 0.9 %.
Excluding losses from natural catastrophes, our accident year loss ratio was 68.2 %, up 1.2 percentage points compared to the previous year. This increase was mainly driven by Brazil and by single large claims at AGCS, which offset the favorable development in attritional losses in France and Germany.
Reinsurance: 0.3 percentage points. The improvement resulted from lower losses from natural catastrophes.
Our run-off result decreased by € 304 MN to € 1,385 MN – resulting in a run-off ratio of 3.2 % – 0.9 percentage points lower than in 2013. Reserve releases across most of our operating entities were reduced by a 0.7 percentage point negative impact from reserve strengthening in the United States, Russia and Brazil.
Total expenses amounted to € 12,400 MN in 2014, compared to € 11,942 MN in the previous year. Our expense ratio improved slightly to 28.3 %, positively impacted by the removal of the fire levy in Australia amongst other effects. Receivable write-offs in Brazil and integration costs for the acquisition of a part of the insurance business of UnipolSai in Italy dampened the positive development.
Annual Report 2014 Allianz Group operating investment income (net)1 € mn
Fee and commission income 1,260 1,226 Other income 60 47 Fee and commission expenses (1,180) (1,141) Other expenses (45) (21) Restructuring charges (30) (62) Other result 66 48 1 Including French health business, excluding fair value option and trading.
Global Insurance Lines & Anglo Markets9 17,172 15,969 17,211 15,948 12,766 11,970 2,044 1,785
Middle East and North Africa 74 68 75 68 49 46 8 8 1 This reflects gross premiums written on an internal basis, adjusted for foreign currency translation and (de-)consolidation effects.
2 The 2013 combined ratio for Germany and Reinsurance PC was impacted by a one-off effect related to the commutation of internal reinsurance resulting in a 0.9 percentage point improvement in the combined ratio for Germany and an increase of 2.3 percentage points for Reinsurance PC. This had no impact at Group level.
S.p.A., Bologna. 5 Belgium and the Netherlands are presented as the combined region Benelux. All prior periods are presented accordingly.
Global Insurance Lines & Anglo Markets9 91.2 92.5 62.7 63.3 28.4 29.2
8 The reserve strengthening for asbestos risks in 2014 at Fireman’s Fund Insurance company of € 79 MN had no impact on the financial results of the Allianz Group’s and Fireman’s Fund’s combined ratio under IFRS.
9 Contains € 3 MN operating profit and € 7 MN operating loss for 2014 and 2013, respectively, from AGF UK. 10 Contains income and expense items from a management holding and consolidations between countries in this region.
13 The 2014 analysis of the Allianz Group’s asbestos risks resulted in a reduction of reserves and a positive run-off result of € 86 MN reflected in the operating profit for 2014.
Business segment overview Allianz offers a broad range of life, health, savings and investment -oriented products, including individual and group life insurance contracts. Via our distribution channels – mainly tied agents, brokers and bank partnerships – we offer life and health products to both retail and corporate clients. As one of the worldwide market leaders in life business, we serve customers in more than 45 countries.
We recorded premium growth in all core markets – largely driven by our single premium business. These favorable developments were also supported by our broker channel in the United States and the successful cooperation with our bancassurance channel in Italy. We experienced strong premium growth in fixed-indexed annuity products in the United States, strong sales of unit-linked and savings products in Italy and an increase in the single premium business with savings products (in particular “Perspektive”) in Germany. This was partly offset by sizeable declines in variable annuity business in the United States, and to a lesser extent in some Eastern European countries, where profitability and risk management actions limited volumes.
1 In the fourth quarter of 2014, we transferred our French International Health business to the reportable segment Allianz Worldwide Partners effective 1 January 2014.
2 Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking.
1 After elimination of transactions between Allianz Group companies in different countries and different reportable segments.
Premiums in the United States increased to € 11,840 mn, representing growth of 61.6 %. This was driven by strong fixed-indexed annuity sales as a result of an innovative index strategy and higher penetration into the broker and dealer channel. However, as anticipated, in the second half of the year it was below the level in the first half due to the impact of pricing changes in response to the decreasing interest rate environment. This growth was partly offset by a decrease in the variable annuity business.
Premiums in Italy increased 34.4 % to € 11,332 mn. This growth was mainly due to the strong contribution of unit-linked and savings products distributed via our bancassurance channel. To further improve our product design and pricing, the sale of traditional guarantee savings products was largely replaced by savings products with 0 %-guarantees from the third quarter of 2014.
In Benelux1, we recorded premiums of € 2,518 mn, an increase of 8.3 %. This growth stemmed from both Belgium, with our 0 %-guarantee products, and Luxembourg.
Premiums in France increased 3.2 % to € 8,241 mn. This was mainly attributable to our individual life business, where we recorded growth in unit-linked products. In our protection and health business we also recorded a solid increase.
In Switzerland, premiums totaled € 1,655 mn. The increase of 2.3 % was primarily driven by our single premium business in group life. This was partly offset by a decrease in our individual life business from both single and regular premiums.
Premiums earned (net) decreased by € 66 mn to € 24,514 mn. This was mainly driven by the transfer of our French International Health business to the reportable segment Allianz Worldwide Partners. The growth in premiums in Asia-Pacific mainly due to product mix changes and an increase in the United States because of rider charges on parts of the variable annuity business partly offset the decrease.
Present value of new business premiums (PVNBP)2 Present value of new business premiums (PVNBP), as an indicator for the volume of new business, increased by € 13.1 bn to € 61.0 bn. This was largely driven by the increase in our single premium fixedindexed annuity business in the United States and the premium growth in Italy and Germany. This was supported by our Asia-Pacific business with higher sales in Taiwan, South Korea, Indonesia and favorable foreign exchange rate developments in Thailand and Malaysia. Overall, the growth was dominated by the broker and bancassurance channel.
1 Belgium, Luxembourg and the Netherlands are presented as the combined region Benelux. All prior periods are presented accordingly.
Our operating profit increased by € 618 mn to € 3,327 mn. This development was driven by Germany, the United States and the allocation of certain entities previously reflected in the business segment Asset Management to the business segment Life/Health.
Loadings and fees Loadings and fees includes premium and reserve based fees, unitlinked management fees and policyholder participation in expenses.
Loadings from premiums 3,430 3,251 Loadings from reserves 1,094 1,001 Unit-linked management fees 626 458 Loadings and fees 5,151 4,709
Our loadings and fees increased by € 441 mn to € 5,151 mn. The increase of loadings from premiums by € 179 mn to € 3,430 mn largely resulted from higher sales in Germany and Asia-Pacific. Only minor contributions within loadings from premiums stemmed from the growing business in the United States as it is priced differently and expenses are financed through other profit sources, mainly investment margin. Loadings from premiums as a percentage of statutory premiums decreased by 63 basis points as a result of a higher proportion of single premium business and sales of products in Italy with relatively lower loadings. This was partially offset by the transfer of our French International Health business to the reportable segment Allianz Worldwide Partners.
The growth in unit-linked management fees by € 169 mn to € 626 mn was largely a result of the allocation of certain entities previously reflected in the business segment Asset Management to the business segment Life/Health, which contributed € 140 mn in 2014. Unit-linked management fees as a percentage of unit-linked reserves decreased by 4 basis points. This was driven by a higher share of unitlinked management fees from Italy, where average fees decreased.
Interest and similar income 17,307 16,767 Operating income from financial assets and liabilities carried at fair value through income (net) (1,367) (1,832) Operating realized gains/losses (net) 3,204 3,294 Interest expenses (107) (81) Operating impairments of investments (net) (677) (331) Investment expenses (903) (839)
2 Investment margin divided by the average of current and previous year-end aggregate policy reserves.
Our investment margin increased by € 586 mn to € 2,972 mn, even considering the low interest rate environment. Consequently, the investment margin as a percentage of reserves increased by 12 basis points to 80 basis points. This growth was predominantly driven by Germany and the United States. In Germany, the investment margin improved due to gains from using derivatives to lengthen duration and a recovery in the foreign currency result after the losses in 2013 on partially hedged emerging markets bonds. The policyholder participation of € 5,996 mn also includes € 625 mn of policyholder benefits beyond contractual or regulatory requirements for the German life business in 2014. A higher investment spread for the increased fixed-indexed annuity portfolio contributed in the United States.
Acquisition expenses and commissions as % of pvnbp1 (7.9) (8.8) Administrative and other expenses as % of average reserves2 (0.3) (0.4)
1 PVNBP before non-controlling interests. 2 Aggregate policy reserves and unit-linked reserves.
Our expenses increased by € 658 mn to € 6,410 mn. This was mainly due to increased acquisition expenses driven by strong fixed-indexed annuity sales in the United States and products with alternative guarantees in Germany and Asia-Pacific.
The allocation of certain entities previously reflected in the business segment Asset Management to the business segment Life/Health increased the segment’s administrative expenses by € 45 mn in 2014. In France, a litigation fine of € 50 mn imposed by the regulator increased administrative expenses.
Our technical margin decreased by € 99 mn to € 1,190 mn, largely driven by a regulatory change (“Lebensversicherungsreformgesetz”) for the German life business to increase the policyholder participation in the technical margin.
Our impact of change in DAC improved from € 77 mn to € 425 mn. Capitalization of DAC offset higher acquisition expenses as a result of increased fixed-indexed annuity sales in the United States. Amortization of DAC remained stable.
