CONTENT A _ To our Investors Pages 1 – 10 2 Letter to the Investors 4 Supervisory Board Report 9 Mandates of the Members of the Supervisory Board 10 Mandates of the Members of the Board of Management 12 Corporate Governance Report 17 Statement on Corporate Management pursuant to § 315d and § 289f of the HGB
C _ Group Management Report Pages 49 – 90 50 Business Operations 53 Business Environment 54 Executive Summary of 2018 Results 55 Property-Casualty Insurance Operations 57 Life/Health Insurance Operations 60 Asset Management 62 Corporate and Other 67 Balance Sheet Review 69 Liquidity and Funding Resources 74 Risk and Opportunity Report 89 Controls over Financial Reporting
D _ Consolidated Financial Statements Pages 91 – 162 92 Consolidated Balance Sheets 93 Consolidated Income Statements 94 Consolidated Statements of Comprehensive Income 95 Consolidated Statements of Changes in Equity 96 Consolidated Statements of Cash Flows
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 98 General Information 117 Notes to the Consolidated Balance Sheets 134 Notes to the Consolidated Income Statements 139 Other Information 164 Responsibility Statement 165 Independent Auditor’s Report 170 Independent Practitioner’s Report
Solvency II capitalization ratio of 229 % as of 31 December 2018. Last but not least, we outperformed our 3-year targets for both earnings per share and return on equity: The former grew 6.2 % per annum, the latter reached 13.2 % in 2018.
These achievements are results of a healthy organization. Customers are more satisfied with us than they used to be, as indicated by their greater willingness to recommend Allianz to family and friends – which, in turn, is reflected in the so-called
− We continue the exceptional growth in our life insurance’s value of new business. Customers all around the globe trust
Allianz to secure their future wealth. In particular our entities in Germany, the USA, and Asia contribute to this growth.
Learning to develop the new skills and knowledge required for the digital world.
capitalization ratio above 180 %. The basis for those financials is customer satisfaction and employee commitment. We aim to achieve an above-market Net Promoter Score for 75 % or more of our businesses and to grow the number of markets where we are loyalty leader. We want to further improve our global Inclusive Meritocracy Index to 73 % or higher. We know we still have some homework to do, if we want to mobilize our employees even more and effectively prepare them for the transformation ahead.
Even if the current volatility in the capital markets and political instability were to continue in 2019, our dive rsification, our disciplined capital management, and the expertise and dedication of our people provide a robust base for both resilience and profitable growth. We will remain a solid and trusted partner at our customers’ side and a strong value creator for our investors.
During the financial year 2018, the Supervisory Board fulfilled all its duties and obligations as laid out in the company statutes and applicable law. It monitored the activities of the company’s Board of Management and advised it on business management issues.
OVERVIEW In the financial year 2018, the Supervisory Board held six meetings and adopted two written resolutions. The regular meetings took place in February, March, May, August, October, and December.
Supervisory Board on the course of business as well as on the development of Allianz SE and the Allianz Group, including deviations in actual business developments from the planning. In this context, the adequacy of capitalization, the solvency ratio, and the respective stress scenarios were discussed. The annual Allianz SE and the
Further key reporting topics were strategic issues, such as the status of implementation of the Renewal Agenda and the following strategic course for 2019-2021, as laid down in the Renewal Agenda 2.0. In addition, the
Supervisory Board thoroughly reviewed the Board of Management’s planning for the financial year 2019 as well as for the three-year period from 2019 to 2021. Cyber risk security was another regular topic of discussion.
In addition, the Supervisory Board thoroughly dealt with the new remuneration system for the Board of
The Supervisory Board received regular, timely, and comprehensive reports from the Board of Management. The
Board of Management about their respective half-year as well as full-year performance.
M&A activities, the status of the Euler-Hermes transaction, and the status of preparations for Brexit. The Supervisory
Board further reviewed the adequacy of Supervisory Board remuneration and possible needs for adjustment.
In the meeting of 8 March 2018, the Supervisory Board discussed the audited annual Allianz SE and consolidated financial statements including market value balance sheets, as well as the Board of Management’s recommendation for the appropriation of earnings for the financial year 2017. The auditors confirmed that there were no discrepancies compared to their February report, and issued an unqualified auditor’s report for the individual and consolidated financial statements. The Supervisory Board also reviewed and approved the separate non-financial report for both Allianz SE and the Group, taking into account the report of the external auditor. Further presentations concerned the Board of Management’s report on risk development in 2017, the annual compliance report, and the annual report of the Head of Group Audit. Next, the Supervisory Board reviewed the agenda and proposals for resolution for Allianz SE’s 2018 Annual General Meeting (AGM). At the recommendation of the Audit Committee, the Supervisory Board appointed PricewaterhouseCoopers GmbH
Allianz SE, in particular with regard to share price development, capitalization, and capital management. In addition, the latest developments in China and the resulting opportunities for Allianz were discussed.
Mr. Jean-Claude Le Goaër replaced Mr. Cette as elected employee representative on the Supervisory Board with effect from 1 August 2018. In June 2018 Mr. Le Goaër was elected to the Audit Committee in a written procedure with effect from 1 August 2018.
In a conference call on 29 June 2018, the Supervisory Board discussed the Board of Management’s considerations for a potential further share buy-back program.
After taking stock of the results of the Renewal Agenda that had been launched in 2015, the presentation addressed relevant external trends and the ongoing changes in the significance of geographical regions and markets, along with the challenges that might result for Allianz. In addition, the Board of Management provided its regular status report on cyber risk security. Furthermore, the Supervisory Board very thoroughly reviewed the ongoing considerations on a possible adjustment of the Board of Management’s remuneration as well as the time plan for a proposal on a new remuneration system. Last but not least, due to Mr. Cette and
Supervisory Board's committees was required. Effective 1 September 2018, the Supervisory Board decided on the new composition of the committees and elected Mrs. Burkhardt-Berg as deputy chairwoman of the Supervisory Board.
At the meeting on 12 December 2018, the Board of Management reported on the third-quarter financial results, the further course of the business, and the Allianz Group’s general situation. The Supervisory Board also reviewed the planning for both the financial year 2019 and the three-year period from 2019 to 2021, as well as specifically for IT-related investments. Next, the Board of Management gave a status report on cyber risk security. The Supervisory Board then dealt with the declaration of conformity with the German Corporate Governance Code, set targets for the 2019 variable remuneration of the members of the Board of Management, and discussed the succession planning for the Board of Management. Last but not least, the Supervisory Board dealt with the findings of a review on the Supervisory Board’s efficiency, which was carried out with external advisor support.
DECLARATION OF CONFORMITY WITH THE GERMAN CORPORATE GOVERNANCE CODE On 12 December 2018, the Board of Management and the Supervisory Board issued the Declaration of
COMMITTEE ACTIVITIES The Supervisory Board has formed various committees in order to perform its duties efficiently. The committees prepare the consultations in plenary sessions as well as the adoption of resolutions; they can also adopt their own resolutions.
The Personnel Committee held six meetings in 2018 and adopted two written resolutions. The committee worked on the creation and set-up of, and proposed appointment to, a tenth Board of Management division.
The Audit Committee held five regular meetings in 2018 and adopted one written resolution. In the presence of the auditors, the committee discussed both Allianz SE’s annual financial statements and the Allianz Group’s consolidated financial statements, as well as the management and auditor’s reports and the half-yearly financial report. These reviews revealed no reasons for objection. The Audit Committee further received the Board of
Allianz Group, the report on Allianz’s own risk and solvency assessment (ORSA), and the planned changes to the internal Solvency II model. Moreover, the Risk Committee dealt with the company’s exposure to cyber risks, the specific risks of the cyber insurance industry, and political risks.
The Nomination Committee had no reason to convene a meeting in the financial year 2018.
CHAIR AND COMMITTEES OF THE SUPERVISORY BOARD – AS OF 31 DECEMBER 2018 Chairman: Michael Diekmann
(PwC) as statutory auditor for the annual Allianz SE and consolidated financial statements, as well as for the review of the half-yearly financial report of the financial year 2018. PwC audited the financial statements of
All Supervisory Board members received the documentation relating to the annual financial statements and the auditor’s reports from PwC on schedule. The preliminary financial statements and PwC’s preliminary audit results were discussed in the Audit Committee on 13 February 2019 as well as in the Supervisory Board’s plenary session on 14 February 2019. The finalized financial statements and PwC’s audit reports (dated 25 February 2019) were reviewed by the Audit Committee on 6 March 2019, and in the Supervisory Board plenary session on 7 March 2019. The auditors participated in the discussions and presented key results from their audit. Particular emphasis was placed on the key audit matters described in the auditor’s report and on the audit procedures performed. No material weaknesses in the internal financial reporting control process were discovered. There were no circumstances that might give cause for concern about the auditor’s independence.
In addition, the market value balance sheets dated 31 December 2018 for both Allianz SE and the
Board has raised no objections and instead agreed with the results of the PwC audit. It has also approved the
The Supervisory Board would like to thank all Allianz Group employees for their great personal commitment over the past year.
Mr. Rolf Zimmermann, vice chairman of the Supervisory Board and employee representative, left the
Supervisory Board on 31 August 2018. The employee representative Mr. Frank Kirsch was appointed as successor, effective 1 September 2018. The Supervisory Board expressed its sincere thanks to all leaving members for their many years of active service to Allianz, as well as their dedicated contributions to the
The 2018 financial year also saw personnel changes within Allianz SE’s Board of Management. Effective 1 January 2018, Mr. Niran Peiris and Mr. Giulio Terzariol were appointed to the Board of Management as successors to Dr. Dieter Wemmer and Dr. Werner Zedelius; their respective membership in the Board of
Management ended as of 31 December 2017. For the new and additionally created Board of Management division Business Transformation and Innovation, Mr. Iván de la Sota has been appointed to the Board of
1_Generally, we regard memberships in other supervisory bodies as “comparable” if the company is listed on a stock exchange or has more than 500 employees.
Board of Allianz SE thus attach great importance to complying with the recommendations of the German Corporate Governance Code
Involvement Act (“SE-Beteiligungsgesetz”). However, the main features of a German stock corporation – in particular the two-tier board system (Board of Management and Supervisory Board) and the principle of equal employee representation on the Supervisory
The Board of Management of Allianz SE comprises ten members. It is responsible for setting business objectives and the strategic direction, for coordinating and supervising the operating entities, and for implementing and overseeing an efficient risk management system.
The members of the Board of Management are jointly responsible for management and for complying with legal requirements.
There are divisional responsibilities for business segments as well as functional responsibilities. The latter include the Finance, Risk
GROUP FINANCE AND RISK COMMITTEE Giulio Terzariol (Chairman), Niran Peiris, Dr. Günther Thallinger, Dr. Axel Theis.
In the financial year 2018, the following Group committees were in place: Group committees
GROUP COMPENSATION COMMITTEE Board members of Allianz SE and executives below Allianz SE Board level.
Designing, monitoring, and improving group-wide compensation systems in line with regulatory requirements and sub- mitting an annual report on the monitoring results, along with proposals for improvement.
The Allianz Group runs its operating entities and business segments via an integrated management and control process. First, the Holding and the operating entities define the business strategies and goals.
General Meeting (AGM). Supervisory Board approval is required, for example, for certain capital transactions, intercompany agreements, and the launch of new business segments or the closure of existing ones. Approval is also required for acquisitions of companies and holdings in companies, as well as for divestments of Group companies that exceed certain threshold levels. The Agreement concerning the
The German Co-Determination Act (“Mitbestimmungsgesetz”) does not apply to Allianz SE because it has the legal form of a European
Management on managing the business. It is also responsible for appointing the members of the Board of Management, determining their overall remuneration, succession planning for the Board of
Management, and reviewing Allianz SE’s and the Allianz Group’s annual financial statements. The Supervisory Board’s activities in the 2018 financial year are described in the Supervisory Board Report starting on page 4.
Committee do not apply to an SE. In the event of a tie, the casting vote lies with the Chairman of the Supervisory Board, who at Allianz SE
– Monitoring of the financial reporting process, the effectiveness of the internal control and audit system and legal and compliance issues
– Approval of the assumption of other mandates by Board of Management members
– Establishment of selection criteria for shareholder representatives on the Supervisory Board in compliance with the Code’s recommendations on the composition of the Supervisory Board
– Selection of suitable candidates for election to the Supervisory Board as shareholder representatives
Gabriele Burkhardt-Berg (Vice Chairwoman as of 1 September 2018) 6/6 100
Rolf Zimmermann (Vice Chairman and Member until 31 August 2018) 4/4 100
OBJECTIVES OF THE SUPERVISORY BOARD REGARDING ITS COMPOSITION The objectives for the composition of the Supervisory Board in the version of August 2017, as specified to implement a recommendation by the Code, are set out below. In addition to the skills profile for the overall Supervisory Board, also to be established due to a new recommendation of the Code, the diversity concept in accordance with the legislation regarding the implementation of the E.U. guideline as regards the disclosure of non-financial and diversity information
(CSR Directive) is also included: Objectives of Allianz SE’s Supervisory Board regarding its composition
It has to be considered that the possible emergence of conflicts of interests in individual cases cannot generally be excluded. Potential conflicts of interest must be disclosed to the Chairman of the Supervisory Board and will be resolved by appropriate measures.
Former Allianz SE Management Board members are subject to the mandatory corporate law coolingoff period of two years.
– At least four of the members must, on the basis of their origin or function, represent regions or cultural areas in which Allianz SE conducts significant business. For Allianz SE as a Societas Europaea, the agreement concerning the participation of employees in Allianz SE provides the following: Allianz employees from different EU member states be considered in the allocation of employee representatives’ Supervisory Board seats.
Diekmann, Dr. Eichiner, Mr. Hainer and Mr. Snabe, are independent within the meaning of the objectives (see No. I.3). With four female and eight male Supervisory Board members, the current legislation for equal participation of women and men in leadership positions
Allianz SE and the German Federal Financial Supervisory Authority any transactions involving shares or debt securities of Allianz SE or financial derivatives or other instruments based on them, as soon as the value of the securities acquired or divested by the member amounts to five thousand Euros or more within a calendar year. These disclosures are published on our website at www.allianz.com/
When adopting resolutions, each share carries one vote. Shareholders can follow the AGM’s proceedings on the internet and be represented by proxies. These proxies exercise voting rights exclusively on the basis of instructions given by the shareholder. Shareholders are also able to cast their votes via the internet in the form of online voting.
German Stock Corporation Act provides for the convening of an extraordinary AGM.
German Commercial Code (“Handelsgesetzbuch – HGB”) on the basis of the International Financial Reporting Standards (IFRS)
Allianz SE are prepared in accordance with German law, in particular the HGB.
To ensure maximum transparency, we inform our shareholders, financial analysts, the media, and the general public about the company’s situation on a regular basis and in a timely manner. The annual financial statements of Allianz SE, the Allianz Group’s consolidated financial statements, and the respective management reports are published within 90 days of the end of each financial year.
Additional information is provided in the Allianz Group’s half-yearly financial reports and quarterly statements. Information is also made available at the AGM, at press and analysts’ conferences, and on the
The regulatory requirements for corporate governance applicable for insurance companies, insurance groups, and financial conglomerates are also important. Specifically, they include the establishment and further design of significant control functions (risk management, actuarial function, compliance, and internal audit) as well as general principles for a sound business organization. The regulatory requirements are applicable throughout the Group in principle and have been implemented using written guidelines issued by the Board of Management of Allianz SE. Since the 2016 financial year, a market value balance sheet has to be prepared at solo and group level, which has to be examined and reported on separately by the auditors. Details on the implementation of the regulatory requirements for corporate governance by Allianz SE and by the Allianz Group can be found in the Solvency and Financial Condition Report of Allianz SE
Declaration of Conformity with the German Corporate Governance Code On 12 December 2018, the Board of Management and the Supervisory Board issued the following Declaration of Conformity of
Since the last Declaration of Conformity as of December 14, 2017, Allianz SE has complied with all recommendations of the German Corporate Governance Code in the version of February 7, 2017 and will comply with them in the future.
In addition, Allianz SE follows all the suggestions of the Code in its
In addition, the quality of our internal control system is assessed by the Allianz Group’s Internal Audit function. This function conducts independent, objective assurance and consulting activities, analyzing the structure and efficiency of the internal control systems as a whole.
COMPLIANCE MANAGEMENT SYSTEM Integrity is at the core of our compliance program and the basis to safeguard Allianz’s reputation as a trusted financial services provider.
Nations Global Compact, the world’s largest and most important initiative for responsible corporate leadership, and respect the Guidelines of the Organization for Economic Cooperation and Development
Moreover, Allianz SE’s central Group Compliance function is responsible – in close cooperation with local compliance functions –
for ensuring the effective implementation and monitoring of the compliance program within the Allianz Group, as well as for investigating potential compliance infringements. As a key governance function, the Compliance function further conducts the advisory, risk identification and assessment, monitoring, and early-warning tasks required under the Solvency II regime.
COMPLIANCE PROGRAMS Allianz SE’s central Group Compliance function has set up internal guidelines for the following identified compliance risk areas: antibribery and anti-corruption, anti-money laundering and antiterrorism financing, economic sanctions compliance, capital markets compliance, sales compliance/customer protection, antitrust compliance, internal fraud, data privacy, and US Foreign Account Tax Compliance Act (FATCA). For further information on these compliance risk areas, please refer to the Combined Separate Non-Financial Report on page 48 and the Sustainability Report on our website at www.allianz.com/sustainability.
COMPLIANCE TRAINING In order to transmit the principles of the Code of Conduct and the internal compliance programs based on these principles, Allianz has implemented interactive training programs around the world. These provide practical guidelines that enable employees to make their own decisions based on the values of the Allianz Group. Training programs comprise in-person and e-learning trainings and are delivered in several languages.
European Economic Area. Further trainings exist for all relevant compliance risk areas.
up until 31 December 2018 and 30 % up until 31 December 2021. As the Board of Management has been extended by the appointment of Mr. de la Sota in April 2018 as an additional member, the percentage of women on Allianz SE’s Board of Management amounted to 20 % as of 31 December 2018. As regards the proportion of women on the first and second management levels below the Board of
As of 31 December 2018, this target was met for the second management level with a percentage of women of 28 %, but could not be met on the first level with a percentage of 15 %. The first management level below the Board of Management comprises a very small comparative group of executives. No suitable female candidates could be identified for the very few positions that became vacant in the period considered.
In the longer term, Allianz aims to place women in at least 30 %
The Supervisory Board pursues these objectives, and thus also the diversity concept, nominating the candidates for the shareholder representatives. As the employee representatives are appointed according to different national provisions, there is only limited potential influence to the selection of employee representatives. The
COMPOSITION OF SHARE CAPITAL As of 31 December 2018, the share capital of Allianz SE was € 1,169,920,000. It was divided into 424,459,661 registered and fully paid-up shares with no-par value. All shares carry the same rights and obligations. Each no-par value share carries one vote.
RESTRICTIONS ON VOTING RIGHTS AND SHARE TRANSFERS; EXERCISE OF VOTING RIGHTS IN CASE OF EMPLOYEE EQUITY PARTICIPATIONS Shares may only be transferred with the consent of the company. An approval duly applied for may only be withheld if this is deemed necessary in the company’s interest on exceptional grounds. The applicant will be informed of the reasons.