Guaranteed savings & annuities 2,385 1,884 Protection & health 654 657 Unit-linked without guarantee 288 168 Operating profit 3,327 2,709
Operating profit in the unit-linked without guarantee line of business increased. This was mainly driven by the € 113 mn effect of the allocation of certain entities previously reflected in the business segment Asset Management to the business segment Life/Health.
margin on reserves Our margin on reserves increased from 58 to 65 basis points.
Net income increased by € 379 mn to € 2,320 mn, consistent with our operating performance, while a slightly improved effective tax rate also contributed positively.
Statutory premiums2 67,331 56,784 Ceded premiums written (630) (648) Change in unearned premiums (544) (332) Statutory premiums (net) 66,157 55,803 Deposits from insurance and investment contracts (41,643) (31,223) Premiums earned (net) 24,514 24,580
3 Impact of change in DAC includes effects of change in DAC, URR and VOBA and is the net impact of deferral and amortization of acquisition costs and front-end loadings on operating profit and therefore deviates to the financial statements.
Amortization, unlocking and true-up of Dac (1,513) (1,519) (1,118) (1,077) (294) (354) (101) (88) Impact of change in DAC2 425 77 327 (31) 78 82 20 27 1 Profit sources are based on in-scope operating entities with coverage of 97.3 % of statutory premiums. Operating profit from operating entities that are not in-scope is included in investment margin.
Middle East and North Africa 176 163 179 163 132 132 24 17 352 304 1 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.
2 Represents operating profit (loss) divided by the average of the current and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets.
5 In the fourth quarter of 2014, we transferred our French International Health business to the reportable segment Allianz Worldwide Partners in the business segment Property-Casualty effective 1 January 2014.
6 Belgium, Luxembourg and the Netherlands are presented as the combined region Benelux. All prior periods are presented accordingly.
8 Contains income and expense items from a management holding and consolidations between countries in this region.
9 Presentation not meaningful. 10 Represents elimination of transactions between Allianz Group companies in different geographic regions.
Operating revenues 6,388 7,162 Operating profit 2,603 3,161 Cost-income ratio in % 59.2 55.9 Net income 1,621 1,925 Total assets under manage ment as of 31 December in € bn 1,801 1,770 thereof: Third-party assets under manage ment as of 31 December in € bn 1,313 1,361
1 Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking.
As of 31 December 2014, total assets under management (AuM) amounted to € 1,801 BN. Of this, € 1,313 BN related to our third-party AuM and € 488 BN to Allianz Group assets.
In 2014, we experienced net outflows of total AuM of € 221 BN. Net outflows from third-party AuM of € 226 BN were strongly driven by PIMCO in the United States and – to a lesser extent – the United Kingdom, while PIMCO Canada and Japan recorded net inflows in 2014. 59 % of our net outflows were driven by traditional fixed income products. At the end of the third quarter and in the fourth quarter of 2014, PIMCO experienced heightened third-party net outflows in conjunction with the market’s reaction to the departure of PIMCO’s Chief Investment Officer, who resigned on 26 September 2014. AllianzGI recorded net inflows for the eighth consecutive quarter.
In the following section, we focus on the development of third-party AuM.
As of 31 December 2014, the share of third-party AuM by business unit was 80.2 % attributable to PIMCO and 19.8 % attributable to AllianzGI.
The regional allocation of third-party AuM shifted slightly in favor of Europe and the Asia-Pacific region. This was primarily due to strong outflows at PIMCO in the United States.
The relative share of our third-party AuM increased by three percentage points in favor of equities. This development was mainly driven by strong fixed income outflows at PIMCO. This resulted in a 85 % share attributable to fixed income and a 15 % share attributable to equities as of 31 December 2014.
1 The third-party AuM that were reallocated with the entities amounted to € 35 BN as of 31 December 2014. 2 Based on the closing rates on the respective balance sheet dates. 3 Client group classification is driven by investment vehicle types.
Our operating revenues went down by € 774 MN – or 10.8 % – to € 6,388 MN. This was mainly due to lower performance fees and lower average third-party AuM. The allocation of certain entities to other business segments also contributed to this development. On an internal basis1, operating revenues declined by 8.5 %.
Administrative expenses fell by € 207 MN – or 5.2 % – to € 3,787 MN, mainly driven by lower performance-driven variable personnel expenses and lower AuM-related expenses. In the fourth quarter of 2014 PIMCO introduced the Special Performance Award (SPA), as an enhancement to the regular year-end compensation process, in order to secure performance and retain talent. The SPA had an impact of € 24 MN on operating profit.
Our cost-income ratio went up by 3.4 percentage points to 59.2 % mainly as a result of the strong decrease of performance fees and AuM-driven income outpacing the decline in operating expenses.
1 Operating revenues/operating profit adjusted for foreign currency translation and (de-) consolidation effects.
Administrative expenses (net), excluding acquisition-related expenses (3,787) (3,994) Restructuring charges 3 (6) Operating expenses (3,784) (4,001)
Cost-income ratio2 in % 59.2 55.9 1 Represents interest and similar income less interest expenses. 2 Represents operating expenses divided by operating revenues.
Operating revenues 1,750 1,631 Operating expenses (2,571) (2,635) Operating result (820) (1,004)
alternative investments Operating revenues 176 175 Operating expenses (146) (151) Operating result 30 24 1 Consolidation included. For further information about our Corporate and Other business segment, please refer to note 6 to the consolidated financial statements.
Our operating result improved by € 183 mn to an operating loss of € 820 mn. While all reportable segments contributed to this improvement, the Banking development contributed most of the increase.
Operating earnings summaries by reportable segments holding & treasury Overall, our operating loss decreased from € 939 mn to € 917 mn.
Our net interest result improved by € 11 mn to a loss of € 52 mn as the decrease in interest and similar income was more than offset by a decrease in the respective expenses. Interest and similar income decreased by € 13 mn to € 265 mn, as the previous year’s figure benefited from interest payments on our silent participation in Commerzbank, which was redeemed in 2013. This effect was only partly compensated for by increases in interest income from a larger volume of debt instruments and dividend income from equities. Our interest expenses, excluding interest expenses from external debt, were down by € 24 mn to € 317 mn. This was due to lower interest expenses on internal debt and was only partly offset by higher expenses related to an increased cash pool.
Administrative expenses (net), excluding acquisition-related expenses, increased by € 51 mn to € 736 mn. This was primarily driven by higher pension costs.
banKing3 Our operating result recovered from a loss of € 91 mn to an operating profit of € 66 mn. This improvement was driven by the closure of the Allianz Bank’s business operations in mid-2013 and the non-recurrence of restructuring charges of € 88 mn related to this closure incurred in the preceding year. Lower loan loss provisions in our ongoing banking businesses also contributed to the improvement.
Our operating income from financial assets and liabilities carried at fair value through income (net) remained unchanged at € 4 mn.
3 Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking.
Selective profitable growth. Property-Casualty with continued sound risk selection and selective external growth, Life/Health with growing asset base and attractive new business margins, Asset Management with net outflows.
property-Casualty Growth in gross premiums written by more than 3.0 %. Gross premiums written increased by 3.7 % supported by both internal and external growth, despite a negative foreign currency impact.
Operating investment result increased by 2.8 % to € 17.5 Bn, supported by capital market-driven fair value gains.
New business profitability improved and our selective growth strategy focused on managed guaranteed products.
1 For more detailed information on the previous year outlook for 2014, please see the Annual Report 2013 starting on page 87.
Financial market developments in 2015 will primarily be driven by monetary policy and geopolitical tensions, such as the conflict between Russia and Ukraine. Barring a major downside surprise on growth, the Federal Reserve Bank will likely start to push up interest rates this year. In contrast, in an effort to stem deflationary pressures and stimulate growth in the Eurozone, the European Central Bank has further loosened its monetary policy stance with the announcement of a bond purchasing program with a monthly volume of € 60 BN. This program will not only weigh on European government benchmark bond yields, but also exert considerable downward pressure on bond spreads of debt-ridden Eurozone countries. Ongoing reform and consolidation efforts are needed to support the economic recovery and avoid a renewed flare-up of the sovereign debt crisis in the Eurozone.
In the property-casualty sector, we anticipate premium growth in 2015 to be slightly above the level of the previous year. In advanced markets, increasing economic activity is a positive factor but the expected slight softening of the market might dampen growth perspectives. However, differences in pricing in individual markets will remain significant, with the U.S. market likely to see the highest pricing pressure. On the other hand, emerging markets are mainly driven by economic growth. As in previous years, the strongest increases are expected in Asia, with China in the lead. Overall, we expect global premium revenue to rise between 4.5 % and 5.5 % in 2015 (in nominal terms, adjusted for foreign currency translation effects).
In the life sector, we expect premium growth to continue to recover. In advanced markets, slowly improving employment prospects and a new product mix will help to support top-line growth. In emerging markets, strong growth will be mainly driven by rising incomes and social security reforms, boosting demand for pension products. At the same time, with financial markets continuously developing, consumers increasingly ask for more sophisticated savings products beyond simple bank deposits. All in all, we expect that global premium revenue will rise in the 4 % to 5 % range in 2015 (in nominal terms, adjusted for foreign currency translation effects).
As discussed earlier, world economic growth is expected to be moderately higher in 2015. Growth dynamics, however, vary significantly across the globe and there are clear risks for 2015. Geopolitical tensions, a renewed flare-up of the European sovereign debt crisis and currency or trade wars all could jeopardize economic development. However, the outlook provided here assumes the absence of such shocks.