Shares acquired by employees of the Allianz Group as part of the employee stock purchase plan are subject to a lock-up period which used to be one year in general and was extended to three years in general under the plan for the fiscal year 2018. This serves the employee stock purchase plan’s aims of tying employees to the company and letting them benefit from the performance of the share price. During the lock-up period, employees can exercise their voting rights or have them exercised.
Board, who pursuant to Article 42 of the SE Regulation must be a shareholder representative, shall have the casting vote (§ 8 (3) of the
Statutes). If the Chairperson does not participate in the vote the Vice
According to § 5 (1) of the Statutes, the Board of Management shall consist of at least two persons. The Supervisory Board determines the number of any additional members. The Supervisory
Implementation Act (“SE-Ausführungsgesetz – SEAG”), which is based upon Article 59 (1) and (2) of the SE Regulation. A larger majority is required, inter alia, for a change in the corporate object or the relocation of the registered office to another E.U. member state
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 8 May 2023, 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 € 334,960,000 (Authorized Capital 2018/I): In case of a capital increase against cash contribution, the Board of
− Up to a total of € 15,000,000 (Authorized Capital 2018/II): The shareholders’ subscription rights are excluded. New shares may only be issued to employees of Allianz SE and its Group companies.
Allianz SE may buy and sell Allianz shares for trading purposes
(§ 71 (1) No. 7 and (2) AktG) under an authorization of the General
− The framework agreements between Allianz SE and the subsidiaries of various car manufacturers 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 certain 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 because his or her 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 for the purpose hereof limited to two years, in the form of a one-off payment. The one-off payment is based on the fixed remuneration plus the variable remuneration, with this basis being limited, however, to the amount paid for the last fiscal year. This applies accordingly if, within twelve months of a change of control, a mandate in the Board of Management comes to an end and is not extended: The one-off payment will then be granted for the period between the end of the mandate and the end of the twoyear period following the change of control. For further details, please refer to the Remuneration Report starting on page 23.
contain change-of-control clauses, which apply when a majority of the voting share capital in Allianz SE is directly or indirectly acquired by one or more third parties who do not belong to the
Allianz Group, and which provide for an exception from the usual vesting and exercise periods. In line with the relevant general conditions, the company will release the RSUs to plan participants on the day of the change of control, without observing any vesting period that would otherwise apply. The cash amount payable per RSU
must equal the average market value of the Allianz share and be equal to or above the price offered per Allianz share in a preceding tender offer. By providing for the non-application of the vesting period in the event of a change of control, the terms take into account the fact that the conditions influencing the share price are substantially different when there is a change of control.
The report has been prepared in accordance with the requirements of the German Commercial Code, the German Accounting
The complete information on Allianz SE Board of Management remuneration as given below and additional information is provided on our remuneration website at www.allianz.com/remuneration.
− Variable remuneration focused on sustainability and aligned with shareholder interests: A major part of the variable remuneration shall reflect longer-term performance with an adequate deferred payout. Furthermore, a substantial portion is linked to the performance of the share price.
VARIABLE REMUNERATION The variable remuneration (annual bonus, mid-term bonus, and equity-related compensation) is designed to reward performance. A
shortfall of targets may result in the variable compensation dropping to zero. Two thirds of the variable compensation are a deferred payout after three or four years.
The payout of variable remuneration is subject to a limit and capped at 150 % of the respective target levels for the annual bonus and the mid-term bonus, as well as at a 200 % increase in value of the grant price for the equity-related remuneration.
The annual bonus depends on performance in the respective financial year, and is paid out in the following financial year. The target level of the annual bonus corresponds to the base salary. Performance targets comprise Group and individual targets. Group targets include – equally weighted – operating profit and net income. Individual performance is assessed against qualitative as well as responsibility -related quantitative targets.
A multi-rater process supports the assessment of the individual qualitative behavioral targets: For each member of the Board of
Management, feedback is collected from his or her fellow Board members and his or her direct reports as well as the Chief Executive
Officers of the most important operating entities he or she is in charge of. Furthermore, they perform a self-assessment.
The mid-term bonus is a variable compensation component with a deferred payout following a three-year cycle. Sustainable and valueadding performance is assessed against a predefined criteria catalog. The current MTB cycle runs from 2016 until 2018 and is based on the following measurable sustainability criteria: “Performance”
The Supervisory Board has assessed the sustainability of the target performance of the members of the Management Board during the MTB cycle 2016 – 2018 (sustainability assessment). As a result of this assessment, the final MTB target achievement has been collectively increased by 10 percentage points for each member of the current Management Board. By this adjustment, the Supervisory
Board recognizes the sustainable management team performance reflected, amongst others, in a sustainable solvency ratio development and improved sensitivities to risk scenarios.
1_Example based on target values of a regular member of the Board of Management with an annual target of € 750 thou. The accrual is only a notional indication. 2_Actual accrual for the MTB usually equals the annual bonus payout of the respective financial year. Since the performance assessment and the final payout occur after completion of the performance cycle this value is only a notional indication. 3_Final payout is subject to the sustainability assessment of the Supervisory Board and may vary between 0% – 150% of the cumulative target values independent of the notional accruals.
holdings are forfeited, should a Board member leave at his/her own request or be terminated for cause.
RSU payout. This reduction is calculated based on a standard option pricing formula.
payouts result from grants related to the performance years 2010, 2013 and 2014. To enhance transparency of the remuneration related to the performance year 2017 and 2018, the additional column
Depending on individual and company performance, the amounts actually paid can vary between 0 % and 150 % of the respective target levels. If performance is rated at 0 % no variable component will be granted. Consequently, the minimum total direct compensation for a regular member of the Board of Management will equal the base salary of € 750 thou (excluding perquisites and pension contributions), while the maximum total direct compensation (excluding perquisites and pension contributions) is € 4,125 thou: a € 750 thou base salary plus € 3,375 thou (i.e., 150 % of the sum of all three variable compensation components at target level). The Chairman of the Board’s maximum total direct compensation (excluding perquisites and pension contributions) is € 7,219 thou: a € 1,313 thou base salary plus € 5,906 thou (150 % of the sum of all three variable compensation components at target level).
5_Pension service cost in accordance with IAS 19: represents the company cost not the actual entitlement nor a payment, however, according to the German Corporate Governance Code the Pension Service Cost is to be included in all columns.
Deferred compensation 1_In accordance with the German Corporate Governance Code, the annual bonus disclosed for performance year 2018 is paid in 2019 and for performance year 2017 in 2018. The payments for equity-related deferred compensation (GEI and AEI), however, are disclosed for the year in which the actual payment was made. To reconcile to the Corporate Accounting Standard 17, the total as shown in column “payout” should be adjusted by including the accrual for the AEI 2019/RSU and excluding any payouts from AEI 2013/RSU, AEI 2014/RSU or GEI 2010/SAR, as applicable.
4_The equity-related remuneration that applied before 2010 consisted of two vehicles, virtual stock awards known as RSUs, and virtual stock options known as “Stock Appreciation Rights” (SAR). Only RSUs have been awarded as of 1 January 2010.
6_Niran Peiris received a one-time payment of € 50 thou to reimburse him for relocation cost.
6_Iván de la Sota joined the Allianz SE Board of Management on 1 April 2018. He received a pro-rated base salary, annual bonus, MTB tranche, and equity-related compensation. The different pro-rated amounts for base salary and target amounts result from different pro-rating methodologies, which are generally applied.
7_Iván de la Sota received a one-time payment of € 50 thou to reimburse him for relocation cost.
GERMAN ACCOUNTING STANDARD 17 DISCLOSURE Under the German Accounting Standard 17, the total remuneration to be disclosed for 2018 (2017 in parentheses) is defined differently as compared to the German Corporate Governance Code: It is composed of the base salary, perquisites, the annual bonus, the fair value of the
Individual pensions: 2018 and 2017 € thou (total might not sum up due to rounding)
2_Plan participants contribute 3 % of their relevant salary to the AVK. For the AVK the minimum guaranteed interest rate is 2.75 % – 3.50 % depending on the date of joining Allianz. In general, the company funds the balance required via the APV.
4_Expected annual pension payment at assumed retirement age for the frozen defined benefits pension plan, excluding current pension plan.
5_SC = service cost. Service costs are calculatory costs for the DBO related to the reported business year.
LOANS TO MEMBERS OF THE BOARD OF MANAGEMENT As of 31 December 2018, there were no outstanding loans granted by
For new appointments a shorter period is typical, a practice in line with the German Corporate Governance Code.
Arrangements for termination of service including retirement are as follows: 1. Board members who were appointed before 1 January 2010, and who have served a minimum of five years, are eligible for a six-month transition payment after leaving the Board of Management.
Corporate Governance Code – apply if a board member’s service ended as a result of a “change of control” (i.e., if a situation arises in which a shareholder of Allianz SE, acting alone or together with other shareholders, holds more than 50 % of voting rights in
Board members who were appointed before 1 January 2011 are eligible to continue using a company car for up to one year after retirement.
Board members who receive a transition payment are subject to a six-month non-compete clause.
Where an Allianz pension is immediately payable, transition payment amounts are offset against it.
In recognition of related benefits to the organization, board members are also allowed to accept a limited number of non-executive supervisory roles in appropriate external organizations. In these cases, 50 % of the remuneration received is paid to Allianz SE. Only if the
Allianz SE Supervisory Board classifies the appointment as a personal one, the respective board member will retain the full remuneration for that position. Any remuneration paid by external organizations will be itemized in those organizations’ annual reports; its level is determined by the governing body of the relevant organization.
Based on this review, the Supervisory Board of Allianz SE decided to implement structural changes to the remuneration system of the
• 50% Group financial targets (operating profit and net income, equally weighted)
• 100% Group financial targets (operating profit and net income, equally weighted)
The LTI percentage of the total target compensation for 2019 as well as the target amount of € 2,559 thou for the Chairman of the
Allianz SE Board of Management (CEO) and of € 1,463 thou for a regular board member (RBM) are based on the target allocation value (as described in detail in the LTI section “Allianz share price performance” on page 37). This differs from the percentages based on IFRS fair value. Based on IFRS fair values, the equity-related compensation (which is allocated in the form of Restricted Stock
• Payout adjusted by individual contribution factor: +/-20% • Annual bonus capped at 150% of target
Supervisory Board and takes into account the results of the business division and the individual contribution. Thereby the ICF assessment balances between the financial performance and the health targets
(i.e. non-financial targets). For board members with business-related division responsibilities, the financial performance considers various profitability (e.g. operating profit and net income) and productivity
The equity-related LTI introduces a new performance measurement for relative total shareholder return (relative TSR) which is objective and transparent and permits multi-year assessment of performance amongst peers. A sustainability review at the end of the performance period allows for a potential downward adjustment with the risk of no payout. The Allianz share price performance, the relative TSR, and the sustainability check adjustments are multiplicatively linked.
Through the grant of restricted stock units (RSUs), the LTI continues to be equity-related and linked to the absolute share price development.
The LTI allocation amount for the grant of RSUs is derived by multiplying the annual bonus target achievement factor with the LTI target amount. The LTI allocation amount is capped at 150 % of the respective LTI target level. The number of RSUs allocated is derived by dividing the LTI allocation amount by the RSU allocation value at the time of grant. The RSU allocation value is calculated as the reference share price at grant minus the net present value of the dividends during the vesting period. The IFRS accounting value of the
4-year share price performance: • LTI granted in form of Restricted Stock Units (RSUs) with a pay-out after four years, capped at 200%
LTI allocation amount = LTI target amount multiplied with annual bonus target achievement factor, capped at 150%
− The relative TSR performance factor is determined using the outperformance methodology, and calculated as follows: The
The payout of the LTI will be subjected to a sustainability check which may result in a LTI payout between 0 % and 100 %. It compares the development of the annual bonus KPIs in the grant year with the payout year of the LTI, taking into account extraordinary events and balance sheet strength.
PENSIONS AND SIMILAR BENEFITS Pension contribution remains unchanged at 50 % of annual base salary. For further information regarding “Pensions and similar benefits ”, please refer to page 25.
1_The fair value of the index-linked-RSUs is calculated as the present value of the expected future payout, taking into account the link between share performance and relative performance compared to the index as well as the relevant caps and thresholds as defined in the payout formula. The expected future payout is determined on the basis of observable market data as of the valuation day, and market standard simulation techniques. The most relevant market parameters for this estimation are the assumptions for the volatility of the Allianz stock, for the volatility of the index, for their correlation, the term structure of interest rates, and the expected dividends.
TERMINATION OF SERVICE – DETAILS OF PAYMENT ARRANGEMENTS In the future, severance payments to Board members in case of early termination, including the case of a change of control, will be limited uniformly to twice the annual compensation (consisting of base salary and 100 % of the variable target compensation).
SHAREHOLDING REQUIREMENTS (NEW) The members of the Board of Management are obliged to build up share ownership within three years.
− Regular board member: one time base salary, i.e. € 975 thou.
Holding is required for the entire term of service on the Board of
Code of Conduct or regulatory Solvency II policies or standards, including risk limits. In the same way, for three years after payout, variable remuneration components already paid may be subject to a clawback.
Additionally, a reduction or cancellation of variable remuneration may occur if the supervisory authority (BaFin) requires this in accordance with its statutory powers.
Allianz SE. The horizontal benchmark, with the relevant peer group consisting of DAX companies and international competitors, demonstrated that the compensation levels for both regular board members and the Chairman of the Board no longer reflect Allianz’s overall position, given relative size, complexity, and sustained performance.
Chairman of the Board increased from € 5,250 thou to € 5,687 thou.
In return to the increase, an overall cap was introduced which will limit the total payout significantly: The compensation relating to the relevant performance year, including pension contributions, will be capped at € 10,000 thou for the Chairman of the Board of Management and € 6,000 thou for a regular member of the Board of Management.
− Establish a remuneration structure that allows proper oversight of business as well as independent decisions on executive personnel and remuneration.
Meeting in 2018 and is laid down in the Statutes of Allianz SE.
In 2018 each regular Supervisory Board member received a fixed compensation amounting to € 125 thou per year. Each Vice Chairperson received € 187.5 thou, the Chairperson received € 250 thou.
ATTENDANCE FEES AND EXPENSES In addition to the fixed and committee-related remuneration, members of the Supervisory Board receive an attendance fee of € 1,000 for each Supervisory Board or committee meeting they attend. Should several meetings be held on the same or consecutive days, the attendance fee will only be paid once. In addition, Allianz SE reimburses the Supervisory Board members for their out-of-pocket expenses and the VAT payable on their Supervisory Board service. The company provides insurance coverage and technical support to the Supervisory
Board members to an extent reasonable for carrying out the Supervisory Board duties.
REMUNERATION FOR 2018 The total remuneration for all Supervisory Board members, including attendance fees, amounted to € 2,684 thou (2017: € 2,179 thou). The following table shows the individual remuneration for 2018 and 2017:
11_Since 3 May 2017. 22_The total reflects the remuneration of the full Supervisory Board in the respective year.
REMUNERATION FOR MANDATES IN OTHER ALLIANZ COMPANIES AND FOR OTHER FUNCTIONS As remuneration for their membership in the Supervisory Board of
Implementation Act (EU Directive 2014/95/EU). It focuses on the key performance indicators (KPIs) that reflect our most material sustainability issues. This year we have further sharpened our focus: While still covering all matters and concepts, we decided to report only on the most material non-financial KPIs and to include them in the Corporate Governance section of the Annual Report. The KPIs included are: Net Promoter Score (NPS), the Inclusive Meritocracy
The structure and content of the report are based on the legal requirements set out in the CSR legislation. It is also based on the
Global Reporting Initiative (GRI) Standards, but only reflects the respective parts of the GRI Standards requirements. The concepts contained herein are in line with the content of our 2018 Group
Sustainability Report (GSR) (to be published in April 2019), which is compiled in accordance with the standards set out by the GRI.
Allianz Group and also includes the relevant non-financial information for Allianz SE. If Allianz SE’s concepts and processes differ from those applied by the Allianz Group, they are described separately. All measures, activities, and key figures refer to the 2018 financial year (1 January 2018 to 31 December 2018). Unless otherwise stated, we use the control principle defined by the International Financial
Management Report and Allianz SE's Management Report are supplementary, do not form an integral part of this non-financial information, and are not subject to an assurance engagement (unless specified in the respective document).
Established in 2012, it is comprised of three Allianz SE board members and meets quarterly. The Group ESG Board is responsible for the whole Corporate Responsibility agenda, including climate-related topics, the integration of ESG into all business lines and core processes dealing with insurance and investment, and the Allianz Group’s corporate citizenship activities. The three board members each assume responsibility for specific sustainability topics; functional departments directly provide the Group ESG Board with regular updates on sustainability issues.
− The Group Underwriting Committee monitors the underwriting business and related risk management. It also develops new underwriting policies and strategies.
Our group-level Corporate Responsibility (CR) management team is responsible for managing the strategic framework for all group-wide sustainability activities, developing and introducing relevant policies, reporting on non-financial matters and supporting operating entities
Group CR team. If a matter is managed by another function, it is highlighted in the relevant section.
feedback, so we are able to respond to the most material issues we face. Related activities focus on the four stakeholder groups most immediately affected by our business activities: customers, employees, investors, and society as a whole. To succeed, we need to understand and respond to the changing world in which we operate. Our most recent materiality assessment was undertaken in 2018 to identify the issues perceived by our stakeholders as most important to our business (for more details, please see our Sustainability Report 2018, section 03.2 www.allianz.com/sustainability).
The material topics and KPIs addressing those risks and megatrends are covered in this report. They reflect the aspects that are necessary for an understanding of the development, performance, and position of Allianz, and of the impact of our business activities on these aspects. All climate-related topics are covered within the section “Environmental matters”; customer safety is addressed in “Social matters –
(Low-Carbon Economy, Social Inclusion and Business Integration), we address risks and trends that might affect Allianz. We also look into social and environmental effects arising from our business activities and business relations through our ESG Business Integration approach.
Finally, we seize business opportunities associated with sustainability matters; for example, in the areas of sustainable solutions and renewable energy investments.
Implementation Act in 2017, we have not identified any principal risks resulting from our operations, business activities, and business relations that could have severe adverse effects on material non-financial matters. In this report, we describe how we address our impact on those matters, along with the respective concepts we have in place.
December 2016, the ESG Scoring has provided Allianz investment and asset managers with ESG performance information, to be included in investment decisions.
The criteria for the exclusion of coal-based business models were expanded in 2018.
Group Sustainability Report 2018, to be published on 11 April 2019.
ESG is published in the Allianz ESG Integration Framework at www.allianz.com/esg-framework.
Allianz Group entities, the asset management entities’ own approaches complement the Group requirements.
2_Utilities generating 30 % or more of their electricity from coal, and mining companies generating 30 % or more of their revenue from thermal coal.
CLIMATE CHANGE STRATEGY At Allianz, we anticipate the risks of climate change. We care for our customers through our insurance products, while using our leverage as one of the world’s largest institutional investors and insurers to enable the transition to a low-carbon economy.