Overview: outlook and assumptions 2015 outlook 2015 allianz Group Operating profit of € 10.4 Bn, plus or minus € 0.4 Bn. Protection of shareholders’ investments, while continuing to provide attractive returns and dividends. Selective profitable growth.
property-Casualty Growth in gross premiums written by approximately 3.0 %. Operating profit in the range of € 5.2 Bn to € 5.8 Bn. Combined ratio below 96 % over the cycle. Pressure on operating investment income (net) due to reinvestments in a low interest rate environment.
life/HealtH Prioritizing profitability over growth, taking further product and pricing actions to address the prolonged low yield environment. As a result, revenues are expected to be in the range of € 59.0 Bn to € 65.0 Bn. Operating profit between € 3.0 Bn and € 3.6 Bn. Margin on reserves between 50 and 70 basis points. Pressure on investment income due to low interest rates and continued capital market uncertainty.
− No disruptive fiscal or regulatory interference. − Level of claims from natural catastrophes at expected average levels. − Average U.S. Dollar to Euro exchange rate of 1.20.
Annual Report 2014 Allianz Group 107 expenses associated with the Special Performance Award at PIMCO introduced in the fourth quarter of 2014, partially compensated by higher expected performance fees. In the Life/Health business segment, operating profitability will remain under pressure due to low yields. However, we expect a stable development compared to the 2014 results, mainly supported by growth in our underlying asset base.
Although the global economy is showing signs of recovery, investment results are likely to remain under pressure due to low interest rates and the continued uncertainty surrounding a flare-up of the European sovereign debt crisis. This will be offset by an increase in our operating asset base.
Management’s assessment of expected revenues and earnings for 2015 In 2014, our total revenues amounted to € 122.3 BN, representing a 10.4 % and a 10.6 % increase on a nominal and internal basis, respectively, compared to last year. After the exceptional growth in 2014, we expect a slight decrease in 2015, with Property-Casualty advancing, while Life/Health and Asset Management revenues are likely to be under pressure due to our selective focus on profitable growth and the uncertain financial market outlook, respectively.
Our net income attributable to shareholders increased in line with the operating profit, reaching € 6.2 BN in 2014. Consistent with our disclosure practice in the past and given the susceptibility of our non-operating results to adverse capital market developments, we do not provide a precise outlook for net income. However, since our outlook presumes no major disruptions of capital markets, we anticipate a slight rise in net income for 2015.
property-Casualty insuranCe We expect our revenues to increase by approximately 3.0 % in 2015 (2014: 3.7 %) on a nominal basis, supported by favorable volume and to a lesser extent price effects as well as external growth. A major driver of the latter is the acquisition of a part of the insurance business of UnipolSai in Italy at the beginning of the third quarter of 2014.
Premium growth in 2015 is expected mainly from our global insurance lines as well as the Anglo markets. Top line development will be further supported by positive trends in most of our European core markets, such as Germany and France.
We will continue to prioritize profitability over growth in 2015 and we expect revenues to be lower than 2014, which showed exceptional growth. This reflects our enhanced efforts to selectively write profitable business, given current interest rate developments and the competitive landscape.
Corporate and otHer Our Corporate and Other business segment recorded an operating loss of € 0.8 BN in 2014. Due to slightly deteriorating operating results of the Holding & Treasury reportable segment – mainly attributable to higher pension costs – we predict an operating loss in the range of € 0.8 BN to € 1.0 BN for Corporate and Other (including consolidation) in 2015.
Financing and liquidity development and capitalization The Allianz Group maintains a healthy liquidity position combined with superior financial strength and capitalization well above what supervisory authorities currently require.
In November 2014, the Board of Management and the Supervisory Board of Allianz SE decided on a new allocation of net income in its dividend policy. Starting with the financial year 2014, the intention is to propose an increased regular pay-out to Allianz shareholders of 50 % of Allianz Group net income (attributable to shareholders).
1 This dividend policy represents the current intention of the Board of Management and the Supervisory Board and may be revised in the future. Also, the dividend payment in any given year is subject to specific dividend proposals by the Board of Management and the Supervisory Board, each of which may elect to deviate from this dividend policy if appropriate under the then prevailing circumstances, as well as to the decision of the Annual General Meeting.
In the interest of dividend continuity, the objective is to keep the dividend per share at least at the level paid in the previous year. The dividend policy of the Allianz Group continues to aim for a healthy balance between an attractive yield and investments in profitable growth. To assure capital discipline, management further intends to evaluate and pay out any unused capital budget earmarked for external growth every three years. The first evaluation will take place at the end of 2016. In 2014, out of a budget of € 1.2 BN for external growth (equals 20 % of the net income attributable to shareholders for the year 2013) investments of € 0.6 BN were made resulting in additional capital consumption of € 0.3 BN. The dividend policy is subject to a sustainable Solvency II ratio above 160 %. This new policy is reflected in our proposed dividend of € 6.85 per share.
Cautionary note regarding forward-looking statements The statements contained herein may include prospects, statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such forwardlooking statements.
2 This does not include non-controlling interests of € 2,955 mn and € 2,765 mn as of 31 December 2014 and 31 December 2013, respectively. For further information, please refer to note 25 to the consolidated financial statements. Retained earnings include foreign currency translation adjustments of € (1,977) mn and € (3,313) mn as of 31 December 2014 and 31 December 2013, respectively.
Solvency ratio Eligible capital Requirement 1 Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the solvency ratio as of 31 December 2014 would be 172 % (31 December 2013: 173 %).
2 Conglomerate solvency ratio as of 31 December 2014 was adjusted for the potential calls of hybrid capital (subordinated bonds) of € 0.4 bn in 2015. Excluding this adjustment, the solvency ratio would be 182 % (including off-balance sheet reserves) as of 31 December 2014.
Compared to year-end 2013, our conglomerate solvency ratio remained strong. In 2014, the Group’s eligible capital for solvency purposes increased by € 3.3 bn to € 49.8 bn, which includes off-balance sheet reserves of € 2.3 bn (31 December 2013: € 2.3 bn) and was adjusted for the potential calls of hybrid capital (subordinated bonds) in 2015. This increase in eligible capital was largely driven by our net income (net of accrued dividends and accounting for a 50 %
As of 31 December 2014, total assets amounted to € 805.8 bn and total liabilities were € 742.1 bn. Compared to year-end 2013, total assets and total liabilities increased by € 94.7 bn and € 83.9 bn, respectively.
The following section mainly focuses on our financial investments in debt instruments, equities, real estate and cash, since these reflect the major developments in our asset base.
Investment portfolio as of 31 December 2014: € 614.6 bn [as of 31 December 2013: € 536.8 bn] in %
1 This dividend policy represents the current intention of the Board of Management and the Supervisory Board and may be revised in the future. Also, the dividend payment in any given year is subject to specific dividend proposals by the Board of Management and the Supervisory Board, each of which may elect to deviate from this dividend policy if appropriate under the then prevailing circumstances, as well as to the decision of the Annual General Meeting. For further information on our new dividend policy, please refer to Outlook 2015 starting on page 104.
Compared to year-end 2013, our investment portfolio increased by € 77.7 bn to € 614.6 bn as of 31 December 2014 with no material change in the overall asset allocation.
Our direct exposure to real estate increased by € 0.6 bn to € 11.3 bn due to new investments.
Total fixed income portfolio as of 31 December 2014: € 549.8 bn [as of 31 December 2013: € 480.7 bn] in %
Our government bond exposure increased by € 29.7 bn compared to year-end 2013 and amounted to € 209.3 bn as of 31 December 2014. The allocation of our government and government-related bond exposure remained rather stable, with a marginal decrease in the share of German government bonds reflecting the decision not to 2 Equity gearing is defined as the ratio of our equity holdings allocated to the shareholder after policyholder participation and hedges to shareholders’ equity plus off-balance sheet reserves less goodwill.
3 Excluding self-originated German private retail mortgage loans. For 2 %, no ratings were available.
Our corporate bonds grew by € 28.7 bn to € 145.1 bn – representing an increase from 24 % as of 31 December 2013 to 26 % of our fixed income portfolio as of year-end 2014. This was primarily driven by new investments and to a lesser extent by decreased interest rates leading to fair value increases. The corporate bond portfolio weighting experienced a slight regional shift from Eurozone corporate bonds to bonds of the North-American region, which was driven by new investments as well as value increases in U.S. Dollar-denomi nated exposures.
Our exposure to asset-backed securities (AbS) went up by € 4.5 bn to € 22.9 bn and still accounted for 4 % of our fixed income portfolio. The increase was largely related to new investments. About 72 % of our AbS portfolio was related to mortgage-backed securities (mbS). mbS issued by U.S. agencies, which are backed by the U.S. government, increased by two percentage points and accounted for 15 % of the AbS portfolio. Overall, 98 % of the AbS portfolio received an investment grade rating, with 86 % rated “AA” or better.
Our total investment income (net) went up slightly to € 21,586 mn as the decrease in our non-operating investment result was more than compensated for by the increase in our operating investment result, which are analyzed in the following two sections.
fluctuations as well as to manage duration and other interest raterelated exposures.
Operating realized gains and losses (net) decreased by € 129 mn to € 3,205 mn. This was driven by lower realizations on debt securities, but also on real estate. Realized gains on equities were around the same level as the previous year.
Investment expenses increased by € 56 mn to € 961 mn, mainly due to the higher asset base and higher expenses for the extended real estate exposure.