Furthermore, we enter into active dialog with companies, encouraging them to define and implement their own climate strategies in line with the latest scientific findings. In addition, in 2015 we have decided to stop financing coal-based business models and we no longer insure single-site coal-fired power plants and coal mines that are operated or planned as of 2018. We are committed to fully phasing out coal-based business models across our proprietary investments and property-casualty portfolios by 2040 at the latest, and are further developing our approach to reach this target.
climate-related risk disclosure. We report on opportunities and risks based on the framework developed by the G20’s Task Force on
− Status/progress: − Commitment to Science Based Targets initiative in May 2018.
− Targets: − Set long-term climate targets for our proprietary investments and business operations in line with the Paris Climate
Our group-wide Environmental Management System (EMS) provides standards and controls, supports environmental data collection, and promotes transparent reporting on environmental impacts across our operations. It guides us in monitoring and managing our use of resources. Operational implementation is monitored by the
− Target: Reduce carbon emissions by 30 % per employee by 2020, against a 2010 baseline.
− Status/progress: In 2018, we achieved a share of 45 % green electricity of total electricity used (20173: 45 %).
− Target: Achieve 100 % green electricity for our operations by 2023.
SOCIAL INCLUSION CONCEPTS As a global insurer, we rely on the principle of solidarity. Pooling risks is at the heart of our business model, and we have a major interest in creating stable communities. Civil unrest, social tensions and societal upheaval all pose a major business risk for Allianz. Of course, we are also interested in empowering people and improving their access to employment, which, in turn, provides a basis for creating the talented and diverse workforce we rely on. We believe social inclusion is one of the most important challenges society faces today, which is why we 1_Please note that all environmental indicators (greenhouse gas (GHG) emissions per employee and % of green electricity)
Allianz Broker Remuneration Principles, which state that “Allianz commits itself not to devise or agree to remuneration schemes that are aimed at inducing brokers to act to the detriment of our customers or to distort fair competition.” We have defined Minimum Standards for Asset Management Marketing Practices, which include the principles of truthful, clear, and accurate information on investment styles and philosophies. The globally binding Allianz Code of Conduct for Business Ethics and Compliance overarches these responsible sales controls. The code specifies that employees of Allianz Group must not, either by their actions or statements, seek to mislead the market or customers; and when establishing a customer relationship or providing financial services to a client, appropriate care shall be taken to ensure that the customer receives information that is necessary for a reasonable decision to be taken by the customer. A responsible approach to sales is more likely to lead to customer satisfaction. In turn, satisfied customers are loyal customers and are more willing to recommend us. Our customers’ interests take priority whenever they seek advice from us and exemplary sales practices are of particular importance.
In 2018, we have taken this structured collection of insights to the next level: We established a more continuous approach to monitoring and improving customer journeys by introducing the five-star rating program – a standard rating method allowing customers to state their satisfaction level on a five-point scale, and to do this on various touchpoints along the claims journey. Whenever customers have a claim against us, we ask them afterwards to rate their satisfaction with our settlement of that claim on a five-star scale. If their rating is less than three stars we follow up to ensure we resolve whatever issue there may be, and prevent the same thing from happening with other customers. We aim at publishing all customer feedback online for full transparency, visible to our customers and prospective customers.
Complaints are another important source of customer feedback and we analyze them closely to identify potential improvements. We have internally certified our subsidiaries since 2006 to ensure that group-wide quality standards for handling complaints are met and customers are treated fairly. All NPS and customer feedback related matters are managed by the Group Market Management and
Global NPS performance, Allianz Group1: − Status/progress: 74 % of the business segments of the
− Ambition: 75 % of Allianz Group business segments of our entities score above market or in a loyalty leader position in 2019 (75 % in
− In order to ensure that our global ambitions 2019 will be met, dedicated ”NPS activation workshops” will be organized in the first half of 2019 with all OEs in scope to identify performance gaps and define concrete action plans.
DATA PRIVACY CONCEPTS Digitalization enables more people to access insurance products, and we embrace the opportunities through our Digital by Default strategy, implemented with our Renewal Agenda in 2015. Digitalization, however, also comes with data privacy and protection risks. Data privacy matters are managed by the Privacy and Data Protection function. We take these risks very seriously, and we are enforcing robust security and privacy controls to give our customers the certainty that their personal data is safe and secure.
The Allianz Standard for Data Protection and Privacy defines rules and principles for collecting and processing personal data.
− The General Data Protection Regulation (GDPR) requirements have been implemented by Group Privacy in 2018 globally ensuring stricter requirements on the way Allianz collects and uses personal data of individuals.
In the 2018 Allianz Group – Modern Slavery Statement, the Group confirms that for the five preceding years, no incident of modern slavery, human trafficking, or child labor had been reported that would have involved an Allianz Group entity.
For insurance transactions and direct investments, such as real estate, infrastructure, and private equity, we address ESG risks using our referral process. As the issue of human rights cuts across most sensitive business areas, an ESG screening is mandatory for each transaction therein.
Statement we did not have any issues raised in regard to human right matters specific to the Allianz Group in 2018.
− Develop human rights guidance within PSI ESG in underwriting project for property-casualty insurance in 2019.
These aspirations are underpinned by our strategic HR frameworks, principles and tools including our globally consistent 4x3
Survey (AES), introduced in 2010, has been established as a valuable employee feedback platform.
to measure progress towards a culture where both people and performance matter in order to enable employees to reach their full potential. As of 2015, the IMIX comprises 10 AES items covering the areas of leadership, performance and corporate culture.
The results of the AES (and thus the IMIX) are directly linked to the performance objectives of the Group’s Board of Management.
As a follow-up action to the AES and sponsored by the CEO, the
VOICE initiative brought together employees from different levels and functions to work on key focus areas within the field of employee engagement. Along the continuing implementation of the 2017 ideas, four new ideas were developed and implemented in the 2018
VOICE initiative: − an appraisal app for recognizing employees across hierarchies,
− the so-called Innovation Journey – a process to develop solutions to concrete business problems identified by employees,
− Care2Share – an initiative to enhance trust between employees and managers, and
− Spotlight on Employees – a video series featuring individual board members and employees.
Our Board of Management has continually shown strong commitment to diversity and inclusion (D&I). The Allianz Global Inclusion
IMIX, a pilot for top management entitled “Inclusive Leadership” was conducted in 2018, its main focus being on unconscious bias, leadership behavior, and communication. Rolling-out further pilots is planned in 2019.
IMIX for Allianz SE: − Status/progress: 69 % IMIX score in 2018.
1_Please note that the IMIX data is delivered by an external service provider and that we did not evaluate the data collection process of the provider.
This section describes the impacts of compliance matters on our business activities and relationships as well as the impact of Allianz’s activities and relationships on compliance. Furthermore, we describe the concepts and achievements related to the management of these impacts, with a focus on compliance, anti-corruption, and bribery matters. All compliance matters are managed by the Compliance team.
CONCEPTS AND PROGRAMS Our risk management framework includes our Compliance Management System (CMS) which helps to ensure compliance with internationally recognized laws, rules and regulations, and to promote a culture of integrity in order to safeguard the company's reputation.
In view of upcoming regulatory requirements, IT regulations and increased regulatory scrutiny and enforcement are emerging risks.
Anti-corruption and anti-fraud risk assessments are now integrated into the IRCS and mitigation activities are monitored through a global tracking tool. Further assessments and on-site reviews, including key control testing and follow-ups, are conducted as necessary, following a risk-based approach. In 2018, we completed the second cycle of the integrated compliance risk scoping and assessment activities as part of the company’s IRCS.
We take a zero-tolerance approach to fraud and corruption. At the minimum, this means adhering to local and international anticorruption and anti-bribery laws. Above and beyond mere compliance, the Allianz Anti-Corruption Program, established in 2010, is a groupwide program that defines minimum standards for a consistent and comprehensive approach in every jurisdiction.
Directed at both our employees and third parties, the program and policy prohibit the offer, acceptance, payment, or authorization of any bribe or other form of corruption, when dealing with either the private sector or government authorities. Anti-corruption training is compulsory for all employees.
All OEs are required to perform Compliance Risk & Maturity assessment annually. The obligations laid down in the various program components are derived from both the Allianz Code of Conduct for
− Status/progress: − Roll-out of an enhanced compliance assurance approach in
− Targets: − Completion of the third cycle of the integrated compliance risk scoping and assessment activities as part of the company’s
Allianz SE and its subsidiaries (the Allianz Group) offer propertycasualty insurance, life/health insurance, and asset management products and services in over 70 countries, with the largest of our operations located in Europe. The Allianz Group serves more than 92 million private and corporate customers. Allianz SE, the parent company of the Allianz Group, has its headquarters in Munich, Germany.
The Allianz Group’s structure reflects both our business segments and geographical regions. Business activities are organized by product and type of service, based on how these are strategically managed: insurance activities, asset management activities, and corporate 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 2018, the
2_Based on currently available peer data. Final peer analysis not available until after publication of this Annual Report.
AllianzGI, operate under the governance of Allianz Asset Management (AAM). We are one of the largest asset managers in the world that actively manage assets. Our offerings cover a wide range of equity, fixed income, and alternative investment products and solutions. Our core markets are the United States, Germany, France,
The Corporate and Other business segment’s activities include the management and support of the Allianz Group’s businesses through its central holding functions, as well as Banking and Alternative
HOLDING & TREASURY Holding & Treasury manages and supports the Group’s businesses through its strategy, risk, corporate finance, treasury, financial reporting, controlling, communication, legal, human resources, technology, and other functions.
ALTERNATIVE INVESTMENTS Alternative Investments provides global alternative investment management services in the real estate sector, mostly on behalf of our insurance operations. ACP was transferred to AllianzGI at the start of 2018.
 Property-Casualty  Life/Health  Banking  Retail Asset Management  Institutional Asset Management 1_This overview is based on our organizational structure as of 31 December 2018. 2_Property-Casualty business belongs to Allianz Global Corporate & Specialty.
Corporate and Other. In 2018 they were overseen by five board members. The following divisions focus on Group functions, along with business-related responsibilities: Chairman of the Board of Management; Finance, Controlling and Risk; Investment Management; Operations; Human Resources, Legal, Compliance and M&A; and
Board of Management is linked to short-term, mid-term, and longterm targets to ensure effectiveness and emphasize sustainability. For further details about our remuneration structure, including target setting and performance assessment, please refer to the Remuneration Report starting on page 23.
We continuously monitor our business performance against these targets through monthly reviews – which cover key operational and financial metrics – to ensure we can move quickly and take appropriate measures in the event of negative developments.
Besides performance steering, we also have a risk steering process in place, which is described in the Risk and Opportunity Report starting on page 74.
Non-financial key performance indicators (KPIs) are mainly used for the sustainability assessment that we conduct when determining mid-term bonus levels. In line with our Renewal Agenda, KPIs mainly represent three key levers: True Customer Centricity, Digital by
Engagement Survey and Net Promoter Score (NPS3) results and diversity development. For further information on non-financial
The world economy continued to grow strongly in 2018. Global economic output increased by an estimated 3.1 %. While economic momentum in the United States even accelerated in the course of the year, due to a strongly procyclical fiscal policy, growth weakened in most other regions. The U.S. economy expanded by about 2.9 %.
With an increase of 1.9 %, growth in the Eurozone was clearly weaker than in the United States. Growth deceleration was particularly pronounced in the emerging markets. Many emerging economies registered strong capital outflows as a result of higher interest rates in the United States.
2018 was characterized by an elevated level of political uncertainty. The trade conflict with the United States intensified, contributing to a deterioration in economic sentiment. In Europe, political risk increased with regard to the new Europe-skeptical government in Italy and Brexit. Following a prolonged period of very low market volatility, stock markets experienced several episodes of spikes in volatility in 2018. Major stock markets around the globe registered losses. On the monetary policy front, in
December the European Central Bank announced the termination of its bond purchasing program at year-end. In the United States, the Federal Reserve continued to normalize its monetary policy stance. It increased the federal funds rate range four times, each time by 25 basis points, bringing it to a range of 2.25 % to 2.5 %
Climate-change-induced natural disasters remained at an elevated level: 2018 was the fourth-costliest year since 1980 for the insurance industry. In the competitive landscape, data have become the crucial factor for value creation, enabling new and established technology firms to attack along the insurance value chain. Last but not least, the insurance industry had to cope with a more fragmented legislative environment, characterized by trade wars, tariffs and Brexit. All these disruptions kept the insurance industry on their toes to update business models and invest in new technologies and resilience. In 1_At the date of the publication of this report, not all general market data for the year 2018 used in the chapter Business
In the property-casualty sector, premium growth was robust in most markets, on the back of strong economic growth. Emerging markets, despite economic woes in some, remained the growth engine for the global market, registering double-digit growth as a whole. Overall and at a global scale, premiums rose by an estimated 5 % to 6 % in 2018 (in nominal terms and adjusted for foreign currency translation effects). Global industry profitability remained under pressure, as catastrophe losses and low investment yields were a drag.
Business environment 2018 for the asset management industry Until September, U.S. equity indices performed rather well, while the development of other major markets, especially in Europe, was more volatile. In the fourth quarter, however, almost all equity markets turned downwards, driven by increased fear of a slowdown of the global economy and heightened political risks, which led to substantial losses globally for the entire year. In the U.S., fixed-income indices turned downwards as the U.S. Federal Reserve increased the federal funds rate in four steps in 2018, backed by solid U.S. economic data.
MANAGEMENT’S ASSESSMENT OF 2018 RESULTS Our total revenues grew by 6.1 % on an internal basis7, compared to 2017. Our Life/Health business segment registered strong sales of fixed index annuities in the United States and of capital-efficient products in Germany, while an internal premium growth in our
Our operating profit increased by 3.7 %, compared to 2017, and was in the upper end of the target range for 2018. This growth was largely attributable to our Property-Casualty business segment, where favorable developments such as a decreased expense ratio, lower claims from natural catastrophes, and premium growth resulted in a sizable increase in operating profit. Our Asset Management business segment also recorded an increase in operating profit, due to higher AuM-driven revenues. Life/Health reported an operating profit decrease, a consequence of lower investment margins in our
2_Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in
3_The Allianz Group uses operating profit and net income as key financial indicators to assess the performance of its business segments and of the Group as a whole.
life insurance portfolio in Taiwan was partially offset by lower restructuring charges.
U.S. tax reform which led to a reduction in the corporate income tax rate from 35 % in 2017 to 21 % in 2018. The effective tax rate dropped
Our shareholders’ equity8 fell € 4.3 bn to € 61.2 bn, largely due to a reduction in unrealized gains and losses (net). In addition, Allianz SE
For a more detailed description of the results generated by our business segments – specifically, Property-Casualty insurance operations, Life/Health insurance operations, Asset Management, and Corporate and Other – please consult the respective chapters on the following pages.
& Anglo Markets, Middle East and Africa. In the Property-Casualty business segment, the reportable segment Iberia & Latin America was combined with the reportable segment Allianz Partners to form the reportable segment Iberia & Latin America and Allianz Partners.
Any previously reported information has been adjusted to reflect this change in the composition of the Allianz Group’s reportable segments.
There were also some minor reallocations between the reportable segments in the course of 2018.
Germany: Gross premiums amounted to € 10,477 mn, corresponding to an internal growth of 4.0 %. It was mainly caused by positive volume effects in our motor and commercial property insurance as well as price effects in our motor insurance business.
decrease on an internal basis. It was mainly caused by negative volume effects in our motor and commercial liability insurance business.
1_For further information on Allianz Property-Casualty figures, please refer to note 4 to the Consolidated Financial
5_We comment on the development of our gross premiums written on an internal basis, which means figures have been adjusted for foreign currency translation and (de-)consolidation effects to provide more comparable information.
6_Based on the average exchange rates in 2018 compared to 2017.
The sharp rise of our underwriting result was mainly driven by a lower expense ratio, a consequence of the efficiency programs we had carried out across the Group. We also benefited from an absence of high-severity losses from natural catastrophes (whereas in 2017 we had been affected by storms Harvey, Maria, and Irma as well as the
7_Represents claims and insurance benefits incurred (net) less previous year claims (run-off), divided by premiums earned
AGCS: 0.2 percentage points. A favorable development of underlying and natural-catastrophe losses was partially offset by a higher impact from large losses and weather losses.
Interest and similar income (net of interest expenses) 3,329 3,371 (42)
Operating income from financial assets and liabilities carried at fair value through income (net) (49) (78) 29
Our operating investment income (net) increased, mainly due to a one-off effect in the investment result, net of policyholder participation of the German APR business, which was partially offset in the underwriting result.
On a nominal basis, statutory premiums went up 4.7 %. This takes into account unfavorable foreign currency translation effects of € 1,093 mn as well as negative (de-)consolidation effects of € 56 mn.
In the German life business, statutory premiums rose to € 22,511 mn. This increase – 6.6 % on an internal basis – resulted mainly from higher sales of capital-efficient products. Statutory premiums in the German health business increased to € 3,455 mn, translating into 2.8 % growth on an internal basis – much of which resulted from the acquisition of new customers for our supplementary health care coverage.
In France, statutory premiums dropped to € 8,364 mn. This decrease – 1.1 % on an internal basis – was predominantly due to a decline in sales of the unit-linked products without guarantee.
Increased sales in our business with protection & health products partly compensated for this development.
In the Asia-Pacific region, statutory premiums amounted to € 5,769 mn – up 15.4 % on an internal basis. It was largely due to stronger sales in our business with unit-linked products in Taiwan.
3_Represents the ratio of net income to the average total equity, excluding unrealized gains/losses on bonds, net of shadow accounting, as well as attributable goodwill, at the beginning of the year and at the end of the year.
Present value of new business premiums (PVNBP)5 Our PVNBP increased by € 3,492 mn to € 62,961 mn. Most of this is due to higher sales of our capital-efficient products in the German life business, in our business with fixed index annuities in the United
States, and in most lines of business in Italy. In line with our product strategy, premiums continued to shift towards capital-efficient products.
Loadings from premiums as % of statutory premiums 5.6 5.8 (0.2)
1_”Other” comprises the delta of out-of-scope entities, on the one hand, which are added here with their respective operating profit and different line item definitions compared to the financial statements, such as interest paid on deposits for reinsurance, fee and commission income, and expenses excluding unit-linked management fees on the other hand. For 2018, it also includes a change in our U.S. fixed index annuity business, with € 683 mn shifted from
Consolidated Financial Statements, chapter “Reserves for insurance and investment contracts”, paragraph “Aggregate policy reserves” and Reconciliations.
Our investment margin decreased, which was largely attributable to a lower trading result in the United States, due to a deterioration of market conditions. Further contributing factors included a lower trading result, higher equity impairments, and lower realizations on debt securities in the German life business (after the sale of Italian government bonds had increased that figure in 2017). Most of this effect was offset by a lower policyholder participation.
Acquisition expenses and commissions as % of PVNBP1 (8.2) (8.3) 0.1
Administrative and other expenses as % of average reserves2,3 (0.3) (0.4) 1_PVNBP before non-controlling interests.
1_Expenses include acquisition expenses and commissions (excluding commission clawbacks, which are allocated to the technical margin) as well as administrative and other expenses.