Non-operating impairments of investments (net) decreased by € 116 mn to € 197 mn. An increase in impairments on debt securities was more than offset by a respective decrease on equities.
Property-Casualty assets Compared to year-end 2013, the Property-Casualty asset base increased by € 8.2 bn to € 109.2 bn. This was primarily driven by higher debt securities, but also by increased equities – both resulting from new investments and increased fair values.
CompoSition of aSSet baSe – fair valueS1 € bn as of 31 December 2014 2013
3 These do not include affiliates of € 8.9 bn and € 8.9 bn as of 31 December 2014 and 31 December 2013, respectively.
4 Including cash and cash equivalents, as stated in our business segment balance sheet of € 3.7 bn and € 2.8 bn and receivables from cash pooling amounting to € 4.2 bn and € 3.4 bn, net of liabilities from securities lending and derivatives of € (0.1) bn and € (0.3) bn, as well as liabilities from cash pooling of € (2.1) bn and € (1.0) bn as of 31 December 2014 and 31 December 2013, respectively.
AbS within the Property-Casualty asset base was up slightly from € 3.7 bn to € 4.0 bn, representing an almost unchanged 3.7 % of the business segment’s asset base.
Property-Casualty liabilities development of reServeS for loSS and loSS adjuStment expenSeS1 € bn Gross Ceded Net
1 For further information about changes in the reserves for loss and loss adjustment expenses for the Property-Casualty business segment, please refer to note 19 to the consolidated fin an cial statements.
2 Although discounted loss reserves have been reclassified to “Reserves for insurance and investment contracts” in the balance sheet in 2013, the underlying business development of these Property-Casualty reserves is still considered in the loss and loss adjustment expenses and in the loss ratio and is therefore included in the development of the reserves above.
– increased from € 53.4 bn to € 55.6 bn. Foreign currency translation effects and other changes amounted to an increase of € 2.0 bn on a net basis.
Life/Health assets The Life/Health asset base increased by € 78.9 bn – or 16.2 % – to € 565.4 bn. To a large extent, this was driven by an increased exposure to debt securities but also higher equities and was in line with the developments in our overall investment portfolio – reflecting both new investments and increased fair values. Higher financial assets for unit-linked contracts also contributed to this growth.
Loans and advances to banks and customers 91.4 89.9 Financial assets for unit-linked contracts4 94.6 81.1 Life/Health asset base 565.4 486.5 1 This comprises assets of € 1.4 bn and € 1.7 bn and liabilities (including the market value lia bility option) of € (8.2) bn and € (5.9) bn as of 31 December 2014 and 31 December 2013, respectively.
3 Including cash and cash equivalents, as stated in our business segment balance sheet, of € 7.6 bn and € 5.8 bn and receivables from cash pooling amounting to € 3.1 bn and € 3.5 bn, net of liabilities from securities lending and derivatives of € (2.6) bn and € (1.7) bn, as well as liabilities from cash pooling of insignificant amounts as of 31 December 2014 and 31 December 2013, respectively.
Net premium inflows (outflows) 2.7 4.4 7.1 Changes in fund value 3.7 1.8 5.5 Foreign currency translation adjustments 3.6 0.2 3.8 1 Financial assets for unit-linked contracts represent assets owned by, and managed on behalf of, policyholders of the Allianz Group, with all appreciation and depreciation in these assets accruing to the benefit of policyholders. As a result, the value of financial assets for unit-linked contracts in our balance sheet corresponds to the value of financial liabilities for unit-linked contracts. The International Financial Reporting Standards (IFRS) require the classification of any contract written by an insurance company either as an insurance contract or as an investment contract, depending on whether an insurance component is included. This requirement also applies to unit-linked products. In contrast to unit-linked investment contracts, unit-linked insurance contracts include coverage for significant mortality or morbidity risk.
Asset Management assets The Asset Management business segment’s results are derived primarily from asset management for third-party investors and the Allianz Group’s insurance operations . In this section, we refer only to the business segment’s own assets.2
The business segment’s asset base decreased from € 4.5 bn to € 2.6 bn – mainly from debt securities as a result of the allocation of certain entities to other reportable segments. Cash and cash pool assets are now the remaining main component of the business segment ’s asset base.
Asset Management liabilities Liabilities in our Asset Management business segment decreased from € 4.0 bn as of year-end 2013 to € 2.4 bn, primarily due to the above-mentioned allocation.
2 These do not include affiliates of € 77.2 bn and € 75.4 bn as of 31 December 2014 and 31 December 2013, respectively.
3 Including cash and cash equivalents, as stated in our business segment balance sheet, of € 2.0 bn and € 1.5 bn and receivables from cash pooling amounting to € 1.7 bn and € 0.7 bn, net of liabilities from securities lending and derivatives of € (0.0) bn and € (0.2) bn, as well as liabilities from cash pooling of € (7.9) bn and € (7.1) bn as of 31 December 2014 and 31 December 2013, respectively.
Corporate and Other liabilities Compared to 31 December 2013, other liabilities increased by € 4.4 bn to € 28.0 bn as of 31 December 2014. Most of this increase was related to higher pension obligations. Over the same period, subordinated liabilities were up by € 0.5 bn to € 12.0 bn as the redemption of a € 1.5 bn perpetual bond was more than offset by the issuance of two perpetual subordinated bonds with a volume of CHF 0.5 bn and € 1.5 bn in the first and third quarter of 2014, respectively. Certificated liabilities decreased by € 1.0 bn to € 12.2 bn.1 1 For further information on Allianz SE debt as of 31 December 2014, please refer to notes 23 and 24 to the consolidated financial statements.
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, certain investment fund products, commercial mortgage loans and collateralized debt obligations. For more details on our involvement with structured entities, please refer to note 45 to the consolidated financial statements.
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 also equally important to us.
Our insurance operations also carry a high proportion of liquid investments, which can be converted into cash to pay for claims. Generally, our investments in fixed income securities are sequenced to mature when funds are expected to be needed.
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.
No expiry date for Conditional Capital 2010/2014 (issuance in case option or conversion rights are exercised)
Allianz SE has the option to increase its equity capital base according to authorizations provided by our shareholders. The following table outlines Allianz SE’s capital authorizations as of 31 December 2014: mAtUritY strUCtUre of ALLiAnz se’s senior AnD sUBorDinAteD BonDs As of 31 DeCemBer 2014 nominal value in € Bn
Senior bonds Subordinated bonds 1 € 1.0 bn subordinated bond called for redemption effective 13 January 2015.
Long-term debt funding As of 31 December 2014, Allianz SE had senior and subordinated bonds in a variety of maturities outstanding, reflecting our focus on long-term financing. As the cost and availability of external funding may be negatively affected by general market conditions or by matters specific to the financial services industry or the Allianz Group, we seek to reduce refinancing risk by actively steering the maturity profile of our funding structure.
1 For further information on Allianz SE debt (issued or guaranteed) as of 31 December 2014, please refer to notes 23 and 24 to the consolidated financial statements.
The Group maintained its A-1+/Prime-1 ratings for short-term issues. Thus we can continue funding our liquidity under the Euro Commercial Paper Program at an average rate below Euribor and under the U.S. Dollar Commercial Paper Program at an average rate below U.S. Libor.
ALLiAnz se BonDs1 oUtstAnDing As of 31 DeCemBer 2014 AnD interest expenses in 2014 1. senior BonDs2 4.0 % bond issued by Allianz Finance ii B.V., Amsterdam Volume € 1.5 Bn Year of issue 2006 Maturity date 11/23/2016
5.625 % bond issued by Allianz se Volume € 1.5 Bn Year of issue 2012 Maturity date 10/17/2042 isin De 000 A1r e1Q 3 Interest expenses € 86 mn 4.375 % bond issued by Allianz Finance ii B.V., Amsterdam Volume € 1.4 Bn Year of issue 2005 Maturity date perpetUAL BonD
Interest expenses € 63 mn 5.375 % bond issued by Allianz Finance ii B.V., Amsterdam Volume € 0.8 Bn Year of issue 2006 Maturity date perpetUAL BonD isin De 000 A0g npz 3 Interest expenses € 43 mn 5.5 % bond issued by Allianz se Volume UsD 1.0 Bn Year of issue 2012 Maturity date perpetUAL BonD
Interest expenses € 44 mn 4.75 % bond issued by Allianz se Volume € 1.5 Bn Year of issue 2013 Maturity date perpetUAL BonD isin De 000 A1Y CQ2 9 Interest expenses € 72 mn 3.25 % bond issued by Allianz se Volume Chf 0.5 Bn Year of issue 2014 Maturity date perpetUAL BonD
Interest expenses € 3 mn Sum of interest expenses1 € 786 mn Interest expenses from external debt not presented in the table € 59 mn Total interest expenses from external debt € 846 mn 3 The terms of the subordinated bonds do not explicitly provide for early termination rights in favor of the bondholder. Interest payments are subject to certain conditions which are linked, inter alia, to our net income, and may have to be deferred. Nevertheless, the terms of the relevant bonds provide for alternative settlement mechanisms which allow us to avoid an interest deferral using cash raised from the issuance of specific newly issued instruments.
Net cash outflow used in investing activities amounted to € 26.9 bN, up by € 4.1 bN compared to the previous year. This rise was attributable to lower net cash inflows from loans and advances to banks and customers, especially in our Life/Health business in the United States, Germany and Korea. In addition, we recorded net cash outflows from financial assets designated at fair value through income, mainly in our Life/Health business in France and at Allianz SE.