The operating profit in our guaranteed savings & annuities line of business dropped, largely driven by the investment margins in our traditional variable annuity business in the United States, and in our
Total assets under management as of 31 December € bn 1,961 1,960 1 thereof: Third-party assets under management as of 31 December € bn 1,436 1,448 (12)
(€ 21 bn total and € 8 bn third-party), most of which occurred in the fourth quarter of 2018. AllianzGI, on the other hand, recorded total net inflows of € 6 bn and third-party net inflows of € 4 bn for the year.
Overall, total AuM were stable, as the positive effects from foreign currency translation and the ACP onboarding were able to compensate for the negative effects from “market and dividends”
(31 December 2017: 10.2 %) and other AuM declined to 3.6 %
(31 December 2017: 53.4 %, 35.1 % and 11.5 %, respectively). The shift was primarily driven by positive foreign currency translation effects and third-party AuM net inflows in America.
4_”Market and dividends” represents current income earned on the securities held in client accounts, as well as changes in the fair value of these securities. This also includes dividends from net investment income and from net realized capital gains to investors of both open-ended mutual funds and closed-end funds.
5_Mutual funds are investment vehicles (in the United States, investment companies subject to the U.S. code; in Germany, vehicles subject to the “Standard-Anlagerichtlinien des Fonds” Investmentgesetz) where the money of several individual investors is pooled into one account to be managed by the asset manager, e.g. open-end funds, closed-end funds.
Asset Management business declined over the year, with 85 % of third-party assets outperforming their respective benchmarks
(31 December 2017: 91 %). The decline was mostly driven by
Our operating revenues increased by 5.1 % on a nominal basis. This reflects unfavorable foreign currency translation effects and the inclusion of ACP as of 1 January 2018 as well as the sale of AllianzGI
Other net fee and commission income rose, driven by higher average third-party AuM, mostly at PIMCO but also slightly at
AllianzGI. Third-party AuM-driven margins also increased, mainly due to a more favorable asset mix.
Other operating revenues decreased, which was largely due to a less favorable foreign currency translation result and the sale of a joint venture in 2017.
The increase in operating expenses was connected to higher personnel expenses, mainly at AllianzGI and particularly due to a mostly operating-profit-neutral rise associated with the ACP transfer.
Our cost-income ratio increased due to the inclusion of ACP, investments in business growth as well as lower performance fees.
2_Operating revenues/operating profit adjusted for foreign currency translation and (de-)consolidation effects.
1_For further information on Allianz Corporate and Other figures, please refer to note 4 to the Consolidated Financial
Our operating result declined slightly in 2018, due to a lower contribution from Banking, a consequence of the sale of Oldenburgische
Overview: 2018 results versus previous year’s outlook1 2018 results versus previous year’s outlook for 2018
Allianz Group Operating profit of € 11.1 bn, plus or minus € 0.5 bn. Operating profit of € 11.5 bn. In the upper end of our target range.
Return on equity (RoE)1 amounted to 13.2 % (2017: 11.8 %). Proposed dividend at € 9.00 (2017: € 8.00) per share. Stable payout ratio of at least 50 %, based on expected number of eligible shares at the Annual General Meeting.
Selective profitable growth. Total revenues grew by 6.1 % on an internal basis, compared to 2017. Our Life/Health business segment registered strong sales of fixed index annuities in the United States and of capital-efficient products in Germany and we recorded an internal premium growth in our Property-Casualty business segment. An increase in third-party assets under management (AuM) driven revenues led to revenue growth in our Asset Management business segment.
Gross premiums written increased by 2.6 %. Internal growth of 5.7 % was mainly driven by AGCS, Germany, and Allianz Partners.
Revenues of € 70.4 bn are above our outlook range, mainly due to the strong growth of capital-efficient products in Germany and USA.
RoE between 10.0 % and 12.0 %. Our 11.4 % RoE1 is in the outlook range and, when excluding the sale of a life portfolio in Taiwan, even above the range (12.3 %).
Operating investment result reached € 15.5 bn, with realizations on a solid level. Overall, higher impairments and a lower trading result (a consequence of volatile markets) caused a lower investment income compared to the previous year.
Operating profit in the range of € 2.1 bn to € 2.7 bn. Operating profit amounted to € 2.5 bn, exceeding the mid-point of the target range by € 0.1 bn.
Cost-income ratio between 60 % and 65 %. With a cost-income ratio of 62.4 %, our Asset Management business segment was in the target range.
States and Brexit. In our economic scenario we have penciled in positive outcomes for most political and policy-related risks. The U.S.
economy is expected to grow by 2.5 %. In the Eurozone, growth is likely to slow to about 1.6 % in 2019. Most major Eurozone member countries are likely to experience somewhat lower growth than in 2018. In countries like Germany, fiscal policy will be growthsupportive. Driven by a less dynamic economic development in China, growth in the emerging market world will slow to 4.5 % from 4.7 % in 2018. All in all, global output is expected to increase by 3.0 %
1_For more detailed information on the previous year’s outlook for 2018, please see the Annual Report 2017 from page 51 onward.
The uncertain global political environment bears the potential for higher financial-market volatility, especially as monetary policy is gradually becoming less expansionary. In the U.S., the Federal
One rate hike in the course of 2019 looks realistic. In the Eurozone, the European Central Bank is expected to start raising rates in autumn 2019. Modestly rising yields on 10-year U.S. government bonds and the prospects of the ECB starting to hike its key interest rates are likely to influence investors´ interest rate expectations and exert upward pressure on European benchmark bond yields. For 10-year German government bonds, we see yields climbing modestly to about 0.7 % in the course of 2019; yields on 10-year U.S. government bonds may end the year at slightly above 3 %.
Insurance industry outlook 2019 is expected to become another challenging year for the insurance industry, for many reasons. First, the global economic momentum will be weaker. Second, risks – notably cyber and climate change
– might easily increase. Third, old business models will be relentlessly re-engineered from the customers’ perspective; for that, new skills –
Fifth, financial markets are in for a turbulent year as support from central banks is gradually withdrawn while economic uncertainty is on the rise. Nonetheless, absent an unexpected big shock, global insurance markets should grow also in 2019, the tenth consecutive year of growth since the financial crisis.
The industry’s profitability remains under pressure from both continuous flows into passive products, new pricing models, and rising distribution costs, and we expect the trend towards industry consolidation to continue. At the same time, digital channels such as robo-advisory platforms are likely to continue gaining prominence.
ALLIANZ GROUP Operating profit of € 11.5 bn, plus or minus € 0.5 bn.
Operating profit in the range of € 5.4 bn to € 6.0 bn.
Pressure on operating investment income (net) to continue, due to reinvestments in a consistently low interest rate environment.
LIFE/HEALTH Continue with focus on profitable growth; keep developing capitalefficient products; expand to new markets. Revenues are expected to be in the range of € 67.0 bn to € 73.0 bn.
Pressure on investment income due to low interest rates and continued capital market volatility.
ASSET MANAGEMENT Moderate increase in total AuM due to moderate third-party net inflows, supported by an overall slightly positive market return in a volatile market environment.
Operating profit in the range of € 2.2 bn to € 2.8 bn.
ASSUMPTIONS Our outlook assumes no significant deviations from our underlying assumptions – specifically: − global economic growth to continue, albeit at a slower pace,
− A 100 basis point increase (decrease) in interest rates would raise (lower) the expected operating profit by approximately € 0.1 bn in the first year that follows the rate change.
− A 10 % weakening (strengthening) of the U.S. Dollar compared to the assumed exchange rate of 1.17 to the Euro would have a negative (positive) effect on operating profits of
Management’s assessment of expected revenues and earnings for 2019 In 2018, our total revenues amounted to € 130.6 bn, a 3.5 % increase on a nominal and a 6.1 % increase on an internal basis1, compared to 2017. For 2019, we envisage relatively stable total revenues, with
Property-Casualty and Asset Management revenues showing an upward trend, while Life/Health revenues are expected to be stable due to our selective focus on profitable growth.
At € 11.5 bn, our operating profit was in the upper end of our target range in 2018. For 2019, we envisage an operating profit of € 11.5 bn, plus or minus € 0.5 bn, as we expect another year of strong performance, supported by all business segments.
Our net income attributable to shareholders was € 7.5 bn, a strong increase from the previous year’s level. Consistent with our disclosure practice in the past, and given the susceptibility of our nonoperating results to adverse capital market developments, we refrain from providing a precise outlook for net income. However, since our outlook presumes no major disruptions of capital markets, we anticipate a rather stable net income development for 2019.
Italy, and UK, as well as in emerging markets like Saudi Arabia and
LIFE/HEALTH INSURANCE At € 4.2 bn, our Life/Health operating profit was within the target range in 2018, mainly due to strong sales of capital-efficient products, 1_Operating revenues adjusted for foreign currency translation and (de)consolidation effects.
For 2019, we expect the operating profit in this business segment to range between € 3.9 bn and € 4.5 bn.
ASSET MANAGEMENT For 2019, we envisage moderate third-party net inflows and market returns at both PIMCO and AllianzGI with relatively stable margins and small growth in performance fees, leading to a modest growth in operating revenues. We also assume the U.S. Dollar to remain relatively stable compared to 2018. All things considered, we expect our 2019 operating profit to range between € 2.2 bn and € 2.8 bn
As a result, we have full access to financial markets and are in an excellent position to raise financing at low cost. We are determined to maintain our strong financial flexibility, which is supported by both the prudent steering of our liquidity resources and our well-balanced debt maturity profile.
For 2018, the Allianz SE Board of Management and the Supervisory
In addition, Allianz SE has decided to launch a share buy-back program worth up to € 1.5 bn, as part of our previously announced policy to return capital to the shareholders on a flexible basis. Formal authorization of the share buy-back program by the Annual
General Meeting dates back to 7 May 2014. The buy-back program, which started in March 2019, is envisaged to be completed by December 2019. Allianz SE will cancel all repurchased shares.
Through prudent capital management, the Allianz Group aims to maintain a healthy balance between an attractive yield and investment in profitable growth. Of the Group’s net income attributable to shareholders, we will continue to pay out 50 % as a regular dividend. Also, we aim to keep the regular dividend per share at the previous year’s level, if not higher. In addition, we will also continue to return capital to our shareholders on a flexible basis.
capitalization ratio above 160 % – which is considerably below our year-end 2018 level of 229 %, and 20 percentage points below our minimum solvency ambition for the Solvency II capitalization ratio
Management’s overall assessment of the current economic situation of the Allianz Group At the date of issuance of this Annual Report, and based on current information regarding natural catastrophes and capital market trends – in particular foreign currency, interest rates, and equities –, the Board of Management has no indication that the Allianz Group is facing any major adverse developments.
Actual results, performance figures, or events may differ significantly from those expressed or implied in such forward-looking statements. Deviations may arise due to changes in factors including, but not limited to, the following: (i) the general economic and competitive situation in the Allianz Group's core business and core markets, (ii) the performance of financial markets (in particular market volatility, liquidity, and credit events), (iii) the frequency and severity of insured loss events, including those resulting from natural catastrophes, and the development of loss expenses, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) particularly in the banking business, the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rates, most notably the
EUR/USD exchange rate, (ix) changes in laws and regulations, including tax regulations, (x) the impact of acquisitions including and related integration issues and reorganization measures, and (xi) the general competitive conditions that, in each individual case, apply at a local, regional, national, and/or global level.
1_This represents management’s current state of planning and may be revised in the future. Also, note that the decision regarding dividend payments in any given year is subject to specific dividend proposals by the Management and
May 2018 (€ 3,428 mn) and the two share buy-back programs2 with a total amount of € 3 bn, further contributed to the decline. Net income attributable to shareholders of € 7,462 mn had a partly offsetting effect.
As of 31 December 2018, total assets amounted to € 897.6 bn and total liabilities were € 833.9 bn. Compared to year-end 2017, total assets decreased by € 3.7 bn and total liabilities increased by
The following section focuses on our financial investments in debt instruments, equities, real estate, and cash, as these reflect the major developments in our asset base.
German Pfandbriefe backed by either public-sector loans or mortgage loans. French, Spanish, and Italian covered bonds had portfolio shares of 16.1 %, 9.1 % and 6.6 %, respectively (31 December 2017: Our exposure to equities increased due to higher volume.
States (€ 6.6 bn before foreign currency translation effects). Reserves for premium refunds decreased by € 8.8 bn (before foreign currency translation effects), due to lower unrealized gains to be shared with policyholders. Foreign currency translation effects increased the balance sheet value by € 5.3 bn, mainly due to the stronger
The Allianz Group enters into various commitments including loan and leasing commitments, purchase obligations, and other commitments. For more details please refer to note 37 to the Consolidated Financial Statements.
Allianz SE and each of the operating entities are responsible for managing their respective liquidity positions, while Allianz SE
We receive a large part of premiums before payments of claims or policy benefits are required, generating solid cash flows from our insurance operations. This allows us to invest the funds in the interim to create investment income.
Our insurance operations also carry a high proportion of liquid investments, which can be converted into cash to pay for claims.
The responsibility for managing the funding needs within the Group, maximizing access to liquidity sources, and minimizing borrowing costs lies with Allianz SE. We therefore comment on the liquidity and funding resources of Allianz SE in the following sections. Restrictions on the transferability of capital within the Group mainly result from the capital maintenance rules under applicable company laws, as well as from the regulatory solvency capital requirements for regulated Group companies.
FUNDING SOURCES Allianz SE’s access to external funds depends on various factors such as capital market conditions, access to credit facilities, credit ratings, and credit capacity. The financial resources available to Allianz SE in the capital markets for short-, mid- and long-term funding needs are described below. In general, mid- to long-term financing is covered by issuing senior or subordinated bonds or ordinary no-par value shares.
Capital authorization Nominal amount Expiry date of the authorization 1_For issuance of shares against contribution in cash and/or kind, with the authorization to exclude shareholders’
3_To cover convertible bonds, bonds with warrants, convertible participation rights, participation rights, and subordinated financial instruments, each with the authorization to exclude shareholders’ subscription rights.
As of 31 December Up to 1 year 1 – 5 years Over 5 years 1_Based on carrying value.
2_€ 0.5 bn senior bond was redeemed in the first quarter of 2018.
Interest expenses on senior bonds increased, mainly due to higher outstanding volumes on average in 2018. For subordinated bonds, the decrease of interest expenses was primarily driven by lower funding costs on average in 2018.
1_For further information on Allianz SE debt (issued or guaranteed) as of 31 December 2018, please refer to note 18 to the Consolidated Financial Statements.
The following table details the long-term debt issuances and redemptions of Allianz SE during 2018 and 2017: Issuances and redemptions of Allianz SE’s senior and subordinated bonds € mn
Funds raised in non-Euro currencies are incorporated in our general hedging strategy. As of 31 December 2018, approximately 18.5 %
(2017: 17.6 %) of long-term debt was issued or guaranteed by
Euro Commercial Paper Program at an average rate for each tranche below Euribor, and under the U.S. Dollar Commercial Paper
1_Includes effects of exchange rate changes on cash and cash equivalents of € 41 mn and € (749) mn in 2018 and 2017, respectively.
Net cash flow provided by operating activities amounted to € 25.7 bn, after € 33.2 bn in 2017. This figure comprises net income plus adjustments for non-cash charges, credits, and other items included in net earnings, as well as cash flows related to the net change in operating assets and liabilities. Net income after adding back non-cash charges and similar items increased by € 3.1 bn to € 13.7 bn in 2018. Operating cash flows from net changes in operating assets and liabilities dropped to € 12.0 bn. This was mainly driven by net cash outflows from assets and liabilities held for trading (after net cash inflows in 2017), particularly in our Life/Health business segment in Germany.
Net cash outflow used in investing activities decreased by € 5.4 bn to € 19.3 bn. The main driver was lower net cash outflows from available-for-sale investments, particularly at Allianz SE and in the Life/Health business segment in Germany. Higher net cash outflows from loans and advances to banks and customers, mainly in the Life/Health business segment in Germany and at Allianz SE, partially compensated for this effect.
Cash and cash equivalents decreased by € 0.4 bn. This figure includes cash and cash equivalents reclassified to assets of disposal groups held for sale which were disposed of in 2018.
Statements and should be read in conjunction with them. In addition to our figures stated in accordance with the International Financial
thereof: Total revenues (Banking) 275 562 consisting of: Interest and similar income 95 419
We believe that an understanding of our total revenue performance is enhanced when the effects of foreign currency translation as well as acquisitions, disposals, and transfers (or “changes in scope of consolidation”) are analyzed separately. Accordingly, in addition to presenting nominal total revenue growth, we also present internal growth, which excludes these effects.
URR amortized: Total amount of URR amortized includes scheduled URR amortization, true-up and unlocking.
Policyholder participation is included within change in our reserves for insurance and investment contracts (net) in the Group income statement.
Our risk management system is based on the following four pillars: − Risk identification and underwriting: A robust system of risk identification and underwriting forms the foundation for adequate risk management decisions. Supporting activities include standards for underwriting, valuation methods, individual transaction and new product approvals, emerging-/operational-/top-risk assessments, and scenario analysis, amongst others.
OUR BUSINESS ASPIRATIONS The Board of Management of Allianz SE has defined the following objectives for Allianz’s medium-term strategy with the motto “Simplicity wins”: − Outperform: we seek to move ahead of our competitors, both traditional business and disruptors
− Digital by Default: build legacy-free platforms with core processes automation.
− Technical Excellence: move to data-driven product design, pricing and claims handling.
The Board of Management of Allianz SE has also defined a strategy for the management of risk. This risk strategy places a particular emphasis on protecting the Allianz brand and reputation, remaining solvent even in the event of extremely adverse scenarios, maintaining sufficient liquidity to meet financial obligations, and providing resilient profitability.
− We seek to grow in fast-growing regions, including Asia-Pacific, and want to profit from consolidation in Europe.
Board of Management of Allianz SE have both Allianz SE and groupwide responsibilities. The Board of Management formulates business objectives and a corresponding risk strategy; the core elements of the risk framework are set out in the Allianz Group Risk Policy and approved by the Board of Management. The Supervisory Board advises, challenges and supervises the Board of Management in the performance of its management activities. The following committees support the Board and the Supervisory Board on risk issues: Supervisory Board Risk Committee
Group Risk supports the Board of Management in developing the risk management framework, which covers risk governance, risk strategy and appetite, and risk monitoring and reporting. Group Risk is operationally responsible for assessing risks and monitoring limits and accumulations of specific risks across business lines, including natural and man-made disasters and exposures to financial markets and counterparties.
Group Risk strengthens and maintains the Group’s risk network through regular and close interaction with the management of related undertakings and other key stakeholders such as the local finance, risk, actuarial and investment departments. A strong group-wide risk network allows the Allianz Group to influence risk culture across the
Group and identify and bring risks to management’s attention at an early stage.
Group Risk representation on local Risk Committees and regular assessments of the local risk management framework and Chief Risk
Officers by Group Risk. Moreover, the Group Chief Risk Officer must be consulted on decisions regarding the staffing, objectives and performance evaluation of local Chief Risk Officers.
In addition, Group Compliance – in conjunction with Group Legal and other experts involved – is responsible for integrity management, which aims to protect the Allianz Group, our related undertakings and employees from regulatory risks.
Group Actuarial, Planning and Controlling contributes towards assessing and managing risks in line with regulatory requirements, in particular for those risks whose management requires actuarial expertise. The range of tasks includes, among others, the calculation and monitoring of technical provisions, technical actuarial assistance in business planning, reporting and monitoring of the results, and supporting the effective implementation of the risk management system.
Strategic asset allocation benchmarks and risk limits, including financial VaR, stand-alone interest rate and equity sensitivity limits, and foreign exchange exposure limits, are defined for the Group and the related undertaking. Limits are closely monitored and, if a breach occurs, countermeasures are implemented which may include the escalation and/or closing of positions. Furthermore, we have put in place standards for hedging activities due to exposure to fair-value options embedded in life insurance products. Finally, guidelines are provided by the Group regarding certain investments, new investment products, and the use of derivatives. Compliance with these guidelines is controlled by the respective risk and controlling functions.
EQUITY RISK The Group’s insurance-focused operating entities may hold equity investments to diversify their portfolios and take advantage of expected long-term returns. Strategic asset allocation benchmarks and investment limits are used to manage and monitor these exposures.
In addition, equity investments fall within the scope of the credit risk platform to avoid single-name risk concentrations. Risks from changes in equity prices are normally associated with decreasing share prices and increasing equity price volatilities. As stock markets also might increase, opportunities may arise from equity investments.
CURRENCY RISK Our operating entities typically invest in assets which are dominated in the same currency as their liabilities; however, some foreign currency exposures are allowed to support portfolio diversification and tactical investment decisions. Our largest exposure to foreign currency risk comes from our ownership of non-Euro entities: If the Euro strengthens, the Euro equivalent net asset value of our foreign subsidiaries will decline from a Group perspective; however, at the same time the capital requirements in Euro will decrease, partially mitigating the total impact on the Group capitalization. Based on our foreign exchange management limit framework, currency risk is monitored and managed at both the local and Group level.
The Group Investment Committee of Allianz has defined a framework for standard transactions for real estate equity and commercial real estate loan investments. These standards outline diversification targets, minimum-return hurdles, and other qualitative and quantitative requirements. All transactions that do not meet these standards or have a total investment volume (including costs) exceeding a defined threshold must be reviewed individually by Group
Our credit insurance portfolio is modeled by Euler Hermes based on a proprietary model component, which is a local adaptation of the central internal credit risk model. Euler Hermes’ loss profile is integrated in the Group’s internal credit risk model to capture the concentration and diversification effects.
UNDERWRITING RISK Underwriting risk consists of premium and reserve risks in the Property-
As part of our Property-Casualty business operations, we receive premiums from our customers and provide insurance protection in return. Premium risk is the risk that actual claims for the business in the current year develop adversely relative to expected claims ratios.
Premium risk can be mitigated by reinsurance as well as by technical excellence in underwriting. Assessing risks as part of the underwriting process is a key element of our risk management framework. There are clear underwriting limits and restrictions which are defined centrally and are applied across the Group.
In order to reduce the risk of unexpected reserve volatility, our operating entities constantly monitor the development of reserves for insurance claims on a line-of-business level. In addition, 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 committee meetings.
include mortality, disability, morbidity, and longevity risks. Mortality, disability, and morbidity risks are associated with the unexpected increase in the occurrence of death, disability, or medical claims.
Life/Health underwriting risk arises from profitability being lower than expected. As profitability calculations are based on several parameters – such as historical loss information and assumptions on inflation, mortality, or morbidity – realized parameters may differ from the ones used for underwriting. For example, higher-thanexpected inflation may lead to higher medical claims in the future.
BUSINESS RISK Business risks include cost risks and policyholder behavior risks, and are mostly driven by the Life/Health business and to a lesser extent by the Property-Casualty business. Cost risks are associated with the risk that expenses incurred in administering policies are higher than expected or that new business volume decreases to a level that does not allow Allianz to absorb its fixed costs. Business risk is measured relative to baseline plans.
− Other operational risks including, for example, internal or external fraud, financial misstatement risk, a cyber security incident causing business disruption or fines, a potential failure at our outsourcing partners causing a disruption to our working environment, etc.
The operational risk capital of the Group is dominated (more than 80 %) by the risk of potential losses within the categories: “Clients,
Products, and Business Practices” (which contributes approximately two-thirds), the key external drivers are changes in laws and regulations. Internal drivers reflect potential failures of internal processes.
“first line of defense”, report operational risk events in a central database, and ensure that the framework is implemented in their respective operating entity.
This framework triggers specific mitigating control programs. For example, compliance risks are addressed via written policies and dedicated compliance programs monitored by the Group Compliance function at Allianz Group. The risk of financial misstatement is mitigated by a system of internal controls covering financial reporting.
Agreements, and Business Continuity and Crisis Management programs to protect critical business functions from these events. Cyber
80 Annual Report 2018 − Allianz Group risks are mitigated through investments in cyber security and a variety of ongoing control activities.
OTHER RISKS NOT MODELED IN THE INTERNAL MODEL There are certain risks which are not adequately addressed or mitigated by additional capital and are therefore not considered in the internal model. For the identification, analysis, assessment, monitoring, and management of these risks, we also use a systematic approach with risk assessment generally based on qualitative criteria or scenario analyses. The most important of these other risks are strategic, liquidity, and reputational risk.
Our related undertakings manage liquidity risk locally, using asset /liability management systems designed to ensure that assets and liabilities are adequately matched. 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. In the course of liquidity planning, we reconcile liquidity sources (e.g. cash from investments and premiums) and liquidity needs (e.g. payments due to insurance claims and expenses)
The identification and assessment of reputational risks is part of the annual Top Risk Assessment process. During this process, senior management decides on a risk management strategy for the most significant risks facing the company, including those with a potentially severe reputational impact. This annual process is supplemented by quarterly updates.
Significant ESG and other reputational risks identified during the course of business are escalated to Group Communications and
Corporate Responsibility, Group Risk, and Group ESG experts for assessment and decision-making, with the GFRC acting as the ultimate escalation/decision-making body.
Risk capital related to our European banking operations is allocated to the Corporate and Other business segment, based on the approach applied by banks in accordance with the local requirements resulting from the Basel regulation (Basel standards). Capital requirements for banks represent an insignificant amount of approximately 0.9 % (2017: 1.7 %) of our total pre-diversified Group Solvency
For our Asset Management business segment, we assign internal risk capital requirements based on sectorial regulatory capital requirements. The Asset Management business is mainly affected by operational risks. However, since most of our Asset Management business is not located within the Eurozone, at Group level its participation value bears a foreign exchange rate risk. Our Asset Management business is covered by adequate risk controlling processes, including qualitative risk assessments (such as the Top Risk Assessment) and regular reporting to the Group. As the impact on the Group’s total 1_Allianz Life US is based on third-country equivalence.
2_Under book value deduction, the book value of the respective entity is deducted from eligible Own Funds of the Group.
We take account of this by applying volatility adjustment to mitigate the credit spread risk, which we consider to be less meaningful for long term investors than the default risk. Allianz also models the volatility adjustment dynamically within our approved internal model which differs from the static EIOPA VA concept applied in the standard formula. For risk capital calculations, we assume a dynamic movement of the volatility adjustment broadly consistent with the way the
VA would react in practice; however, we base the movement on our own portfolio rather than the EIOPA portfolio. To account for this deviation, Allianz applies a more conservative, reduced application ratio for the dynamic volatility adjustment. Validation is performed regularly to verify the appropriateness and conservativeness of the approach.
VALUATION ASSUMPTIONS: REPLICATING PORTFOLIOS We replicate the liabilities of our Life/Health insurance business. This technique enables us to represent all product-related 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.
DIVERSIFICATION AND CORRELATION ASSUMPTIONS Our internal model considers concentration, accumulation, and correlation effects when aggregating results at Group level. The resulting diversification reflects the fact that not all potential worst-case losses 3_Due to late availability of EIOPA publication, the risk-free interest rate term structure used might slightly differ from the one published by EIOPA.
82 Annual Report 2018 − Allianz Group are likely to materialize at the same time. As we are an integrated financial services provider offering a variety of products across different business segments and geographic regions, diversification is key to our business model.
Unit (IVU) within Group Risk, responsible for validating our internal model within a comprehensive model validation process. Any limitations identified during the validation process are remedied after consultation with the Group regulator. Overall, we believe that our validation efforts are effective and that the model adequately assesses the risks to which we are exposed.
Despite these limitations, we believe the estimated fair values are appropriately assessed.
The net impact of regulatory and Group model changes on the
based on their standard formula results. In addition, minor and immaterial model changes also contributed to a further increase of € 0.2 bn. Within these figures, the increase in risk capital was partially offset by the cross effect model change which replaced a conservative calibration with a more accurate modeling approach. Cross effects are defined as the effects arising due to the interaction between different risk categories.
Market risk Credit risk Underwriting risk Business risk Operational risk Diversification Total 1_2017 risk profile figures recalculated based on model changes in 2018 and the impact of minor and immaterial model changes were allocated proportionally. Tax estimated with yearend 2018 results.
mostly allocated to market risk – overcompensated the positive impact of the cross effect model change. The resulting overall increase in market risk impacted all segments with the largest impact seen for the Property-Casualty business segment. The combined impact of the regulatory and model changes on the total market risk of Allianz was an increase of € 0.9 bn to € 22.5 bn (2017: € 21.6 bn).
CREDIT RISK Credit risk was reduced by € 1.2 bn to € 5.8 bn (2017: € 7.0 bn) primarily in the Life/Health business segment, due to the introduction of the cross effect model change which isolated the cross effects between credit and market risks.
Life/Health and Corporate/Other was mainly driven by the cross effect central model change as it reduced the diversification for multiple biometric risk factors.
BUSINESS RISK The slight decrease of the overall business risk was mainly driven by the cross effect model change due to a more granular modeling of lapse risk for the Life/Health business segment and subsequent correlation adjustments versus the lapse risk for the Property-Casualty business segment.
RISK PROFILE AND MARKET ENVIRONMENT The Allianz Group is exposed to a variety of risks. The largest risks in terms of their contribution to Allianz’s risk profile are: − Market risk, especially equity risk, credit and credit spread risks driven by assets backing long-term liabilities, which we take to benefit from the expected risk premium; interest rate risk has reduced substantially due to duration management activities.
The risk profile and relative contributions have changed in 2018, predominantly due to changes in the market environment as well as to management actions such as the decrease in asset/liability duration mismatch, the reduction of exposures to some sovereign bond investments, and the significant increase in exposures to real estate and infrastructure investments. The regulatory and other model changes also contributed to the change.
Brexit (i.e. the withdrawal of the United Kingdom from the European
Union). The Allianz Group is exposed to Brexit through business and insurance / derivative contract continuity risk, and the impact on earnings and solvency.
Based on our assessments, the Allianz Group is well prepared for the Brexit and confident that it will have only minimal direct impact on both the Group and its activities. This is because our insurance, asset management and investment management entities have taken actions to ensure that they are in the position to handle various Brexit scenarios, for example: − Allianz insurance and asset management entities will be able to continue coverage and services by using legal possibilities such as
− Even under conservative assumptions (driven by assumed adverse financial market developments), the Group will remain well capitalized.
framework by EIOPA. Finally, the potential for a multiplicity of different regulatory regimes, capital standards, and reporting requirements will increase operational complexity and costs.
MANAGEMENT ASSESSMENT The Allianz Group’s management feels comfortable with the Group’s overall risk profile and has confidence in the effectiveness of its risk management framework to meet both, the challenges of a rapidly changing environment and the day-to-day business needs. This confidence is based on several factors, which are summarized below: − Due to its effective capital management, the Allianz Group is well capitalized and has met its internal, rating agency, and regulatory solvency targets as of 31 December 2018. Allianz remains one of the most highly rated insurance groups in the world, as reflected by our external ratings.
− The Group has a conservative investment profile and disciplined business practices in the Property-Casualty, Life/Health, and Asset
The following table summarizes our Solvency II regulatory capitalization ratios disclosed over the course of the year 2018.
31 Dec 2018 30 Sept 2018 30 Jun 2018 31 Mar 2018 31 Dec 2017
Compared to year-end 2017, our Solvency II capitalization ratio remained stable at 229 % as the increase in Own Funds was completely offset by a corresponding increase in the Solvency II capital requirement. This was due to compensating effects. Over the course of the year, strong Solvency II earnings had a positive impact on our
As of 31 December 2018 2017 Base capitalization ratio 229 229
Financial Conglomerate Directive (FCD). The FCD does not impose a materially different capital requirement on Allianz Group compared to Solvency II.
Quantifiable risks and opportunities by risk category This Risk and Opportunity Report outlines the Group’s risk figures, reflecting its risk profile based on pre-diversified risk figures and
With the exception of the Asset Management business segment, all business segments are exposed to the full range of risk categories.
As mentioned earlier, the Asset Management business segment is predominantly exposed to operational and market risks and to a lesser extent to credit risk.
The pre-diversified risk figures reflect the diversification effect within each modeled risk category (i.e. market, credit, underwriting, business, and operational risk) but do not include the diversification effects across risk categories. Group diversified risk figures also capture the diversification effect across all risk categories.
The Group diversified risk is broken down as follows: Allianz Group: Allocated risk according to the risk profile (total portfolio before non-controlling interests) € mn
Interest rate Inflation Credit spread Equity Real estate Currency Total As of 31 December 2018 20171 2018 20171 2018 20171 2018 20171 2018 20171 2018 20171 2018 20171 Property-Casualty (478) (369) (1,608) (1,292) 3,013 3,043 2,679 2,476 1,339 982 24 64 4,969 4,904
1_2017 risk profile figures recalculated based on model changes in 2018 and the impacts of minor and immaterial model changes were allocated proportionally.
INTEREST RATE RISK As of 31 December 2018, our interest-rate-sensitive investments excluding unit-linked business – amounting to a market value of € 421.3 bn (2017: € 427.3 bn)1 – would have gained € 42.1 bn (2017: € 41.6 bn) or lost € 36.4 bn (2017: € 36.1 bn)2 in value in the event of interest rates changing by - 100 and + 100 basis points, respectively.
EQUITY RISK As of 31 December 2018, our investments excluding unit-linked business that are sensitive to changing equity markets – amounting to a market value of € 59.4 bn 3 (2017: € 57.1 bn) – would have lost € 12.4 bn4 (2017: € 14.9 bn) in value assuming equity markets declined by 30 %. However, this impact would have been partially offset by policyholder participation.
REAL ESTATE RISK As of 31 December 2018, about 6.0 % (2017: 4.0 %) of the total prediversified risk was related to real estate exposures.
1_The stated market value includes all assets whose market value is sensitive to interest rate movements (excluding unitlinked business) reflecting the Solvency II framework, and therefore is not based on classifications given by accounting principles.
The overall credit risk for the Allianz Group decreased marginally by € 0.2 bn to € 5.6 bn (2017: € 5.8 bn). This was mainly driven by the annual update of credit risk parameters based on new empirical data – such as the transition matrix and asset correlations – as well as an increased loss-absorbing capacity of technical provisions in the traditional life business, which decreased credit risk after considering policyholder participation.
These effects were partially offset by a slightly different interest rate environment compared to previous year, which generally increased credit risk exposures thereby increasing credit risk.
Credit risk in the Life/Health business segment is primarily driven by long-term assets covering long-term liabilities. Typical investments are government bonds, senior corporate bonds, covered bonds, selforiginated mortgages and loans, and a modest amount of derivatives. In the Property-Casualty business segment, fixed-income securities tend to be short- to mid-term, due to the nature of the business, which explains the lower credit risk in this segment.
agency Covered bond Corporate Banks ABS / MBS Short-term loan Other Total 1_In accordance with the Group Management Report, figures stated include investments of Banking and Asset Management. Table excludes private loans. Stated market values include investments not in scope of the Solvency II framework.
CREDIT RISK – CREDIT INSURANCE As of 31 December 2018, 11.5 % (2017: 9.6 %) of our total Group prediversified internal credit risk was allocated to Euler Hermes credit insurance exposures, for which the relative increase is primarily driven by the lower credit risk of the investment portfolio.
– of which 51.7 % (2017: 51.8 %) was related to reinsurance counterparties in the United States and Germany.
While 76.9 % (2017: 69.8 %) of the Allianz Group’s reinsurance recoverables were distributed among reinsurers that had been assigned an investment-grade rating, the non-rated reinsurance recoverables represented 23.1 % (2017: 30.1 %). For substantial exposures to non-rated captives, risk mitigating techniques such as collateral agreements or funds-withheld concepts are in place.1 1_Additionally, 7.9 % (2017: 4.5 %) of our total Group pre-diversified internal credit risk is allocated to receivables, potential future exposure for derivatives and reinsurance, and other off-balance sheet exposures.
Non-investment grade 0.01 0.01 1_Represents gross exposure for external reinsurance broken down by reinsurer. Overall exposure increases mainly due to changed methodology for determining reinsurance exposure subject to credit risk.
Allianz Group: Risk profile – allocated underwriting risk by business segment and source of risk (total portfolio before non-controlling interests)1 pre-diversified, € mn
1_As risks are measured in an integrated approach and on an economic basis, internal risk profile takes reinsurance effects into account.
2_2017 risk profile figures recalculated based on model changes in 2018 and the impacts of minor and immaterial model changes were allocated proportionally.
The loss ratios for the Property-Casualty business segment can be seen in the following table: Property-Casualty loss ratios1 for the past ten years %
Loss ratio excluding natural catastrophes 64.0 64.2 64.2 64.6 65.1 63.0 66.6 65.5 65.9 68.4 1_Represents claims and insurance benefits incurred (net), divided by premiums earned (net).
The top three perils contributing to the natural catastrophe risk as of 31 December 2018 were: windstorms in Europe, floods in Germany, and earthquakes in Australia.
This is mainly due to the annual central and local updates of the longevity risk model. The contributions from the Property-Casualty and the Corporate and Other business segments are generated by the longevity risk of the internal pension schemes they contain.
BUSINESS RISK There was no significant impact on the overall business risk from regular model updates or the evolution of our business. The contribution of business risk increased by € 0.3 bn to € 4.6 bn.
Consolidated Financial Statements (this also includes our market value balance sheet and risk capital controls)1. Our system of internal control over financial reporting (ICOFR) is regularly reviewed and updated. ICOFR is split into an Entity-Level Control Assessment
Control System (IRCS). The IRCS is split into three main components: Reporting Risk (currently ICOFR), Compliance Risk, and
Consolidated Financial Statements are based on a central consolidation and reporting IT solution and local general ledger solutions.
Accounting rules for the classification, valuation, and disclosure of all items in the balance sheet, the income statement, and notes related to the annual and interim financial statements are defined primarily 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 our financial statements.
− Finally, we focus on ensuring that controls are appropriately designed and effectively executed to mitigate risk. We have set consistent documentation requirements across the Allianz Group for elements such as processes, related key controls, and execution. We conduct an annual assessment of our control system to maintain and continuously enhance its effectiveness. Group Audit and local internal audit functions ensure that the overall quality of our control system is subjected to regular control-testing, to assure reasonable design and operating effectiveness. Internal
Audit does so through a comprehensive risk-based approach, which assesses the key controls of the company’s internal procedures and processes, including local and group-internal controls over financial reporting risks, from an integrated perspective.