Net cash outflow used in financing activities increased by € 1.8 bN to € 3.2 bN in 2014. Net cash outflows from liabilities to banks and customers (after net cash inflows in 2013) contributed to this development and were mainly attributable to our Banking operations in Italy and Germany. We also recorded higher dividend payments to our shareholders. Higher net cash inflows from our refinancing activities1 partly offset these effects.
Cash and cash equivalents grew by € 2.7 bN to € 13.9 bN as of 31 December 2014. This mainly stemmed from our insurance operations in the United States and Allianz SE.
Change in cash and cash equivalents1 1 Includes effects of exchange rate changes on cash and cash equivalents of € 541 Mn and € (232) Mn in 2014 and 2013, respectively.
Net cash flow provided by operating activities increased by € 9.0 bN to € 32.2 bN in 2014. This consists of net income plus adjustments for non-cash charges, credits and other items included in net earnings and cash flows related to the net change in operating assets and liabilities. Net income after adding back non-cash charges and similar items rose by € 2.1 bN to € 10.9 bN in 2014. To a large extent this was driven by higher valuation results on our assets and liabilities held for trading. Operating cash flows from net changes in operating assets and liabilities, including other items, grew by € 6.9 bN to € 21.3 bN. This was largely due to higher reserves for insurance and investment contracts in our Life/Health business, mainly in the United States, Germany and Italy. We also recorded higher reserves for losses and loss adjustment expenses, in particular in our Property-Casualty business in the United States, Switzerland, Germany and Australia. Negative net changes from our operating receivables/payables partially offset these effects.
Asset Management Operating revenues 6,388 7,162 consisting of: Net fee and commission income 6,380 7,127 Net interest income1 (3) 12 Income from financial assets and liabilities carried at fair value through income (net) 5 12 Other income 6 10
Allianz Group total revenues 122,253 110,773 1 Represents interest and similar income less interest expenses.
Life/Health Insurance Operations statutory premiums The objective of the Life/Health operating profit sources analysis is to explain movements in IFRS results by analyzing underlying drivers of performance on a Life/Health business segment consolidated basis.
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, 19 entities comprising 97.3 % 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 presented in a separate line item in the group income statement.
Acquisition expenses and commissions (as per Management Discussion and Analysis (md&a)) (4,833) (4,233)
Administrative expenses on reinsurance business ceded 14 8 Administrative and other expenses (net) (as per Notes)1 (1,599) (1,487)
Capitalization of daC (as per md&a) 1,937 1,596 Definition: urr capitalized 456 377 Definition: policyholder participation1 908 822
Rising geopolitical risks The increase in geopolitical risks during 2014, including the conflicts in the Middle East as well as between Russia and Ukraine – and the resulting international sanctions against Russia, are manageable for Allianz Group because our direct exposure to these regions remains relatively small in the context of our overall portfolio. Nevertheless, we are monitoring these developments since a significant deterioration – for example an escalating conflict between the West and Russia – may lead to spill-over effects on the global financial markets, triggering indirect effects which may have a negative impact on our business and risk profile.
Over the past years Allianz Group and its operating entities have developed operational contingency plans for various crisis scenarios and continue to conduct scenario analysis on a regular basis to bolster our financial and operational resilience to strong shock scenarios. In addition, we continue to optimize our product design and pricing in the Life/Health business segment with respect to guarantees and surrender conditions. Continuous monitoring as well as prudent risk positions and contingency planning remain priorities for our management.
Regulatory developments In March 2014, the European Parliament approved the Solvency II
“Omnibus II” directive, allowing the new risk-based solvency framework for the E.U. to proceed with a planned introduction date of January 2016. Although a new version of the European Commission’s draft for the delegated regulation of Solvency II was published in October 2014, some of the important final requirements remain unclear. This situation creates some uncertainty with respect to Allianz’s ultimate Solvency II capital requirements, especially under the application of our internal model in case the final rules deviate from our current understanding of these rules.
In addition to Solvency II uncertainty, the future capital requirements applicable for Global Systemically Important Insurers (socalled G-SIIs) are also unclear, contributing to uncertainty in terms of the ultimate capital requirements for Allianz. Finally, the potential for a multiplicity of different regulatory regimes, capital standards and reporting requirements will increase operational complexity and costs.
− The Group’s management also believes that Allianz is well positioned to deal with potential future adverse events, in part due to our strong internal limit framework defined by the Group’s risk appetite and risk management practices.
− 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.
− Finally, the Group has the additional advantage of being well diversified, both geographically and across a broad range of businesses and products.
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 meet their respective regulatory capital requirements. Furthermore, risk capital and cost of capital are important aspects for business decisions.
RegulatoRy capital adequacy The Allianz Group is a financial conglomerate within the scope of the E.U. Financial Conglomerates Directive and the related German law in force since 1 January 2005. The law requires that a financial conglomerate calculates the capital available to meet its solvency requirements on a consolidated basis, which we refer to as “eligible capital”. Currently, the requirements for our insurance business are based on Solvency I. These capital requirements, as well as the definition and calculation of eligible capital, will be replaced by the Solvency II rules once the new regulation becomes binding in January 2016. Allianz expects to be well capitalized also under these future regulatory requirements.
The Allianz Group has one of the highest ratings amongst its peers. The following table provides the ratings of the Allianz Group awarded by major rating agencies.
With regards to financial markets-driven movements, in particular the decrease in interest rates affected the value and sensitivities of options and guarantees in our traditional life business. In addition, decreasing spreads increased our exposure to credit and credit spread-sensitive investments and rising equity markets outside the Eurozone, as well as a weakened Euro, led to higher exposures to equity risk, which also contributed to higher capital requirements.
The following table presents the sensitivity of our predicted Solvency II capitalization ratio under certain standard financial scenarios. These are defined by reasonably possible individual movements in key market parameters while keeping all other parameters constant with the effects impacting both the available capital and internal risk capital.
Base capitalization ratio 191 222 Interest rate up by 0.5 %2 205 228 Interest rate down by 0.5 %2 170 202 Equity prices up by 30 % 199 232 Equity prices down by 30 % 179 210 Combined scenario: Interest rate down by 0.5 %2 Equity prices down by 30 % 158 191 1 AZ Life is included in 2014 on the basis of third country equivalence with 100 % of its local statutory capital requirement and the local statutory available funds taken into account at Group level.
2 Non-parallel interest rate shifts due to extrapolation of the yield curve beyond the last liquid point in line with forthcoming Solvency II rules.
The model used at the year-end 2014 will also be the basis for our internal model application under Solvency II. Nevertheless, any further regulatory guidance may still impact our future internal model results. In addition, the internal model still needs to be approved by regulatory authorities.
inteRnal Risk pRofile The internal risk profile through the eyes of management includes AZ Life in the internal model calculation instead of applying third country equivalence. This is the only difference between the Solvency II figures and the internal risk profile reported here. By that we allow for a consistent risk steering across all major entities within the Allianz Group based on the same model as applied at Group level supplemented by economic business scenarios and sensitivities.
This Risk and Opportunity Report outlines the Group’s risk figures reflecting its internal risk profile based on pre-diversified risk figures and Group-diversification effects. Pre-diversified risk figures reflect the diversification effect within each modeled risk category (i.e. market, credit, underwriting, business and operational risk), but does not comprise the diversification effects across risk categories. Group-diversified risk figures also capture the diversification effect across all risk categories.
allianz gRoup: allocated Risk accoRding to inteRnal Risk pRofile (total poRtfolio BefoRe non-contRolling inteRests)
inteRnal Risk capital model Our internal risk capital model is based on a Value-at-Risk (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.
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 future cash flows and their discounting. We apply the methodology provided by the European Insurance and Occupational Pensions Authority (EIOPA) based on the insurance stress test for 2014 for the extension of the risk-free interest rate curves beyond the last liquid tenor.
Valuation assumption: replicating portfolios Since efficient valuation and complex, timely analysis is required, we replicate the liabilities of our Life/Health insurance business. This technique enables us to represent all options and guarantees, both contractual and discretionary, by means of standard financial instruments. In the risk calculation we use the replicating portfolio to determine and revalue these liabilities under all potentially adverse Monte Carlo scenarios.
risk and business experts. In general, we set the correlation parameters to represent the joint movement of risks under adverse conditions. Based on these correlations, we use an industry-standard approach, the Gaussian copula approach, to determine the dependency structure of quantifiable sources of risk within the applied Monte Carlo simulation.
Actuarial assumptions Our internal risk capital model also includes assumptions on claims trends, liability inflation, mortality, longevity, morbidity, policyholder 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.1 scope By design, our internal risk capital model takes into account the following risk categories: market risk, credit risk, underwriting risk, business risk and operational risk whenever these risks are present. A further breakdown of the risk categories can be found in the section on internal risk assessment. With the exception of the Asset Management business segment, all business segments are exposed to the full range of stated risk categories. By contrast, the Asset Management business segment is mainly exposed to market, credit and operational risk.
At Group level, the capital requirements for smaller insurance operating entities outside the European Economic Area that have only an immaterial impact on the Group’s risk profile are treated with book value deduction.
1 For additional information regarding our internal controls over financial reporting, please refer to Controls over Financial Reporting and Risk Capital from page 144.
2 As mentioned under Solvency II capitalization and internal risk profile, AZ Life is taken into account by means of third country equivalence into the Group capitalization, but included based on the internal risk capital model for the reporting of the internal risk profile.