The Group Disclosure Committee ensures that these board members are made aware of all material information that could affect our disclosures, and assesses the completeness and accuracy of the information provided in the quarterly statements, half-yearly, and annual financial reports as well as in the Solvency II qualitative reports2. In 2018, the Group Disclosure Committee met on a quarterly basis before the quarterly statements and financial reports were issued. An additional meeting was held prior to issuance of the
interests Total equity 1_Total comprehensive income in shareholders’ equity for the year ended 31 December 2018 comprises net income attributable to shareholders of € 7.462 mn (2017: € 6,803 mn).
3_For further information regarding the share buy-back program 2018, please refer to note 19.
Effect of exchange rate changes on cash and cash equivalents 41 (749)
Realized gains/losses (net) and impairments of investments (net) of: Available-for-sale and held-to-maturity investments, investments in associates and joint ventures, real estate held for investment, loans and advances to banks and customers, non-current assets and disposal groups classified as held for sale (2,945) (5,452)
Other investments, mainly financial assets held for trading and designated at fair value through income 5,256 (2,481)
Net change in: Financial assets and liabilities held for trading (3,368) 5,144
Reverse repurchase agreements and collateral paid for securities borrowing transactions (605) 130
Repurchase agreements and collateral received from securities lending transactions 232 108
Loans and advances to banks and customers (purchased loans) (1,388) (2,214)
Change in other loans and advances to banks and customers (originated loans) (7,094) (4,517)
Net cash from sale or purchase of treasury shares 16 42
Treasury bills, discounted treasury notes, similar treasury securities, bills of exchange and checks 6,526 6,331
Changes in the consolidated subsidiaries of the Allianz Group (1) - (1)
1 _ Nature of operations and basis of presentation The accompanying consolidated financial statements present the operations of Allianz SE with its registered office in Königinstrasse 28, 80802 Munich, Germany, and its subsidiaries (the Allianz Group).
Commercial Code (HGB). Within these consolidated financial statements, the Allianz Group has applied all standards and interpretations issued by the IASB and endorsed by the E.U. that are compulsory as of 31 December 2018.
The consolidated financial statements have been prepared as of and for the year ended 31 December 2018. The Allianz Group’s presentation currency is the Euro (€). Amounts are rounded to the nearest million (€ mn) unless otherwise stated.
The consolidated financial statements were authorized for issue by the Board of Management on 12 February 2019.
The following balances are generally considered to be noncurrent: investments, deferred tax assets, intangible assets, deferred tax liabilities.
All other balances are mixed in nature (including both current and non-current portions).
Subsidiaries are consolidated as from the date on which control is obtained by the Allianz Group, up to the date on which the
The Allianz Group accounts for investments in associates and joint arrangements with a time lag of no more than three months.
Accounting policies of associates and joint arrangements are generally adjusted where necessary to ensure consistency with the accounting policies adopted by the Allianz Group.
Estimates and assumptions of fair values and hierarchies are particularly significant when determining the fair value of financial instruments for which at least one significant input is not based on observable market data (classified as level 3 of the fair value hierarchy ). The availability of market information is determined by the relative trading levels of identical or similar instruments in the market, with emphasis placed on information that represents actual market activity or binding quotations from brokers or dealers.
Allianz Group also considers other factors which could provide objective evidence of a loss event, including the probability of bankruptcy and the lack of an active market due to financial difficulty. The presence of either a decline in fair value below amortized cost or the downgrade of an issuer’s credit rating does not in itself represent objective evidence of a loss event, but may represent objective evidence of a loss event when considered with other available information.
Allianz Group’s policy considers a decline to be significant if the fair value is below the weighted average cost by more than 20 %.
Repor t liabilities. Freestanding derivatives are included in the line item financial assets or liabilities held for trading.
These assets are initially measured at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method.
REINSURANCE ASSETS Assets and liabilities related to reinsurance are reported on a gross basis. Reinsurance assets include balances expected to be recovered from reinsurance companies. The amount of reserves ceded to re-insurers is estimated in a manner consistent with the claim liability associated with the reinsured risks. To the extent that the assuming reinsurers are unable to meet their obligations, the respective ceding insurers of the Allianz Group remain liable to its policyholders for the portion reinsured. Consequently, allowances are made for receivables on reinsurance contracts which are deemed uncollectible.
and deferred sales inducements in order to include the effect of unrealized gains or losses in the measurement of these assets in the same way as it is done for realized gains or losses. Accordingly, the assets are adjusted with corresponding charges or credits recognized directly in other comprehensive income as a component of the related unrealized gain or loss. When the gains or losses are realized they are recognized in the income statement through recycling and prior adjustments due to shadow accounting are reversed.
INTANGIBLE ASSETS AND GOODWILL Intangible assets with finite useful lives are measured at cost less accumulated amortization and impairments. Intangible assets with indefinite useful lives are tested for impairment annually and whenever there is a triggering event. They are also reviewed annually to determine whether the indefinite-life classification is still appropriate.
For business combinations, goodwill is recognized in the amount of the consideration transferred in excess of the fair values assigned to the identifiable assets acquired and liabilities assumed. Goodwill is accounted for at the acquiree in the acquiree’s functional currency.
RESERVES FOR LOSS AND LOSS ADJUSTMENT EXPENSES Reserves are established for the payment of losses and loss adjustment expenses (LAE) on claims which have occurred but are not yet settled. Reserves for loss and loss adjustment expenses fall into two categories: case reserves for reported claims and reserves for incurred but not reported losses (IBNR).
Case reserves for reported claims are based on estimates of future payments that will be made with respect to claims, including
Allianz Group relies on its past experience, adjusted for current trends and any other relevant factors, to estimate IBNR reserves.
The assumptions used for aggregate policy reserves are determined using current and historical client data, industry data, and, in the case of assumptions for interest rates, reflect expected earnings on assets which back the future policyholder benefits. The information used by Allianz Group’s actuaries in setting such assumptions includes, but is not limited to, pricing assumptions, available experience studies, and profitability analyses.
The average interest rate assumptions per operating entity used in the calculation of deferred acquisition costs and aggregate policy reserves are as follows: Interest rate assumptions %
Non-unit-linked investment contracts without discretionary participation features are accounted for under IAS 39. The aggregate policy reserves for those contracts are initially recognized at fair value, or the amount of the deposit by the contract holder, net of the transaction costs, that are directly attributable to the issuance of the
104 Annual Report 2018 − Allianz Group contract. Subsequently, those contracts are measured at amortized cost using the effective interest method.
In the consolidated balance sheet for the year ended 31 December 2018, the FIA-related changes in connection with prior years led to a € 13 mn decrease in reserves for insurance and investment contracts, a € 669 mn increase in deferred acquisition costs, and a € 675 mn increase in financial liabilities carried at fair value through income. Correspondingly, in the consolidated income statement for the year ended 31 December 2018, due to FIA-related changes referring to prior years, change in reserves for insurance and investment contracts (net) decreased by € 13 mn, acquisition and administrative expenses (net) decreased by € 683 mn, and income from financial assets and liabilities carried at fair value through income (net) decreased by € 689 mn. Overall income before income taxes increased
Committee, which is the supervising body that governs all significant reserves. It particularly monitors key developments across the
(mortality, longevity, and morbidity risk) and on the development of interest rates and investment returns (asset-liability mismatch risk).
These assumptions also have an impact on the presentation of costs arising from the origination of insurance business (acquisition costs and sales inducements) and the value of acquired insurance business
Property-Casualty reserves are set by leveraging the use of actuarial techniques and educated judgment. A two-stage process exists for the setting of reserves in the Allianz Group: Stage one: Property-Casualty reserves are calculated by local reserving actuaries at the Allianz operating entities. The reserves are set based on a thorough analysis of historical data, enhanced by interactions with other business functions (e.g. Underwriting, Claims and Reinsurance). Actuarial judgment is applied where necessary, especially in cases where data is unreliable, scanty, or unavailable.
selection through their continuous interaction with local teams and quarterly attendance in the local reserve committees. The ability to form a view on reserve adequacy is further enabled by regular reviews of the local reserving practices. Such reviews consist of an evaluation of the reserving process as well as of the appropriateness and consistency of the assumptions, and an analysis of the movements of the reserves.
and the grant-date fair value is recognized as an expense over the vesting period. Where equity-settled plans involve equity instruments of Allianz SE, a corresponding increase in shareholders’ equity is recognized. Where equity-settled plans involve equity instruments of subsidiaries of the Allianz Group, the corresponding increase is recognized in non-controlling interests. Equity-settled plans include a best estimate of the number of equity instruments that are expected to vest in determining the amount of expense to be recognized. For cash-settled plans, the Allianz Group accrues the fair value of the award as compensation expenses over the vesting period. Upon vesting, any change in the fair value of any unexercised awards is also recognized as a compensation expense. Where expected tax deductions differ, in terms of amount and timing, from the cumulative share-based payment expense recognized in profit or loss, deferred taxes are recognized on temporary differences.
The Allianz Group records financial liabilities where non-controlling investors have the right to put their financial instruments back to the
FEE AND COMMISSION INCOME Fee and commission income primarily consists of asset management fees which are recognized when the service is provided. For those fees, the service is considered to be provided periodically. Performance fees may not be recognized as fee income before the respective benchmark period is completed, because, before its completion, the obligation to pay the fee is conditional, the fund performance is regularly not reliably estimable, and related service is not fully performed. In any case, performance-related fees from alternative investment products (carried interest) are not recognized as revenue prior to the date of the official declaration of distribution by the fund. The transaction price for asset management services is determined by the fees contractually agreed.
INCOME TAXES Current income taxes are calculated based on the respective local taxable income and local tax rules for the period. In addition, current income taxes presented for the period include adjustments for uncertain tax payments or tax refunds for periods not yet finally assessed, excluding interest expenses and penalties on the underpayment of taxes. In the event that amounts included in the tax return are considered unlikely to be accepted by the tax authorities (uncertain tax positions), a provision for income taxes is recognized. The amount is based on the best possible assessment of the tax payment expected.
Based on the Allianz Group’s detailed assessment, only a few differences in presentation and timing of revenue recognition were identified. The impacts that the Allianz Group identified primarily relate to principal versus agent considerations (i.e. gross-up) and the accounting treatment of certain asset management related upfront distribution costs which under IFRS 15 can no longer be capitalized.
The adoption of IFRS 15 led to an increase of fee and commission income and fee and commission expenses of € 387 mn (i.e. grossup effect) and a decrease of retained earnings as of 1 January 2018 by € 20 mn, due to the reversal of capitalized upfront distribution costs. Other than that, the adoption of IFRS 15 had no impact on the
IFRS 17 provides comprehensive guidance on accounting for insurance contracts and investment contracts with discretionary participa-
For long-duration life insurance contracts, IFRS 17 is expected to have a significant impact on actuarial modeling, as more granular cash flow projections and regular updates of all assumptions will be required, either resulting in profit or loss or impacting the “contractual service margin”, a separate component of the insurance liability representing unearned profits from in-force contracts. Further, IFRS 17 introduces different measurement approaches for the insurance contract liabilities, reflecting a different extent of policyholder participation in investment or insurance entity performance.
The Allianz Group is currently assessing the impact of the application of IFRS 17. As of the date of the publication of these consolidated financial statements, it is not practicable to quantify the effect on the Allianz Group consolidated financial statements.
As of 31 December 2015, the Allianz Group‘s total carrying amount of liabilities connected with insurance amounted to € 722 bn, which represented more than 90 % of its total liabilities of € 783 bn.
Thereof, non-derivative investment contract liabilities measured at fair value through income applying IAS 39 amounted to € 107 bn, mostly consisting of financial liabilities for unit-linked contracts. Other insurance-related liabilities amounted to € 40 bn and included mainly other liabilities (e.g. payables as well as employee-related liabilities)
The financial assets for unit-linked contracts are exclusively held on behalf and for the benefit of unit-linked policyholders. To ensure consistency with the corresponding accounting treatment for the unitlinked contracts, these investments are designated at fair value through income under current accounting rules. This treatment is going to be maintained under the future IFRS 9 regime accordingly.
Investment grade 1_Excluding any financial asset that meets the definition of held for trading in IFRS 9, or that is managed and whose performance is evaluated on a fair value basis.
The Allianz Group has completed a detailed assessment of the impact on its consolidated financial statements. On transition to
IFRS 16, the Allianz Group elects to apply the practical expedient to grandfather the assessment of which transactions are leases; in other words, it applies IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under
The lease payments associated with such short-term and low-value leases will be recognized as an expense on a straight-line basis over the lease term. At transition, lease liabilities will be measured at the present value of the remaining lease payments, discounted at the
− Adjust the right-of-use assets by the amount of IAS 37 onerous contract provision immediately before the date of initial application, as an alternative to an impairment review
− Use hindsight when determining the lease term if the contract contains options to extend or terminate the lease.
Allianz Group’s future minimum lease payments under noncancellable operating leases amounted to € 2.4 bn on an undiscounted basis (see note 37). In addition, IFRS 16 replaces the straightline operating lease expenses with a depreciation charge for right-ofuse assets and interest expenses on lease liabilities. In aggregate, there will be an insignificant negative impact on net income in the first year of application due to the front-end loading of the interest expenses.
SIGNIFICANT CHANGES IN NON-CONTROLLING INTERESTS On 27 April 2018, the Allianz Group successfully completed the acquisition of the shares of Euler Hermes held by non-controlling interests and delisted the shares of Euler Hermes from Euronext Paris on the same day.
AG, Oldenburg, a 90.2 % owned subsidiary of the Allianz Group, allocated to the reportable segment Banking (Corporate and Other). The entity had been classified as held for sale since year-end 2016. It was deconsolidated on 7 February 2018. At 31 December 2017 already, an impairment and a liability of € 233 mn had been recognized in connection with the expected loss from the sale of Oldenburgische
1_Includes cash and cash equivalents at an amount of € 531 mn which were disposed of with the entity.
IDENTIFICATION OF REPORTABLE SEGMENTS The business activities of the Allianz Group are organized by product and type of service: insurance activities, asset management activities, and corporate and other activities. Due to differences in the nature of products, risks, and capital allocation, insurance activities are further divided into the business segments Property-Casualty and
Investments. In total, the Allianz Group has identified 13 reportable segments in accordance with IFRS 8.
PROPERTY-CASUALTY In the business segment Property-Casualty, reportable segments offer a wide variety of insurance products to both private and corporate customers, including motor liability and own damage, accident, general liability, fire and property, legal expense, credit, and travel insurance.
Operating profit should be viewed as complementary to, and not as a substitute for, income before income taxes or net income as determined in accordance with IFRS.
Financial assets carried at fair value through income 768 604 6,620 7,442
Loans and advances to banks and customers 10,773 10,610 95,808 92,674
Non-current assets and assets of disposal groups classified as held for sale 48 23 77 204
Financial liabilities carried at fair value through income 126 133 11,421 11,021
Reserves for loss and loss adjustment expenses 61,442 62,093 11,672 11,256
Liabilities of disposal groups classified as held for sale 35 6 27 -
Operating change in reserves for insurance and investment contracts (net)2 (235) (485) (9,349) (13,937)
Non-operating change in reserves for insurance and investment contracts (net) - - (22) (61)
2_For the year ended 31 December 2018, includes expenses for premium refunds (net) in Property-Casualty of € 86 mn (2017: € (215) mn).
German Speaking Countries and Central & Eastern Europe 15,434 14,897 12,919 12,485 1,641 1,389 1,207 1,197
Global Insurance Lines & Anglo Markets, Middle East and Africa 711 667 426 399 49 55 29 39
Government and government agency bonds 2,538 189 (46) 2,681 2,368 271 (19) 2,621 1_Also include corporate mortgage-backed securities.
DEBT SECURITIES Total unrealized losses amounted to € 6,087 mn as of 31 December 2018. The Allianz Group holds a large variety of government and government agency bonds and corporate bonds, mostly of or domiciled in OECD countries.
The unrealized losses on the Allianz Group’s investments in government and government agency bonds are spread over several countries, with the main part coming from Europe.
For the vast majority of corporate bonds, the issuer/issues have an investment-grade rating. The increase in unrealized losses of € 3,431 mn compared to 31 December 2017 is due to increasing interest rates.
EQUITY SECURITIES As of 31 December 2018, unrealized losses amounted to € 888 mn, an increase of € 610 mn compared to 31 December 2017. They concern equity securities that did not meet the criteria of the
INVESTMENTS IN ASSOCIATES AND JOINT VENTURES As of 31 December 2018, loans to associates and joint ventures
Changes in the consolidated subsidiaries of the Allianz Group 343 (193)
Disposals and reclassifications into non-current assets and assets of disposal groups classified as held for sale (316) (188)
1_Includes loans and advances to banks and customers due within one year of € 12,674 mn (2017: € 10,055 mn).
Changes in aggregate policy reserves ceded to reinsurers are as follows: Changes in aggregate policy reserves ceded to reinsurers € mn
The reserves for loss and loss adjustment expenses ceded to reinsurers in the business segment Property-Casualty amounted to € 8,966 mn
Carrying amount as of 1 January 2,941 2,786 1,432 3,024 2,640 1,477
Accumulated depreciation as of 31 December 1,014 4,879 2,880 997 4,633 2,887 1_As of 31 December 2018, assets pledged as security and other restrictions on title were € 104 mn (2017: € 103 mn).
2_As of 31 December 2018, includes € 1,926 mn (2017: € 1,838 mn) for self-developed software and € 1,007 mn (2017: € 948 mn) for software purchased from third parties.
Additions are mainly related to goodwill arising from the acquisition of Servicios Compartidos Multiasistencia S.L., Madrid.
ALLOCATION PRINCIPLES For the purpose of impairment testing, the Allianz Group has allocated goodwill to CGUs1.1These CGUs represent the lowest level at which goodwill is monitored for internal management purposes.
CGUs in the Property-Casualty business segment are: − Insurance German Speaking Countries, including Germany and
− Global Insurance Lines & Anglo Markets, Middle East and Africa including Australia, Ireland, the United Kingdom, Middle East and
Allianz Group’s CGUs as of 31 December 2018 and 2017 as follows: Allocation of carrying amounts of goodwill to CGUs € mn
Global Insurance Lines & Anglo Markets, Middle East and Africa 538 493
Global Insurance Lines & Anglo Markets, Middle East and Africa 16 12
Embedded Value and new-business value calculation. As a starting point for the impairment test for the CGUs in the Life/Health business segment, the Market Consistent Embedded Value (MCEV) and a multiple of the Market Consistent Value of New Business is used.
MCEV is an industry-specific valuation method to assess the current value of the in-force portfolio. The Allianz Group uses an economic balance sheet approach to derive the MCEV, which is directly taken out of the market value balance sheet (MVBS) as determined using
Solvency II guidance. In case, where no adequate valuation reflecting a long-term view in line with management judgment and market experience could be derived from market-consistent methodology, the Appraisal Value can be derived from a Traditional Embedded
Specialty Lines II 7.7 1.0 1_The table provides an overview of weighted key parameters on CGU level of the country-specific discount rates and eternal growth rates used.
For entities included in the CGUs of the Life/Health business segment, the MCEV is the excess of assets over liabilities of the MVBS according to the Solvency II requirements. Assets and liabilities included in the
(e.g. mortality, morbidity, lapse/surrender rates), expense allowances, taxation, assumptions on market conditions for market consistent projections (e.g. reference rates, volatilities) as well as investment
Reference rates used for the calculation of the best estimate follow
US Life Insurance Local swap curve minus 18 bps credit risk adjustment plus 54 bps volatility adjustment
The new-business value calculation is based on a best estimate of one year of value of new business, multiplied by a factor (multiple) to capture expected future new business. The best estimate of new business is generally derived from the achieved value of new business.
Management is 10.2 % and the eternal growth rate is 1.0 %.
For the CGUs in the Property-Casualty business segment and for the CGU Asset Management, sensitivity analyses were performed with respect to the long-term sustainable combined ratios and costincome ratios. For all CGUs discounted earnings value sensitivities still exceeded their respective carrying amounts – though for the CGU
Insurance Asia in the business segment Property-Casualty a simultaneous increase of 0.5 % points in the discount rate and the combined ratio results in the recoverable amount of the CGU getting close to its respective carrying value.
In the Life/Health business segment, sensitivity analyses were performed based on MCEV sensitivity testing on the reference rate.
The analyses have shown that in case of a decrease in reference rates by 50 basis points, the appraisal value of each CGU still exceeds its carrying amount.
Repurchase agreements and collateral received from securities lending transactions and derivatives 4,173 3,821 1_Consists of liabilities to banks and customers due within one year of € 12,653 mn (2017: € 10,995 mn), 1 – 5 years of € 819 mn (2017: € 1,097 mn) and over 5 years of € 750 mn (2017: € 654 mn).
Unearned premiums € mn 14 _ Reserves for loss and loss adjustment expenses As of 31 December 2018, the reserves for loss and loss adjustment expenses of the Allianz Group totaled € 73,054 mn (2017: € 73,292 mn).
Balance carry forward of discounted loss reserves 4,096 (287) 3,809 4,055 (298) 3,757
Changes in the consolidated subsidiaries of the Allianz Group 135 (68) 67 - - -
1_Include effects of foreign currency translation adjustments for prior year's claims of gross € 26 mn (2017: € (2,127) mn) and of net € (70) mn (2017: € (1,579) mn) and for current year claims of gross € (44) mn (2017: € (406) mn) and of net € (41) mn
Loss payments for the individual accident years (per calendar year, net) € mn
Reserves for loss and loss adjustment expenses for the individual accident years at the respective reporting date (net) € mn
ULTIMATE LOSS FOR THE INDIVIDUAL ACCIDENT YEARS AT THE RESPECTIVE REPORTING DATE (NET)
2_The total development 2018 to 2017 of € 1,791 mn represents the cumulative surplus from re-estimating the ultimate loss for prior year claims. Considering foreign currency translation adjustments of net € (70) mn as well as changes in the consolidated subsidiaries of the Allianz Group and other changes of in total € 259 mn, this leads to an effective run-off of net € 1,981 mn, which can be found in the table “Change in reserves for loss and loss adjustment expenses” within this note.
The ultimate loss of an accident year comprises all payments made for that accident year up to the reporting date, plus the loss reserves at the reporting date. Given complete information regarding all losses incurred up to the reporting date, the ultimate loss for each accident-year period would remain unchanged. In practice, however, the ultimate loss (based on estimates) is exposed to fluctuations that reflect the increase in knowledge regarding the loss cases. The loss ratio presented above deviates from the reported loss ratio because the ultimate loss in the table above is based on the sum of the payments plus the loss reserves, not the incurred loss as stated in the consolidated income statements. This means that effects like changes in consolidated subsidiaries, foreign currency translation and unwinding of discounted loss reserves are presented differently.
CONCENTRATION OF INSURANCE RISK IN THE PROPERTY-CASUALTY BUSINESS SEGMENT Further risk disclosure requirements of IFRS 4 in connection with
Ending balance of discounted loss reserves 4,157 4,096 1_Mainly relate to insurance contracts when policyholders change their contract from an unit-linked to an universal lifetype contract.
German Speaking Countries and Central & Eastern Europe 293,849 9,693 303,542 286,202 10,434 296,636
− Underwriting risk in the section Quantifiable risks and opportunities by risk category.
FUTURE POLICY BENEFITS As of 31 December 2018, benefits for insurance and investment contracts which are expected to be due in 2019 amounted to € 52 bn, while those expected to be due between 2020 and 2023 amounted to € 190 bn and those expected to be due after 2023 amounted to
Changes in the consolidated subsidiaries of the Allianz Group 130 -
2_Consists of € 71,586 mn (2017: € 74,878 mn) unit-linked insurance contracts and € 43,774 mn (2017: € 44,263 mn) unitlinked investment contracts.
Derivative financial instruments used for hedging that meet the criteria for hedge accounting, and firm commitments1 330 147
Financial liabilities for puttable financial instruments 1,993 2,640 1_Mainly level 2 for fair value measurement.
2_Change due to the redemption of a € 0.5 bn certificated bond in the first quarter of 2018.
3_Previous-year figures have been adjusted without impact on the total amount of subordinated liabilities.
Non-controlling interests 2,447 3,049 1_As of 31 December 2018, include € (84) mn (2017: € (115) mn) related to treasury shares.
2_As of 31 December 2018, include € 267 mn (2017: € 274 mn) related to cash flow hedges.
AUTHORIZED CAPITAL As of 31 December 2018, Allianz SE had authorized capital with a notional amount of € 335 mn for the issuance of new shares until 8 May 2023 (Authorized Capital 2018/I). The shareholders’ sub-scription rights can be excluded for capital increases against contribution in kind.
subscription rights can be excluded: (i) for fractional amounts, (ii) if the issue price is not significantly below the market price and the shares issued under exclusion of the subscription rights pursuant to
The new shares may only be offered to employees of Allianz SE
CONDITIONAL CAPITAL As of 31 December 2018, Allianz SE had conditional capital totaling € 250 mn (Conditional Capital 2010/2018). This conditional capital increase will only be carried out if conversion or option rights attached to convertible bonds, bonds with warrants, convertible participation rights, participation rights, and subordinated financial instruments which Allianz SE or its Group companies have issued against cash payments according to the resolutions of the Annual General Meeting
Number of issued shares outstanding as of 1 January 438,879,929 455,067,737
Number of issued shares outstanding as of 31 December 423,498,025 438,879,929
PROPOSAL FOR APPROPRIATION OF NET EARNINGS The Board of Management and the Supervisory Board propose that the net earnings (“Bilanzgewinn”) of Allianz SE of € 4,544,152,898.54 for the 2018 fiscal year shall be appropriated as follows: − Distribution of a dividend of € 9.00 per no-par share entitled to a
TREASURY SHARES As of 31 December 2018, Allianz SE held 961,636 (2017: 1,369,131)
In 2018, 826,029 treasury shares with the original purpose of hedging obligations from the Allianz Equity Incentive Program were rededicated to covering subscriptions by employees in the context of
SHARE BUY-BACK PROGRAMS 2018 In the year ending 31 December 2018, Allianz SE executed two share buy-back programs with a total volume of € 3 bn: SHARE BUY-BACK PROGRAM 2018/I In its meeting on 9 November 2017, the Board of Management of
Allianz SE resolved to carry out a share buy-back program in an amount of up to € 2 bn within a period of six months (Share Buy-
Annual General Meeting on 7 May 2014. In the period between 3 January 2018 and 3 May 2018, a total of 10,373,863 treasury shares with a market value of € 1,999,999,143.43 were acquired for an average
Resilience under stress conditions is also considered when determining the internal capital requirements of the Group. The regulators impose minimum capital requirements on the Group and its related undertakings. For further details on how the Allianz Group manages its capital, please refer to the section “Target and strategy of risk management” of the Risk and Opportunity Report.
Funds relating to the Group of internal model and standard formula entities essentially consist of the MVBS excess of assets over liabilities plus qualifying subordinated liabilities, less deductions for foreseeable dividends as well as further deductions relating for example, to tier limits or transferability restrictions.
1_From a formalistic perspective, the German Supervisory Authority deems the model to be “partial” because not all entities are using the internal model. Some of the smaller entities report under the standard formula and others under the deduction and aggregation approach. Without loss of generality, we might use the term internal model in the following chapters, e.g., in case descriptions also referring to entities that use the internal model, or descriptions focusing on processes with respect to the internal model components.
Repor t capitalization. However, this positive effect was partly offset by capital management activities such as the share buy-back program and the dividend accrual, as well as by management actions such as the buyout of the non-controlling interests of Euler Hermes, the sale of
Oldenburgische Landesbank Aktiengesellschaft, the decrease in exposures to some government bonds, and the improvement of the interest rate risk profile. The regulatory and model changes and the unfavorable markets – characterized by higher credit spreads and lower equity prices – also contributed to this compensating effect, along with other impacts such as taxes, changes in transferability restrictions, and diversification effects. For further information on the
Allianz SE) prepare individual financial statements based on local laws and regulations. The local regulations establish additional restrictions on the minimum level of capital and the amount of dividends that may be paid to shareholders. The respective local minimum capital requirements are based on various criteria including, but not limited to, the volume of premiums written or claims paid, amount of insurance reserves, investment risks, mortality risks, credit risks, and underwriting risks.
As of 31 December 2018, the Board of Management of the
Allianz Group believes that there are no outstanding regulatory capital or compliance matters that would have materially adverse effects on the financial position or results of operations of the
Allianz Group believes that these restrictions will not affect the ability of Allianz SE to pay dividends to its shareholders in the future.
Rent from real estate held for investment 892 900 22 _ Income from financial assets and liabilities carried at fair value through income (net)
Income from financial assets and liabilities carried at fair value through income (net) € mn
Income from financial assets and liabilities designated at fair value through income (net) (485) 300
Income from financial liabilities for puttable financial instruments (net) 344 (117)
1_Include € 559 mn (2017: € 508 mn) ceded acquisition costs.
For the years ended 31 December 2018 and 2017, the income taxes relating to components of other comprehensive income consist of the following:
Share of other comprehensive income of associates and joint ventures (10) (4)
Changes in actuarial gains and losses on defined benefit plans (73) (46)
The recognized income taxes for the year ended 31 December 2018 are € 100 mn above (2017: € 63 mn below) the calculated income taxes, which are determined by multiplying the respective income before income taxes with the applicable country-specific tax rates.
The following table shows the reconciliation from the calculated income taxes to the effectively recognized income taxes for the
Allianz Group. The Allianz Group’s reconciliation is a summary of the individual company-related reconciliations, which are based on the respective country-specific tax rates taking into consideration consolidation effects with an impact on the Group result. The applicable tax rate used in the reconciliation for domestic
Allianz Group companies includes corporate tax, trade tax, and the solidarity surcharge, and amounted to 31.0 % (2017: 31.0 %).
Allianz Group companies for which no deferred tax liabilities are recognized, as the Allianz Group is able to control the timing of their reversal, and which will not reverse in the foreseeable future, amounted to € 1,844 mn (2017: € 1,673 mn). Deductible temporary differences arising from investments in Allianz Group companies for which no deferred tax assets are recognized, as it is not probable that
Negative fair values Up to 1 year 1 - 5 years Over 5 years 1_Consists mainly of equity/index contracts and foreign exchange contracts.
The total negative fair value of these embedded derivatives amounts to € 10.0 bn (2017: € 10.2 bn). Further information on the fair value measurement of these derivatives can be found in note 34.
(2017: € 22.1 bn) as well as a positive fair value of € 489 mn (2017: € 538 mn) and a negative fair value of € 330 mn (2017: € 147 mn).
FAIR VALUE HEDGES The Allianz Group uses fair value hedges to hedge the exposure to changes in the fair value of financial assets due to movements in interest or exchange rates and to hedge its equity portfolio against equity market risk. As of 31 December 2018, the derivative financial instruments used for the related fair value hedges of the
Allianz Group had a total positive fair value of € 149 mn (2017: CASH FLOW HEDGES During the year ended 31 December 2018, cash flow hedges were used to hedge the exposure to the variability of cash flows arising from interest rate or exchange rate fluctuations as well as inflation. As of 31 December 2018, the derivative instruments utilized had a total positive fair value of € 202 mn (2017: € 229 mn).
None of these enforceable master netting arrangements or similar arrangements meet the requirements for offsetting in line with IAS 32.
140 Annual Report 2018 − Allianz Group 34 _ Fair values and carrying amounts of financial instruments
The following table presents the fair value hierarchy for financial instruments carried at fair value in the consolidated balance sheets as of 31 December 2018 and 2017: Fair value hierarchy (items carried at fair value) € mn
Level 11 Level 22 Level 33 Total Level 11 Level 22 Level 33 Total
Financial liabilities for unit-linked contracts 90,856 23,676 829 115,361 95,224 23,324 592 119,141
Financial liabilities for puttable financial instruments 1,665 108 221 1,993 2,377 87 175 2,640 1_Quoted prices in active markets.
This position mainly includes derivative financial instruments. The fair value of these derivatives is mostly determined based on the income approach, using present value techniques and the Black-Scholes-
The valuation techniques for these debt securities are similar. The fair value is determined using the market and the income approach.
Primary inputs for the market approach are quoted prices for identical or comparable assets in active markets where the comparability between security and benchmark defines the fair value level. The income approach in most cases means that a present value technique is applied where either the cash flow or the discount curve is adjusted to reflect credit risk and liquidity risk. Depending on the observability of these risk parameters in the market, the security is classified as level 2 or level 3.
Black-Scholes-Merton model. Financial liabilities for unit-linked contracts are valued based on their corresponding assets.
For level 2, the fair value is determined using the income or the market approach. Valuation techniques applied for the income approach mainly include discounted cash flow models as well as the
For level 3, the fair value is determined using the income or the market approach. Valuation techniques applied for the income approach mainly include discounted cash flow models. A significant proportion of derivative liabilities represent derivatives embedded in certain life insurance and annuity contracts. Significant non-market observable input parameters include mortality rates and surrender rates. A significant decrease (increase) in surrender rates, in mortality rates or in the utilization of annuitization benefits could result in a higher (lower) fair value. For products with a high death benefit, surrender rates may show an opposite effect. However, a 10 % stress of the main non-market observable inputs has only immaterial impact on fair value.
Mortality n/a1 1_Mortality assumptions are mainly derived from the Annuity 2000 Mortality Table.
FINANCIAL LIABILITIES FOR PUTTABLE FINANCIAL INSTRUMENTS Financial liabilities for puttable financial instruments are generally required to be recorded at the redemption amount with changes recognized in income. The fair value is based on the net asset value or the use of present value techniques.
SIGNIFICANT TRANSFERS OF FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE In general, financial assets and liabilities are transferred from level 1 to level 2 when their liquidity, trade frequency, and activity are no longer indicative of an active market. In 2018, this mainly affects a government bond portfolio with a transfer volume of € 10.9 bn and a corporate bond portfolio of € 2.2 bn for which now mainly composite prices are used. Conversely, the same policy applies for transfers from level 2 to level 1.
Carrying value (fair value) as of 1 January 2018 10,118 592 175 10,886
Net losses (gains) recognized in consolidated income statement (767) 12 - (755)
Changes in the consolidated subsidiaries of the Allianz Group - - 20 20
Carrying value (fair value) as of 31 December 2018 10,023 829 221 11,073
Level 1 1 Level 2 2 Level 3 3 Total Level 1 1 Level 2 2 Level 3 3 Total
Investments in associates and joint ventures 2 185 15,097 15,284 85 76 10,898 11,059
Real estate held for investment - - 21,545 21,545 - - 18,913 18,913
Liabilities to banks and customers 6,294 5,319 2,622 14,235 5,330 4,850 2,579 12,759 1_Quoted prices in active markets.
HELD-TO-MATURITY INVESTMENTS For level 2 and level 3, the fair value is mainly determined based on the market approach, using quoted market prices, and the income approach using deterministic discounted cash flow models.
REAL ESTATE Fair values are mostly determined using the market or the income approach. The valuation techniques applied for the market approach include market prices of identical or comparable assets in markets that are not active. The fair values are either calculated internally and validated by external experts, or derived from expert appraisals with internal controls in place to monitor these valuations.
CERTIFICATED LIABILITIES AND SUBORDINATED LIABILITIES For level 2, the fair value is mainly determined based on the market approach, using quoted market prices, and based on the income approach, using present value techniques. For level 3, fair values are mainly derived based on the income approach, using deterministic cash flows with credit spreads as primary non-market observable inputs.
In some cases, the carrying amount (amortized cost) is considered to be a reasonable estimate for the fair value.
TRANSFERS OF FINANCIAL ASSETS As of 31 December 2018, the Allianz Group substantially retained all the risks and rewards out of the ownership of transferred assets.
ASSETS PLEDGED AND COLLATERAL The carrying amounts of the assets pledged as collateral are displayed in the following table: Assets pledged as collateral € mn
Allianz Group has the right to sell or repledge. For the years ended 31 December 2018 and 2017, no previously received collateral was sold or repledged by the Allianz Group.
NATURE, PURPOSE, AND ROLE OF THE ALLIANZ GROUP IN STRUCTURED ENTITIES Under IFRS 12, a structured entity is defined as an entity that has been designed so that voting rights or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements.
The Allianz Group engages in some business activities that involve the use of entities that meet the above-mentioned definition of structured entities. Primarily, the Allianz Group is involved with such entities due to its investment activities associated with its insurance business and due to its asset management activities. Furthermore, structured entities are used by the Allianz Group to source out certain risks to investors as part of its reinsurance business. Generally, the classification of an entity as a structured entity may require significant judgment.
Securitization vehicles invested in by the Allianz Group have generally been set up by third parties. Furthermore, the Allianz Group has neither transferred any assets to these vehicles nor has it provided any further credit enhancements to them.
INVESTMENTS IN INVESTMENT FUNDS Considering the broad variety of investment funds across different jurisdictions, the classification of investment funds as structured entities based on the definition in IFRS 12 is judgmental. As a general rule, the management of relevant activities of an investment fund is delegated to the fund manager via asset management agreements.
FUND MANAGEMENT ACTIVITIES Within the asset management business, investment funds are established and managed to accommodate retail and institutional clients’
Allianz’s group-internal asset managers as well as funds set up and managed by third parties. Investment funds managed or invested in by Allianz Group may include mutual funds, special funds and other funds.
INTERESTS IN ASSET-BACKED SECURITIES (ABS) AND MORTGAGE-BACKED SECURITIES (MBS) ISSUED BY SECURITIZATION VEHICLES
The carrying amounts in the tables listed above correspond to an aggregated amortized cost amount of € 24,443 mn (2017: € 21,487 mn). This amortized cost amount represents the maximum exposure to loss for the Allianz Group from these investments. In the reporting period, the Allianz Group has not provided any financial or other support to these entities, nor does it have the intention to provide such support in the future.
(2017: € 11.2 bn) relate to listed investment funds, whereas investments of € 18.8 bn (2017: € 14.2 bn) relate to unlisted investment funds.
As of the reporting date, the Allianz Group has receivables from unconsolidated investment funds, which are mainly due in return for asset management services, amounting to € 796 mn (2017: € 837 mn). Furthermore, the Allianz Group has commitments to invest in private equity funds and similar financial instruments totaling € 17,199 mn as of 31 December 2018 (2017: € 16,001 mn).