As described in a previous section, insurance liability values in the risk calculation are derived from replicating portfolios of standard financial market instruments in order to allow for effective risk management. This replication 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 internal risk capital model takes into account the change in the economic fair value of our assets and liabilities, it is crucial to accurately estimate the market value of each item. For some assets and liabilities it may be difficult, if not impossible – notably in distressed financial markets – to obtain either a current market price or to apply a meaningful mark-to-market approach. For such assets we apply a mark-to-model approach. Non-standardized derivative instruments – such as derivatives embedded in structured financial products – are represented by the most comparable standard derivative types or by means of sensitivities, because the volume of nonstandard instruments is not material at either the local or Group level. For some of our liabilities, the accuracy of fair values depends on the quality of the actuarial cash flow estimates. Despite these limitations, we believe the estimated fair values are appropriately assessed.
inteRnal model updates in 2014 In 2014, we updated our internal model in order to incorporate Allianz’s current understanding of the forthcoming Solvency II rules. The model updates are mainly driven by regulatory developments as well as feedback that Allianz received during the ongoing consultations with regulators and supervisors in the internal model preapproval process. As described above, due to ongoing regulatory developments and supervisory feedback throughout 2014, we implemented model changes at different points in time, i.e. at the beginning of the year and at year-end. For the sake of clarity, however, all model changes are presented jointly within this section. Although we cannot rule out any late changes to the Solvency II rules, the updated model used for the year-end 2014 reporting will be the basis for our Solvency II internal model application in 2015.
In this section we provide an overview of these model changes and the resulting changes on our internal risk profile based on the year-end 2013 data under the updated model. In all subsequent sections the figures after the model change will form the basis for the movement analysis of our internal risk profile in 2014.
The model changes increased market risk overall by € 4.7 Bn to € 22.7 Bn on a pre-diversified basis. This resulted in a number of significant changes in the market risk types. The newly introduced risk type of inflation risk contributed € 3.4 Bn. Equity risk increased by € 2.1 Bn, mainly due to changed correlations to reflect systemic behavior, due to the modeling of internal pension obligations and due to a refinement of hedge models for variable annuity business. Credit spread risk increased due to the correlation update better reflecting systemic market events. However, the increase was partially offset by the introduction of the volatility adjuster-based spread risk offset (net impact: an increase of € 0.7 Bn to € 5.1 Bn). Finally, interest rate risk decreased by € 0.9 Bn, predominantly driven by increased diversification with the newly modeled inflation risk as well as due to updated correlations. The decrease in interest rate risk was partly offset by the modeling of internal pension obligations.
Underwriting risk The increase in underwriting risk in the Life/Health business segment is mainly due to the inclusion of internal pension obligations, which led to an increase in longevity risk as well as a change in the methodology for longevity stress calibration. The decrease in the Property-Casualty business segment was mainly due to a reduced reserve risk. This was mainly driven by a changed modeling approach of Group health and protection business using life techniques.
Annual Report 2014 Allianz Group 131 from investments is also an element applied to manage and limit risks efficiently. For example, protective puts are used to limit the downward exposure of certain investments1.
1 For further information on derivatives used for hedging, please refer to note 43 to the consolidated financial statements.
Risk Based steeRing Allianz steers its portfolio on a comprehensive view of risk and return, i.e. results based on the internal risk model including scenario-based analyses are used actively for decision making: on the one hand, economic risk and concentrations are actively restricted by means of limits as outlined above and on the other hand, there is a comprehensive analysis of the return on risk capital (RoRC). The latter allows us to identify sustainably profitable lines of business and products, which provide reasonable profits on allocated risk capital over the life time of the products. Therefore, it is a key criterion for capital allocation decisions.
In 2014, Allianz also updated its dividend policy, increasing the payout ratio and defining explicit budgets for external growth and linking central elements of the dividend policy to the internal model capitalization according to Solvency II. This shows that the internal model is fully integrated in the business steering of Allianz and that the planned application of the internal model satisfies the so-called
Share of total Group pre-diversified internal risk 46.2 % 44.8 %
Interest rate risk As interest rates may fall below the rates guaranteed to policyholders in some Life/Health markets and given the long duration of insurance obligations, we are specifically exposed to interest rate risk, because we have to reinvest maturing assets prior to the maturity of life contracts. This interaction of investment strategy and obligations to policyholders forms an integral part of our internal risk capital model. In addition, our asset/liability management approach is closely linked to the internal risk capital framework and designed to achieve investment returns over the long-term in excess of the obligations related to insurance and investment contracts.
Credit spread risk Our internal model 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 internal 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 model to partially mitigate spread risk as described in the section on yield curve assumptions.
Real estate risk Despite the risk of decreasing real estate values, real estate is a suitable addition to our investment portfolio due to good diversification benefits as well as due to the contribution of relatively predictable cash-flows in the long-term. As of 31 December 2014, about 3.5 % (2013: 3.6 %) of the total pre-diversified risk was related to real estate exposures.
Credit risk The Allianz Group monitors and manages credit risk exposures and concentrations to ensure it is able to meet policyholder obligations when they are due. This objective is supported by the internal credit risk model and the CRisP as described under the section on the risk profile. Group-wide credit data is collected following a centralized process and using standard obligor and obligor group mappings.
Credit risk is measured as the potential economic loss in the value of our portfolio due to changes in the credit quality of our counterparts (“migration risk”) or the inability or unwillingness of the counterparty to fulfill contractual obligations (“default risk”). Our internal credit risk-modeling framework covers counterparty risk and country risk. Counterparty risk arises from our fixed income investments, cash positions, derivatives, structured transactions, receivables from Allianz agents and other debtors – as well as reinsurance recoverables and credit insurance. Country risk exposure is calculated as cross-border exposure to all obligors domiciled abroad from the respective operating entities’ perspective.
The loss profile of a given portfolio is obtained through a MonteCarlo simulation taking into account interdependencies and exposure concentrations per obligor segment. To reflect portfolio specific diversification effects, the loss profiles are calculated at different levels of the Allianz Group structure (pre-diversified). They are then fed into the overall internal risk capital model for further aggregation across sources of risk to derive Group-diversified internal credit risk.
By managing our credit risk on the basis of our limit management and credit risk modeling frameworks, we have composed a well-diversified credit portfolio. Our long-term investment strategy to hold investments through the cycle to maturity enables us to keep our portfolio stable, even under adverse market conditions. It also gives us the opportunity to earn planned excess returns throughout the entire holding period of the investments. In our credit insurance business, proactive credit management offers opportunities to keep losses from single credit events below expected levels and therefore strongly supports writing business that contributes to a balanced Group credit portfolio.
allianz gRoup: inteRnal Risk pRofile – allocated inteRnal cRedit Risk By Business segment (total poRtfolio BefoRe tax and non-contRolling inteRests)
Base case 11,018 8,363 Rating down by 1 notch 12,106 9,483 Rating down by 2 notches 13,595 11,075 1 A notch is referred to rating sub-classes, such as "AA+", "AA", "AA-" at Standard & Poor’s scale or "Aa1", "Aa2", "Aa3" at Moody’s scale.
2 2013 risk profile figures recalculated based on model changes in 2014.
The different components of Allianz credit risk exposure are described in the table below: allianz components of cRedit Risk exposuRe investment poRtfolio Premiums collected from our customers and shareholders’ capital, which is required to support the risks under written, are invested to a great extent in fixed income instruments. These investment portfolios ultimately cover the future claims to our customers. However, for certain life insurance products, losses due to credit events can be shared with the policyholder, as described in the context of market risks. ReinsuRance poRtfolio Credit risk to external reinsurers appears when insurance risk exposures are transferred by us to external reinsurance companies to mitigate insurance risk. Potential losses can arise either due to non-recoverability of reinsurance receivables already present at the as-of date or default on benefits that are under reinsurance treaties in-force. cRedit insuRance poRtfolio Credit risk arises from potential claim payments on limits granted by Euler Hermes to its policyholders. Euler Hermes protects its policyholders (partially) from credit risk associated with short-term trade credits advanced to clients of the policyholder. If the client of the policyholder is unable to meet its payment obligations then Euler Hermes indemnifies the loss to the policyholder.
Allianz has a well-diversified portfolio of Exchange- and OTC traded derivatives that are used as part of an efficient exposure management. The counterparty credit risk arising from derivatives is low, since the derivatives usage is governed by the Group-wide internal guidelines for collateralization of derivatives that stipulate master netting- and collateral-agreements with each counterparty and require high quality and liquid collateral. In addition, Allianz closely monitors the credit ratings of counterparties and exposure movements. Central clearing of certain classes of OTC-derivatives as required by the European Market Infrastructure Regulation (EMIR) and additional reporting duties will contribute to further reducing counterparty credit risk and operational risk at Allianz.
Rating distRiBution of allianz gRoup’s fixed income poRtfolio1 – faiR value € Bn Type of issuer
A dedicated team selects our reinsurance partners focusing on companies with strong credit profiles. We may also require letters of credit, cash deposits or other financial measures to further mitigate our exposure to credit risk. As of 31 December 2014, 82.9 % (2013: 80.6 %) of the Allianz Group’s reinsurance recoverables were distributed among reinsurers that had been assigned at least an “A” rating by Standard & Poor’s or A.M. Best. As of 31 December 2014, non-rated reinsurance recoverables represented 15.7 % (2013: 17.9 %). Reinsurance recoverables without a Standard & Poor’s rating include exposures to brokers, companies in run-off and pools – where no rating is available.
ReinsuRance RecoveRaBles By Rating class1 € Bn as of 31 December 2014 2013
BBB+ to BBB- 0.17 0.18 Non-investment grade – – Not assigned 1.97 2.08 1 Represents gross exposure broken down by reinsurer.
allianz gRoup: inteRnal Risk pRofile – allocated undeRwRiting Risk By Business segment and souRce of Risk (total poRtfolio BefoRe non-contRolling inteRests)1 pre-diversified, € mn Premium natural catastrophe Premium terror Premium non-catastrophe Reserve Biometric Total
Share of total Group pre-diversified internal risk 18.6 % 19.7 % 1 As risks are measured by an integrated approach on an economic basis, internal risk profile takes reinsurance effects into account.
Loss ratio excluding natural catastrophes 65.1 63.0 66.6 65.5 65.9 68.4 66.3 64.1 64.4 64.3 1 Represents claims and insurance benefits incurred (net) divided by premiums earned (net).
1 Please refer to the section Property-Casualty Insurance Operations – Property-Casualty operations by reportable segments from page 90 for a regional breakdown of loss ratios over the past two years.
Natural disasters, such as earthquakes, storms and floods, represent a significant challenge for risk management due to their accumulation potential and occurrence volatility. In order to measure such risks and better estimate the potential effects of natural disasters, we use special modeling techniques in which we combine portfolio data (such as the geographic distribution and characteristics of insured objects and their values) with simulated natural disaster scenarios to estimate the magnitude and frequency of potential losses. Where such stochastic models do not exist, we use deterministic, scenario-based approaches to estimate potential losses.
In general, our operating entities constantly monitor the development of reserves for insurance claims on a line of business level.1 In addition, the operating entities generally conduct annual reserve uncertainty analyses based on similar methods used for reserve risk calculations. The Allianz Group performs regular independent reviews of these analyses and Group representatives participate in the local reserve committees’ meetings.
We measure these risks within our internal risk capital model by distinguishing between the different sub-components, whenever relevant or material: absolute level, trend, volatility around the best estimate assumptions and pandemic risks. Depending on the nature and complexity of the risk involved, our health business is represented in the internal model according to Property-Casualty or Life/ Health calculation methods and is therefore included in the relevant Property-Casualty and Life/Health figures accordingly. However, most of our health business is attributable to the Life/Health business segment. Due to effective product design and the diversity of our products, there were no significant concentrations of underwriting risks within our Life/Health business segment as of 31 December 2014.2
Life/Health underwriting risk arises from lower profitability than expected due to changes in actuarial parameters. As profitability calculations are based on several parameters – like historical loss information, assumptions on inflation or on mortality and morbidity
– the realized parameters may differ from the ones used for calculation. For example, higher inflation than that incorporated in the calculations may lead to a loss. However, deviations can also occur in the opposite direction and be beneficial and lead to additional profit. For example, a lower morbidity rate than expected will most likely result in lower claims.
As for underwriting risks, a positive deviation from the underlying parameters will lead to additional returns. For example, lower than 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.
Allianz has developed a consistent Group-wide operational risk management framework that focuses on the early recognition and proactive management of operational risks in all first line of defense functions. The framework defines roles and responsibilities, risk processes and methods and has been implemented in our operating entities. Local risk managers as the second line of defense ensure this framework is implemented in their respective operating entity. They identify and evaluate relevant operational risks and control weaknesses via a dialogue between the first line of defense and the risk function. Furthermore, operational risk events are collected in a central risk event database. In 2014, Allianz became a member of a global operating loss data consortium, which will start to operate in 2015.
This risk is evaluated and analyzed quarterly in the same way as reputational risk as described below. To ensure proper implementation of strategic goals in the current business plan, strategic controls are carried out by monitoring respective business targets. We also constantly monitor market and competitive conditions, capital market requirements, regulatory conditions, etc. to decide whether to make strategic adjustments. In addition, strategic decisions are discussed in various Board of Management level committees (e.g. Group Capital Committee, Group Finance and Risk Committee). The assessment of the associated risks is a fundamental element in these discussions.
Annual Report 2014 Allianz Group 139 even under adverse conditions. Major contingent liquidity requirements include non-availability of external capital markets, combined market and catastrophe risk scenarios for subsidiaries as well as lower than expected profits and dividends from subsidiaries.
Our insurance operating entities manage liquidity risk locally, using asset/liability management systems designed to ensure that assets and liabilities are adequately matched. The local investment strategies particularly focus on the quality of investments and ensure a significant portion of liquid assets (e.g. high-rated government bonds or covered bonds) in the portfolios. This also allows us to meet increased liquidity requirements in the case of unlikely events. We employ actuarial methods for estimating our liabilities arising from insurance contracts. In the course of standard liquidity planning we reconcile the cash flows from our investment portfolio with the estimated liability cash flows. These analyses are performed at the operating entity level and aggregated at the Group level.
Single reputational risk management decisions are integrated in the overall risk management framework and reputational risks are identified and assessed as part of a yearly Top Risk Assessment, during which senior management also decides on a risk management strategy and related actions. This is supplemented by quarterly updates. In addition, reputational risk is managed on a case-by-case basis. Single cases with a potential impact on other operating entities or the Group have to be reported to the Allianz Group for pre-approval.
− Consistent application of an integrated risk capital model framework across the Group to protect our capital base and support effective capital management.
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 our overall risk profile and 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.
Board of Management The Board of Management formulates business objectives and a corresponding, consistent risk strategy. The core elements of the risk framework are set out in the Allianz Group Risk Policy, which is approved by the Board of Management. In 2014, the Board of Management Committee structure was streamlined.
− The Group Finance and Risk Committee (GFRC) ensures oversight of the Group’s and Allianz SE’s risk management framework, acting as a primary early warning function by monitoring the Allianz Group’s and Allianz SE’s risk profiles, as well as the availability of capital. The GFRC also ensures that an adequate relationship between return and risk is maintained. Additionally, the GFRC defines risk standards, forms the limit-setting authority within the framework set by the Board of Management and approves major single financing and reinsurance transactions.
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, Compliance and Legal. Audit forms the “third line of defense”. On a periodic basis, Group Audit independently reviews risk governance implementation, performs quality reviews of risk processes and tests adherence to business standards, 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 and accumulation of specific types of risks across business lines, such as natural disasters and exposures to financial markets and counterparties.
All business line management functions with a direct profit and loss responsibility (i.e. first line of defense, or “risk-taking units”) are in charge of active risk-return management through adherence to delegated limits and the operating entity’s policy framework. Second line of defense functions support, challenge and have the oversight of business functions through proactive risk management.
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".
In addition to maintaining our high standards and practices in dayto -day risk management and controlling, we have set the following priorities for 2015.
1 For further information on the Cautionary note regarding forward-looking statements, please refer to Outlook 2015 from page 104.
Demographic changes are also creating both opportunities and challenges for financial services providers. While the urban populations of Asia and Africa are expanding and their middle classes growing, Western populations are aging and their workforces shrinking. With more people over 60 years old than ever before and declining birth rates, social security systems are under pressure and demand is growing for additional pension provisions. We are responding to these trends by providing integrated insurance and asset management solutions. Our solid market position in continental Europe and the United States, as well as our strong brand and well-diversified product portfolio, put us in an excellent position to develop solutions to meet the needs of the retirement, health care and assistance markets.
In emerging economies, the need for formal social security systems is growing due to the weakening of traditional family ties and support networks. From life to health and crop insurance, our growing microinsurance portfolio helps low-income families in developing countries protect themselves against – and better manage – the risks in life to build a more secure future. Although financial returns from microinsurance are lower than from traditional products, we believe that satisfied microinsurance policyholders will bring mid- to longterm pay-offs as many of them move up the economic ladder and are able to purchase regular Allianz products.
Annual Report 2014 Allianz Group 143 stRategic Risk and oppoRtunity management As previously described, the Group has a well-established strategy and planning process with all its operating entities, which allows us to understand and respond to local risks and opportunities. This strong diversification across markets, business segments and customer groups gives Allianz a powerful lever to identify new opportunities and manage risks.
In addition to these joint efforts, Allianz has built four operational and strategic pillars to help the Group create opportunities on a wider basis: Digitalization, enabling us to take advantage of new products to new markets at lower cost: Digitalization is one of our major Group initiatives and affects all areas of Allianz, including our customers and our employees. This initiative spans everything from the design of new modular products, to new forms of access, to servicing existing customers in a better way. We will continue to invest in technology at the local and Group level. We see technology as the key enabler for our business, both in the infrastructure (networks, data centers, underwriting and processing systems), but also at the customer interface (“digital”): Related investments in 2014 totaled more than € 800 Mn. Digitalization is also the basis for enhanced management information systems to improve steering. When driving digitalization, security and data confidentiality remain a major priority.
Capital allocation, ensuring that capital is available and allocated appropriately to finance growth initiatives and leveraging the Group's diversification benefits: We will move further towards greater capital efficiency while preparing for the go-live of Solvency II on 1 January 2016. This means we will optimize the capitalization of our local entities towards a more efficient capital base, actively improve new business capital allocation between operating entities and lines of business as well as sharpen the distinction between business we run for growth and portfolios or lines of business from which we will look to extract capital.
Accounting rules for the classification, valuation and disclosure of all items in the balance sheet, income statement and related notes of the annual and interim financial statements are primarily defined in our Group accounting manual. Internal controls are embedded in the accounting and consolidation processes to safeguard the accuracy, completeness and consistency of the information provided in the financial statements.