Transactions between Allianz SE and its subsidiaries that are to be deemed related parties have been eliminated in the consolidation and are not disclosed in the notes.
Business relations with joint ventures and associates are set on an arm’s length basis.
Frankfurt. In the event that a final decision were to determine a higher amount as an appropriate cash settlement, this would affect all of the approximately 16 mn shares that were transferred to Allianz.
LOAN COMMITMENTS The Allianz Group engages in various lending commitments to meet the financing needs of its customers. They consist of advances and mortgage loans. As of 31 December 2018, the total of loan commitments amounts to € 340 mn (2017: € 1,100 mn).
LEASING COMMITMENTS The Allianz Group occupies property in many locations under various long-term operating leases and has entered into various operating leases covering the long-term use of data processing equipment and other office equipment.
Due in more than 1 and up to 5 years 1,109
Allianz expects not to be obliged to make a payment in the foreseeable future. However, it is not possible for Allianz to predict the ultimate payment obligations at this point in time.
(“Versicherungsaufsichtsgesetz” – VAG), mandatory insurance guarantee schemes (“Sicherungsfonds”) for life insurers as well as for health insurers are implemented in Germany, which are financed through their member undertakings.
Protektor Lebensversicherungs-AG (“Protektor”), a life insurance company that has assumed the task of the mandatory insurance guarantee scheme for life insurers. Such obligation is, in principle, based on a maximum of 1 % of the sum of the net underwriting reserves with deduction of payments already provided to the insurance guarantee scheme. As of 31 December 2018, and under inclusion of the contributions to the mandatory insurance scheme mentioned above for a limited period of time, and assuming that no other life insurer is exempted from payments, the aggregate outstanding commitment of Allianz Lebensversicherungs-AG and its subsidiaries to the insurance guarantee scheme and to Protektor is € 1,846 mn 38 _ Pensions and similar obligations
The Allianz Group provides competitive and cost-effective retirement and disability benefits using risk appropriate vehicles.
Risks typically associated with defined benefit plans are biometric risks like longevity, disability, and death as well as economic risks such as interest rates, inflation and compensation increases.
New plans are primarily based on contributions and may include, in some cases, guarantees such as the preservation of contributions or minimum interest rates.
Group Actuarial, Planning & Controlling, Group Risk and AIM met three times to provide global governance and pre-align pensionrelated topics such as risk management and Solvency II prior to relevant Group Committee meetings.
Employees who joined Allianz before 1 January 2015 participate in the Allianz Versorgungskasse VVaG (AVK), financed through employee contributions, and the Allianz Pensionsverein e.V. (APV), which is financed by the employer. Both pension funds provide pension benefits for the base salary up to the GSSC and are wholly funded along local regulatory requirements and were closed to new entrants, effective 31 December 2014. AVK and APV are legally separate administered pension funds with trustee boards being responsible for the investment of the assets and the risk management.
AVK is subject to German insurance regulation. The assets of the contribution-based pension plans are allocated to a trust (Methusalem Trust e.V.) and managed by a board of trustees. For the AVK the annual minimum interest rate guaranteed is 1.75 % – 3.50 %, depending on the date of joining the Allianz Group, and for the closed part of the contribution-based pension plan it is 2.75 %.
Pension increases apart from AVK and APV are guaranteed at least with 1 % p.a. Depending on legal requirements, some pension increases are linked to inflation. In AVK the complete surplus share of the retirees is used to increase their pension.
Additionally, the Allianz Group offers a deferred compensation program, “Pensionszusage durch Entgeltumwandlung (PZE)”, for active employees. Within some boundaries they convert at their discretion parts of their gross income and receive in exchange a pension commitment of equal value. PZE is qualified as a defined benefit plan with small risk exposure.
Expenses recognized in the consolidated income statements 884 877 264 262 - - 621 616
Return on plan assets greater/(less) than interest income on plan assets - - (178) 358 - - 178 (358)
Change in effect of asset ceiling in excess of interest - - - - (4) 14 (4) 14
Settlement payments/assets distributed on settlement (3) (2) (3) (2) - - - -
2_Includes for 2018 € 278 mn in Germany due to the change in mortality tables.
As of 31 December 2018, post-retirement health benefits included in the defined benefit obligation and in the net amount recognized amounted to € 10 mn (2017: € 10 mn) and € 10 mn (2017: € 10 mn), respectively.
The calculations are based on current actuarially calculated mortality tables, projected turnover depending on age and length of service, and internal Allianz Group retirement projections. Although this represents the best estimate as of today, considering a further increase in life expectancy could be reasonable. The weighted average life expectancy of a currently 65-year-old plan participant is about 89.2 (2017: 89.2) years for women and 86.5 (2017: 86.8) years for men. An increase in life expectancy by one year would lead to an increase of the defined benefit obligation by € 678 mn (2017: The weighted average values of the assumptions for the
Allianz Group’s defined benefit plans used to determine the defined benefit obligation and the recognized expense are as follows: Assumptions for defined benefit plans %
The discount rate assumption is the most significant risk for the defined benefit obligation. It reflects market yields at the balance sheet date of high-quality fixed income investments corresponding to the currency and duration of the liabilities. In the Eurozone, the decision for the discount rate is based on AA-rated financial and corporate bonds, provided by Allianz Investment Data Services (IDS), and a standardized cash flow profile for a mixed population. The Internal
An increase in the discount rate by 50 basis points would lead to a decrease of € 1.5 bn (2017: € 1.6 bn) in the defined benefit obligation, whereas a decrease in the discount rate by 50 basis points would lead to an increase of € 1.7 bn (2017: 1.8 bn).
In addition to the plan assets of € 14.6 bn (2017: € 14.4 bn), the
CONTRIBUTIONS For the year ending 31 December 2019, the Allianz Group expects to contribute € 292 mn to its defined benefit plans (2017: € 281 mn for the year ending 31 December 2018) and to pay € 323 mn directly to participants in its defined benefit plans (2017: € 313 mn for the year ending 31 December 2018).
DEFINED CONTRIBUTION PLANS Defined contribution plans are funded through independent pension funds or similar organizations. Contributions fixed in advance (e.g.
Allianz SE share on the last day of the vesting period and the prior nine trading days, or to convert one RSU into one Allianz SE share.
The RSUs are subject to a vesting period of four years and will be settled on the last day of the vesting period. The Allianz Group can choose the settlement method for each unit.
The following table provides the assumptions used in calculating the fair value of the RSUs at grant date: Assumptions of AEI plans 1_The RSUs 2019 are deemed to have been granted to participants as part of their 2018 remuneration. Consequently, the assumptions for RSU grants delivered in March 2019 are based on best estimate.
PIMCO LLC CLASS M-UNIT PLAN In 2008, AllianzGI L.P. launched a new management share-based payment incentive plan for certain senior-level executives and affiliates of PIMCO LLC. Participants in the plan are granted options to acquire an own class of equity instruments (M-units), which vest in one-third increments on approximately the third, fourth and fifth anniversary of the option grant date. Upon vesting, options will automatically be exercised in a cashless transaction, but only if they are in the money.
Participants may elect to defer the receipt of M-units through the
The following table provides the assumptions used in calculating the fair value of the M-unit options at grant date: Assumptions of Class M-Unit plan
As of 31 December 2018, the aggregate intrinsic value of share options
The share options settled by delivery of PIMCO LLC shares are accounted for as equity-settled plans by PIMCO LLC. Therefore,
Allianz Group had recognized the difference between the issue price charged to the subsidiaries of the Allianz Group and the discounted price of the shares purchased by employees, amounting to € 25 mn as compensation expenses.
NUMBER OF EMPLOYEES As of 31 December 2018, the Allianz Group employed 142,460 (2017: 140,553) people, thereof 37,566 (2017: 40,149) in Germany. The average total number of employees for the year ended
ISSUANCE OF THE DECLARATION OF COMPLIANCE WITH THE GERMAN CORPORATE GOVERNANCE CODE ACCORDING TO § 161 AKTG On 12 December 2018, the Board of Management and the Supervisory Board of Allianz SE issued the Declaration of Compliance according to § 161 AktG, which has been made permanently available to shareholders on the company’s website.
PRINCIPAL ACCOUNTANT FEES AND SERVICES On 8 March 2018, the Allianz SE Supervisory Board elected PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft (PwC GmbH)
International), the following fees were recognized as an expense in the fiscal year: PwC fees € mn
1_The relevant share price used to determine the final number of RSUs granted is only available after the sign -off of the
2_The disclosure in the Annual Report 2017 was based on a best estimate of the RSU grants. The figures shown here for 2017 now include the actual fair value as of the grant date (2 March 2018). The value therefore differs from the amount disclosed last year.
AREF III GER GmbH & Co. KG, Frankfurt am Main 100.0 atpacvc Fund GmbH & Co. KG, Munich 100.0 atpacvc GmbH, Munich 100.0 atpacvc GP GmbH, Munich 100.0
DCSO Deutsche Cyber-Sicherheitsorganisation GmbH, Berlin 25.0 esa EuroShip GmbH & Co. KG Underwriting for Shipping, Bad Friedrichshall 40.0
Allianz Egypt for Financial Investments Company S.A.E., New Cairo 100.0 owned1
Allianz Global Corporate & Specialty do Brasil Participações Ltda., Rio de Janeiro 100.0
Allianz Renewable Energy Partners of America 3 LLC, Wilmington, DE 100.0
Allianz ZB d.o.o. Company for the Management of Obligatory Pension Funds, Zagreb 51.0
Assurances Médicales SA, Metz 100.0 atpacvc LLC, Wilmington, DE 100.0 atpacvc Ltd., London 100.0
PIMCO Emerging Markets Bond Fund III, George Town 62.1 3 owned1
PIMCO Flexible Bond Fundo de Investimento Em Cotas de Fundo de Investimento Multimercado Investimento no Exterior, Rio de Janeiro 100.0 3
PIMCO Global Financials Credit FIC FIM IE, Rio de Janeiro 59.7 3
Société Européenne de Protection et de Services d'Assistance à Domicile S.A., Paris 56.0
Joint ventures 114 Venture LP, Wilmington, DE 49.5 7 1515 Broadway Realty LP, Dover, DE 49.6 7 1800 M Street Venture LP, Wilmington, DE 42.8 7 53 State JV L.P., Wilmington, DE 49.0 7
Alpha Asia Macro Trends Fund III Private Limited, Singapore 20.2 3
Report on the audit of the consolidated financial statements and of the group management report
− the accompanying consolidated financial statements comply, in all material respects, with the IFRSs as adopted by the EU, and the additional requirements of German commercial law pursuant to § (Article) 315e Abs. (paragraph) 1 HGB (Handelsgesetzbuch: German Commercial Code) and, in compliance with these requirements, give a true and fair view of the assets, liabilities, and financial position of the Group as at 31 December 2018, and of its financial performance for the financial year from 1 January to
− the accompanying group management report as a whole provides an appropriate view of the Group’s position. In all material respects, this group management report is consistent with the consolidated financial statements, complies with German legal requirements and appropriately presents the opportunities and risks of future development. Our audit opinion on the group management report does not cover the content of those parts of the group management report listed in the “Other Information”
Pursuant to § 322 Abs. 3 Satz (sentence) 1 HGB, we declare that our audit has not led to any reservations relating to the legal compliance of the consolidated financial statements and of the group management report.
BASIS FOR THE AUDIT OPINIONS We conducted our audit of the consolidated financial statements and of the group management report in accordance with § 317 HGB and the EU Audit Regulation (No. 537/2014, referred to subsequently as
Our responsibilities under those requirements and principles are further described in the “Auditor’s Responsibilities for the Audit of the
Report” section of our auditor’s report. We are independent of the group entities in accordance with the requirements of European law and German commercial and professional law, and we have fulfilled our other German professional responsibilities in accordance with these requirements. In addition, in accordance with Article 10 (2)
point (f) of the EU Audit Regulation, we declare that we have not provided non-audit services prohibited under Article 5 (1) of the EU
Audit Regulation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions on the consolidated financial statements and on the group management report.
In this context, financial instruments measured using models are subject to an increased valuation risk due to lower objectivity and the underlying judgments, estimates and assumptions of the executive directors. This applies in particular to complex financial instruments.
Since the estimates and assumptions, in particular with regard to interest rates and cash flows, as well as the valuation methods applied could materially affect the measurement of these financial instruments and the assets, liabilities and financial performance of the Group, this matter was of particular significance in the context of our audit.
As part of our audit, we analyzed in particular the financial instruments measured using models, with the focus on instruments which were subject to increased measurement uncertainties (Level 3). We assessed the appropriateness of the relevant controls for the measurement of the financial instruments and the model validation. Therewith, we evaluated, among other things, the integrity of the underlying data and the process for arriving at the assumptions and estimates used in the valuation.
With the support of our internal financial mathematics specialists, we also assessed the appropriateness of the methods used by the executive directors to test the assets for impairment and the inputs used for that purpose. We have compared the methods and assumptions used to calculate valuation adjustments in the financial year with recognized practices and industry standards and examined to what extent these are suitable for determining an appropriate fair value in accordance with IFRS 13.
The Company's disclosures on the fair value measurement of certain financial instruments (Level 3) are included in sections 2 and 34 of the notes to the consolidated financial statements.
MEASUREMENT OF CERTAIN TECHNICAL ASSETS AND LIABILITIES IN LIFE AND HEALTH INSURANCE
In the consolidated financial statements of the Company, assets and liabilities of the Life and Health Insurance business segment amounting to € 22,912 mn or € 515,537 million (2.6 % or 57.4 % of consolidated total assets) are reported under the “Deferred acquisition costs” and
These assets and liabilities are measured using complex actuarial methods and models based on a comprehensive process for arriving at assumptions about future developments relating to the insurance portfolios to be measured. The methods used and the actuarial assumptions determined in connection with interest rates, investment yields, mortality, invalidity, longevity, costs and future behavior of policyholders could materially affect the measurement of these technical assets and liabilities.
Due to the material significance of the amounts for the assets, liabilities and financial performance of the Group and the complex process for determining the underlying assumptions of the executive directors, the measurement of these technical assets and liabilities of the Life and Health Insurance business segment was of particular significance in the context of our audit.
As part of our audit, we assessed the appropriateness of selected controls established by the Company for the purpose of selecting actuarial methods, determining assumptions and making estimates for the measurement of certain technical assets and liabilities in life and health insurance.
With the support of our internal life and health insurance valuation specialists, we have compared the respective actuarial methods applied and the material assumptions with generally recognized actuarial practices and industry standards and examined to what extent these are appropriate for the valuation. A focal point of our audit was the assessment of the liability adequacy test and the evaluation of the expected gross margins/profits, which are used, among other things, as the basis for amortizing the deferred acquisition costs. Our audit also included an evaluation of the plausibility and integrity of the data and assumptions used in the valuation and of the Group's Actuarial department's reporting to the Group Reserve
The Company's disclosures on the measurement of certain technical assets and liabilities in life and health insurance are included in sections 2 and 15 of the notes to the consolidated financial statements.
In the consolidated financial statements of the Company, technical provisions (so called “claims provisions”) amounting to € 73,054 mn
Company with regard to the assumptions made, such as inflation, loss developments and regulatory changes. In particular, the lines of products with low loss frequency, high individual losses or long claims settlement periods are usually subject to increased estimation uncertainties.
For these lines of products we compared the recalculated provisions with the provisions calculated by the Company and evaluated any differences. We also examined whether any adjustments to estimates in loss reserves at Group level were adequately documented and substantiated. Our audit also included an evaluation of the Group's
The Company's disclosures on the measurement of the provisions for claims outstanding in property-casualty insurance are included in section 2 of the notes to the consolidated financial statements.
OTHER INFORMATION The executive directors are responsible for the other information. The other information comprises the following non-audited parts of the group management report: − the statement on corporate governance pursuant to § 289f HGB
German commercial law pursuant to § 315e Abs. 1 HGB and that the consolidated financial statements, in compliance with these requirements, give a true and fair view of the assets, liabilities, financial position, and financial performance of the Group. In addition the executive directors are responsible for such internal control as they have determined necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
(systems) as they have considered necessary to enable the preparation of a group management report that is in accordance with the applicable German legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the group management report.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with § 317 HGB
and the EU Audit Regulation and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a material misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and this group management report.
We exercise professional judgment and maintain professional skepticism throughout the audit. We also: − Identify and assess the risks of material misstatement of the consolidated financial statements and of the group management report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our audit opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
− Obtain an understanding of internal control relevant to the audit of the consolidated financial statements and of arrangements and measures (systems) relevant to the audit of the group management report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an audit opinion on the effectiveness of these systems.
− Evaluate the appropriateness of accounting policies used by the executive directors and the reasonableness of estimates made by the executive directors and related disclosures.
− Conclude on the appropriateness of the executive directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the
− Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements present the underlying transactions and events in a manner that the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and financial performance of the
− Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
We also provide those charged with governance with a statement that we have complied with the relevant independence requirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, the related safeguards.
FURTHER INFORMATION PURSUANT TO ARTICLE 10 OF THE EU AUDIT REGULATION We were elected as group auditor by the supervisory board on 8 March 2018. We were engaged by the audit committee of the supervisory board on 14 May 2018. We have been the group auditor of the Allianz SE, Munich, without interruption since the financial year
We have performed an assurance engagement on the information included in the combined separate non-financial report pursuant to
for the period from 1 January to 31 December 2018 (hereinafter the
“Non-financial Report”). In accordance with our engagement the level of assurance to be provided by us has been split up into
RESPONSIBILITIES OF THE EXECUTIVE DIRECTORS The executive directors of the Company are responsible for the preparation of the Non-financial Report in accordance with §§ 315b and 315c in conjunction with 289b to 289e HGB.
This responsibility of the Company’s executive directors includes the selection and application of appropriate methods of nonfinancial reporting as well as making assumptions and estimates related to individual non-financial disclosures which are reasonable in the circumstances. Furthermore, the executive directors are responsible for such internal control as they have considered necessary to enable the preparation of a Non-financial Report that is free from material misstatement whether due to fraud or error.
Qualitätssicherungsstandard 1: Anforderungen an die Qualitätssicherung in der Wirtschaftsprüferpraxis - IDW QS 1) – and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.
PRACTITIONER´S RESPONSIBILITY FOR THE ASSURANCE ENGAGEMENT Our responsibility is to express a limited assurance conclusion on the
and a reasonable assurance conclusion on all information other than the Environmental Indicators in the Non-financial Report based on the respective procedures we have performed.
− Inquiries of personnel involved in the preparation of the Nonfinancial Report regarding the preparation process, the internal control system relating to this process and selected disclosures in the Non-financial Report.
− Evaluation of the internal control system regarding the preparation process of the Non-financial Report.
CONCLUSION Based on the assurance procedures performed and assurance evidence obtained, nothing has come to our attention that causes us to believe that the Environmental Indicators disclosed in section
“Environmental Matters” of the Company’s Non-financial Report for the period from 1 January to 31 December 2018 have not been prepared, in all material aspects, in accordance with §§ 315b and 315c in conjunction with 289b to 289e HGB.