These controls include the validation of models and assumptions by independent reviews and continuous benchmarking to market and/ or peer assumptions and practices. We benchmark and explain our non-market assumptions against practices in the industry, actuarial associations and guidance from supervisory authorities.
governance Responsibility for ensuring the completeness, accuracy and reliability of our consolidated financial statements rests with the Chairman of the Board of Management and the board member responsible for Finance, Controlling and Risk of Allianz SE, supported by Group Center functions, the Group Disclosure Committee and operating entities.
Allianz Worldwide Care is the international health insurance division of Allianz Worldwide Partners, providing insurance solutions for health, life and disability on a global scale. The company’s focus is on earning and maintaining client loyalty by providing a market-leading product range, level of service and support. Allianz Worldwide Care’s multicultural staff, made up of 63 nationalities and collectively speaking 28 languages, mirrors the global nature of its client base.
In August 2014, Allianz Worldwide Care launched a mobile app that allows its members to submit medical claims more quickly and easily than ever before, by-passing the need to complete a traditional claim form. The MyHealth app makes it possible to: Send medical claims via a mobile device Check the status of previously submitted claims and payments Find the closest hospitals and get directions to them using GPS View key medical terms in 17 languages Access latest policy documents, even offline
MyHealth app offers fastest and easiest way to submit medical claims.
Allianz Worldwide Care’s Medical Director has a job that requires a lot of creative thinking. One particularly challeng ing case was in 2011 when an Icelandic ash cloud grounded flights across Europe and a client who had suffered a stroke in a remote region of Kazakhstan needed to be flown home to Portugal for rehabilitation.
On the return journey, Paris airport was closed. So the team flew to Frankfurt instead, and then on to Lisbon. It really was a case of planes, trains and automobiles, resulting in a very moving outcome when the patient’s wife and children were able to welcome him home.
Staff from Allianz Worldwide Care, which employs 900 staff worldwide, 700 of whom are in Dublin, regularly volunteer at the Capuchin Day Centre, including at weekends and bank holidays.
Liabilities of disposal groups classified as held for sale 14 102 – –
Income from fully consolidated private equity investments 32 696 726 Total income 103,161 101,415
Foreign currency translation adjustments Reclassifications to net income 2 (1) Changes arising during the year 1,428 (1,305)
Share of other comprehensive income of associates and joint ventures Reclassifications to net income – – Changes arising during the year 54 (82)
Items that may never be reclassified to profit or loss Actuarial gains and losses on defined benefit plans (1,607) 362 Total other comprehensive income 6,988 (4,327)
Payments for the purchase or origination of: Financial assets designated at fair value through income (1,693) (719) Available-for-sale investments (149,120) (144,082) Held-to-maturity investments (331) (653) Investments in associates and joint ventures (1,271) (825) Non-current assets and assets and liabilities of disposal groups classified as held for sale – – Real estate held for investment (963) (1,504) Loans and advances to banks and customers (purchased loans) (5,005) (6,940) Property and equipment (1,692) (1,484)
Notes to the Consolidated Financial Statements General InformatIon 1 – Nature of operations and basis of presentation Nature of operatioNs Allianz SE and its subsidiaries (the Allianz Group) maintain PropertyCasualty insurance, Life/Health insurance and Asset Management operations in over 70 countries, with the largest of its operations in Europe. The Allianz Group’s headquarters and Allianz SE as its parent company are located in Munich, Germany. Allianz SE is recorded in the Commercial Register of the municipal court in Munich under its registered address at Koeniginstraße 28, 80802 Munich.
The consolidated financial statements of the Allianz Group for the year ended 31 December 2014 were authorized for issue by the Board of Management on 24 February 2015.
Scope of consolidation In line with IFRS 10, the consolidated financial statements of the Allianz Group comprise the financial statements of Allianz SE and its subsidiaries (including certain investment funds and structured entities) over which the Allianz Group has control. 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. Power over a subsidiary arises when the Allianz Group has existing rights that give it the current ability to direct the relevant activities of the subsidiary. This is usually the case when the Allianz Group owns more than half of the voting rights or similar rights. In order to determine whether control exists, potential voting rights that are currently exercisable or convertible are taken into consideration. Where subsidiaries have been designed so that 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, control is assessed on the basis of the Allianz Group’s level of involvement in defining the terms and features of these contractual arrangements, as is the case for structured entities. In the case of investment funds managed by Allianz Group internal asset managers, the control assessment considers whether the Allianz Group is in a principal or agent role with a view to the investment funds assessed. This assessment takes into account kick out rights held by third-party investors as well as the aggregate economic interest of the Allianz Group in the investment funds assessed.
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 intra- Allianz Group transactions are eliminated.
In some jurisdictions the ability of subsidiaries to transfer funds to the parent company in the form of dividends or to repay loans is subject to local corporate or insurance laws and regulations and solvency requirements.
Investments in associates and joint arrangements In general, if the Allianz Group holds 20 % or more of voting power in an investee but does not control the investee, it is assumed to exercise significant influence, unless it can be clearly demonstrated that this is not the case. Investments in associates over which the Allianz Group exercises significant influence are generally accounted for using the equity method.
Impairments of available-for-sale and held-to-maturity investments as well as loans and advances to banks and customers A held-to-maturity or available-for-sale debt security, as well as a loan, is impaired if there is objective evidence that a loss event has occurred after initial recognition of the security and up to the relevant date of the Allianz Group’s consolidated balance sheet, and that loss event has negatively affected the estimated future cash flows, i.e. amounts due according to the contractual terms of the security are not considered collectible. For available-for-sale debt securities, the cumulative loss recognized in the other comprehensive income is reclassified to profit or loss. The cumulative loss corresponds to the difference between amortized cost and the current fair value of the investment. Further declines in fair value are recognized in other comprehensive income unless there is further objective evidence that such declines are due to a credit-related loss event. If in subsequent periods objective evidence results in a fair value increase after the impairment loss was recognized, the impairment loss is reversed through the income statement. The reversal is measured as the lesser of the full original impairment loss previously recognized in the income statement and the subsequent increase in fair value. For held-to-maturity investments and loans, the impairment loss is measured as the difference between the amortized cost and the expected future cash flows using the original effective interest rate. If the amount of the impairment of a held-to-maturity debt security or a loan subsequently increases or decreases due to an event occurring after the initial measurement of impairment, the change is recorded in the income statement.
transaction. The Allianz Group assesses, both at the hedge’s inception and on an ongoing basis, whether the hedging instruments that are used are expected to be highly effective in offsetting changes in fair values or cash flows of the hedged items.
Loans and advances to banks and customers (Loans and receivables) Amortized cost Financial assets for unit-linked contracts Fair value Other assets
Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments Fair value fiNaNCiaL LiaBiLities Financial liabilities carried at fair value through income
Financial liabilities held for trading Fair value Financial liabilities designated at fair value through income Fair value
Shadow accounting For insurance contracts and investment contracts with discretionary participation features, shadow accounting is applied to DAC, PVFP and deferred sales inducements in order to include the effect of unrealized gains or losses in the measurement of these assets in the same way as it is done for realized gains or losses. Accordingly, the assets are adjusted with corresponding charges or credits recognized directly in other comprehensive income as a component of the related unrealized gain or loss. When the gains or losses are realized, they are recorded in the income statement through recycling and prior adjustments due to shadow accounting are reversed.
The table below summarizes estimated useful lives for real estate held for own use, equipment, software and fixed assets of alternative investments.
Reinsurance contracts The Allianz Group’s consolidated financial statements reflect the effects of ceded and assumed reinsurance contracts. Assumed reinsurance refers to the acceptance of certain insurance risks by the Allianz Group that other companies have underwritten. Ceded reinsurance refers to the transfer of insurance risk, along with the respective premiums, to one or more reinsurers who will share in the risks. 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. 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 with consideration of the original contracts for which the reinsurance was concluded.
Insurance liability adequacy testing Liability adequacy tests are performed for each insurance portfolio on the basis of estimates of future claims, costs, premiums earned and proportionate investment income. For short-duration contracts, a premium deficiency is recognized if the sum of expected claim costs and claim adjustment expenses, expected dividends to policyholders, DAC, and maintenance expenses exceeds related unearned premiums while considering anticipated investment income.
For traditional long-duration contracts and limited-payment contracts, if actual experience regarding investment yields, mortality, morbidity, terminations or expense indicate that existing contract liabilities, along with the present value of future gross premiums, will not be sufficient to cover the present value of future benefits and to recover DAC, a premium deficiency is recognized.
IBnR reserves are established to recognize the estimated cost of losses that have occurred but where the Allianz Group has not yet been notified. IBnR reserves, similar to case reserves for reported claims, are established to recognize the estimated costs, including expenses, necessary to bring claims to final settlement. The Allianz Group relies on its past experience, adjusted for current trends and any other relevant factors to estimate IBnR reserves. IBnR reserves are estimates based on actuarial and statistical projections of the expected cost of the ultimate settlement and administration of claims. The analyses are based on facts and circumstances known at the time, predictions of future events, estimates of future inflation and other societal and economic factors. Trends in claim frequency, severity and time lag in reporting are examples of factors used in projecting the IBnR reserves. IBnR reserves are reviewed and revised periodically as additional information becomes available and actual claims are reported.
reserVes for iNsuraNCe aND iNVestmeNt CoNtraCts Reserves for insurance and investment contracts include aggregate policy reserves, reserves for premium refunds and other insurance reserves.
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.